Startups are discovery teams - they venture into the abyss, like Shackleton, aspiring to cross the Antarctic, plant a flag and live to tell the tale. Because every expedition is unique, no one knows what will work: product features, marketing tactics, sales pitches, fundraising stories. Nor can the team fully anticipate the precipices and risks: competitive, legal, hiring, market timing and management risks.
A philosophy was put to me by a close friend this week. “Succeed despite your every effort to fail.” He meant founders must set lofty goals and challenge themselves and their companies to reach them. The product of such a policy is struggle and consistent failure.
At Google, we created objectives and key results each quarter - a goal with a quantifiable result. At the end of the quarter, a score of 60 to 70% was excellent because it communicated ambition and struggle. A score between 80% and 100% indicated sandbagging and incremental thinking.
But honestly, we were hustling for the 150% or 200% score because it meant the discovery of a new way of doing things that blew the target out of the water. It meant true innovation and maybe a Founder’s Award
The same principle extends to startups. We should be struggling to discover breakout marketing tactics, sales strategies and product features. Ambitious goals and failure must be championed and great successes lauded. Incremental goals drive incremental results.
Hence “succeed despite your every effort to fail.”
Hardware competition is cut-throat. Walking through the halls of CES, every Android phone is identical. LG has copied each Samsung model. Because of the competition, tablet prices are plummeting - I saw a $49 7inch tablet (and some were giving Nexus 7s away for free with subscription. Not constrained to large competitors, startups like FitBit and Jawbone launched competing (and nearly identical) products within weeks of each other: the FitBit Flex and the Jawbone Up Even newer segments like gesture control of TVs or GoPro self-recording cameras are addressed by six competitors, many of them white-label.
Software has become the differentiator for all these devices because the hardware is indistinguishable to all but the geekiest. In other words, it’s all about the experience - a concept Apple has championed for almost three decades to great recent success.
As these OEMs face the challenge of building great software, they must choose among three options:
1. Accept - Co-opt open source software, like Android, and deploy a commodity
2. Ignore - Contract the development to an agency
3. Embrace - Build a software design competency in-house
Clearly, the market winners will pursue the last option. Some OEMs may be able to build teams on their own like Samsung. But the majority of manufacturers will look to acquire software design talent to differentiate their commodity hardware products.
The return of venture backed hardware startups has engendered a community of companies who have successfully unified talents in hardware and software design: Nest, FitBit, Electric Imp, Jawbone, Sonos, Basis, Leap Motion, Boxee and many more. Crowdfunding has also been a healthy supplier of capital to hybrid companies like Ouya and Pebble among others.
Hardware industrial design is no longer a sufficient differentiator for manufacturers. The winners in the next decade will fuse spectacular software design with better but commodity hardware. The fastest path to that end for incumbents is acquisition of startups like these.
There is no prouder boast, but also no better prescription, for executive leadership than the words Andrew Carnegie, the father of the U.S. steel industry, chose for his own tombstone: “Here lies a man who knew how to bring into his service men better than he was himself.”
This epitaph captures succinctly so much of leadership: the ability to articulate a vision and convince others of the importance of that mission; the self awareness of knowing one’s strengths and weaknesses; the desire to be the dumbest guy in the room; and the capacity to build and maintain those relationships during a life’s work.
Carnegie’s noble idea of leadership is one that every manager, founder and VC can aspire to. But it all starts with humility.
NB: first paragraph paraphrased from the Effective Executive
In December, I was lucky enough to be asked to become part of the LinkedIn influencer program. I jumped at the opportunity to bring my writing to a broader audience. And the experience has been eye-opening.
The editorial team delivers relevant content to the right people encouraging a virtuous circle between content creators and their audience to form. Quality content breeds engagement and which entices authors to write more (and attracts new authors). All the while, LinkedIn compounds its value.
During the past four weeks, I syndicated six posts from this blog to LinkedIn. My LinkedIn stats:
Below are a few observations from that experience:
The traffic is tremendous. My median post generated 15k daily visitors, 145 likes and 84 comments - about 15 times the engagement of a post on tomtunguz.com. I needed about three weeks to build a LinkedIn follower count equal in size to Twitter which has been three years in the making.
Social networks are the best places for content syndication. What Facebook did for Photos, Tumblr did for (animated) gifs, Twitter did for news, LinkedIn is doing for work content. The same forces that enable these services to quickly build user bases apply to content (both organic and commercial).
Relevancy is king. The influencer program succeeds because content is targeted to the user. I’m not sure what tools LinkedIn uses to target content, but I bet the technology is analogous to Google’s ad targeting and parallel to Facebook’s EdgeRank.
LinkedIn’s audience is broad and interested in general management/self-help topics. Look at the topics in the stats image above and the trend is clear.
Most SaaS startups marketing teams should be writing for this platform. Potential customers number in the millions and the influencer program is a targeted and free way to reach them.
LinkedIn should build a CRM.I mine Twitter for business development, and I’d like to do the same on LinkedIn. The same idea holds for companies marketing on LinkedIn with ads and content. LinkedIn knows identity, measures the funnel performance and could store relationship data.
I’ll be continuing to blog on LinkedIn. And I’ll also be on the lookout for other forms of social distribution. They are the most powerful forces in content syndication on the Internet today.
Historically marketing has been pseudoscience - an undisciplined hand-wavy concoction of story telling and a “throw stuff on the wall and see what sticks” mentality protected by unmeasurable results and three martini lunches.
Unlike cash-rich enterprises which bankroll unquantifiable marketing bets, miserly startups can’t afford to gamble. For startups, unit economics are king. A dollar invested must return more than a dollar, much much more. If not, the business simply won’t survive. And this discipline must be applied across the company: engineering, product, sales and marketing.
Startups' relentless focus on unit economics compels their marketing departments to invent and discover. Scarcity is the mother of invention. As a result, startups have created every major inflection point in marketing progress in the last decade.
In the early 2000s, Google’s AdWords punctuated the wave of real-time quantification of internet ad performance. A few years later, AdSense and others brought performance marketing to the internet broadly. Next, social media marketing blossomed on Facebook and Twitter. Meanwhile, mobile apps created a fundamentally new customer acquisition channel. And of course, email marketing was reborn with Groupon and Fab.
With search, web, mobile and social distribution channels built, other startups like Amazon, Zynga and ngMoco were the first to test them, understand them, benchmark them and ultimately exploit them.
In addition to advances in advertising performance, these new marketers began influencing product to drive distribution. Rather than intuition, rigorous multivariate testing drives product decisions, yielding small daily optimizations which compound into huge growth. Dropbox mastered the referral campaign for its consumer storage product. Zynga and Branchout built proficiencies in viral triggers. And LogMeIn perfected the freemium model.
The new marketers are a different breed - tenacious, nimble and deft with numbers. They often have backgrounds in finance or consulting and act more like traders than relationship managers, buying media on the fly based on algorithms and using experimental data to inform product decisions.
New marketers have revolutionized the go-to-market strategies for startups by acquiring customers scalably and cost-effectively through ROI positive advertising and calculated product improvements. And in today’s entrepreneurial environment, these new marketers represent powerful competitive advantages.
Daniel Pink, former speechwriter for Al Gore, has written an unconventional book on sales called To Sell is Human. In this well researched book, Pink observes a few surprising evolutions in society and their impact on sales.
The hard sell is dead. Enabled by the internet, prospective buyers know more about a product than a salesperson. This is true for cars as much as enterprise software. As a result, the salesperson no longer leverages an information asymmetry to sell a product. Instead, the salesperson must negotiate from the very first word, identify a customer problem and solve the problem using a product. Sales is evolving to consulting.
The purpose of the pitch is to offer something so compelling that it begins a conversation, brings the other person in as a participant, and eventually arrives at an outcome that appeals to both of you.
According to Wharton research, the gun-slinging extroverted salesperson generates only a fraction more revenue than introverts. Champions of the sales floor balance introversion and extroversion. Dubbed ambiverts, these salespeople sell 25% more than their colleagues.
Everyone in a company must sell: customer support, marketing, engineering, and so on. Atlassian and Zendesk have reached tens to hundreds of millions in revenue without sales teams by empowering customer support teams to solve the problems of an educated customer base.
The term elevator pitch originates from the very first demonstration of an elevator with a safety brake. At the time, elevators were hazardous, routinely plummeting down shafts when their hoisting ropes fell, destroying their payloads. In 1852, Elisha Otis invented a locking system that would catch and secure plunging elevator. Unable to drive much interest in his innovation, Otis organized a demonstration in New York City. He stood in the elevator as an assistant severed the hoisting ropes and the safety brake engaged. Otis' innovation paved the way for humans to ride in elevators. Today, the Otis company’s products transport 7B people every three days.
To Sell is Human is a breezy, data supported book that catalogues the changes in sales and shares techniques to improve sales performance.
We should be living in the future already. I should be controlling my home lights from my phone. My coffee machine should reorder coffee from Amazon automatically and my washing machine should schedule its own maintenance.
This kind of future demands that machines act with human intelligence. I’m asking my coffee machine to think like me, so that I don’t have to.
But we aren’t living in this world yet because it requires the synchronized deployment of three of the most advanced technologies developed in the past 20 years: wireless communication, smart phones and machine learning.
First, all these devices must be connected to the internet via Wifi or cellular connection. This means the manufacturers of these devices must design, integrate, test and ship internet devices. Many manufacturers have started to believe in the benefits of subscription revenue economics and ongoing data collection from devices in the field. But hardware design cycles are measured in months and years. In addition until recently the market lacked technologies to help manufacturers build great software for their devices, hence the delay.
When machines anticipate needs and wants and solve problems without consulting their owners, we will be living in the future. I believe the infrastructure, the revenue model, the customer base and the deep learning techniques are finally ready to enable entrepreneurs to seize the opportunity and build the future.
Communication is essential to the success of every startup. Startup teams collaborate in product and engineering conversations, in general management, and in recruiting. Externally, startups sell customers using marketing and sales. Startups also pitch investors during fundraising conversations.
Clearly, great communication makes demands of the audience. But effective communication is challenging.
One of my favorite communication tools is a framework created by management guru Peter Drucker of three fundamentals: perception, expectation and clear demand.
Perception means understanding the audience: their worldview, the language they use, their motivations and their problems. Developing a deep perception of the audience often means listening which takes many forms including market research, the conversations, one-on-one conversations with reports and so on.
Expectation means knowing the frame of mind of the audience - what they expect from a conversation. Violating expectations can be used as a sales technique to change a customer’s frame of mind when evaluating different products. While other PC makers fight a market share war based on price/performance, Apple uses design to change the rules of engagement.
Other times violating expectations can be more challenging, for example, delivering a negative feedback review to an employee with a different perception of his work.
Clear demand is the ask. Once the audience’s perception and expectation are understood, the communicator must understand her own goal of the conversation, eg closing a sale or relaying ideas for how to improve an employee’s performance.
The audience’s perception and expectation must be used to frame the demand for it to be effective. They are the keys to encoding the demand in an effective way.
Frameworks like these can be a bit esoteric. But ultimately, this is a tool to determine the best way to relay a message to an audience by first understanding them well, then determining your goal of the conversation and last by framing the goal using the audience’s language and comparing or contrasting expectations.
About three years ago, I started journaling my startup education by blogging. In retrospect, blogging has been one of the most rewarding activities for me as an investor. Blogging helps me some observe changes in the start-up ecosystem, communicate trends primarily through data while strengthening and building relationships. It’s been more gratifying than I could have hoped.
Over the past year, quite a bit has happened on this blog. I’ve tried to write a post every working day on both tactical topics for startups like fundraising and management and macro/strategic subjects like the fund raising market and trends in mobile.
During that time, a small community has grown around the blog for which I’m very grateful. Traffic on the blog has grown from about 2,000 visitors per month in January to about 30,000 visitors per month in December. I find it hard to believe the growth.
It’s all thanks to you, bold entrepreneurs and intrepid founders who continue to chase big ideas, tackle challenging problems, dare to dream of disruption and innovation - and provide an unending supply of inspiration. Also, this blog wouldn’t be possible without the love, support and editing of my beautiful wife.
Thank you all for making 2012 a memorable year.
Below is a list of the top ten posts I wrote this year measured by traffic and engagement on social media - a best of. I hope you enjoy it.
It’s easy to call a tablet a larger a mobile phone. Or a replacement for a notebook or ultrabook. But to dismiss tablets as scaled clones of their bigger and smaller brothers is a mistake.
Tablets are the third type of device: the one with the most revenue potential for ecommerce and developers alike. Tablets drive greater volumes of traffic, that convert to paid at better rates, and drive better qualified and less expensive leads through advertising.
In addition, tablet demographics are much more attractive. According to Flurry, tablet owners also skew disproportionately older and wealthy with a 18 percentage point skew towards households with income exceeding $50k and a nearly 10 percentage points skew towards 55 and older users, compared to smartphones.
Not every application category will benefit from pursuing tablets. But the form factor, usage patterns, customer acquisition economics and demographics will confer tablet-first companies a unique advantage that isn’t yet evident in the market.