Why do entrepreneurs run?

29 05 2009

Kevin Owocki asked a question I’ve wondered about myself: Why do so many entrepreneurs run? (Larry Cheng too)

I’m not interested in getting to the bottom of cause vs. correlation, I’m just pointing out that it seems there are a higher percentage of entrepreneurs and executives involved in endurance sports that the general population. While I still have a lot to prove to be considered in the same entrepreneurial orbit as many of the examples I’m thinking of, I definitely have the entrepreneurial bug. And I couldn’t imagine life without running – if you’ve had to deal with me on a day that I wasn’t able to run, you probably got my impatient side (sorry).

So what is it about being a runner that translates well to running a company?

  1. I love a challenge. Lots of people in business are competitive, but I especially like competing against former versions of myself. I love to progressively go further and faster.
  2. I love data and metrics. You don’t have to be a gadget geek to be a runner, but if you are a gadget geek by nature running will feed your addiction. Exhibit A: my Garmin 405. Heart rate, time, distance, real-time pace (the holy grail), virtual training partners, this has it all.
  3. I have a healthy ‘reality distortion field’ around my abilities. Let’s be real, you don’t start or run a company without thinking that you’re better than the average Joe. And you don’t sign up for a marathon unless you think there’s some hidden athletic potential just waiting to be given life. Of course you’re given plenty of reminders along the way that you are just as human as the next guy (in running and business), but in your own mind you have to have an edge.
  4. Running quiets my mind. Most of us are constantly thinking – we never mentally “clock out”. Running is cathartic in that it’s the one time I can actually clear my mind and just listen to my breathing, appreciate the scenery, and rest my thoughts. I’ve talked to a lot of people who are the exact opposite – they do their best thinking on a run. Not me. I zone out, and it’s fantastic.
  5. Running teaches me how to motivate myself. This is the big one. The daily execution needed to get fast is a perfect metaphor for business. It gets hard. Morning comes early. There are lots of unexciting, repetitive miles. The late miles of a race are really, really tough. Putting yourself through all of that as a runner teaches you an amazing amount about yourself and how you respond to goals, setbacks, little victories, and “walls”. I’ve learned lots of tricks from running that also work to keep me motivated in my work life.

How about you? What else do you do that translates to your career?


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Categories : Business, Entrepreneurship, Inspiration

3 Reasons Why China Will Dominate Electric Vehicles

9 05 2009

As much as I wish that the US auto companies could lead the transition to alternative fuel vehicles, I don’t think it will happen. I think China will emerge as the dominant exporter of electric vehicles, just as Japan came to own the small car category. Here’s why:

1. China will reach sufficiently high volume before other countries. According to earth2tech, China plans to convert to (mostly) electric within the next 10 years. If they are able to do that, they will lead the charge down the experience curve, meaning that as China’s cumulative production grows, they will get better and better at producing. This drives down cost, and makes it very difficult for competitors to catch up without pricing under cost. Another factor pulling China down the experience curve? A billion people to sell cars to.

2. The Chinese government has made a credible commitment to becoming a leader in this new field. They have appointed a former Audi engineer as Minister of Science and Technology, and created significant rebates (which, wisely, go to consumers rather than manufacturers). Unencumbered by a legacy auto industry, China is free to focus on building an auto industry from the ground up that is optimized for hybrid and electric vehicles.

3. Finally, China can beat Detroit in one key area that has plagued the Big 3 for years: labor. China’s huge labor pool can staff as many factories as China can build, and do it very inexpensively. Surely that had to be at least one reason that Charlie Munger has been so outspoken about BYD.


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Categories : Business, Innovation

Living The Dream

30 04 2009

“If you go to Stanford University, you’re in the rare position of privilege that you’ll pretty much get to choose what you do in life, and that puts you in less than 1% of the world. I always like to say to people like the folks in this room, ‘You have no excuse in life not to do things that you’re passionate about’. There are a lot of people that will never get to, and so if you’re doing something that you’re not passionate about you’re flunking a cosmic IQ test. And you could learn that IQ test now, or you can learn it when you’re 40 and miserable in a job you don’t like. But in the end, you know what your passion is, and when people and forces in the world try to prevent you from pursuing it turn off the noise and the hype and believe yourself, because so few people do.” – Mike Maples, Maples Investments

Mike Maples said that in a presentation to Stanford students in January 2008. There are a handful of schools that you could substitute for “Stanford University” in that quote, and something hit me quite powerfully when I heard Mike’s talk:

I go to one of those universities.

MIT puts me in that “rare position of privilege”, and I’ll always be grateful to the admissions officer that found it in his or her heart to let me in. The quote reminded me of another MIT story:

There’s a great lesson at about 0:45. All of us who have been given this gift to choose what we do in life don’t owe it to ourselves to do what we’re passionate about.

We owe it to everyone who won’t ever have that chance.

It’s up to us to follow our passions, so that someday years from now we can tell the story about the time we had a choice to make, and we chose to ignore the “noise and the hype” and believe ourselves. Believe the voice that whispers about passion while the talking heads shout conventional wisdom. And someone will hear that story while they’re young, and despite never having this gift to go to MIT or Stanford or wherever they will choose to follow their passion too. And who knows what will come of that.

Follow your passion people.


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How to find a problem worth solving

29 04 2009

Before we lay out how to find a market problem worth solving (thus creating a wildly successful company), let’s remember what we talked about last time:

  1. Products diffuse throughout a market in a similar pattern called an S curve.
  2. Your product isn’t an exception. It must start at the beginning of the curve.
  3. The beginning of the curve is inhabited by early adapters, who I like to call “hackers” because they have a tendency to hack or modify products to fit their needs.
  4. Customer Development (and other methodologies) teach us how to understand the needs of hackers/early adopters.
  5. If there are no hackers, it’s likely that there is no S curve, which means there’s no mass market and no huge company at the end of the rainbow.

A basic tenet of Customer Development is that the founding team does everything possible to find a market for their original product vision. So the ability to find early adopters is extremely valuable to validate your idea as a founder and move your company along the S curve. But this raises a question:

What if you need an idea to begin with?

Hackers and early adopters are still your answer, but the goal is not to sell them on a product that you haven’t thought of yet. It’s to let them serve as muse to guide you toward a burgeoning need that foreshadows a mass market. Here a corollary to Customer Development called Lead User Theory is extremely helpful.

Lead User Theory was pioneered by MIT professor Eric Von Hippel, who hypothesized in the early ’70s that “lead users” (ie hackers/early adopters) are the best source of new innovation. Several studies by Von Hippel and others have shown this to be true:

“Two such studies have quantitatively compared the outputs of lead user idea generation studies with the outputs of traditional “voice of the customer” studies that focus on target market customers (Griffin 1997). These found that the ideas generated by a process using inputs from lead users have much higher commercial attractiveness (Urban and von Hippel 1988, Lilien et al. 2002).”

Lead users share some common characteristics:

  • High payoff from modifying or tinkering current solutions (ie they have an acute pain point that no current product adequately solves)
  • Access to tools or resources needed to tinker
  • Their needs foreshadow mass market needs

So, how do you find lead users?

Professor Von Hippel has developed a methodology tested with small and large companies alike. There are four steps to lead user innovation:

  1. Generate goals for lead user generation. In a startup this would be done by the founding team and include target markets, criteria for idea candidates, etc.
  2. Research industry trends and leaders, with a focus toward the leading edge or most demanding users.
  3. PICK UP THE PHONE and call industry leaders to ask one key question: “Who is doing the most interesting work related to [trend you identified in step 2]?” Professor Von Hippel calls this “lead use pyramid networking”.
  4. Invite lead users to attend a “lead user workshop” that you host. They will be delighted to find out that someone else is actually geeking out on the same stuff they are, and you will enjoy a day of brainstorming with lead users to identify market opportunities.

The big secret that allows this method to work is no one ever does this. Your lead users will be shocked that anyone cares enough about what they’re doing to ask their opinion. They spend their free time blogging about their passion, posting on forums with other fanatics, and starting fan clubs. They wouldn’t dream that a company wants to produce a shiny new version of their hacked-together creation.

Lest you think this couldn’t possibly work, think about these examples of lead user innovation:

1. TechCrunch is arguably the most influential tech blog with 2.2 million subscribers. Since it’s their job to cover Internet startups, they are among the heaviest Internet users. They decided that they would love to have a simple tablet computer that was just a screen and a web browser. No one makes this, so they decided to build one. It’s called the the TechCrunch Tablet, and it’s likely to be a sign of things to come as more users move the majority of their computing online.

2. Doctors are quite frequently lead users. They have very specialized needs, a high motivation to tinker, and access to resources. The New York Times profiled Dr. Nathaniel Sims, who has 10 patents to his credit. One of his inventions now accounts for $700 million in sales every year.

3. Kite surfing was practically invented by lead users. In a study (warning: lots of statistics) conducted in 2006, Franke, Von Hippel, and Schreier found that 20% of kite surfers had ideas for new inventions that weren’t currently on the market. This is also the story of mountain biking and snowboarding.

Hackers are an endless source of ideas for new products and companies for the simple reason that they are solving their own pain. Lead user theory will help you identify innovations that foreshadow mass market needs and form the basis for great companies.


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Categories : Entrepreneurship, Innovation, Products

Why you must find your hackers

23 04 2009

Building off earlier work, Geoffrey Moore, Malcolm Gladwell, and others have helped technology entrepreneurs understand how innovative products diffuse throughout a market. Graphically it looks like this:

scurvebellcurve1

While the slope of your product’s curve will vary, most technology adoption cycles will follow a pattern like this. What we take away from this is that there’s a process – a method to the madness – and you can’t hijack an S curve at the halfway point. You start where everyone else does.

At the beginning.

The reason is that customers at each stage of the curve need something provided by the previous step. Late adopters need the validation provided by early adopters, while the technology enthusiasts at the front of the curve want open space before them. They value being the first to adopt something new, often simply for the technology’s sake. If your product is going to reach the mass market, landing you on the cover of Forbes, the technology enthusiasts – hackers* – are your gatekeepers.

So, you have a choice. You can release products into the ether and hope that they end up in the hands of hackers, miraculously diffusing throughout the rest of the adoption curve.

Or you can actually have a strategy.

Customer development is a tool that can help you understand the needs of the hackers (or earlyvangelists, as Steve Blank calls them). Traditional tools like voice of the customer won’t do this for you because traditional methods sample the majority. Customers in the majority don’t foreshadow future mass market needs that are the tide that raises your ship. You need hackers.

This raises a question: what if you do everything right, and you can’t find the hackers? Frankly, if there are no early adopters, there may not be a pain worth solving. This is a BIG idea. No one hacking/mod’ing/tinkering in your market? Time to be honest with yourself and go find the hackers in another market.

So how do you find the hackers?

Well, that’s the subject of another post.

***
*When I refer to hackers, I don’t only mean hackers that hack computers. I mean the tinkerers, the mod’ers, the users who don’t ask who else is using your product before they want to dive in and take the cover off.


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What tech can learn from Toyota

16 04 2009

Today I had the pleasure of listening to Jamie Bonini teach the Toyota Production System (TPS). I’m not an auto industry guy (not to be confused with “car guy”, which I am), but from what I had heard of TPS I knew it applied to more than building Camrys so I was excited to hear what Jamie had to say.

This isn’t a new insight to apply TPS to tech; others have outlined opportunities for cross pollination. Regardless, here’s a few things that stood out to me:

Toyota’s culture of no waste, ruthless precision, just in time, etc. is strict by North American standards. Jamie called it “the collective over the individual”. Yet Toyota is also a recognized innovator, and widely copied. But no one (with the possible exception of Honda) seems to be able to replicate the magic.* The irony is that the rigorous culture is what enables innovation without putting the entire system at risk. Here’s what I mean:

Everyone at Toyota is encouraged – even required – to behave like a scientist. While the rest of us are cheering about goals and visions, TPS distinguishes between a goal and a hypothesis. Every process in TPS is a hypothesis, from the mundane to the complex, so there is a “control” for every process and anyone can predict specific changes that will give a certain outcome.

And they do. So they try it.

If the outcome is better than the “control” outcome, then they have found a better way. If not then no problem, this was just an experiment performed locally. Taken a step further, every action is an experiment since every process is a hypothesis.

An extension of this philosophy is that there is no “pooling” in TPS, ie a product waiting in queue to be processed by the next available machine. Each part is handled by a specific machine or person (yes this applies to people too). At first glance this seems counter-intuitive; what if you have a backlog at one station, and an identical machine sitting idle? Well that’s exactly the point. Why were the parts allocated inefficiently in the first place? By hard-coding the process flow, TPS exposes inefficiencies in the system.

So how does this apply to tech? Technology, and especially software, is the perfect playground to apply TPS – maybe even better than cars due to the ease of moving bits vs sheet metal. At its heart, TPS is about waging war on waste. Toyota sees waste in overproduction or defects needing to be reworked, but in our world that translates to “building something nobody wants“. It can be a feature or an entire product, but at the end of the day an engineer made something a user didn’t want. That’s a compounding problem because you 1) lost time 2) didn’t learn anything about your customer and 3) still have to pay the engineer.

One way to begin implementing TPS is to work in small batches. Doing so allows you to spot inefficiencies, conduct local experiments, and quickly integrate learning back in the “control” process.

*Reminds me of Zappos in this sense, who has nearly open sourced their incredible model. Still, no one has yet matched their culture and therefore hasn’t fully executed the model.


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Categories : Inspiration, MIT

The REAL reason that people matter

11 04 2009

There’s a good reason that investors back people, not ideas (although some back markets, but that’s a different post). However, most investors can’t really articulate why they filter for great teams. Intuitively they know it increases the odds, but they usually just say something like “Well, an A team with a B product etc etc”.

This is why:

In most (interesting) startups you’re either doing something completely new or you’re resegmenting an existing market. What you are not doing is competing in a known market on a known basis of competition. Eric Ries’ Lean Startup concept describes this as creating an unknown solution to an unknown problem.

In a company’s earliest stages job #1 is to pinpoint and validate the customer problem that you’re trying to solve. But this is an unknown. If the problem were known and validated by customers, you’d be scaling up. But you’re not, because you know better.

Finding the right problem to solve (aka customer discovery) is like diagnosing a rare disease. Think Dr. House. It’s an iterative process of observation, hypothesis, testing, and refinement. Clayton Christensen points out several businesses, other than hospitals, that create value this way, like ad agencies and consulting firms. Professor Oystein Fjelstad calls this type of business model a “shop”, as in a solution shop.

Solution shops don’t create value through the resources they control, but through the people they employ. Their people need to be intuitive, analytical, visionary, and just plain smart in order to diagnose the right problem to solve.

Like in a startup.

See, in the beginning all (interesting) startups are solution shops, and that’s the real reason that the people in your startup matter. They are there to find the right problem to solve, without which you don’t stand a chance. This early step is so important because it has so much ensuing leverage. Picture this: you’re Google, and it’s 1999. Somebody walks in the front door with a one page brief called “Monetize Search By Allowing Anyone To Bid On Keywords”. What is that worth to you? ($117 billion as of yesterday).

Get this right and it almost doesn’t matter what else you get wrong. Get this wrong and you end up a solution forever in search of a problem.


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Cultural influence on entrepreneurship

13 03 2009

There are a lot of reasons that entrepreneurs start companies. At a macro level, policy and culture play a role in the aggregate amount of entrepreneurship. In a special report on entrepreneurship, The Economist highlights the growing importance of entrepreneurship on a country’s economy.

Since 2003 the World Bank has published a report called Doing Business that ranks how business friendly various countries are. It measures things like business regulations, property rights and access to credit. Here’s the top 10 and bottom 10:

World Bank - Doing Business

Simply ranking countries has motivated their leaders to drive reform. In 2007 some of the top movers were Senegal, Burkina Faso and Botswana. What is interesting is the correlation between company creation and pro-business regulations:

correlation between company creation and pro-business regulations

The thing that stands out to me is that on the left side of the graph – where it’s “easier” to start a business – has a wide range of company creation rates. As you move right, the rate of company creation becomes more concentrated at the low end. Basically if you live in a country that makes it hard to start a business you’re unlikely to try it. But if you live in a pro-startup country you are just as likely to try it as you are to play it safe in a traditional job.

Why the low correlation in pro-business countries? I think it’s because of the cultural influence on entrepreneurship. In countries like Singapore and the US where entrepreneurs are admired, and where it’s pretty straightforward to launch a company, the creation rate is high. However in other countries where entrepreneurs aren’t as admired on college campuses and in the press there can be a lower incidence of entrepreneurship, even if the government is on your side.

The other argument of low startup rates in pro-startup countries could be access to capital. However, I’d rank this below culture. I think that it’s rare for lack of capital to be the deal breaker. Committed entrepreneurs adjust their scale and timelines to the capital they have available.

What all this means is this: if we want to dig our way out of what is now a global economic crisis, it’s crucial that we nurture much more than the credit markets. We’ve got to encourage policies that remove unnecessary obstacles to starting a business, and we’ve got to praise those who dare to do it.


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The New Normal

28 10 2008

I’m generally a Mark Cuban fan, and he illustrated a point I’ve been thinking about lately with this blog post about the “new normal”.

I’m not smart enough to know exactly how things will look in 10 years, but I’d be willing to bet that the rate of change has accelerated beyond any other 10 year period in recent history. I agree with Cuban that what happened in the financial markets over the last month can’t be analyzed in terms of historical norms. “Normal” just fell off a cliff with the Dow.

Warren Buffett is as likely as anyone else to know what is going on, and he’s buying. However, even Buffett would tell you he doesn’t have a crystal ball.

There will be innovators who will correctly predict how the dominoes fall as a result of the current financial environment, and they will make a fortune. This is a huge opportunity for anyone who has patiently, consistently stayed on top of their industry waiting for a reshuffling of the pecking order. I’m paying my respects in advance for their ingenuity.

However, most of us (me included) are probably too stunned to know what to do and will by default do nothing. We’ll stuff cash in our mattresses and wait for some indication of where things are going. I’m not being critical, nobody can be an expert at everything, and turning the current crisis into an opportunity will take a decent amount of luck in addition to quick thinking. But my hat’s off to those who innovate their way out of 2008, and correctly predict the future by creating it.


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Book Recommedation: Better by Atul Gawande

28 09 2008

If you’re looking for a quick, meaningful, and thought provoking read try Better: A Surgeon’s Notes On Performance by Atul Gawande. Standing in a book store before a long flight, the subtitle caught my attention, and I decided to pick it up. My grandpa is a surgeon and I’ve always been fascinated with his work, so I was curious what a surgeon would have to say about performance, and presumably achieving better performance.

Better was great. Several stories about how health care providers have gotten better at hand washing, treating cystic fibrosis, and delivering babies, for example. The great common theme is that a few simple modifications in thinking and/or behavior can have great impact. For a surgeon, this means more patients live.

One suggestion that Gawande makes that I wanted to call out is to count something.

Regardless of what one ultimately does in medicine – or outside medicine, for that matter – one should be a scientist in this world. In the simplest terms, this means one should count something…It doesn’t really matter what you count. You don’t need a research grant. The only requirement is that what you count should be interesting to you.

Gawande shares the story of Dr. Virginia Apgar, creator of the Apgar Score. Dr. Apgar overcame several hurdles to become a doctor, and made a huge contribution to the mortality rates of infants by creating a simple scoring mechanism that rates how healthy a newborn is at birth. She observed that many newborns born with conditions such as low birth weight, blue skin, or weak breathing were essentially left to die. She began scoring newborns’ conditions in her own hospital, and later published the scoring system. It turned out that by simply quantifying a newborn’s state, doctors changed how they administered treatment and as a result, thousands of young lives are saved each year.

I don’t know what I’ll count, but I will try counting something.


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