Monthly Archives: September 2014

The Art of Being Unreasonable

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Starting a business from nothing requires you to Impossible_cube_illusion_angle.svgconstantly overcome unreasonable problems. You have no resources, no time and an infinite list of tasks to complete. In pursuing your goals, you are asking both yourself and your team to do unreasonable things.

However, there is a fine line between being unreasonable and being unrealistic. If you lose sight of that line, you will fail.

Learned Helplessness vs Self Confidence

One of the most depressing psychological principles that you will ever encounter is called learned helplessness. It is a mental state where the subject is trapped and subjected to adverse stimuli (pain, abuse) from which they cannot escape. Eventually, the subject learns that there is no escape from the adverse stimuli and, even when given the chance to escape, fails to even try. They have learned to be helpless.

While I am sure you will never abuse your team, subjecting them to unrealistic goals which they can never achieve can have a similar effect. Eventually, after being subjected continuously to nothing but unattainable goals, people begin to disassociate from such goals and will fail to treat them seriously. People will give up before they even start.

On the other hand, there is a clear tie between motivation and setting ambitious goals. Self efficacy is a psychological term for the confidence a person has in their ability to achieve a goal. Research has shown that optimal performance is reached when a person’s self efficacy is slightly above their actual ability, meaning that they are in a little over their heads.

So, how do you set goals that are just beyond reach but not so far as to make the goal meaningless?

Unreasonable vs. Unrealistic

As with anything in your new company, finding the balance between aggressive goals (unreasonable) and impossible goals (unrealistic) will require testing. In the early days of decision making, you will set some unrealistic goals which backfire and some unreasonable goals which will drive your team to do amazing things. The more goals you set, the easier it will be to tell the difference.

It will be hard to tell the difference if you lack faith in your team, as you will question whether your goals are unrealistic or if your team is not pushing themselves hard enough. This is yet another reason why you should never compromise on the quality of your team, especially in the early days. You should never waste time wondering if your team is working as hard as possible.

Don’t fear setting unrealistic goals, it is part of building a company, but beware setting too many of them. Instead, you should strive to be unreasonable.

Image made available via Creative Commons by Wikipedia user 4C. 

Closing the Loop

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Today, I am currently an advisor/mentor/investor in 10 early stage start up companies, 3 accelerators and 1 venture fund. I pride myself on spending a lot of time with each company and getting as involved as possible, in many cases having projects assigned to me. Regardless, I am regularly shocked by a simple fact:

Only one of these companies sends me a regular update.

I know I shouldn’t be shocked, as the early days of building a company are hectic and busy so updating advisors and investors is never a high priority. There is also a natural fear of bad news, so if things are not going extremely well it is easier to say nothing than admit things are hard.

Unfortunately, the side effect of a lack of updates is that I’m not as engaged as I could be. As a founder you live through a hundred battles everyday, but if I never see them then I can’t understand. For all the time I spend with a company, not knowing about the struggles, the victories and the defeats means that when I do help it is with only a limited perspective. Even worse, I have no idea if the advice that I provided proved useful as I rarely get told the end results of any given decision.

But it’s not the fault of these companies. Almost all entrepreneurs are really bad at closing the loop.

Closing the Loop

One of the fundamental components of Corkscrew_(Cedar_Point)_01continuous improvement is feedback. If you don’t know how you are doing today, you can’t get better tomorrow. Modern engineering processes such as Scrum or Kanban encompass feedback as a core part of the process through the use of retrospectives. This is why the engineering teams at many startups are the best run teams, since they have a clear and well understood process to follow. So what of the rest of the company?

The best way to make sure your company is focused on continuous improvement is to make sure you always close the loop. For every decision that’s made, for every goal that is set you check back on it in the future to see whether it worked. Did that strategic partnership pay off? Did you meet your goal of 10% weekly growth? Make it part of your company culture to always review decisions and goals in the future, and learn from them.

All companies make decisions and set goals, but surprisingly few will review them on a regular basis. Many start up board meetings involve a review of key metrics, but not a review of key decisions and how they worked out. If you don’t review the decisions you made and the results of those decisions, what do the key metrics matter?

It can be scary to review past decisions since many of them will not work out well. However, fear of bad news will slowly paralyze your decision making because it will evolve into fear of failure. If you develop a habit of sharing news, both good and bad, you will feel a weight lifted from your shoulders – the weight of that fear.

Communication as a Core Competency

Making sure your team closes the loop is easy if you’ve set communication as a core competency of your team. If you have done that, then you already have plenty of tools and structures for communicating, you just have to make sure you communicate retrospectively.

Some examples of how you can close the loop:

  • Regular Updates. Send regular updates to your team, investors and advisors on your progress that review the results of key decisions (Leo has a great template for these kinds of updates that is short and easy). These serve not only to update the team around you but force you to put in writing what has worked and not worked on a regular basis.
  • OKR Reviews. Many companies use OKRs, but not many have regular public OKR reviews. Such a public review of individual OKRs should not serve as a punishment or a reward, but instead a chance for everyone to learn from what worked and what did not.
  • Waterfall Financials. When projecting your company’s financials, the only guarantee is that those projections will change (a lot). Keeping track of changes in your projections will help you understand the flaws in your forecasting models and waterfall financial reporting is a great way to do that.

The best way to make sure you are closing the loop is to make it part of your corporate culture. Any decision that gets made comes with a report on how it faired later. Remember, the goal of closing the loop is not to punish failure but to learn from your mistakes.

We all make plenty of mistakes, why not turn them into assets?

Image made available via Creative Commons by Coasterman1234.

The Snowball Effect

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I spend a lot of my time advising 113026147_9ce84baa38_zand mentoring entrepreneurs, including coaching at three awesome accelerators. Since almost all the companies I work with are at the pre-Seed stage (translation: very very early), I end up hearing the same questions quite a lot. They are, in order of frequency:

  1. How do I convince my co-founder to quit their job and join full time?
  2. How do I close my first customer?
  3. How do I raise my first seed financing?

These are very fundamental questions for building your business, so it’s no surprise they come up so often. The good news is that the first step towards answering any of them is exactly the same: build up your snowball effect.

The Fear of Being First

If you turn around each of those questions, you realize that the person on the other end represents a first for your company. You are trying to convince the first employee, the first customer or the first investor to believe in you. Being first, while exciting, brings with it the most risk since you clearly have not proven your business if they are the first. Most people have a very justifiable fear of being first which makes it hard to convince them to take that first step.

However, you need to have a first because if you don’t then you will never have a second, a third and so on. So how do you overcome that fear?

The Power of Momentum

One of the best ways to overcome the fear of being first is to use an even more powerful force: the fear of missing out. The more momentum you build up for your company and the more progress you make before asking someone to be the first, the more likely that they won’t want to miss the opportunity. You want to make your company move as far as you can as fast as you can to make it an attractive bandwagon for people to jump on.

Having a brilliant idea is not enough. If you have a brilliant idea and nothing else, nothing separates you from the hordes of other dreamers whose dreams will never see reality. An idea has little value itself, you need to turn it into reality or at least as real as you can make it.

So, how do you get that momentum going in the early days? You don’t need to build a finished product (although that works well), there are many ways to build momentum without a product:

  • Invest In Yourself. You should be investing in your own company, using your own money. The more you invest, the more you will show commitment to your vision and building your business. You cannot ask others to invest or believe in you if you cannot demonstrate that you believe in yourself. It only costs a few hundred dollars to form a legal corporation – how much more than that do you believe in yourself?
  • Prove Demand. One of the most important things you can do in the early days of your company is prove that your idea has customer demand. Building a product can come later, but you can start by talking to prospective customers, industry experts and investors about a product and how much demand exists. The more you can quantify and prove there is demand, the more likely you are to convince others that your idea has value. Along the way, you’ve also lined up a list of prospective customers that make your company seem a little less risky for employees and investors.
  • Sell Your Friends. There is no rule that says your first customer(s) need to be strangers that you cold call. In fact, almost all successful companies start out by selling to friendly customers whom they knew well before they got started. YCombinator, one of the best accelerators, goes to great lengths to get their companies to become customers of each other to overcome the first customer problem. This strategy won’t scale, but it will get you started.
  • Spread Your Message. While your idea might not have value, communicating about the problem you are solving and building a voice in the community does. Set up a blog, join Twitter and start a mailing list to talk about the industry, market or problem. The more you participate in the discussion the more you can start to build your company’s brand even before you get started.

Most of all, be creative. I know non-technical founders that hired people to stand in front of conferences wearing sandwich boards to raise awareness of their company which had no product. I’ve seen founders hire armies of people on oDesk to gather hard to find data on the web to create valuable industry blogs. Even Mattermark, a great market data start up, got started from a blog post.

Accelerators are in the business of helping you build this momentum, at the cost of a small amount of equity. Many accelerators require that you have a working prototype, but if you do have a prototype they can give you a big boost of momentum and help you get past a lot of these early hurdles.

The Snowball Effect

So, what is the snowball effect? The great thing about building up your momentum is that it becomes a virtuous cycle if you can maintain it. You are more likely to raise your first investment if you can close your first employee, which in turn makes it more likely to close that first customer. Then it becomes easier to hire that second employee, close the second customer and so on. Eventually, making progress on all fronts makes it easier to make more progress on all fronts.

That is the snowball effect. Just like a snowball rolling down a hill, the more momentum you have the larger you can get and the more momentum you will get.

All you need to do is start the ball rolling.

Image made available via Creative Commons by redjar.