Tag Archives: entrepreneurship

Solving a user problem vs a technical problem: the difference between creating value and wasting your time

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What is the kind of problem you are working tirelessly to solve? Are you actually working to create value or simply wasting your time? The difference is in the end goal of what solving the problem accomplishes. Some very big user problems have fairly simple technical solutions. They are easy to use, solve an actual need and fairly simple to interact with. On the other hand, some very big technical problems really don’t end up doing much for the end user. The former gives you something that people want, while the latter gives you an extremely beautiful piece of crap.

Engineers are particularly susceptible to this. It is natural to fall into the trap of believing that just because something is challenging from a technical perspective, it must be a valuable problem to solve. From a user’s perspective, all that’s important is that the product does what it is meant to. “How” really doesn’t matter. If you are selling mousetraps, does it get rid of the mice better than everyone else? If yes, that’s great. Users aren’t going to care much of what happens within the product as long as it works. You can spend all your time trying to create a very advanced, state of the art, nuclear powered mousetrap that creates mini fission explosions to obliterate the mice, but at the end if it doesn’t get rid of the mice, is unwieldy or uneconomical, no one’s buying it. It’ll be an extremely cool project no doubt, but at the end of the day, a fairly useless one!

Every problem that you solve should tie back to the user and/or to enhance their end experience. Be careful of not getting stuck in your own technical world that is insulated from the user completely. Though it does vary by industry, for consumer facing products more specifically – it is the end user who is king. It is easy to get lost in day to day technical, legal, product, financial, investment problems, but if what you’re working on doesn’t help the end user – you’re not moving forward.

Expressed in slightly broader terms, whenever you look at a hard problem, you need to assess its value independently to determine whether it is truly worth your effort. Becoming the top restaurant in the city: Is it hard? Of course! But how valuable is it given that the next 10 best restaurants are almost always going to be head to head with you?

Passionate engineers, by nature, get excited by challenging technical problems. However, take care that you never lose sight of the user so you don’t end up spending all your effort on creating something which doesn’t end up doing anything.

On the flipside, thinking from a user’s perspective brings focus, where the complicated tasks that you were dreading, often no longer seem to be relevant or worth pursuing. It simplifies things! Not everything is wrong with the world… 🙂

Overthrowing the 600lb Gorilla: Create a Platform Shift

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As the little guy, albeit with some pretty large aspirations, how do you exactly go about taking on the 600 lb gorilla that has billions of dollars in resources and tens of thousands of employees? The gorilla has been in the industry for ever, knows all the other chimps in the space and is the undisputed leader. So, how do you, with limited resources, almost no name and a tiny team expect to, well, overthrow this big guy? You did have large aspirations, remember?

Assume the incumbent is in the industry of creating horse-carts. He knows everything there is to know about horse carts – which breed  works best for what purpose, what  food the horses should eat, how comfortable the cart needs to be and so on. You can’t compete with this guy on horse-carts. He has tens of thousands of horses for every imaginable type of cart and he is killing it.

So, how do you beat him at his own game? Well, you change the game! If the entire industry is making horse carts, you do the unthinkable and get rid of the horse! Bring in a motor car.

Initially you will be scoffed at – “A man derives his worth from his horse”, “It’s so unnatural”, “Instead of a horse, you are creating a bunch of explosions 2 feet away in your fancy-schmancy car? Did you hit your head somewhere?”

You are crazy! Why would anyone want to copy a crazy person? So, while you are being scoffed at, you get ample time to solidify your base and perfect your product. You debut your invention and start selling to the early adopters. People are coming around to the idea – “The engine did not explode on anyone yet, right?” You start taking off – slowly, but surely.

Meanwhile, the 600lb gorilla is still selling billions of dollars’ worth of horse carts, although growth is taking a hit. Maybe it’s a one-time thing? Maybe they need to innovate more. The CEO calls for increased investments in R&D. The department gets to work and finds a substantial 5% increase in the horse’s energy output if they feed it a new combination of grain!

You release version 2 of your motor car – which is even better! People are warming up more to your invention – “You don’t need to take care of such a large animal anymore”, “My friend’s neighbor has one of those motor-things”

At Gorilla, Inc. there is a crisis. Sales are 80% of what they were. The CEO thinks they need to start looking into this motor car thing after all. He pulls up a team from across his company of the best horse-trainers and the best cart-makers to go and figure out this motor thing.

The Gorilla debuts its own motor car. Unfortunately, it doesn’t run too well. Turns out, the engine doesn’t eat a liquid diet of horse grain.

One extremely forward thinking employee in Gorilla, Inc. goes up to the CEO. “Horse-carts are old news. We need to stop making them and put everything we have into perfecting our motor car.” The CEO isn’t too happy – “You’re telling me that we should abandon a product line that accounts for 70% of our revenues over something that could just be a fad? Have you completely lost your mind? Who hired you?” The CEO fires the employee – “We can’t have people making such ridiculous comments in time of crisis here.”

Even though you’re doing well, the entire process has taken its toll on you. Either you’ve greyed all your hair or maybe lost most of it but there is a lot more ground to be covered. Now, there are a lot more companies now trying to create their own motor cars, though you clearly have the most advanced one – for now.

You’ve put the 600lb Gorilla on a diet. Play your cards right and you may end up taking it down after all.

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If you study the rate of development in different industries since 1980, you’ll see that it is only the technology industry that has made significant progress. The rate of innovation in medicine and pharmaceutical industries is the same; commercial aviation has actually regressed and average air-speeds have slowed down since the Concorde got decommissioned; finance has become massive, though it works on the same principles as before; there hasn’t been a significant platform shift in manufacturing; and classroom instruction is pretty much the same since the 1800’s.

Most of these industries use newer technology as tools to do the same things that they keep doing, slightly better. It is the equivalent of finding a 5% increase in output by feeding the horse better grain. Industries need to be re-thought from the ground up for you to discover a motor car in there.

Now, technology is progressing to the “internet of things” – you know, when your front door pings you on your phone asking if it should lock itself since you forgot to do it. Mobile internet and cloud storage are already in place, while robotics and artificial intelligence are making a lot of progress. Technology will soon permeate the very essence of what you interact with – covering pretty much every industry.

So, while the incumbents use technology to make their horses slightly better, when will you debut your motor car?  

The reality behind “We got 70k users in 2 days of launch”

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For any startup, gaining traction depends on two things: 1) How many people are you bringing and 2) How many users getting engaged. The first one has a lot to do with marketing, while the second one has everything to do with the product.

How many people are you bringing?
Companies launch not over one day, but over a process that can last almost an entire month or maybe more. Phrases like “We got 70k users in 2 days of launch” often have a back-story behind them.

1) Instagram – For instagram, they had Jack Dorsey (founder of Twitter and about 2m followers) back them. So, when they launched, it was fairly easy for them to get their initial users since they needed to get people like Dorsey reach out to their network and the press picked it up pretty quickly.

2) LinkedIn – I was speaking to one of the co-founders of LinkedIn, who was VP of Marketing. He said that initially most of their users were PR based because in the early days, the product was not too viral. LinkedIn took its time to grow compared to other social networks.

3) SkyFire (funding: $41m to date) – Speaking to one of the founders, they launched when the iPhone had just launched and so were a very press friendly story. They also had closed their Series A which enabled them to invest aggressively in PR. So, a lot of their users were PR driven and then word of mouth referrals.

This is pretty interesting since mostly when you hear stories like “we had 70,000 users in 2 days of launch” – a lot of that is paid for or has significant help. It is very rarely viral just from the product.

The effectiveness of PR campaigns is often questioned since a lot of it depends on content, relevance and visibility. However, besides PR, there are other avenues like SEM, SEO, Social etc. which you can tap into for your initial influx of users.

How many people are getting engaged?
A key point is that after the initial influx of users is established, it is up to you to create a wonderful user experience with your product – create something that is useful and usable to have them stay and give referrals. Instagram grew virally after its initial influx because its users simply loved the product. Similarly, users gained significant value from having a LinkedIn profile, which enabled the network to grow further.

For this reason, before you invest in marketing, you need to keep gathering data, testing and failing in front of a smaller network, probably your own Facebook network till you figure out your product actually works. The product almost will never go viral if you only invite all your Facebook friends, though you will get some very solid data from them using it. Doing this will ensure that when you finally pay for the initial influx of users to come and “launch to the world”, you are better prepared.

Good Luck!

What Makes Silicon Valley Work?

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Silicon Valley or the Bay Area has a completely different “vibe” for entrepreneurship. It is the epicenter of the world’s technology innovation, where 40% of all US venture capital is invested and where 90% of the highest venture returns occur. Why?

Why Silicon Valley and not New York which is filled with Ivy alumni; or Boston, home of Harvard & MIT; or even somewhere in UK or Europe or Asia? All of them have amazing engineering and business schools filled with very smart people, so why is the Bay Area the epicenter of innovation?

It comes down to the culture. The culture in Silicon Valley is completely different – where it encourages entrepreneurship to another level.  So, what is so unique about Silicon Valley culture?

1) It is OK to Fail – Yeah, you read that right. Embodying the culture, at Stanford, all our entrepreneurship professors have continually drilled into our heads – It is OK to fail! Failure is a learning process. If you start a company and it fails, then start another one. Fail fast and fail often. Go out and take risks. If you do not fail, you are not taking enough risk. Don’t be afraid to fail. Why?

Innovation by definition has a high failure rate. So, if you are afraid of the downside, you will also miss out on the tremendous possible upside. Even if you do fail, the amount you learn would be worth the cost of failure since you will not make the same mistakes again. In Silicon Valley, starting a failed company counts as experience! 

This gives Silicon Valley a very risk-seeking culture.

In India or China, if you start a company and it fails, you are considered an idiot and probably need to move to another city!

2) Trust the Young – The community trusts the young  with their ideas and does not dismiss them because of their age. The VCs on Sand Hill Road follow suit. This has given rise to entrepreneurs who have raised millions of dollars, while still in their late teens or early twenties.

This is in contrast to industries with entry level jobs, where you start at the bottom and need to be “trained” to gain experience.

The thought process is – when a new gadget comes out, who is more likely to play around with it and figure it out? A teen or his dad? The current generation of teens have been playing around with technology almost since they were learning how to walk. So, when it comes to companies revolving around technology, the young often know what they are doing and should not be dismissed.

3) Career path out of college –  Coming from undergrad at Northwestern, success there (similar to other schools in the East Coast) was more defined as landing a job in consulting or banking. Even though there was a large entrepreneurial push, the concept of becoming an entrepreneur right out of college was relatively rare.

At Stanford, entrepreneurship is more mainstream, where working on your startup after graduating is a common path apart from traditional consulting or banking jobs.  Though most of  those start-ups don’t succeed, that kind of entrepreneurial environment encourages the next Google or Sun or Cisco or Tesla to get built.

—

This mindset of Silicon Valley will also seem pretty ridiculous to anyone outside the Bay Area. Imagine talking to a banker on Wall Street about it being okay to fail and trusting the young. If he does believe you, he will get himself fired.

This is also why, to learn more about why the Valley works, you will need to visit and see the culture for yourself.

Early Valuations are Bets on People

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Early stage valuations of start-ups are just bets on people – the underlying assumption being that a good team can figure out a product-market fit more easily.

In the early days, when the product is not concrete,  the initial idea can pivot, morph or get completely overhauled within a span of as little as 3-4 months. The initial team is the most crucial element of this, since the composition of the initial team will determine what direction the product takes. Swap the initial founder out with someone else and you will have a completely different product.

When it comes to markets – they should be large/have the potential to be large or you are not in the right space. If they are large, expect them to be crowded with people still trying to “crack it.” Within this large market, your product needs to “fit” into a specific area. An example is how Twitter and Facebook “fit” into the market. Facebook is more for a personal network, while Twitter is more of an information broadcasting service. Though both are in the social networking space, they are still fundamentally very different in how they “fit” within the same market.

Figuring out how your product fits into a market is called achieving product-market fit (… duh!) – arguably the only thing that early stage start-ups need to focus on. This means that initial teams need to iterate, learn, unlearn and relearn, where the initial product basically embodies all the skills, knowledge and experience of the founders to successfully fit into the market.

In the early stages for investors, when both the product and the market are not clear, it just boils down to the founders. Have they done this before? How do they think? Can they build it? Will it get traction? Will users keep coming back? Will it make money? Is it a sustainable business? and countless other issues/risks.

So, this means that if you are a first-time entrepreneur, you often need to go further before you can raise any/much capital. You will probably need to show a working product with some traction before a venture round, whereas someone who’s done it successfully several times before probably just needs to make a phone call with an idea.

Disruptive Strategies for Crowded Markets

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Markets that deal in essential or everyday goods are typically described as being ‘cut-throat’, ‘plagued with rivalry’ and ‘being hard to innovate in’ just given the sheer number of competitors present. A company in the business of food, clothing, real-estate, jewelry or any other commodity is typically going to be a price taker- where the prices set are dependent on the market. In this scenario, growth is typically slow and limited – simply because it is hard to differentiate yourself from the crowd. As a result, startups like these are not too attractive to venture capital.

However, despite common convention, there is still scope for massive innovation in crowded markets, where startups can choose to be price setters – i.e. dictate prices for their products even in the midst of several competitors. Using technology, startups in these markets can experience phases of rapid growth, comparable to hot silicon valley startups. This is especially true given that incumbents in commodity markets are laggards when it comes to adopting technology as opposed to other industries – leaving the space ripe for disruption.

Permutations and combinations of business models are becoming more innovative with technology, specifically with the rise and adoption of mobile, social, local, and e-commerce. There are several opportunities where you can splice and re-apply innovative business models to traditional industries:

1) Printer-ink cartridge– Nespresso is a classic example of a product where Nestle used the printer-ink cartridge business model and applied it successfully to coffee. Nespresso is basically a form of premium coffee, where they sell the coffee machine for a very low markup/almost at a loss and then sell coffee pods at a lot higher markup. With several patents, they ensure that only their coffee pods are compatible with the machines. With this, they are able to tap into the home markets at almost a 5-10x markup compared to competitors.

2) Group Buying– With the rise of Groupon, group buying has become mainstream. Using the same principle of group buying, companies like Kickstarter are taking the concept and applying it to investments in creative projects. Plukka is doing the same for jewelry manufacturing – and we should still just be scratching the surface.

3) Social News – Reddit and Hacker News use their users to rank their articles/posts based on what is most popular to the community. The same concept can be applied to e-commerce, manufacturing etc. Not sure of what to produce and sell? Why not let your users create and organize it for you! A great example is Chloe+Isabel for jewelry. C+I lets people sign up as ‘merchandisers’ and then it helps them organize ‘trunk shows’, encouraging hosts to invite their friends, family and colleagues attend their shows to buy jewelry.

4) Discovery – There are several startups trying to do discovery. Discovery of apps, music, videos, news, and movies. Now, the issue in crowded markets is that it is hard to identify the true ‘hidden gems’ that would be perfect for you – specifically. How about  taking hints from the business models of Pandora, Spotify, Netflix and the various other innovations like geo-fencing to re-apply them to discovery in crowded markets – for buying homes, groceries, jewelry, medicines, cultural arts and crafts etc. The process of ‘discovering’ what is right just for you – is among the big trends already catching on.

5) Personalized/Made to order – With access to better software, manufacturers are able to individually personalize products on a mass scale. Diamondere is a great example where a manufacturer is able to completely personalize each piece of jewelry. Users can change individual gemstones on any design, change the gold color and quality and even get their purchases engraved. Using software that virtually renders each permutation, the site is able to give a ‘futuristic’ experience of personalizing jewelry. There are already several companies that personalize t-shirts, business cards etc. on a mass scale for individual consumers, but this concept is still in its nascent stages.

Business models are becoming creative – ‘I have x and you give me $ to buy it’ is getting old. How about ‘We will make and sell you either x, y or z depending on what you and your friends want’ or ‘You bought x and y, here’s z’ – but that said, try not to be too creepy about it!

‘Obvious ideas’ are never obvious in the beginning

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Guess what.. The obvious ideas are always taken – this applies to any industry – tech or outside it. Big companies don’t get big by going after obvious ideas. The founders initially have ideas that are completely ‘ridiculous’, ‘insane’, ‘crazy’, ‘that will never work’ – and go after them to make them work. By the time people realize the sheer potential of that ‘odd-brained idea by that weird guy’ – the company is already well entrenched in that space.

The obvious ideas are never obvious in the beginning. When they are thought of, they are almost always dismissed as being completely worthless.

Case in points:

1) When Google started back in the day, it was not the first search engine. Larry Page and Sergey Brin were rejected 3 times to sell Google for under $1million. In fact, Vinod Khosla was thrown out of Bell’s office at Excite for going back to pitch Google for a second time.

2) In 2004, imagine a kid who comes up to you and says, “I’m working on an online people’s directory.” With that phrasing, initially you think of something like a phonebook put online, and are left thinking – ‘why would that have any value?’. Then he builds it, calls it thefacebook and you use it for the first time, you’re left wondering, “this is actually addicting!”. (Describing Facebook as a ‘People’s Directory’ is how Mark Zuckerberg referred to it in the IPO in their investors proposal – the link to which has been taken down.)

3) Twitter was spun out of a failed company called Odeo. Even then there were several people wondering would they want to use twitter? By the time the ‘obvious’ functions of real-time conversations, trends and giving voices to people became apparent, Twitter was already well entrenched in the space.

4) IKEA was founded by 17 year old Ingvar Kamprad. The self-assembly concept was born 13 years later, more as a consequence of having competitors pressure suppliers boycott IKEA. Having the customer assemble furniture himself now seems like a great idea, but back in the day when every furniture shop available was assembling it for you – not so much!

5) Google bought a company called Dodgeball, a location-based social service back in 2005 and had the founders join it. However, given Google’s neglect of the service, one of the founders, Dennis Crowley, soon quit and restarted with a company called Foursquare. If Foursquare was the obvious idea, Google would have paid a lot more attention to it rather than trying to play catch-up several years later.

Paul Graham’s post talks about several other examples where “best ideas initially look like bad ideas”.

So, when you are working on your startup and people tell you ‘no one is going to use it’, ‘you are insane’, ‘this will never work’, ‘this seems like a terrible idea’ – you just might be onto something ginormously big!

The thing with VCs and early investors

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The thing with VCs and early stage investors is: they are gambling!

It is just the way their business model works. Venture Capital is a ‘hits’ based business. Investors will typically invest in about 100 startups, out of which upto 75 of them will return very little or no money and 95 of them will miss their targets – in other words – 95% of them fail. The 2-3 that do succeed will return several orders of magnitude of the initial investment, which basically pays for the entire portfolio.

At the angel stage, the odds are even worse, where funds like 500 Startups, Kima Ventures etc. need to resort to a model of ‘Spray and Pray‘ – which basically means ‘spray money on a bunch of startups, and pray a couple of them succeed.’

What does this mean for the entrepreneur?

If you are one of the companies that has been ‘sprayed’ money on, what does that tell you of your investor’s belief in how well you will do? – Not much!

This applies even to top, highly selective funds like Y Combinator, which has graduated about 1000 startups (“The total value of the companies we’ve funded is around 10 billion, give or take a few. But just two companies, Dropbox and Airbnb, account for about three quarters of it.” – Paul Graham)

For the entrepreneur – the process of getting the investment really does NOT mean anything! It is just an extension of your life-line. If you have traction, then traditional VC investing metrics like strong teams, great products etc. become irrelevant in comparison. So, my belief is don’t focus too much on what Angels or VCs want but rather focus on what your users/customers want – you need to focus on building a viable business that solves a real problem – and less so on building something that investors would like to invest in or something where the VC community is ‘hot’ in.

When your ideas are unpopular

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I came across this article by William Deresiewicz – Solitude & Leadership <http://theamericanscholar.org/solitude-and-leadership/>

I couldn’t agree more with the following paragraphs in it:

“No, what makes him a thinker—and a leader—is precisely that he is able to think things through for himself. And because he can, he has the confidence, the courage, to argue for his ideas even when they aren’t popular. Even when they don’t please his superiors. Courage: there is physical courage, which you all possess in abundance, and then there is another kind of courage, moral courage, the courage to stand up for what you believe.”

and

“The position of the leader is ultimately an intensely solitary, even intensely lonely one. However many people you may consult, you are the one who has to make the hard decisions. And at such moments, all you really have is yourself.”

When your ideas are popular, you don’t need to do anything, since someone else can come along and implement them for you. It’s when your ideas are unpopular – that’s when you are especially needed to see them through implementation because no one else is going to do it – and this can be a terribly lonely process.

Thomas Edison – “I didn’t fail. I just found 2,000 ways that did not work”

When your idea is unpopular, you will be told of 2,000 ways where your idea will not work, but with enough persistence, you should be able to find one way where it does work – and that is all you need.

Entrepreneurship Material

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So, a friend had asked me how to get started with the entrepreneurship process. He said that he would come across a couple of ideas and get really excited, but was not sure what to do to actualize it. I sent him a bunch of links/talks that if he went through, he should be comfortable enough to get started.

Here they are:

Books: 

Crossing the Chasm, Founders at Work, Venture Deals, Four Steps to the Epiphany, & Innovator’s dilemma.

Videos:

http://www.youtube.com/watch?v=n-H7TAcqGko

http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2735

http://startupdigest.com/marc-andreessen/

Reid Hoffman (LinkedIn founder) – http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2768

http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2329

On ecorner, also see – Jack Dorsey (Twitter & Square), Drew Houston (Dropbox), Marten Mickos (mySQL), & Guy Kawasaki

http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action.html

Design Thinking:

Design thinking is a field pioneered at Stanford. Design thinking classes are the most over-subscribed courses and it is pretty difficult to land yourself a spot in the courses. I took Design Thinking Bootcamp and it was simply amongst the best courses I have taken at Stanford.

What is it? Design thinking isn’t thinking about designing a pretty dress or doing interiors of a house. It is about finding solutions to ill-defined problems. A large part of it focuses on figuring out exactly what problem to solve.

Here’s the virtual crash course video: http://dschool.stanford.edu/dgift/