“Building a new technology company is really, really hard. In order to do it successfully, you have to sweat the details, worry about all the things that might go wrong, and suffer more than a few sleepless nights (either from working through the night or just worrying through the night). All of those things that you go through—a boiling stomach, lack of sleep, waves of paranoia, and vivid visions of your own demise—turn out to be good things.” – Ben Horowitz

“I like how I feel when I am using the thing.”

Those of us who are early adopters, technology-savvy, or otherwise ahead of the curve often forget that it’s not about the walled garden but still abundant app ecosystem, the conflict between Apple and Adobe, or the presence or lack of multitasking. It’s about how it makes you feel. And in that respect, it seems as though the iPad is a resounding success. Or at least 2 million people seem to think so.

Fred’s post reminded me of Simon Sinek’s TEDTalk, where he talks about great companies (like Apple) that build brands around meaning:

On imagination:

“Albert Einstein said, ‘Imagination is more important that knowledge.’ Leaders create things that didn’t exist before. They do this by giving the tribe a vison of something that could happen, but hasn’t (yet). You can’t manage without knowledge. You can’t lead without imagination.”

The elevator test: “Can you explain your product in the time it takes to ride up in  an elevator?”

Why it’s a bad sign if you can’t pass the elevator test (pg 152-153):

• Whatever your claim is, it cannot be transmitted by word of mouth.
• Your marketing communications will be all over the map.
• Your R&D will be all over the map.
• You won’t be able to recruit partners and allies.
• You are not likely to get financing from anybody with experience.

• For (target customers – beachhead segment only)
• Who are dissatisfied with (the current market offering)
• Our product is a (new product category)
• That provides (key problem-solving capability)
• Unlike (the product alternative)
• We have assembled (key whole product features for your specific application)

A high concept pitch distills a startup’s vision into a single sentence

…people should already understand the building blocks of the pitch: buses, bombs, Jaws, space, the seven deadly sins, Flickr, Firefox, MMOGs, et cetera. The pitch combines the building blocks by using analogy, synthesis, juxtaposition, combination, whatever; e.g. “Jaws in space.”

“Taking actions to create, grow, maintain or defend markets.”

“Winning at marketing more often than not means being the biggest fish in the pond. If we are very small, then we must search out a very small pond indeed.”

“Cross the chasm by targeting a very specific niche market where you can dominate from the outset, force your competitors out of that market niche, and then use it as a base for broader operations.”

“… because, confronted with the immensity of opportunity represented by a mainstream market, they lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a salable proposition to any true pragmatist buyer.”

“A vertical market with a broken mission-critical process creates an attractive beachhead opportunity… The more serious the problem, the faster the target niche will pull you out of the chasm.”

“Success through subtraction is the key lesson here. And that subtraction was made possible by a vote of confidence in design esthetics and in target marketing. By contrast, the companies who failed had over-designed for their target market because they were hedging their bets.”

“You need to understand that informed intuition, rather than analytical reason, is the most trustworthy decision-making tool to use.”

“Expect that the best scenarios will be ‘whole product challenged’ – if it were easy, someone else would have done it. Indeed, the fact that it is hard will create a barrier to entry in your favor once you have stepped up to the solution.”

“The best sub-segmentation is based on special interest groups within the general community. These typically are very tightly networked and normally form because they have very special problems to solve.”

“…your market alternative helps people identify your target customer (what you have in common) and your compelling reason to buy (where you differentiate). Similarly, your product alternative helps people appreciate your technology leverage (what you have in common) and your niche commitment (where you differentiate). Thus you create the two beacons that triangulate to teach the market your positioning.”

“…market alternatives call out the budget and thus the market category, and product alternatives call out the differentiation.”

“Time to establish a sustainable market position, and not cost or breadth of sales is your critical success factor. You simply cannot afford to lose one day of opportunity, and the only channel that would ever be that responsive to your needs is your own.”

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The complexity and reach of the projects I’m working on has increased exponentially since I graduated. But the questions and process to solve the problems are fundamentally the same. Design provides a framework that is rarely taught in schools: a method for creating intelligent solutions to complex problems.

My advice to you: embrace the fact that everything in your life can (and should?) be a design problem. Think beyond graphic design, exhibit design, fashion design. See the world from a more holistic perspective – the world is a place full of complex problems in need of intelligent solutions.

The projects I’m working on now will have contact with tens of millions of people. What makes me qualified to do this? What makes me think I can do this successfully? One answer: design. Problems get bigger, but the methods for solving them stay the same. Identify the goals, identify the constraints, learn enough about both to push the limits of what’s possible.

Here’s the other trick: it’s not magical. Yes, sometimes there is that spark, that moment of creative inspiration where everything falls into place. More often (and more important, when you’re expected to produce these solutions on a regular basis, not just when you happen to stumble upon an epiphany), it is the result of hard work and focused effort. There’s a lot of mediocre stuff out there. Mediocre design, mediocre products, mediocre people. If being exceptional was easy, everyone would do it. Unfortunately (or fortunately, for those who embrace the challenge), it’s much easier to be mediocre.

My challenge to you: Take what you’ve learned here, and remove the limits from your thinking. There’s plenty of complex problems out there in need of intelligent solutions. Take your design education and go solve a few, you’re better suited than most to do so.

I earned two degrees while I at UC Davis. One took 80% of my years here and 20% of my effort (Ecology). The other took 20% of my years here and 80% of my effort (Design). Looking back on it, I think I tired of my ecology program because there wasn’t much room for creativity. If you did the research and recorded the right numbers, and then put those numbers into the right equations, out came the results. You may not like the results, but there wasn’t much guesswork in the process.

Design, by contrast, forces you to ask questions and explore solutions. Some (many?) of the solutions will be novel, at least to you. How to pick one? There aren’t traditional “right” answers. Sure, design has “rules” but they’re not like the rules of physics – immutable and constant – in design, the possibility exists of breaking those rules, so long as you’re doing it appropriately and know what you’re doing. A favorite quote: “Rules are a substitute for poor skills of observation”. If you find yourself depending on the rules for guidance, maybe you need to work on your judgment and observation.

When picking these solutions, you can only choose the one that you think will best solve the problem within the constraints of the context.

I watched the video twice, once to listen and once to take notes. My notes are after the break.

Notes on Series A Business Plans

Passion and energy around a very specific pain point for a very specific customer – start small & focus

Long business plans not interesting – process is too iterative

First hour w/ the venture capitalists

1) What’s compelling and unique?
How do you position yourself in the marketplace?
Cisco: They network networks.

- Clarity of purpose

- Very few entrepreneurs understand

- 2-3 sentences: why you’re unique and compelling, why you’re different, why you’ll win, what your unfair advantage is.

Jeffery Moore – Inside the Training Door, Crossing the Chasm
Initial challenge – picking your target customer – start small & focused
Should be able to convey market position in 5 mins or less.

2) What is your unfair advantage?

What’s the market strategy.
The nuance behind the pain point – helps to have first hand experience, especially if you’re attacking a personal painpoint.

VCs Looking To:
Understand the depth and substance of your passion for the painpoint
And your ability to orchestrate a strategy around creating unfair advantage from a market entry and market tactics perspective.
Understanding your detailed expertise in the domain.

Show that you’ve thought about creating a market category & the early beachhead customers.

Be familiar about how to create a market entry strategy that’s appropriate for a startup.

Be credible about the existing incumbents, their advantages and your advantages. Build credibility by knowing your competition. Position yourself in one quadrant and show over time your plan to move to another one (earn a stronger market position over time).

Many VCs are comfortable assuming that the large incumbents will not be able to move fast enough to move into an adjacent market.

Defensible barriers – huge for consumers internet and mobile internet
How are we going to build long term competitive barriers?
Not comforted by startups
Doesn’t have to be technological, but helps
Be able to explain why there’s a barrier
Intimate understanding of the market itself = barrier to entry
Partnerships & UGC for first movers

3) Technology from the shareholder’s perspective

Not as interested in all the raw details

Interested in defensible barriers – huge for consumers internet and mobile internet
How are we going to build long term competitive barriers?
Not comforted by patents.
Doesn’t have to be technological, but helps if there is a technological barrier
Be able to explain why there’s a barrier
Intimate understanding of the market itself = barrier to entry
Partnerships & UGC for first movers = barrier to entry

Simplicity is important – can create new levels of adoption, first mover advantage

4) Founding team – DNA, not titles

Looking for 3-4 individuals with different expertise & lots of dynamic tension
10x programmers, good marketers, in depth knowledge
Executive history not part of the Sequoia requirements
Interested in the doers of the company

Intelligence, ambition, clear understanding of a painpoint

Sequoia likes to back unknown & underdogs

5) Financials

Map sales mechanism to business model – your numbers should match the sales & marketing plan you outline
If you don’t know, say you don’t know – it’s OK
Rarely do people hit their numbers – magnitude of the disparity is important
Look at first couple of years after a company goes public (public filings)
Gain credibility by being balanced on the numbers upfront

Nomenclature around unit economics – know how to contemplate unit economics for your business

SAAS, consumer internet, mobile, advertising, semis
Lots of specialization
Yields for semis
MRR – SAAS – ratable revenue
cost of customer acquisition
churn
lifetime value

Sequoia not big fans of low margin businesses
Gross margin 50% plus = good

Must Read: Sales Learning Curve – Mark Leslie (startups during revenue ramp)
CEO of Veritas
HBS case

Recipe involved in building revenue in a real business

Challenge is in iteration with the recipe to get to a meaningful level of repeatability
Go slow first & get repeatability
Don’t hire talent in the salesforce until you get the recipe right
Sales people should produce 2x their compensation in margin – until they can do that, don’t grow this part of your organization

Business plan should reflect the fact that you’re going to have to iterate over time to get the recipe right

Expecting to get it right the first time and in the first 4-5 quarters is not credible

Hold off on financials if you’re not sure about it – experiment & learn about churn, cost of customer acquisition

Show early sense of unit economics and customer acquisition = higher valuation
As small as 100 users in a controlled beta (100 – 100,000 users)
Show consumer adoption

When are you ready?

Go through the deck w/ advisors first
Bring your team if you’ve started to build it

Be creative
Own the meeting & manage it

Don’t tell them who else you’re talking to.

Warm them up with unique value proposition and your unfair advantage – not the whole deck

Best presentations can get through core elements in 15 mins

“Creativity often comes about by making unusual connections, seeing, analogies, identifying relationships between ideas and processes that were previously not related. This is precisely why some of the most effective creative teams are interdisciplinary.” (pg 188)

This bit comes to me at an interesting time, as two weeks ago I was reading a post on Futuristic Play that discussed models of viral growth in Facebook applications. I was surprised to find graphs and models that were similar to those I worked with when I studied ecology. One important component of the post I was reading about viral growth discussed the difference between growth in an unlimited vs limited market – when growth models account for the 60 million or so user population of Facebook, they change from looking very healthy to showing a scary looking crash. Interesting to me, as these look eerily similar to the concept in ecology known as carrying capacity, and the crash idea similar to what happens when a species or ecosystem surpasses the carrying capacity of it’s environment. The similarities between these two ideas lead me to believe that there might be some useful overlap in models I studied in school as an ecology major and my current interest in social networks and web apps. Hopefully more to come on this in the near future (by hopefully I mean two things: 1) hopefully I’ll make more interesting connections and 2) that I’ll be able to write them down and post the them here). 

One more bit from Out of Our Minds, this time a bit that is applicable to challenges I’m working with at Affinity Labs as we grow from a small startup into a bigger division of Monster Worldwide:

“The most creative periods in the lives of organizations are often in the early stages of its work where there is a rush of excitement about the possibilities to be explored and before the organization itself has settled into fixed institutional structures and routines. Stimulating or reviving the creative impulse in organizations often requires that existing borders be perforated or dissolved so that ides can flow freely between different specialists who are too often kept apart from each other. The point of these collaborations is not for different specialists to impose their own ways of working on each other. It is to benefit from the stimulation of each other’s expertise” (pg 188)

It’s also worth noting that the reason that I started reading this book in the first place was because I watched Ken Robinson’s TEDtalk, which I found to be both entertaining and thought provoking. I include it here for convenience, but I recommend downloading the higher quality MP4 file from TED.

I’ve been thinking about this idea a lot lately, mostly because I’ve recently acknowledged that the only thing I’m lacking in my aspirations to run my own business is that great idea to base it around. I feel confident with the idea of running my own company, and would start doing so tomorrow, if I had an idea that I felt was worthy of that commitment. Knowing this, the next question is naturally: how do I find this great idea? Perhaps it is just chance, and great ideas are things that wake you at night with a start and force you to write them down before they slip down into the subconscious again. But I’m inclined to agree with Pasteur, and I think that there might be a method.

A few months back, I watched Ray Kurzweil’s TEDTalk. A few days ago, I read an article by Kurzweil in Inc Magazine, and I was reminded of his lecture. Kurzweils’ point that interested me was that certain things in the technology world are very predictable. You may not be able to predict what Google’s stock price will be in two years, but you can very accurately predict how expensive computer processing power is, or how cheap bandwith will be, or how much a gigabyte of storage will be. Furthermore, these trends increase not in a linear way, but in an exponential way.

The implication of this is that things that today seem impossible, prohibitively expensive, or too far ahead of the technology will be possible in the future – and the future is coming sooner than you think. In his words, "With the doubling of price performance each year in every kind of
information technology, you just need to wait a short while to find
that you can have your cake and eat it too."

OK, so what does this have to do with the next big thing? The way I figure it is that the secret to finding the next big thing is being able to recognize what is theoretically possible in today’s world but unfeasible due to financial or technological constraints. Take that idea, look down the road after 2-3 years of exponential growth, and try to see where the idea stands. Since data about bandwidth, processing power, and storage are so accurately predictable, the secret to the next big thing is being able to figure out what we can’t do today but can do three years from now – and then be the first one to do it, and do it well. I think this applies particularly to disruptive technologies – things that really change the rules of the game. In these cases, a certain market application is made possible when the growth of those predictable trends reaches a level that suddenly makes something possible that wasn’t before, in a critical point/threshold kind of model

Examples of this:

- Declining prices, increasing availability of broadband internet, digital camcorders, and consumer-level video editing lead to the YouTube explosion of user generated video content.

- Declining price of computer hard drives and digital video hardware allows the creation of a reasonably priced digital video recorder – say hello to TiVo!

- Decrease in bandwidth costs and increase in processing power make Vonage and other internet telephone services possible.

I’m not saying that coming up  with a great idea is easy – the conceptual connection between recognizing the predictable trends and realizing what (successful) products those trends will make feasible in the future is no small feat. But it’s one step closer to a methodology for identifying these ideas. And I’m convinced that the time I invest in keeping current with tech trends and learning about the bleeding edge of technology is worth the effort for the insight it may give me into the future.

I brought up this fact with my two breakfast companions, both female, and was surprised to hear them say that they would never buy a car without a male there too. I consider both of my friends to be independent, strong women, so I was a little surprised that this was the case, but I think this speaks to a real problem with the car buying process and a place where there’s room for a lot of improvement. And it also reminded me of the importance of seeing the world through other people’s eyes whose perspectives differ from my own – whether that be because of gender, race, nationality, whatever.

The other conversation I had today was with my roommate, and we spoke mostly of relationships with other people – what affects the quality of those relationships and the kind of people we most like to cultivate interactions with. Early in the conversation, I said that I felt there was a sort of x-factor in people that I couldn’t put my finger on, but that it was some rare trait/combination of traits that make someone really interesting to me. My roommate pressed me to try to define this x factor, and over the course of our conversation we came to the following conclusion:

The people that we cultivate relationships with, the people we find most interesting and most pleasurable to be around are those people that allow us to feel comfortable enough with them to share our true selves. These are the people who we share our most personal thoughts with because we know that they are worthy of the trust entailed in sharing those thoughts.

There were many other musings from my day of conversation, but I’ll save those for another post.