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Startup general interest

Alignment before freedom

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There’s a big multi-decade trend towards giving employees more freedom over how they spend their time. There are two drivers. Firstly, as the world changes faster and faster, quick response to new situations has become more of a competitive advantage and companies that empower front line employees to make decisions are winning over companies that have to wait for management to decide. The second, related, and more recent driver is that the best employees increasingly want to work in organisations that give them a large amount of control over their day to day activities. As Dan Pink correctly identified in his seminal book “Drive”, autonomy makes us happy.

The first step many companies took was to start managing by outcome, telling employees what they they should achieve rather than what to do, and then giving them autonomy over how they do it. The OKR system that many of you know is designed for this environment. Management set company goals which are then cascaded down through the organisation to individuals who figure out for themselves how best to achieve their objectives.

In the last five it so years radical CEOs have taken the trend to empowerment to the next level and given staff the power to decide what they do as well as how they do it. These CEOs want their employees to love their companies (and maybe love them) and to maximise productivity by allowing people to work on what they think is most important. Some of these experiments have worked well, most famously at Valve, where they have extraordinary employee loyalty and great creativity.

Other experiments have worked less well, often because the staff they give freedom to haven’t all pulled in the same direction. In other words they have found themselves with an alignment problem. I have seen examples in recent weeks where alignment issues resulted in productivity sapping disagreements over investing in new products and the desirable rate of growth. These are legitimate differences of opinion with no right answer and once someone has been given control over what they do there is little intellectual basis for imposing a product decision or rate of growth on them.

These companies have created a leadership challenge that could have been avoided. They gave their employees freedom before they had alignment and then when they tried to force alignment it was perceived as a removal of freedom that went against the ethos of the company. That contrasts with companies that have forced alignment first and then gave employees freedom afterwards. The experience of workers in these businesses is only one of gain.

The answer then is to only give freedom when employees are aligned.

This post is long enough already so I won’t write about how to gain alignment save to say that one way is to distil what the company does into a couple of simple phrases (at Forward Partners our job is to make great investments and deliver amazing help to our partner companies) and then align company and personal objectives with those phrases.

Pitch investors at the right level of abstraction

By | Startup general interest, Venice Project | No Comments

I’ve just read the a truly excellent guide to fundraising from First Round Capital. It’s a long read, but packed full of goodness and I highly recommend reading the whole article.

I’m going to pick out and expand on one point – it’s critical that founders pitch investors at the right level of abstraction. The two common mistakes are:

  • Pitching too much in the weeds, leaving investors unexcited about the big picture
  • Pitching at too high a level, preventing investors from really feeling the opportunity – you’re looking to create a visceral connection

As First Round put it:

The fundraising founder has to operate at the right oxygen level between the soil and the stratosphere. Not in the trenches, but not in rarified air.

Founders who are pitching too much in the weeds focus too much on operations, short term progress, and the mechanics of the business. If investors are worried about market size or exit potential, or if they are simply looking bored, you may be making this mistake.

Conversely, founders who are pitching at too high a level talk too much about market trends (often using poorly defined buzzwords) and don’t properly connect their story with their business. If investors are asking lots of questions about what you actually do or struggle to understand your story, then think about whether you are making this mistake.

The best pitches paint a picture of the future which is easy to understand and grounded in reality. Then they describe the path that will get them there, starting from where they are today.

If you’re not always improving you’re going backwards

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On Tuesday morning I went to see legendary VC Sir Mike Moritz give a talk to launch his new book Leading – thank you Felix for inviting me. Sir Mike has spent time with lots of very successful business leaders over the years and has recently been asking himself what separates those who’s companies stay at the top of their field for multiple decades and those who’s success is more fleeting.

One thing stood out for him above all other factors.

Leaders of companies with enduring success have a relentless thirst for continual improvement. They are restless and never satisfied.

He said modern day tech company leaders Jeff Bezos, Larry Page and Mark Zuckerberg have this quality in spades. Older leaders he name checked included Bill Gates, Steve Jobs and Rupert Murdoch. I’m currently reading a biography of Elon Musk, and he has this attitude too.

Sir Mike also said that Sir Alex Ferguson has a drive to make things better all the time, and that’s what kept him on top at Manchester United for 28 years (Leading tells its story through the story of Sir Alex’s success).

My initial reaction to the idea that continuous improvement begets enduring success was ‘makes sense, companies need to reinvent themselves if they want to stay on top for multiple decades and continuous improvement will do that for you’, but that underplays the importance of the point. An insatiable desire for everything to be the best it can be is key to getting to the top, not just to staying there.

Moreover, as the world changes faster and faster any other attitude is doomed to failure. A solution that’s perfect for today won’t stay perfect for very long, so unless you want to be usurped by someone who finds the solution that’s perfect for tomorrow, you’d better be continuously improving.

In the early days of a startup nothing is perfect, and oftentimes most everything is far from it. Customers might love the core product functionality, but there’s constant firefighting behind the scenes to keep everything working, make more sales, hire more people, raise more money etc. etc. Once again, relentless continuous improvement is the best route to success. Even when things are working really well the best founders aren’t happy – they’re asking themselves questions like ‘how can I grow faster?’, ‘how can I be more profitable?’ and ‘how can I make my customers love us more?’.

This may not need saying, but whilst a relentless desire for continuous improvement is a winning attitude, it is not sufficient on it’s own. It needs to be accompanied by strong leadership skills more generally. Some founders kill their companies by pushing them too hard. That almost happened to Elon Musk’s first two businesses.

Not being tricked by overconfidence

By | Startup general interest | One Comment

It seems that lots of people in my network are reading Thinking Fast and Slow by Kahneman at the moment, at least I guess that’s why I keep hearing snippets of his wisdom. The latest is from BrainPickings:

The confidence people have in their beliefs is not a measure of the quality of evidence [but] of the coherence of the story that the mind has managed to construct.

Wow.

Confidence is divorced from evidence.

 

That is a big deal for founders and investors in startups who have to convince themselves to found or invest in companies when there’s little evidence as to whether it’s a good idea or not. We look for trends and patterns amongst the few data points we have at our disposal and form strong views about where the future is going, and then put big money or time behind it. If Kahneman is right, and I suspect he is, then the strength of our conviction is more down to our ability to spin (or swallow) a story than the underlying facts.

The funny thing is that many of the most successful founders and investors simply have great judgement. They look at small amounts of data and make the right calls. They know how to test and evaluate their gut instincts and not fall foul of what I might call the ‘narrative fallacy’.

There are two tricks I use to test my theories and try to keep the quality of my decision making high. Sometimes I do these on my own, other times I involve my partners and colleagues.

  1. I try to have a clear explanation for all of my beliefs. When I’m sitting alone thinking about an investment I often ask myself ‘why do I believe XX?’. When we are discussing deals as a team I always try to explain why I’m thinking something rather than simply assert its truth.
  2. I systematically looks for reasons why I might be wrong. When we are coming close to deciding we want to do a deal we sometimes brainstorm ways the company might fail. That’s a powerful technique for companies that are unusual in any way (companies that aren’t unusual only fail in the usual ways, and we don’t need a special process to catch those).

Underpinning all this is a readiness to admit mistakes and change my mind. I like to have strong convictions, weakly held.

 

Major demographic shift – more people are living with their parent

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When I was studying social science in the 1990s one of the major trends was more and more people living alone. Academics were extrapolating trends and predicting 30%+ of us would be living alone in the future. They were picturing millions of unhappy people living in tiny apartments with insufficient social contact going quietly mad.

Fortunately that hasn’t happened.

As you can see from the third graph along in picture above (data from Pew Research) the number of 18-34 year olds living alone has been constant for a few years at 14-16%.

Note: This data is for US 18-34 years olds only, but I would be surprised if the trends aren’t the same for all ages and also in the UK.

Instead of living alone many more people are staying with their parents (first graph above). I’m sure that creates challenges of its own, but social isolation is at least less of an issue.

I think this data gives insight into social and retail trends. If you are living alone or with parents you are are:

  • More likely to spend time on social media
  • More likely to use dating sites
  • More likely to value experiences
  • More likely to spend money on fashion and other goods which define and display a sense of self

These have all been big growth areas over the last decade.

Going forward it will be interesting to think about how new opportunities and markets play into the trend of more people living with their parents.

Google closed, Facebook and Microsoft open?

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Historically Google has been a pro open web company. Open ecosystems were deep in their DNA and critical to their business model of making money from  search. Facebook, on the other hand, has been accused of trying to partition the web and keep everything within its own domain, and Microsoft has long been aggressive in leveraging it’s Windows Platform to try and own adjacent markets.

With their bot strategies they seem to be going the other way. This is from Venturebeat:

when you’re using the Google Assistant, the interaction is nearly always with Google — when you tell it to buy movie tickets, for example, you’re not talking to a Fandango bot. In fact, there are no other bots to speak of here …. With Facebook Messenger and Microsoft’s Skype, people will be able to interact with a whole lot of bots. There are already Messenger bots for 1-800-Flowers and online retail Spring, and there are Skype bots for Westin Hotels & Resorts and Domino’s Pizza.

Related to this I’ve noticed that Google is serving more and more solutions within its search results page. I was able to book a flight to Nice straight from a Chrome search on my Nexus5X last week. Previously Google courted an open ecosystem of companies and ranked the best ones highest. Now they rank themselves.

I guess it’s good to see that everyone is flexible…

Extreme poverty a thing of the past for most people

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Yesterday I wrote about the benefits of being optimistic. That’s often hard in today’s world where the media bias to reporting bad news gives us the impression that the world is going to pot. ISIS, Middle East collapse, wealth inequality, and the refugee crisis have loomed large in recent years.

However, bad as those things are, and much as I wish they would improve, the overall headline is that the world is improving fast for most people. That’s a long term trend and we can be optimistic it will continue.

One of the main axis of improvement is the rapid decline in the percentage of people living in extreme poverty which has dropped from 44% to 13% over thirty one years from 1981 to 2012. Bravo.

 

Optimism – another cognitive bias you want to have

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Cognitive biases are unconscious forces that affect our decision making, most of them negatively. Confirmation bias – the tendency to seek out information which confirms what we already believe is one of the most insidious, and sunk cost bias – the tendency to overvalue things in which we’ve invested is another common failing.

However, there are a few cognitive biases that correlate with success. Back in 2013 I wrote about four of them, of which personal exceptionalism, the macro-sense that you are at the top of your cohort is perhaps the most important.

And then today my friend and colleague Richard Hughes-Jones tweeted about another: optimism.

Optimists are normally cheerful and happy, and therefore popular, they are resilient in adapting to failures and hardships, their chances of clinical depression are reduced, their immune system is stronger, they take better care of their health, they feel healthier than others and are in fact likely to live longer.

From Kahneman.

So if we want to be successful we should cultivate a sense of optimism, and of personal exceptionalism. That said, we mustn’t go too far and end up naive or arrogant. The key with positive cognitive biases is to be aware of the bias and keep it in check, but without thinking about it enough to undermine its power.

Evaluating the prospects for life changing inventions

By | Startup general interest, Uncategorized | One Comment

This morning Chris Dixon posted The typical path of life changing inventions:

  1. I’ve never heard of it.
  2. I’ve heard of it but don’t understand it.
  3. I understand it, but I don’t see how it’s useful.
  4. I see how it could be fun for rich people, but not me.
  5. I use it, but it’s just a toy.
  6. It’s becoming more useful for me.
  7. I use it all the time.
  8. I could not imagine life without it.
  9. Seriously, people lived without it?
  10. It’s too powerful and needs to be regulated

That’s pretty accurate, but with the exception of 10. maybe not that surprising. It reminds me of the Mahatma Ghandi quote “first they ignore you, then they ridicule you, then they fight you, and then you win”, but extended and ported to a different context.

However, most would be life-changing inventions don’t make it all the way to number 10 and the interesting thing for future gazers, including VCs, is assessing how far a product will get. That requires an understanding of customers, use cases, ecosystems, cost trajectories and distribution, and it’s definitely not sufficient to think that if a product is at one stage it will progress to the next. For example, most products that people know about but don’t understand it (i.e. at stage 2) whither and die, and to know that any given product is different requires a hypothesis about how people will come to understand it and see how it’s useful.

Key elements of a brand

By | Startup general interest, Uncategorized, Venture Capital | No Comments

Brand is on my mind this morning. Mat Braddy, formerly CMO of Just Eat and now founder of Rock Pamper Scissors gave a great talk on building challenger brands at our FP Live last night and this morning I read OpenView’s brilliant teardown of how they re-invented their brand.

OpenView are one of my favourite venture capital funds, largely because they are one a small number of VCs globally pioneering a similar model to Forward Partners. Like us they have a bigger team than most other VCs so they can offer a better service to their portfolio companies, and, critically, they have chosen to be very focused so they can build expertise and offer better support. They are focused on expansion stage SaaS companies in the US. We are focused on idea and seed stage ecommerce and marketplace companies in the UK.

I don’t only like them because they think similarly to us, I also love their insight, rigour and clarity of thought, which shines through in the way they went about rebuilding their brand and the way they tell the story.

For me, these are the key insights from last night’s talk and the OpenView process.

  • Strong brands are built from the inside out – they begin with great products and cultures
  • Brands can’t be externally crafted and then applied, they must be truly aligned with what the company does and how it does it
  • The goal of a brand is to articulate the company story in a clear, focused and consistent way
  • A brand is both what the company stands for (mission, vision, values) and how the company is presented (messaging and visual identity)
  • The brand should be informed by both inside and outside perspectives – employees, customers and partners (not just the exec team)
  • The brand can lead and shape how people think about the company, but it needs to be congruent with existing perceptions
  • The best companies present consistent, but different brands to customers/partners, employees, and maybe investors
  • Above all, authenticity is the goal

Just Eat is a great case study for all this. In his talk last night Mat described how they made sure their brand was aligned to the core values of the product (convenience, simplicity), the culture of the company (fun and mischievous), and how they developed it with an inclusive process. Because they were a challenger they wanted to be controversial and that took them to the tagline “Don’t cook, Just Eat”, with the positioning that take-away is better than cooking. His advice to other challengers is to adopt something similarly controversial and then really commit. Just Eat pushed their commitment to the tagline and mischievous positioning as far as forming the Don’t Cook political party and putting forward a candidate in the Corby by-election (check out the jet-pack…).

OpenView followed a similar process but they’re a VC in the serious business of helping companies succeed, so they took a more serious tone. Their tagline is now “Powering Expansion”, which neatly captures what they do for the Series A and B companies they back.