The Unseen History

The Black Swan Exists!

For a long time it was believed that all swans are white, at least in the western world. This, of course, was disproved with the discovery of the black swan (an ugly duckling, if there ever was one) in Australia.

Years later, Nassim Nicholas Taleb wrote the book by the same name, where he coined the metaphor of The Black Swan . A metaphor for unpredictable events. In his book, Taleb takes us through a series of anecdotes and examples of how our minds fail us (over and over again).

Seeking Positive Reassurance

One of the most common problems I have encountered is the search for positive reassurance and confirmation. We’re all lonely when we look in the mirror. We all have doubts and fears, because our future is unknown to us. Entrepreneurs, more than other people, have a tendency towards bigger risks and rewards. We lead our life expecting a black swan event (the IPO, the exit, big money and respect).

Most of us will fail. Some of us will fail multiple times. Only a small portion of us will ever make it. I’ve heard many statistics (1 in10,000 start-ups success, 1 in 10 funded start-ups succeed, etc.), but I don’t have any sources for these rumors (help welcomed). With such abysmal odds, there’s no wonder we seek confirmation. The problem, Taleb explains, is that we are, by nature, terrible at statistics and generalizations of extreme odds.

When filling a lottery ticket, most people can’t evaluate the difference between 1 in a 1000 chance of winning to one in a million. For the average Joe, they both seem just as likely. After all, we’ve all heard of lottery winners, right? So it must be possible to win, and the average Joe spends more on tickets than he’ll ever gain.

I do the same thing. I read blogs about start-ups, by Venture Capitals and Founders, successful people that share their wisdom. It was only when I’ve read The Black Swan that I realized I’m only looking at the visible history of entrepreneurship.

The History Unseen

The Unseen History is the story of failed start-ups and entrepreneurs. For reasons that should by now be obvious, these stories get much less attention than the successes. It is the same as you would never hear on the news the story of a guy who drove to work without having an accident. This is why I’m sharing my experiences in near real-time, because it’s rare to understand how things seem as they go along.

I’ll give you an example. Imagine you are going to MIT Bootcamp, where you will hear many (many!) success stories of young entrepreneurs who got magnificent deals from Sequoia and now have millions of users waiting in line to pay them large sums of money. Almost everyone on stage will try to stress how much hard work and effort is required, and how much doubt and frustration they have felt, while working on the product. They will all fail.

What the audience sees is two slides:

Programming in underwear

Huge piles of money

Million Dollar Baby

The audience can’t feel the frustration or see the passage of time. There are only two slides, and not enough story between them. In a twenty minute talk, the only take away seems to be:

  1. If I work very hard, then
  2. Huge piles of money

Just as a year ago:

  1. Real estate prices keep going up for a long time, so
  2. It’s a good idea to buy a house

The First Time Is Always Painful

While our new startup keeps making progress (prototype is working! first paying customer! a seasoned no-bullshit guy for our advisory board!), there are still many things on the roadmap. We’re talking with many potential customers. We are looking for a strategic investor to help us raise the seed capital we require. We plan to add employees #3 and beyond. Problem is, I don’t know how well (or ill) I’m doing. There is no scale, no measure, and no score card.

The average VC sees about a thousand entrepreneurs a year, but closes on ten deals. I have only one startup. I know I’m not #1 yet. I’m desperate to know if I’m #11 or #50 or #500 or last. Have I moved a few steps up this week? Am I closer to great success? I’m probably not supposed to think about it in these terms, but I can’t help myself.

  1. People compare themselves all the time, so
  2. Everything is a competition

So now I’m programming in my underwear, and on my way to huge piles of money. If you, like me, need someone to compare yourself to, you can compare yourself to me. In real time.

Management Tip: Push Past the Possible

A while ago I helped a team of developers with the database integration aspect of their project. How I love working at BigCo! As I worked, minding my own business, I couldn’t help but overhear a heated debate between the project manager and the head of development.
The project manager suggested something that seemed quite reckless, foolish even, and as far as the head of development, it was a no starter.

Developers seek Perfection

For the sake of an example, imagine a company manufacturing car brakes. Now, let’s assume that you are the engineer in charge of the new magnetic-hydraulic-brakes development team. These magnetic brakes are great, because they are more energy efficient, and they react faster. The drawback is that they need to be fitted differently in each car model for them to work.

What you’ve been doing for a while now, is running behind your sales team, calibrating and testing the system on every new model that sales thought was important. This is a long and time consuming process, and it is also quite expensive, because after you calculated the changes required for a car – you actually need a car for a test-drive.

After four months of hard work, the project manager comes into your office and says: “listen, this custom fitting and testing of the brakes is taking too long, and is too expensive. Also, we need to be able to fit these babies for next year’s models. We can’t ask Ford to send us a car that doesn’t exist yet! I want you to find a way to fit and test the brakes without having the car.”

You heard something different. You heard: “you are doing a bad job.” Blood is rushing in your ears. No, no, no, this is the only way to get accurate results. Not testing the brakes is just reckless. And dangerous. And stupid. You explain it to her, slowly, as if she was retarded. You are quite frustrated, because a good project manager would have understood this already.

In fact, the project manager knows exactly how and why you do what you do. She just doesn’t care.

Project Managers seek Compromise

She knows that if you can’t fit the brakes to next year’s models, the department will be terminated. She also knows that hardly any consumer upgrades the brakes on their car, so the brakes must be fitted for the factory line. She explains this. You state, again, that this is too dangerous. She says she doesn’t understand why you can’t simulate a car model. You explain, at great length, how you don’t have enough man power to write a simulation accurate enough.

Remember I’m still sitting there, in the corner, minding my own business? So I’m thinking: “gee-sh, why doesn’t she get it already.” But I’m not saying anything, and the project manager is pushing even harder for answers, drilling down the details of the No. She keeps saying, “I don’t understand why you can’t do it. How long will it take? Can’t you do a partial simulation? Can’t you use existing data and extrapolate missing points?”

Suddenly, a miracle occurs. Instead of calling her an idiot, one of her questions triggers something. You are quiet for a moment, and then you say that maybe – just maybe – you can use last year’s model and it will help do 50% of the calibration automatically. The conversation takes off. The two of you quickly go over the details, and with this new understanding, the project manager goes out to see if Ford can plan the new car given you will use last years fittings, and will finish the work with an early prototype.

Impossible is just very Improbable

I was amazed, and you should be too.

After months of working in a certain way, the development team started taking their assumptions for granted, mistaking them for facts. The project manager was able to force everybody to re-examine their assumptions. When put under heavy scrutiny, some of these assumptions were discovered to be irrelevant.

Don’t let the people you manage get too comfortable. It is your job, as manager, to push past what is considered possible today, questioning again and again the processes that you work by.

This is the Toyota Way

Toyota has a fifty years old tradition of self-inspection and self-improvement. This is how Toyota has become a leading car manufacture. You can see the 14 principles here.

Principle 14

  • Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen).

The process of becoming a learning organization involves criticizing every aspect of what one does. The general problem solving technique to determine the root cause of a problem includes:

  1. Initial problem perception
  2. Clarify the problem
  3. Locate area/point of cause
  4. Investigate root cause (5 whys)
  5. Countermeasure
  6. Evaluate
  7. Standardize

Always keep improving your organization.

(Sorry for the quality of the video)

All Marketers Are Liars

Seth Godin has written a book titled “All Marketers Are Liars“, meaning all marketers are storytellers. They do not tell the whole truth and nothing but. It isn’t their job. The job of a good marketer is to sell you a story that you can relate to. A story that will create a brand, a movement, a want. The marketer wants you to remember the product when you are looking for a solution to a problem, and wants to assure you you’ve made the right choice when you are having second thoughts about money spent.

The marketer’s job is to create perceived value, that is greater that the worth of the manufacturing.

Think of Zappos – Zappos created immense value to their customers through exceptional customer service. Zappos isn’t about the shoes. It is about happiness.

Think of McDonald’s – the king of fast food is not about the quality hamburgers. It is about very accessible burgers. Just look at how hard the marketers are working to change the perception of the company to understand how powerful your company’s image is.

Now think of the generic DVD player you bought from an unknown Chinese provider. Why did you buy it? Because it is cheaper, and you couldn’t find anything remarkable in any of the other products. Quality of picture is the same, they all display Divx movies, they all have a USB plug, they all break after six months. So you bought the cheapest one.

Without perceived value, you can only fight for price and the race to the bottom will kill a business.

All Marketers Are Storytellers

This week on TED, Rory Sutherland explained the job of a marketer with grace and a lot of humor. Also, he tells an unbelievable story of the branding of a morning cereals. A square turned into a diamond, becomes much tastier!

Don’t Lie To Me!

In Israel there are four Internet Service Providers, which are basically the same. They give the same crappy service, the same bandwidth offerings, and the same prices more or less. It’s hard to tell exactly, because your price depends quite a bit on how much you are willing to haggle with the sales person.

Yesterday I got the monthly bill from my ISP, and on the back of the envelope there was a poll result about who is the the most valuable (i.e. cheapest) ISP. In order to get an answer, they called many households and asked them who they percieve as the most valuable.

No facts were harmed doing the creation of this poll. And a shame it is, since this particular question (who is cheapest) is really easy to answer. The worst thing you can do is have your customers catch you, as you try to pull one out of a hat. If you are tainted as a liar, nothing you say will change that for a very long time.

Fighting My Instincts

Project management is about combining what’s now with what’s next. A good project manager knows what status the project is right now, but also has a vision about where the project needs to go. At some point, the vision is transformed into a series of features and each feature is described as a list of tasks, that someone on the team needs to do.

Entrepreneurship is all about vision and getting there. Experienced project and product managers understand that there is a very long process between having an idea and having a product. Developers don’t always notice this. We work in smaller chunks. We tend to dive real deep into much smaller ponds. We have greater understanding of detail, but less understanding of the bigger picture.

You have to stop thinking like a developer

Building a startup is a process. It starts with an idea. The idea has to go through market validation. Do people want what you are making? How can you tell? Only then you can start developing. In many cases, what fails a startup is not the technology, but the product-market fit.

I’m a developer. I think like a developer. My instincts tell me:

This is a really cool piece of technology I’m thinking of. If I write this software, I bet everyone will love me and shed me with riches and prestige and hot chicks. RESTECP.

My instincts are stupid. And shallow.

You will not get rich by writing great software. You will get rich by writing get software people want to buy. Or at least, software they want to use. Jeff has said it better than me:

A smart software developer realizes that their job is far more than writing code and shipping it; their job is to build software that people will actually want to use. That encompasses coding, sure, but it also includes a whole host of holistic, non-coding activities that are critical to the overall success of the software. Things like documentation, interaction design, cultivating user community, all the way up to the product vision itself. If you get that stuff wrong, it won’t matter what kind of code you’ve written.

You have to start thinking like a product manager

The product manager is the person responsible for the transition between what the market wants and what the product is. There are many different approaches to product management, but one of my favorites is that of Eric Ries. Eric teaches a type of product management that is based on rigorous scientific methods. I love these methods because I love numbers.

Here are the pillars of the Lean Startup:

  • Progress is Learning per Dollar. You are looking for a product-market fit. Each dollar spent, should get you closer to product-market fit. Don’t measure progress in features and lines of code. Measure progress in the maximum amount of information you can gain from each dollar. This means:
  • Measure. How is my product performing in the market? The best performance indicators are concrete. How much time does a user spend on my site? What percentage of people downloading my demo actually buy the complete version? What is the Life Time Value of an average customer pay? How much does it cost me to get a new customer?
  • Split Test. Does this change improves the performance of my product? Have half your users use one version, and half use the other version. How did performance compare? There are simple mathematical tools for hypothesis testing, and they are highly recommended. Make small changes at a time, and measure all the time.

These ideas may be easier to implement for a website, however, the practices of the Lean Startup are translating into other fields as well.

I am fighting my instincts.

I am a developer. My instincts tell me I should write the code, right now! Every time we talk to a potential customer or potential investor, I think, “screw this. I should be coding. If I were, the product would be done, and they would all buy into it in great quantities”. But we still hear “No”, more than we hear “Yes”. And sometimes we hear a “Maybe”, which could be a “Yes”, if we understand the product-market fit better.

We still need to find a way to get “Yes” all the way through, before we invest too much in code that does not improve our product.

The Plumber Conundrum

All plumbers talk the same

Today I woke up to the sound of a man’s voice talking outside my bedroom window. He was talking to the lady living downstairs. As he was talking, I realized I have heard this conversation before

“Hey, lady, look, this is a very complicated issue. Can I talk to your husband?”

All plumbers act as if they believe all women are incapable of thinking. This is a false impression. In fact, plumbers found out that women are harder negotiators than men are. We think we’re so good at it, until we are confronted with an expert. You’ll see what I’m talking about after you hear the conversation with the husband:

“Hey, John, how are you? Look, listen, I’ve been talking to your wife here, and she wanted me to explain to you what the problem is. You see, there is a pipe in your garden, you know, the gray one? Yes, the one going from you wall down to the ground. This is very serious. It should in fact go sideways, and then into the ground. Uh-huh. Yup. I knew you would understand. So now I need to dig all around your garden for a day and it’ll cost you 2000$, but you’ll get a grade A job done here. Uh-huh. Otherwise, the problem will reappear next year and it’ll end up costing you double.”

This is schmoozing.

Schmooze (v): talk idly or casually and in a friendly way.

It sounds like: I respect you, we are friends, now trust me on this one. When in fact it is: you are too embarrassed to ask, buy I am lying through my teeth.

Men are schmooze-suckers

Men have underdeveloped language centers and over developed ego centers. When being fast-talked by one of these experts, in an area we understand nothing about, we get confused. Our first reaction is what makes us suckers – it’s the instinct dictating that we hide our ignorance. So the plumber is talking fast, and we’re going ah-ha, ah-ha. And then we pull out our wallets, thinking, “boy, am I happy I got this on time!”

Women simply say: “I don’t care. It sounds too expensive, and I want a second opinion.”

How not to fall on your face

I would be a terrible at this. At one time, I was  squeezed 400$  (more than tripling the original price) by a plumber making a face, pointing at the floor and saying, “oh-no, this is terrible. It’ll be lots and lots of work.” Just the notion of negotiation is beyond my grasp. In my mind, people should ask for a fair price, and I should pay a fair price.

The plumber, on the other hand,  is thinking: how can I make the most of this crap? After all, after he’s done with my crap, he has to go and pile some more crap. He’s a plumber. By definition, he has a crappy job. So what he’s trying to do, is maximize the amount of money he can get, per job, so that he could finish the day early, go home and take a shower.

In business school, they teach that a repeat customer is worth more than a disgruntled customer. This is because the loyal customer pays you more than once, and he tweets about you to his friends And now they come over and pay you some more. A disgruntled customer buys where he tells horror stories about you, and now his friends will never-ever try your product. When you sum it up, the happy customer is worth more, even if he pays less every time.

Please, don’t schmooze me. Repeat customers are worth your honesty.