The Art of the Pivot

The hardest part of entrepreneurship is to know when it’s time to change direction, to pivot, and when it’s time to stay the course.

Foremost, you must be able to distinguish between internal operating problems, and external problems of the product in the marketplace.

The first requires improving competence and processes of the team, the second requires a product pivot.

Signs That You Need to Pivot

Product management in competitive marketplace, like the Art of War, involves tactics, strategy and vision.

When a product has problems competing, the first signs are in everyday tactical work.

From tactics to vision, here are signs to look for in the product management processes.

Scrum & Agile Development

When a product falters in the marketplace, Key Performance Indicators (KPIs) and other analytical measures will flatten or start dropping

The KPIs can drop in spite of product improvements. Completion of projects in the product’s agile backlogs may not bring the expected improvements.

Scrum and Agile are the most effective in prioritizing and completing projects in collaboration with all the product’s stakeholders. The agile processes are, however, poor in diagnosing more strategic and vision problems

UX Redesign

Research and testing with Users is the first step in fixing issues with an under-performing product.

UX Design Stack

Collaborative design with mixed skill teams, which include User feedback, is the backbone of UX design.

UX addresses usability, product identity & narrative, branding, aesthetics, gamification improvements. Improvements in the entire design stack, shown in the graph, are tested with users to validate the work.

The UX design team must, however, recognize when a product’s problem are beyond the scope of just improving the User’s Experience.

A wider view, which includes the marketplace, is needed to solve the product’s problems.

Lean Startup

The business canvas is the best way to map out the immediate strategic issues of a product

Lean Business Canvas

The lean startup and customer development, are excellent methods to collect information for the Business Canvas.

The processes build lightweight prototypes/modifications and measure User’s reactions to when using them. Lean startup is able to prioritize the weakest areas and riskiest assumptions in the business canvas, and establish the cause of a product’s weakness,

When a product’s vision still has full potency, these build-measure-learn iterations are sufficient for small change pivots, like price, narrative and re-targeting customer segments.

Based on the business canvas, a lean startup team can establish, also, when a product’s problems are beyond their responsibility.

Design Thinking

Design Thinking

When a product’s problem are beyond quick build-measure-learn iterations. Questions of vision and purpose may come into play. The framework for a possible solutions expands beyond a business canvas.

A more extensive user research project, a full ethnography, may be needed to understand the User’s full daily environment. An ethnography enables a wider exploration of the problem domain.

Design Thinking provides processes and people culture to explore a wider area of ideas. The product’s situation can be mapped, studied through ideation, prototyping, user testing and other creative methods.

Design thinking always starts by framing the problem, defining a goal, including time-frames and constraints. The design thinking team can, also, identify when and how a product’s problems are beyond the scope of their fixing.

Entrepreneurship

In spite of well established methodologies, products fail all the time.

The best product management teams in the world cannot fix a depreciated product vision. Usually, the breadth of pivot required exceeds their framework of competencies.

Entrepreneurs, however, continually create products that disrupt markets, even without the help of formal methodologies.

Hence, once the product’s vision has lost potency, the product’s founders must create a product vision anew. The owners must embark on an entrepreneurial big pivot.

The new product vision must show how to make the product original & valuable again, how to achieve a unique differential in the marketplace.

Clearly, entrepreneurs operate on a wider vision of the market place. The  widest understanding of the context for a product.

The broadest context canvas is “USER”, “TECHNOLOGY”, and “MARKET”, as shown. The most common forms of product failure, for example, can described as follows:

  • USERS: no differential utility
  • TECHNOLOGY: will take several decades to mature
  • MARKET: squeezed out of the value chain by bigger players

 The Art of Entrepreneurship

A big pivot, an entrepreneurial project, has the widest framework and freedom from constraints allowable. The bigger the problem perceived by the product team, the wider the allowances made to the big pivot team.

The art of the pivot is combining the freedom and the constraints. A
judicious blend of bottom-up experimentation and top-down guidance.

Freedom Constraints
Bottom-Up Top-down
Original Valuable
Exploratory Procedural
Ideation Synthesis
Problem Focused Tools Focused
Problem Pulls Method Pushes
Discover Exploite
Rebel Collaborate
Interesting Useful
Disobedient Disciplined
Disregard Orthodoxy
Random Incremental
Unpredicatable Methodical
Irreverant Doctrinal
Open Mind Dogmatic
Un-grounded Reasoned
Beginner Expert
Experiment Look It Up
Improvise Analyse
Self Learning Educated
Wonder Measure
Move On Acumulate
Challenge Comply
Defiance Conforming

The rules of engagement of the pivot team is freedom w
ithin the agreed framework.

A part of entrepreneuship is an art which cannot be taught, Steve Blank, Stanford University

The pivot team is best composed by those most exposed to changing externalities (technology, shifting user base, strategic competitors).

Also choose the specific domain experts, those with the know-how which creates the most differential for the company.

Usually, the founders are in this group.

Framing and Constraints

Frame your pivot as solving a worthy problem for the User. A worthy problem is naturally original, and valuable to users.

A big pivot must be risky and uncertain. It is a law of nature with worthy problems.

The key here is the problem domain’s know-how.  The most expensive asset. Know-how about the Users, the Technology and the Market in the problem domain is essential to build and explore.

Problem Domain

Even a random bottom-up exploration needs the know-how to (1) build and solve small problems, (2) avoid re-inventing the wheel, and (3) perceiving an out-of-the-ordinary outcome.

You must frame your problem domain in accordance the resources, the know-how and time your have to explore it. Otherwise, you will find yourself trying to swallow an ocean.

Choose a problem domain you have a passion and know-how for. Big pivots are long term endeavours of indeterminate length. Think of it as a at least a 3 year commitment. It is likely you will achieve success on the 2nd or 3rd bounce of the ball.

Grass is greener projects maybe attractive initially but the effort and time required to achieve a critical mass of problem specific know-how will be considerable.

The narrower the focus of the project, the more specific the User’s problem, the more feasible the exploration.

Start Learning

Unbiased exploration within the problem’s framework is most critical here. Unconscious assumptions, cognitive biases, existing expectations guarantee failure.

An empirical approach, where you make, build and user-test is best in suspending prejudices, and perceiving truly. Thinking with your hands is the good approach to finding original problems.

Use bottom-up, individual sample of problems within the framework, with a strong disregard of established expectations. Use the small problems as an opportunity to learn the problem domain, and actively look for unexpected outcomes, failures and opportunities.

You must pull knowledge in, learn what you need, to solve the problem at hand. It is problem-driven, self directed learning.

The ability to pull knowledge as needed is what distinguishes
product professionals, from classic specialist professionals. Department, function centered staff, like programmers, designers or salesmen, study the tools, methods and processes of their profession. Product focused professionals are discipline agnostic, and learn only to better the product outcomes.

Self directed learning is not easy. Every discipline, department and community you approach will consider you a beginner. It requires a beginner’s-mind, humility and self confidence.

Diversity through team work can enable discipline agnostic work. Know-how is best shared through prototypes and visual thinking.

Rules of engagement are important when working collaboratively with people from diverse backgrounds. Blending the arbitrary, random, discovery work with the discipline to build and test requires an understanding and an agreement of the overall process.

Map Your Progress

Visual thinking is a well known technique for avoiding biases and perceiving truly. A project wall with post-its, pictures, and graphs is a great way to make connections between different experiments, studies and map and re-map along interesting trends.

The know-how that will make a difference will not be generic. It has to be problem specific, and combined from diverse areas:

Looking & Observing

KNOW-HOW

  • Do you have enough know-how?
  • Are there enough post-its on the project wall?
  • Are you sampling the problem area well?
  • Are you working outside the problem domain?
  • Should you redefine the problem domain?
  • Are you covering enough perspectives, enough disciplines, enough user segments?
  • Is there a different discipline or specialist that could contribute to the problem?
  • Are prototypes failing because you don’t know?

IMAGINATION

  • Is there originality, randomness, exploration?
  • Is the exploration too methodical?
  • Is there too much groupthing?
  • Are you breaking any rules?
  • Have you built anything yet?
  • Are the prototypes heading to new areas?
  • How many of the prototypes failed?
  • Are the prototypes bringing anything new?
  • Are you having fun with the prototypes?

ORIENTATION & SEEING PATTERNS

  • How are the ideas, post-it notes, clustering?
  • Any ideas outside classical, orthodox disciplines and specialisms?
  • Any cluster of ideas cross-pollinating?
  • Can you draw a any spectrums, low to high, on the project wall?
  • Does clustering ideas along the value chain show patterns?
  • Are you finding a User Segment focus?
  • Is there a disruptive Technology?
  • Is there anything un-expected?
  • What is irritating?
  • Do any of the prototypes have traction?
  • Is anything not making sense and why?

Action

  • Is the framework too wide?
  • Is the framework too narrow?
  • Does the problem domain need to be moved along either the User, Market, Technology axis
  • Are there too many competitors?
  • Is this problem domain too old, too mature?
  • Do any of the prototypes have interest?

 A Game of Know How

Reaching Critical Mass of Focused Know-How

Know-how is bed-rock. Intuition is possible only with enough domain know-how.

Accumulate enough focused know-how and perception of possibilities multiplies a thousand fold. Past a critical mass of focused know how, and creative output explodes.

Accumulating focused know-how is frustrating though. How much is enough? Is this enough? When does it finish? The narrower your focus, the quicker you will go up the learning curve. So focus down.

The most reliable form of innovation is extending ideas and patterns from an unrelated domain. This form of innovation requires high know-how levels, you must master several domains before you can visualize parallels.

Have You Reached Problem Domain Mastery?

How do you measure problem domain competence?

Have you failed, or do you continue the learning process?

The difference between beginner and master is awareness of context, the true size of the problem framework. The expert knows how much he does-not-know.

 


Mastery is when domain of expertise becomes second nature. You are not conscious of the rules, methods or tools. You just perceive, build, talk, play without a second thought or effort. You are native to the problem domain.

Can you do things in the problem domain others cannot?

The Mythical Man-Month

The truth is adding more people to a team does not speed up or help know-how intensive tasks – The Mythical Man-Month.

Though diversity and open emergence of ideas are essential, problem domain know-how is still required for team members.

A pivot team must be composed of domain experts, each in their own field. T-shaped experts are recommended.

And a Lot of Luck

Entrepreneurship is, also, about being in the right place at the right time.

The best venture investment teams in the world score 1 in 10 as sustainable companies, and 1 in 1000 companies reach their target investment returns.

Entrepreneurship is not like a job. Often it is an all or nothing bet.

The Efficient Market Theory

The efficient market theory (Nobel Prize, Merton & Scholes, 1997) states that when more than 10,000 people are examining a market with equality of information, you can no longer outperform the market. Market is risk-reward efficient.

Sometimes, the market is just too crowded, and the problem domain know-how has become a commodity.

Your domain know-how has become generic. A big pivot is not possible within the old framework. It is time for the entrepreneur to move on.

 No Shortcuts – Beware Strategy Schools

Beware “descriptive” strategy methods from Business Schools.

“Descriptive” methods are good for describing what HAS happened. But useless at deciding what to do. Great post-event, bad pre-event.

Michael Porter’s “Competitive Advantage”, Kim & Mauborgne’s “Blue Ocean Strategy” are two such popular descriptive methods. Excellent for explaining success or failure  AFTER the event.

“what got you here, will not get you there”

Descriptive methods fail because they rely on historical knowledge, past history. Extrapolating the past does not work in efficient markets.

“Prescriptive methods” provide a process to learn new knowledge. To find a new differential in the market. Prescriptive methods are exploratory.

“Prescriptive methods”, on the other hand, give you a process, a framework, for what-to-do-next. Processes like Lean startup, Design Thinking, OODA Tactical Loops, visual thinking are “prescriptive”

Focus, Focus, Focus

As you quest forward, your framework will narrow. Your quest will converge within the framework.

Searching for a worthy problem is like panning and sluicing gold paydirt, looking for nuggets. Focus is the narrowing down to the promising areas.

Focus, the ability to disregard areas, to say no to problems is a joy when it arrives. It arrives in moments of intuition, in fits and starts.

Focus, unfortunately, is fickle and often comes wrapped in doubt. By narrowing down, are you stepping past a worthy problem?

You can never have enough focus. The more limited your means, your time, your assets, the more you need a hard focus

REFERENCES

PROBLEM FOCUS & DOMAIN KNOW-HOW

    1. Anti-disciplinary, Joi Ito
    2. Simplicity on the Other Side of Complexity, Jon Kolko
    3. Understanding a Problem Better than Anybody Else, Chris Dixon
    4. Generating Startup Ideas, Marc Barros
    5. The Role of Domain Experience, Marty Cagan
    6. Finding Your Edge, Alice Bentinck, Entrepreneur First
    7. Complexity and the 10,000 Hour Rule, Malcol Gladwell
    8. The Problem with Design Thinking, Tim Malbon
    9. There is no such thing as the perfect idea, Alice Bentinck
    10. The Secrets Behind Many Successful Startups, Vinicius Vacanti, Yipit
    11. Beyond Agile and Lean, Marty Cagan, SVPG
    12. How to be an Expert in Changing World, Paul Graham
    13. Etsy CTO: We need Software Engineers, Not Developers, John Allspaw

CREATIVITY & ORIGINALITY

  1. What Does Design Thinking Feel Like, Tim Brown, IDEO
  2. The Zag, Marty Neumeier
  3. Look, I Made a Think: Confidence in Making, Jon Kolko
  4. Illustrations by Hugh McLeod, Fair Use
  5. How to Get Startup Ideas, Paul Graham
  6. Why to Not Not Start a Startup, Paul Graham
  7. Before the Startup, Paul Graham
  8. Creative Confidence, Julie Zhuo, Facebook
  9. Creativity Inc, Ed Catmull, Pixar
  10. Startup Differentiation: You are the DNA of your Company, Peter Nixey
  11. Advice for Thriving in a World of Change, Joi Ito
  12. How Reframing A Problem Unlocks Innovation, Tina Seelig
  13. You’re working on the wrong idea, Alice Bentinck
  14. Leaders Can Turn Creativity into a Competitive AdvantageTim Brown, IDEO
  15. Roofshot Manifesto Luz Andre Barroso
  16. Surely You’re Joking Mr Feynman

VISION & MAPPING

  1. A Visual Vocabulary to Product Building, Dan Schmidt
  2. Using Situational Maps for Business Strategy: On Being Lost, Simon Wardley
  3. Framing your Search: Vision vs Hallucination, Steve Blank
  4. Founder’s Vision – Entrepreneuship is an Art, Steve Blank
  5. Product Evangelism: Sharing the Vision, Marty Cagan
  6. Missionaries vs Mercenaris: The Need for a Compelling Product Vision in Driving Product Teams, Marty Cagan
  7. Product Managers Must Understand Product Vision: Big vs Small Product Owners, Roman Pichler
  8. How do You Find the Secret for your Product, Peter Thiel
  9. Pivot, don’t jump to a new vision, Eric Ries, Lean Startup
  10. Get Clarity on the World Around You and Your Business with the context map, Erik Van Der Pluum, Design A Better Business
  11. Vision versus Hallucination – Founders and Pivots, Steve Blank
  12. When vision blinds traction, Stefano Zorzi
  13. How to Understand Your Market, Justin Lokitz, Design a Better Business
  14. You product is already obsoleteDes Traynor, Intercom

METHODS & TOOLS

  1. Developing Strong Product Owners, Marty Cagan
  2. Product Strategy in an Agile World, Marty Cagan
  3. Product Porfolio Management: Planning the Life of Your Products, Marty Cagan
  4. The Kano Model: Depreciation of UX Design Differentiators Over Time , Jared Spool
  5. Emergent Strategy: The Big Lie of Strategic Planning, Roger Martin, Harvard Business Review
  6. Change by Design, IDEO, Tim Brown
  7. Driving Corporate Innovation: Design Thinking vs. Customer Development, Steve Blank
  8. Well Designed: How to Use Empathy to Create Products People Love, Jon Kolko
  9. Lean Doesn’t Always Create the Best Products, Jon Kolko
  10. Be a Great Product Leader, Adam Nash
  11. Driving Corporate Innovation: Design Thinking vs. Customer Development, Steve Blank
  12. Agile vs Lean vs Design Thinking, Jeff Gothelf
  13. Where Lean Ends, Peter Nixey
  14. Beyond Lean and AgileMarty Cagan, SVPG
  15. The Tao of Boyd: How to Master the OODA Loop, Brett & Kate McKay
  16. Ethnography: When and how to useAndy Walker, Spotless
  17. Why anti-Lean Startups are BackDennis Mortensen, x.ai
  18. Why Innovating Is About Doing, Not Talking Diego Rodriguez, IDEO

STARTUPS

  1. Product Passion: What are you trying to achieve?, Marty Cagan
  2. Startup Playbook, Sam Altman, Y Combinator
  3. Big Ideas: Google’s Larry Page and the Gospel of 10x
  4. Why Founders Fail: The Product CEO Paradox, Ben Horowitz
  5. Why Startups are Agile and Opportunistic – Pivoting the Business Model, Steve Blank
  6. How to pivot properly — linear ideation, Alice Bentinck, Entrepreneur First
  7. Black Swan Farming, Paul Graham
  8. Why is it Hard to Bring Big Company Execs into Little Companies?, Ben Horowitz, A16Z

The Future of Competence: Don’t Be Generic

My competence seems to cycle from back and forth leading-edge to generic.

I started as a specialist, with a PhD in robotics, head-hunted by the robotics department of the UK Nuclear industry.

A few years later, I was a technology manager delivering solutions to customers in the nuclear, aerospace, pharmaceutical, and financial industries. A generalist

Then, I was CEO. Raising finance, recruiting, designing departments, objectives, process, operations. The ultimate generalist

Then, as the dot-com bombed, I stopped having a job.

I joined 100,000 other business managers who were out of work.

That was the end of a cycle

You have a Choice

The choice of a specialist skill or a generic skill is hard.

The choice, like any investment, is a compromise between risk and reward.

For both people and companies. We either choose or it is chosen for us.

Often we dont seem to have a choice. It just happens

The Lure of Generic Skills

Learning excel or outlook are good investments. They are low risk choices, most likely to pay off

Lawyer, manager, accountant, salesman, marketing are also low risk choices.

Job boards always have openings for good managers and salesman.

A manager, salesman or accountant can work anywhere.

Business is about managing people. If you can manage people, you can manage any business.

Managing Human Capital, Harvard Business School

Generalist skills provide structure, certainty and choice. Established education, clear career path, wide choice of employers and customers.

It is the sensible, reputable choice.

Why be different?

Global Markets: Commoditization of Skills

Globalization and technology have increased the supply of skills and services

Generic skills and services are the first to be replicated by competitors in different geographies.

In the world of Google, and online job search, your competition is just one click away

Being the best at a generic skill no longer guarantees a job.

You can no longer compete by simply being better

The Need to Be Different

To compete, you need a service and skills that are not replicated easily

I dont want to be the best. I want to be the only.

Marty Neumeier

Your skills need to be special, different

If you are not different, you have no identity.

You’re just a commodity

To have an identity, you need a point of difference

And if you dont have one, you need to create one

Dave Trott

Differentiation: You Have to Choose

Making yourself different involves choosing. You have to choose a focus. You have to choose your difference.

Persisting with your focus involves saying “no” to jobs, requests and clients outside of that focus

Acquiring a specialism, a differentiation requires a sacrifice. Requires an investment

The greater your focus, the greater the possible reward, the more risky the investment.

Increasingly, without risk, there is no reward. It is the nature of the current market.

You will have to take some risk.

Focus is the Hardest Thing

Most of us like being generalists.

I like being versatile. Give me a problem, I will fix it.

I dont have to make choices. I just serve.

I like diverse problems. I like learning new things.

Variety, is it not the smart thing?

No

Focus is the hardest thing.

Rules of Focus: The One Thing

First choose your focus. Your domain of expertise.

The generic skills are the functional axis, horizontal rows, in an organization chart.

The specialist skills are the product or project columns, the verticals.

The specialist skills, product or client know-how, provide the competitiveness, the differential of the company.

Specialist skills are always domain specific. Highly dependent on context.

You are unique because you know the context that matters.

Pick a narrow specialist skill. How many people claim to be experts in your domain?

The harder the competition, the narrower, the more focus you need.

Conclusion: How Your Company Values You

A company is as competitive as its differentiation in the market

Companies value the people that create the difference

All companies can hire generic skill staff. Therefore, that can’t provide the company’s differentiation.

The staff with skills specific to the company create the differential. They focus on the company’s specific domain, its context, its products.

“Computer science purists love the art of coding, if the algorithm is cool, if the integration is pretty, they’re happy.

For me, it’s all about the end product, not how I got there.”

Rasmus Lerdorf

Are you loyal to your products, or to your generic skill?

You can measure Domain Specific competence

How much do you know of the company’s specific context?

Do you know the customer? the product users? the specific technology? the product? the competition?

The highest scorer in Domain Specific competence is the company founder, always

If you score high on Domain Specific competence, you make a difference

If you want to make a difference, dont be generic

References:

College and Business Will Never Be The Same – End of Silo’d Careers, Steve Blank

Knocking Down Walls, Marty Cagan

The Internal Agency Model, Marty Cagan

The Refragmentation, the demise of the corporate class, and rise of creative classes, Paul Graham

How Google Works, Eric Schmidt, Jonathan Rosenberg

Developing Strong Product Owners, Marty Cagan

The Role of Domain Experience, Marty Cagan

Product vs IT Mindset, Marty Cagan

Finding Your Edge, Alice Bentinck, Entrepreneur First

So You Want to Manager?, Julie Zhuo, Facebook

The Zag, Marty Neumeier

The Brand Flip, Marty Neumeier

The Linchpin, Seth Godin

Theory of Efficient Markets, where return is proportionate to risk

The no.1 Reason to Focus, Seth Godin

No is Essential, Seth Godin

Reductio Ad Absurdum – The One Thing, Dave Trott

“T-Shaped People”, Tim Brown, IDEO

Understanding UX Skills, Irene Au

Advice for Thriving in a World of Change, Joi Ito

Product First

What Comes First? Sales, Branding or the Product

What comes first? I have had this argument regularly for the last 25 years.

With sales, marketing, technical, and services departments. In fact, with every department director I can think of.

As a junior engineer, my sales director gave me my first “commercial awareness” ticking off; “first, you sell it”.

The 21st Century – Your Product is Your Branding

Not long ago, you could create a brand with advertising. Pure Brand Advertising.

Now, you can only create a brand with people, with a community. With a crowd of people that say your stuff is good.

You need buyers on ebay voting you as good. Good reviewers on Amazon. 5 star feedback, social media likes, up ticks, votes

What you think and say no longer matters.

Your brand is what the customers say it is. The crowd uses your product, and they decide

The product creates the experience,

The experience creates the reputation,

The reputation creates the brand

Dave Trott

Your product must do your advertising, your sales and your branding

I know sales and marketing directors who are confused and saddened by this new age

Think of it as an oyster,

You start with a piece of grit, and build a pearl round it,

People buy the pearl, they don’t buy the grit,

But no grit, no pearl

Dave Trott

So, please. Product first.

References:

Death of Salesman, Marty Cagan

– “How to empower the customers who will drive your success”, The Brand Flip, Marty Neumeier

“Is advertising a Con?”, Creative Mischief, Dave Trott

Product Trumps Distribution, Nic Brisbourne

Positioning, Eric & Laura
Ries

Red Hat Community Branding, Chris Grams

Executives Don’t Make Good Entrepreneurs

A Harvard Business Review article identifies
four deficiencies of corporate executives when working in startup and small business environments
. The four deficiencies are in fact great qualities for Executives in a corporate environment, but become their Achilles’ heel in entrepreneurial work.

High uncertainty, knowledge intensive tasks, and a rapidly changing market sector are a fact of life for startups and entrepreneurs. Training, experience and value system for a competent proffessional administrators give rise to difficulties adapting in startups in the four following ways.

The first tendency is lack of loyalty to comrades. Startups require strong leadership, and great faith from the staff. Startups have great uncertainty, no guaranteed results, little rational assurances. The entrepreneur must offer a great vision, and a sense of a life altering opportunity. The entrepreneur must give of himself and the company (equity). He must be loyal above and beyond, to expect loyalty back. The usual corporate paycheck and pension plan are not enough.

The second tendency is lack of task orientation. Executives are used to large scale service delivery and product improvement operations, where a portfolio of services must be cultivated, maintained and optimized for volume and maximum margins. The resulting inability to learn and see to the detail and finish of individual tasks makes for poor execution and finish of tasks. The cliche is their total reliance on delegating to staff in order to operate.

The third tendency is lack of conviction and single mindedness. Typically and executive will insist on guaranteed results. “But that is not guaranteed” is the cliche phrase. Without a high likelihood of results, the ultra rational executive finds it hard to commit; you need faith here. Startups create businesses where corporations dare not go; the zones of uncertainty.

Fourth and last is the inability to work in isolation. Executives excel through their negotiation, their team leading, their excellent communication and administration. In typical 10 staff startups, these same skills are secondary. The executive is unable to be productive without somebody sitting next to him.

As a former executive, used to directing business units with hundreds of staff, I can vouch that the four deficiencies are valid and representative of the corporate class. The deficiencies are due not just to lack of experience and training, but also prejudices, mis-conceptions and an unflexible value system. “you are too technical” often being the ultimate insult from one executive to the other. It has taken me a lot retraining, and some soul searching, to be a fully useful player in a startup.

For enterprising MBAs who know that it is at the founding of a business that equity is divvied up, I recommend a post by Jeremy Liew at Lightspeed Venture Partners, to give a balanced view of the skills a business founder needs. For corporate executives looking for more fulfilling work with startups, John Smithson’s “The role of the non-executive director in the small businesses” is good.

It takes more than good administration to create a business. I find entrepreneurial and creativity training is still poor at most schools and universities. A tolerance for uncertainty and volatility is hard to teach; rational administration is still the core of most entrepreneurship courses.

As for John Hamm’s HBS article on the limitations of entrepreneurs, it is easier to criticize the flaws of an entrepreneur, than to identify, praise and teach entrepreneurial skills.

Hollywood Writers: More Creative Class Disruption

wga

The trend continues; managers-administrators are being squeezed out of the value chain by the “talent”, the creative class. Sports agents no longer make more money than their sportsmen, as was prevalent in the early days of football. Script writers in Hollywood are following suit with the WGA strike, pushing the film and TV entertainment value chain for a bigger percentage of earnings.

The internet is touted as the catalyst for this dis-intermediation. Mark Andreessen paints a convincing scenario of how the creative class will distribute their work directly, without the need to go through the big studios. Thanks to new video technology, the cost of productions is dropping; no need for extensive fund raising. And great material is picked up and distributed rapidly by the social filtering sites, like youtube or digg; no need for massive marketing and distribution budgets.

Make it, blog it and they will come”

LIFT Conference: Best Place for Great Conversations

LIFT07

Laurent Haug, Lift conference organizer, has surpassed himself again. He has crafted a meeting where creativity and ideas flourish like nowhere else. It may be that the presenters and attendees take center stage; may be the new media art present all through the conference; maybe the place and the time for attendees and presenters to talk and mingle; or the quality of the presenters and attendees he attracts. I just know I had some great conversations.

See David Brown and Ivan Pope at the fondue dinner in the picture. David is cofounder and CTO of a top affiliate network in the UK, buy.at. Ivan Pope, founder of netnames plc and Sniperoo widget factory, veteran of a dozen years of online entrepreneurship. Between them they directly impact tens of millions internet users with what they have created. In hard currency, they have created value in excess of £100 million in todays valuation. I was much humbled. Needless to say, the conversation was excellent; war stories, insight, and laughter.

And many other presenters, attendees and conversations, all humbling in their merit. If you need help with your lateral thinking, head over to the next LIFT conference, you will get nothing but great conversations.

How to Fight Accelerated Depreciation of Internet Assets

Like the incredible shrinking man, intangible assets like a layout design, a good logo, a strong brand, or web applications suffer from accelerated depreciation in the internet sector. All growth industries where the market evolves and changes quickly have rapidly depreciating assets.

Whereas the design of an electrical transformer station depreciates to zero in ten to twenty years. Software, specially internet software has a much shorter life span, sometimes measured in months.

Knowing how much your assets depreciate is important. A typical NASDAQ company reinvests 5 to 20 times its asset depreciation to stay competitive. If you are reinvesting less than your depreciation, you are in trouble.

Formally, accounting standards depreciate software in three years. In reality, competitive forces in the internet sector can wipe our your software, your brand, your programming, your intangible asset, in as little as three months.

kiko traffic

The Kiko example is a great a case in point. Its life cycle from conception to closure and asset sale, in a little over a year. Kiko was a web calendar application. Very popular as a complement to Google’s Gmail.com. Popular until Google launched its own Calendar application already integrated with Gmail. The graph shows the downward turn in summer 2006, and the spike corresponds to its delightful sale on eBay.

Today, the Pluck RSS reader, a very popular add on for Internet Explorer is shutting down ; it has been wiped out by Microsoft’s new browser, IE7, which has an RSS reader built in.

Accounting Standards

Accelerated depreciation is a self evident truth to all who work in the internet sector, but try and explain accelerated rates of depreciation to your company accountant. The other day I tried to get my accountant to introduce one year depreciation on all intangible assets in proximity to Google’s interest. Needless to say GAAP accounting standards were quickly brought to bear on such outrageous ramblings. So, we now have two balance sheets; one that keeps our accountants happy, the other a reflection of life in the fast lane. Guess which one we use to set company investment budgets ?

Covering the Incredibly Shrinking Value of your Intangible Assets: Capital and Ideas

You need two things to fight accelerated depreciation, capital and ideas. A rare combination, in my opinion. Many Venture Capitals have much of the first, and little of the second. Startups have much of the second and little of the first.

In my opinion, ideas are much harder than capital. The value of capital is decreasing rapidly. When it comes to your capital expenditure, good ideas create more value than a sterile pot of money. When shoring up the depreciating value of your intellectual property look to a creative class team, rather than your MBA graduate.

The classical Venture Capital administrator, adept at forming teams and putting together good startup administration is finding life harder and harder. Know-how and innovation talent is the new king in growth industries; if you have no ideas, better give the capital back to your shareholders or limited partners. Pity there is no Master’s accreditation for Creative Talent – Master in Business Creation (MBC). MBC is the new MBA.

[Via Pluck RSS Reader Shuts Down: Consumer RSS Readers a Dead Market Now]

For Great Innovation Do Not Follow the Money

Both Seth Godin and Guy Kawasaki, doyens of entrepreneurship, agree that great innovation is seldom achieved by pursuing revenue streams. Nor does Peter Drucker centre on money in his guide to the practice of innovation. Advice that rubs against any corporate managers grain (mine included); what business manager is comfortable without his trusty profit and loss spreadsheet ?

The hunt for a disruptive advantage on the market has no easy financial guide. Seth’s view is that the pursuit of money is at the expense of your innovative drive


pioneers are almost never in it for the money. The smart ones figure out how to take a remarkable innovation and turn it into a living (or a bigger than big payout) but not the other way around. I think the reason is pretty obvious: when you try to make a profit from your innovation, you stop innovating too soon. You take the short payout because it’s too hard to stick around for the later one.

Guy cites the pursuit of meaning, and not the pursuit of money, as guiding light in your innovation hunt.

My experience is that innovation hunting requires an artist’s approach to the market, services and products; a total obsession of the subject matter at hand. Like great pianists or painters, the innovator must have talent & training in the art form in question. Most corporate managers have neither the time nor the patience for the learning curve involved.

Denizens of this creative innovator class have, in my experience, different culture and value systems from that found among professional managers. And, in spite initial protests, the MBAs I recruit accept that the creative staff are more prolific and bountiful in launching succesful services.

The irony is that as soon as you execute your idea, you commit to customers, you have salaries to pay, it is all about the cash flow and quality of service. Then financial spreadsheet skills, administrating, and the ability to squeeze the lemon come to the fore.

Nowadays, good corporate management and creative innovation go hand in hand. Successful company cultures, like Google’s, have to accomodate the two contrasting approaches.

Is Google Hiring Hacker or Software Engineers

software engineer

Classical software engineers work in organized and structured ways, for the pursuit of perfect code. Give them a specification of what you want, and they will deliver on time, to cost, and with zero defects. Their work process is down to a science. Quality, on time, within costs is their mantra.

EDS, IBM, and NASA are some of the bastions of this scientific process. They have achieved the top level of the computer science game, as measured by the CMM organization and the prestigious Software Engineering Institute.

hacker

Hackers, on the other hand, pursue the beautiful solution. As with other artistic media, a beautiful solution is impossible to explain, but you recognize it when you see it.

Larry Page’s original Back Rub algorithm, which powers Google, is a beautiful solution. Job’s and Wozniak’s first Apple prototype computer was a beautiful solution.

Beautiful solutions are so astounding that they need not be perfect; imperfections add to their charm.
The code will not be finished on time, it will cost more and will be full of errors, but you will be impressed. It will be novel, it will enlighten, and it will make an important contribution; beautiful solutions make a difference.

Hiring Beautiful Solutions or Perfect Code

Web companies, like Google, are hiring both. Software engineers to polish and maintain established services. Hackers to create services from nothing.

google

To try and stay ahead of the game, Google is hiring candidates that can innovate; hackers to artfully create new astounding services. To maintain and polish its existing software, Google is also hiring software engineers to implement process and quality.

The novelty is that Google likes the 2 in 1 solution; hacker and computer scientist in one. By Google’s own admission, all their employees have to be 30% hacker and 70% scientist.

hispavista

Hispavista, my company’s spanish arm, has 70 technical staff. Also a mix of hackers and software engineers. But unlike Google, they work in separate teams. Following Steve Job’s famous example at Apple’s skunkworks, our hacker and scientists work in separate departments.

Our development department has achieved CMM level 2, and could easily certify as ISO9001 compliant. Our head of development produces the best quality and lowest costing function points in Europe; he has among best software engineering teams in Europe.

Our innovation department produces beautiful solutions. Dating back to 1995 our Strategy Director has created web services that have amassed millions of internet subscribers; he is a hacker of some reknown whose works have been sold for tens of millions (literally).

Hackers and Scientists Under One Roof

The problem is that their process and culture are totally different. Software engineers aim for zero errors and zero delays, hackers aim to be world famous. The hard part is getting good hacking and coding at the same time.

One can’t live with out the other, yet are totally different in approach. Our experience at Hispavista is that they are best roomed on opposite sides of the building, and project hand overs require a good referee.

Google, on the other hand, has opted for the borg approach, part human part machine. Googlers engineer sofware for 70% of the time, and hack 30% of the time.

Eric Schmidt has repeatedly described how hacking project’s that do well online become bona-fida software engineering projects. The successful hacker is given a team of people to manage, code to review, and quality to assure. The question for the hacker is whether to continue as software engineering manager or hand over to somebody else so as to get more hacking time.

Web 2.0: The Rise of the Hacker Army

Ed Yourdon, one of the inventors of software engineering, visiting digg.com visiting Google observes that web2.0 startups will need software engineers as the service grows. Hackers will not be out of work though.

Software engineering may be outsourced, but entrepreneur and intrapreneuship has become the essence of competitive edge and is core to a business. Innovation has become the new marketing. Judging by the way Google is recruiting among the web2.0 hacking community, hackers are here to stay.

Build It, Blog It, and They Will Come

marketing innovation

Traditional Marketing

According to traditional marketing professionals, the “build it and they will come” attitude leads many entrepreneurs to their ruin. The full quote is:


“If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he build his house in the woods, the world will make a beaten path to his door”, [Ralph Emerson]

Allegedly wrong, wrong, wrong. Apparently, many entrepreneurs suffer and fail because they overlook the over-arching importance of Marketing..

Or so they say.

ken olisa

Ken Olisa, one of the more eloquent traditional technology marketeers, presents traditional marketing beautifully at his Marketing as a Science? seminar at a Cambridge Entrepreneurship center.

According to traditionalists, marketing is a core capability of a company without which your enterprise is doomed to fail. Many investment consultancy firms, like Ken Olisa’s Interregnum plc, charge high fees and equity percentages for providing this marketing and fund-raising to entrepreneurs.

Innovation is the New Marketing

seth godin

The new school of thought is that traditional marketing is dead. In Seth Godin’s words, All marketers are liars. The best marketing is an exceptional added-value product or service.

We live in an increasingly efficient market. Information flows more and more perfectly. Marketing, the art of promoting your product in the market, is a commodity accessible to all. Disintermediation between client and supplier is prevalent. Successful differentiation of your company is about your product and service, not about your marketing plan.

You only have to note the lengthening queues of un-employed facilitator, coordinator, administrator management consultants. Advisory help for entrepreneurs is still a good idea, perhaps through an experienced non-exec director. But, the corporate skill set has ceased to be a differentiator; communication technology has made it a commodity.

guy kawasaki

In words of another entrepreneurship guru; “it is about engineers, not MBAs”.
Guy Kawasaki has a novel company valuation method; add $500K per fully employed engineer, and then subtract $250K for fully employed MBA

The partners at EUCAP are increasingly focused on core technology and service capabilities. Deep sector knowledge. An un-graceful total obsession with your client base, product and service. An Otaku cult of your market. That is the core capability of succesful company.

Build it, blog it, and they will come