autonomy vs impact

~ avichal ~ 3 Comments

This is a simple, imperfect framework that has been helpful to some friends as they think about career decisions. Often when people are unhappy they have made a tradeoff between impact and autonomy that does not match their preferences.

impact-autonomy

When you are considering a job (or career) you are in the bottom left corner. The goal for many people is maximum impact, maximum autonomy in the top right.

Path 1 is the red line: join a bigger, more established company and have tremendous impact very quickly. As a junior engineer working on Google Search, for example, you can make billions of people’s lives better. You will be tremendously constrained in some ways, however. There are experimentation processes, layers of management to convince, brand risk, and much more. The freedom many people seek comes from many years of delivering results, establishing credibility, and growing inside the organization. This is the executive’s path — you have to work for years inside the organization to earn autonomy and move right on the chart.

Path 2 is the blue line: start a company and have tremendous autonomy. You can hire who you want, work on what you want, and have the final say on many critical decisions. But no one cares. In the grand scheme of things, your work will likely have little impact. To have 1% of the impact of Facebook would make you one of the most successful companies in the world. Having impact requires years of hard work, finding product-market fit, betting on the right market, building an organization that can scale, etc. This is the entrepreneur’s path — you move to the right on the chart immediately and have to work for years to move up.

Succeeding on either path requires very different skills and caters to different personalities. Earning autonomy in a high-impact organization selects for different people than fighting for impact in a sea of startups.

At different times in a career, preferences can shift or it may be worthwhile to pursue time sensitive opportunities. In talking with friends, I’ve noticed that many times if someone is successful but unhappy, they have found themselves on the wrong path. They have traded off autonomy and impact in a way that ultimately was misaligned with their current preferences.

The Middle Class Is Waking Up

~ avichal ~ 4 Comments
Summary

I spent a few hours digging in to the data from my home state of Ohio, which is a bellwether for US presidential elections. Combined with data that the middle class is being gutted, I think we have the beginnings of a middle class revolt. The middle class is finally waking up to the reality that post-world war II America is gone, is not coming back and they need some significant political change to help.

The writing was on the wall
The working, middle class has voted for change since 2008 and against Clinton (aka the establishment) consistently. They voted in 2008 for Obama against Clinton, in the 2016 primary for Sanders, and in 2016 they voted against the Republican establishment for Trump. They were very consistent that Clinton represents the system that screwed them in the first place and they do not believe she will radically change the system. Without a radical change these people are going to stay screwed. And even if Trump messes it up for everyone else, they aren’t much more screwed than they are today. Thus many voted for Trump and many stayed home, as evidenced by lower voter turnout where Clinton needed it.
The Trump Coalition
There are four groups in the Trump coalition:
  1. Hardcore Republicans like Newt Gingrich or Paul Ryan
  2. Single issue voters (e.g. Evangelicals against abortion)
  3. Bigots  (racists/xenophobes/homophobes/misogynists)
  4. White, middle class workers
The reality is that groups 1-3 would never vote Democratic. Group #4, however, has historically voted for Democrats in states like Pennsylvania and Ohio. In this election many stayed home and many voted Republican.
The system is failing the middle class

Because the election was so close, any thing that tipped the election is technically “the reason Trump won.” Voter ID laws, FBI investigation, media coverage, inaccurate polling, etc. are all part of it.  However, there is an underlying trend that is going to cause even more chaos in the future if we don’t address it. Trump won Group 4 in key states like Ohio, Pennsylvania, and Michigan because they need to change the system that is not working for them. Some in group 4 stayed home but many switched away from the Democratic party.

Look at the differences between how votes were cast in 2012 vs. 2016 in Ohio.

  • Union households: 60% supporting Obama to 42% supporting Clinton.
  • People old enough to have gotten screwed in the workforce, aka 25-29 year olds 63% to 47% voting Democratic and 30-39 year olds from 55% to 43%.
  • People who make less than $50k went from 59% to 52% support.

There are similar trends hold across Ohio, Pennsylvania, and Michigan. And the trend is the key thing here. Maps that show how millenials would have overwhelmingly voted for Clinton do not capture the trend. If these trends continue, millennials will not be voting overwhelmingly Democratic in the Midwest.

2012 is on the left, 2016 on the right

The State of the Middle Class

This election is a symptom of the underlying disease. The wealthy have gotten much wealthier but the middle class is getting destroyed.
People who were part of a middle class in the US had a great run after World War II. But since the 70s, the middle class has been eroded away for a variety of reasons while the rich have gotten much richer. For a while it looked like maybe everyone was benefiting with the rich just benefitting more. But increasingly it looks like the rich are benefitting at the expense of the middle class.
share-of-adults-living-in-middle-income-households-is-falling
the-middle-class-is-losing-ground
u-s-_income_-_changes_by_income_group_1979-2011
u-s-_income_shares_of_top_125_and_0-125_1913-2013

us_real_household_median_income_thru_2014

151208173919-chart-middle-class-share-of-income-780x439

u-s-_household_debt_relative_to_disposable_income_and_gdp

I believe the middle class is finally waking up to the fact that they’ve been left behind.

Their local economies are not growing, they don’t have the skills to be globally competitive, and the institutions that were supposed to help them have failed. The military sends their children off to fight but doesn’t train them to do something useful so they end up unemployed. Local governments can’t keep their drinking water safe. State governments couldn’t keep predatory lenders and for profit colleges from exploiting their hope for a better life, so they are now buried in debt. The federal government can’t seem to punish wall street elites for destroying the economy and can’t seem to tax the wealthy to actually invest back in the economy.

Every institution that should help the middle class has failed to meaningfully help them. And unless we start to see some systemic changes to address these trends, I do think the middle class will be increasingly frustrated and will be willing to take increasingly drastic measures. Trump is just the beginning.

The Qualitative Perspective

Read “What So Many People Don’t Get About the U.S. Working Class”

It is a far better summary than I could write. Some choice quotes:

One little-known element of that gap is that the white working class (WWC) resents professionals but admires the rich. Class migrants (white-collar professionals born to blue-collar families) report that “professional people were generally suspect” and that managers are college kids “who don’t know shit about how to do anything but are full of ideas about how I have to do my job,” said Alfred Lubrano in Limbo.

Manly dignity is a big deal for most men. So is breadwinner status: Many still measure masculinity by the size of a paycheck. White working-class men’s wages hit the skids in the 1970s and took another body blow during the Great Recession. Look, I wish manliness worked differently. But most men, like most women, seek to fulfill the ideals they’ve grown up with. For many blue-collar men, all they’re asking for is basic human dignity (male varietal). Trump promises to deliver it.

“The thing that really gets me is that Democrats try to offer policies (paid sick leave! minimum wage!) that would help the working class,” a friend just wrote me. A few days’ paid leave ain’t gonna support a family. Neither is minimum wage. WWC men aren’t interested in working at McDonald’s for $15 per hour instead of $9.50. What they want is what my father-in-law had: steady, stable, full-time jobs that deliver a solid middle-class life to the 75% of Americans who don’t have a college degree. Trump promises that. I doubt he’ll deliver, but at least he understands what they need.

“The white working class is just so stupid. Don’t they realize Republicans just use them every four years, and then screw them?” I have heard some version of this over and over again, and it’s actually a sentiment the WWC agrees with, which is why they rejected the Republican establishment this year. But to them, the Democrats are no better.

Important aside: Emboldened Bigots

There’s a lot of fear and anger from people who are worried about Trump’s bigotry. I think this is all very real and very understandable. But we should separate our own fears and values from the fears and values of those who voted for him. I don’t believe  Trump won the swing states JUST because he convinced the bigots to vote for him. Maybe they turned out in higher numbers this time, though I have yet to see that data.

Nor do I think all Trump supporters are bigots — they recognize what he says and made a hard tradeoff. I grew up with many of these people in West Carrollton, Ohio where the median household income is $40k/yr. In my opinion, Trump convinced a lot of these good people to vote for him DESPITE their needing to vote alongside racists, xenophobes, misogynists, and homophobes. Don’t forget that these same places voted for a Black president, Iowa was one of the first states to recognize gay marriage, and 2/3 of people in Ohio believe you shouldn’t defund Planned Parenthood.

We are going to have to deal with the consequences of racists, homophobes, anti-Semites, xenophobes, and misogynists feeling emboldened. The silver lining may be these people were already out there and it’s better that we deal with them, rather than letting them lurk in the shadows.

Resources/Data

Investor updates

~ avichal ~ 5 Comments

Investor/advisor updates are an often under-utilized tool. Though there are many good reasons to do it, the real value is engaging your investors to help you solve problems.

High Level (TL;DR)

Do:

  • have a concrete ask in each update
  • keep it short, results focused, and on what matters to your audience, not to you
  • send the update regularly (at least quarterly, monthly is even better)
  • humanize the update with names and photos

Don’t:

  • deep dive in to metrics unless they teach something counter-intuitive (focus on synthesizing info, giving context)
  • hide bad news (own it, ask for help, or outline your plan to address the issue)
  • describe the activity/work (focus on results and impact)
  • spend more than 30 min a month (it should fast to synthesize this information if you are running your business efficiently)

Example

This is an amalgamation of the best updates I receive regularly. Shout out to the companies who most influenced this template: Color, Boom, and NoRedInk.

This update is for a hypothetical company, Banana Stand, that builds a mobile shopping app. If you delete all of my comments below, the update is short.

Your startup should track this information internally already so you should be able to update your template quickly. You can also share this internally as a simple way to keep everyone in the company up to speed as well.

Confidential – Banana Stand Investor Update – October 2016

Confidentiality – Please treat this and all company updates as strictly confidential. Do not share/forward any information. Do *not* forward to friends, colleagues or anyone else.

1. How you can help
//make your asks clear

  1. We need an intro to someone who works on Apple’s App Store by Nov 1.
  2. Please refer great sales people for:
    • role 1
    • role 2
  3. Email us if you can talk this week about best practices for eng hiring. We are going to revamp our eng interview process to hire more design/product oriented engineers.

2. Summary (TL;DR)
// 3 sentence summary with your ~3 topline metrics that matter

Monthly active users are slightly ahead of projections, revenue is behind projection because we pulled back ad spend, and we are on track with app launches. We are behind on hiring salespeople and could use your help. We expect revenue to return to projections once we resume ad spend to projections in Nov and Dec.

  • Shopper MAU: 5M (+25% m/m, +178% y/y)
  • Shopper Retention: 33% month over month
  • Seller MAU: 45k (+15% m/m, +300% y/y)
  • Revenue (monthly): $860k (+18% m/m, +150% y/y)

3. Goals
//high level goals, and how many you’re hitting
//this is a good way to track things internally too
// likely as the founder you want to have a list of key things to get done each month and hold yourself accountable
// just open up that list to your investors and ask for help hitting those goals

Goals for October: Hit 3/5
1. Grow to 4.9M MAU [hit]
2. Grow to $980k revenue [miss – details in financials]
3. Launch iOS v.2.3 [hit]
4. Hire three salespeople [miss – hired only 1]
5. Finish product roadmap and planning for Q1 2017 [hit]

Goals for November:
1. Grow to 6.3M MAU
2. Grow to $1.09M revenue
3. Launch Android v.2.3
4. Hire two salespeople – please help us with leads!
5. Identify and sign lease for office location for 2017-2019

4. Product
// Update on product roadmap, highlighting key launches and learnings backed by data.

  • Launched iOS v2.3 which is mostly bug fixes and performance updates
  • Planning to launch Android v2.3 this month
  • Q1 2017 Roadmap is locked. We will focus on driving more sellers in Q1 as we expect that side of our marketplace to have been underserved once we launch all of our buyer features through Q4.

5. People
//Quick summary on how big the company is, any surprises on hiring, and if there are new people, two sentences on who they are, where they are from, what they will do.
//Humans like looking at other humans’ faces. So put some faces in here. Humanizing your company is important! 

We are now 26 full-time people and 8 contractors/consultants. Recent hires:

  • Carla Stephenson: Carla was most recently Director of Sales managing eBay autos. She will be managing North American sales for us (3 salespeople). <LinkedIn profile> 

We are behind on hiring salespeople. We thought we would want less experienced people that we could train. However, after interviewing less experienced candidates, we realized we needed to get a manager in place first (Carla) and decided to focus entirely on hiring the manager before hiring two more junior salespeople. 

We also just sent off our class of awesome summer interns  (photo attached). They did all sorts of great work ranging from overhauling our logging infrastructure to revamping how we do customer support. Thanks interns!

team

We are still hiring for 3 roles (2 salespeople, 1 designer): <link to careers page>

6. Marketing & Press
// PR and Marketing wins here with links to press
// fine to have this just say “No Updates” because that’s still an update

No updates on press.

Our online marketing efforts have been 20% more expensive than projected, so we’ve had to spend more acquiring customers to maintain our revenue run rate. Details in the financials section.

7. Financials
// This section can get involved and complicated. Financials get more fleshed out as you get farther along. For a seed stage company, just calling out the cash balance, runway, and when you want to go raise again is great
// Even just showing a simple breakdown of the current revenue and expenses inspires a lot of confidence
// if something is not going well, own it and describe why. Call out if you don’t know why.

  • Cash Balance: $12.3M
  • Runway (forward looking, assuming no revenue growth): 12 months
  • Targeting next fundraise: Summer 2017

We missed on revenue projections for October because we pulled back on our ad spend to conserve marketing budget for Q4 holiday season. We under estimated cost-of-customer acquisition in Q3, and to hit our revenue numbers we had to spend more money than anticipated. To make up for this extra spend, we pulled back our ad spend in October. We will resume our ad spend in Nov and Dec for the holiday season as we saw a residual lift last year through January from our holiday ad spend. We expect our revenue in Nov and Dec to be on target.

bananastand

Table
//I literally copied and pasted this in 15 seconds from a fake Excel I threw together.

bananastandtable.png

Product Reviews

~ avichal ~ 1 Comment

I’ve been fortunate to work with exceptional product leaders at Google and Facebook. This distills some of the best practices I’ve learned around product reviews. 

Purpose: These thoughts are targeted at product managers (PMs), product leaders at larger companies, and CEOs of startups. This document outlines 1/the goals of a product review, 2/common mistakes, and 3/the logistics before, during, and after a review.

I use CEO or founder as a proxy for “decision maker.” For product-oriented companies under 500 people they are likely the same. At larger sizes, responsibilities often recurse down to a VP as the Decision Maker.

0. Why do product reviews?
Product reviews are a process through which a company can scale product development, and are useful for both teams and leaders. Product reviews allow teams to have ownership over product decisions and a clear, predictable way to move forward through strategic and operational roadblocks. They are a useful tool when a CEO can no longer be involved in parallel work streams in real-time. In my experience, this will happen around 20 employees — when it’s hard for one person to be both the full time PM for the product and the CEO at once — and are a staple process as a company grows from 20 to 20,000+ employees.

1. The Goal of a Product Review

There are three flavors of reviews:

  • I. Input/Discussion — The goal is to get input early in the ideation/development of a product. The questions on which you want input and the type of input you want should be clear. It is better to get the CEO/founder to weigh in rather than spend 3 months on something and then realize it is totally out of whack with her vision, that some other team is already doing it, that the company tried something similar before and the founder has context, etc. It’s good to get in front of her as soon as you have a good idea of what the team is trying to accomplish and get her input.
  • II. Unblocking a decision – The goal is to make a strategic decision. If multiple paths forward are plausible and reasonable people disagree about the right path, go to the CEO to make a call. In most companies, the CEO has more context than anyone else about what’s going on, more data intuition than anyone else at the company because of historically accumulated knowledge, and is phenomenal at asking the right questions. The CEO is the ultimate arbiter between teams and can unblock while optimizing for the company. Over time teams can build ways to formalize these decisions, but early on someone needs to make a call.
  • III. CEO priority – The goal is to build and ship a product with the CEO deeply involved in the process. This is a rare third form of review which is a bit more like a team scrum, with the CEO co-PMing with the product manager. This happens at every company. These are projects that are pre-launch, new products, or initiatives that are critical but struggling. The CEO will get involved because she has strong intuitions about what a team needs to build in a strategically critical area. She wants to understand what’s happening the same way any PM member would and help guide the team to build the right product. It’s not uncommon to go in every week to the CEO as the product gets built. After launch, the team should be on its own trajectory, and the team falls into the normal iteration cycle + product review cadence with review types I-II.

2. Common Mistakes

  • Reviews as updates – The most common mistake when asking for review time is to just offer an update. This is often conflated with a discussion style review (type I). Type I reviews have clear questions where the team needs input and will require the CEO to actively engage. Updates are information flowing from the team to the CEO and do not require active engagement. Teams should rarely burn a CEO’s time to do an update. Ten people in a room for thirty minutes = five hours wasted. Send updates over email and if the CEO has questions, get in a room to talk through it. This serves the dual purpose of forcing documentation that can be shared broadly.
  • Reviews as exposure/reward – Do not use reviews as an opportunity to give people exposure or as a reward. Teams should be 100% focused on winning and a review has a clear goal to unblock the team on its path to winning. For example, this may mean that a more senior product manager actually presents for the room or the most senior designer represents the entire design team’s work. Find other ways to give exposure and reward people.
  • Surprises during/after the review – everyone who will be impacted by the decision made should have context that this review is happening and has had a chance to weigh in with their perspective. This requires understanding not just the decision to be made but the implications/consequences of the decision. Not everyone has to agree with how to make the trade-off, but it is a big failure on the product manager if someone in the room is surprised with the content of the review or if someone who should have been involved in the decision is surprised when they hear the outcome.

3. Review Logistics
A. Before the review

  • An efficient approach is to have every team in the company have a standing block of time to go to the CEO during the week. This is efficient because a team knows they can go in every week if needed. If not, they give up the time a few days in advance so other teams who need extra time can use it.
  • Create a document or a deck with mocks, and send it the morning of the day before the review. So if you’re going in on Thursday afternoon, the CEO gets the document to read on Wednesday morning. The questions you want to discuss are called out clearly. The day before the review or the morning of the review, the CEO may respond with questions she’d like to talk through in the review. This gives the team time to get data or converge as a team on an opinion before the meeting.
  • Try to create standard formats/templates that are shared across teams. Uniformity across conversations makes it much easier for people to come up to speed on the content.
  • Anyone who has depth of information/context should be in the room – product managers, designers, analysts, marketing, user research, engineering, sales, marketing, legal, etc. The attendees will change depending on the decision to be made and should be determined and communicated in advance of the review so everyone can prepare for a successful review. Don’t have people who want to “stay in the loop” or “hear about it firsthand” in the room. If you’re not actively contributing to the discussion, you shouldn’t be in the room.
  • If you anticipate the meeting will take 30 min, block 45 min and shoot to be done at the 30 min mark. This also gives some buffer and prevents a domino effect since a CEO’s day is often back-to-back.

B. During the review

  • Everyone should have read the document beforehand and the meeting should start with a discussion on the open questions. Most of the time in a good review should be on productive discussion.
  • If you must present a deck, shoot for six slides per thirty minutes. Do not schedule content to fill the time and move through the presentation 3x faster than normal. If the CEO has a question or needs clarification, she will ask. The most productive use of time is to discuss and decide.
  • A great CEO focuses almost entirely on high level questions for most things that are brought to her. She wants to understand the goal and if the team is solving the right problem. This means she will look for a clear articulation of the problem you’re solving, data to back up that this is a real problem, a clear articulation of how to measure success, etc. Historical trust with her helps.
  • If there are known truisms inside the company, she will call them out if you violate them. For example, in many consumer apps, more information density means every metric will go up. So in areas where we want users to take some action and she sees a bunch of whitespace, that’s going to get called out. Another example is that certain design patterns may have become core to the product and often it’s better for the entire system to maintain these. So if you add too much complexity to the system by creating multiple ways to do something, a good CEO will ask why you are introducing new ways to solve this problem instead of using existing design patterns.
  • A good CEO avoids micromanaging (other than CEO-pri things). Likely if you’re getting micromanaged, it’s because the team is broken and the CEO will work through her directs to fix the team and perhaps move people between teams. After seeing this a couple of times, you realize that good CEOs aren’t interested in design specifics on most things because it’s not scalable. Hiring great people, having good processes, and giving people autonomy scales far better. A good CEO moves people and risks thrash to get the best people on the most important problems. She doesn’t care about who owns what, because it’s all one company, and all that matters is the company’s success. This is at odds with how many people think about their jobs and careers, and takes some adjustment.
  • She isn’t afraid to call out organizational issues. For example, if a design solution seems suboptimal, she may probe and then ask if we’re doing this because it’s too painful to work with some other team or if this is really the best way to do it. Good executives will back-channel information to their CEO as well so she has additional context and can make moves as necessary. It’s awesome to know a great CEO won’t hold back on organizational/political issues and wants the company to globally do the right thing.
  • She shares context across groups by calling out why she thinks something is the case, not just what she thinks is true. This is useful because she sees information across teams in a way no one else does.
  • Good CEOs are extremely logical and operates from first principles. This means that if you go in again in a week, she will give you the same answers as last week because the answers are derived. If there is no logical reason for something (she just has a strong intuition), she will make that explicit. This is unlike a lot of leaders who conflate what they believe emotionally with what they know rationally. It makes great CEOs very predictable, which allows the company to scale.
  • Other times, she will have very strong intuition about key pieces of product strategy. This is informed by historical information/experience that something will or won’t work. These are almost always strategic calls – for example, what the default privacy model of a social product should be – not something at the pixel level. In these situations it’s best to take the feedback and decide if you agree/disagree. Ultimately code and data win. If the team disagrees with her intuition, they should find a way to test the CEO’s intuition and the team’s intuition and validate (maybe a user study, maybe a small test, maybe confirming the historical data she has in mind).
  • If the CEO asks for something, you are on the hook to deliver a follow up, even if all it does is prove her wrong.
  • Great leaders are comfortable with silence. They will sit silently to think through something before articulating what they believe and why. This can feel like an eternity and be very uncomfortable for new people. A good CEO will take this time because she’s trying to think through why she believes something so she can articulate the principles, not just the intuition.
  • CEOs have to be good at demonstrating positivity when things are going well. Many CEOs’ and founders’ natural inclination is to be critical and point out what can be done better (e.g. the countless stories about Elon Musk or Steve Jobs). This leaves people feeling like they are constantly failing because they receive little positive reinforcement and makes it challenging to calibrate when things are truly not going well. If the team is not doing the right things, great CEOs do not hold back. She makes it clear what she thinks this is a mistake and why. She does not do this in a personal way and focuses on the outcome.
  • Curveballs happen (this should happen in < 10% of reviews) when the team is solving the wrong problem. This could be because of information asymmetry or it could be because of a communication breakdown. For example, the team thought the CEO wanted us to solve X but she was simply using X as an example and wanted us to think about the generalized version of X.

C. After the review:

  • CEOs rely on senior people to interpret for the team. After every review, the team should debrief without the CEO, and the senior people in the room should interpret what happened. For example, the PM and designer on the team incorrectly thought they were being asked to change the design of X (interpretation #1). The senior person in the debrief clarified that the decision maker was really saying that the team had introduced a new way to perform X in the app, when there was already another way to do X. While the new approach maybe good, two different ways to do the same action will erode the system over time, and the decision maker was calling out this principle. So the team should go think hard about whether a new way to do X is good, or if we should just do X the same way it’s done in the other part of the app (interpretation #2). Interpretation #1 and #2 are very different and would send the team in very different directions.
  • CEOs rely on their executives to make people shifts. For example, maybe an engineer is too junior for the problem they’re being asked to solve. The CEO shouldn’t throw this person under the bus in a meeting, but will work through the leadership for the group who is in the review, get the engineer additional support and if it doesn’t get the team where it needs to be, work through her management chain to get someone more experienced on the team. All of this will happen behind the scenes. A good CEO helps people save face in public because good junior people who trust their management chain eventually become great, loyal senior people.
  • CEOs rely most often on PMs to collect and synthesize notes from everyone and circulate them to everyone impacted by the discussion — the team, engineers, partner teams, marketing, sales, etc. Writing things down removes ambiguity, keeps everyone informed, and allows people who weren’t in the room to ask for clarification. These notes should be sent out the day of the review so the context is fresh in everyone’s heads and any ambiguity is resolved quickly.
  • CEOs rely on product managers to schedule more time for subsequent follow ups. CEOs tend to have great memories because they live and breathe their product. No PM wants to get an email four weeks later asking what happened with the open questions from the review last month. That reflects extremely poorly on the PM (and the team).

Many of these principles will scale to other, non-product types of reviews, but some of these observations may not carry to all cultures or types of companies.

Thanks to Dan Siroker, Yin Yin Wu, Andrew Bosworth, Zohar Yardeni, Alex Himel, Pratiti Raychoudry, and Hema Budaraju for their feedback.

More Posts Soon

~ avichal ~ 6 Comments

Spool was acquired by Facebook in mid-July and we’ve been focused on the transition since. I have a few posts about what we learned building Spool and what we learned during the acquisition process. I’m hoping to put them up in the next two weeks. I’m writing this post and publishing it as a way to commit to actually getting them done and published.

Compound Interest is for People Too

~ avichal ~ 9 Comments

Save $20,000 when you’re 24 and let it compound for 40 years. At 4%/yr interest you have $96,000 and at 6% interest you have $205,000. Compound interest is a beautiful thing.

Compound Interest - you want 6% not 4%

People work the same way

The quality of people you surround yourself with is the biggest determining factor for how good you will be at whatever it is you want to be. Surround yourself with entrepreneurs, engineers, artists, or parents who are just slightly better and the impact will compound over time.

Are you compounding your life’s purpose with 4% interest people? With 6% interest people? Is there an opportunity to compound at 20% interest, if even only for a few years?

I’ve seen it happen around me for the last 20 years. People that I started in the same place with, and had the same potential as, are now either far ahead or far behind — whether it be in the military, entrepreneurship, civil service, academia, or family life. Almost universally, the people who are far ahead, optimized to be around the best people.

Note: This is not just for careers. If you want to be a better parent, spouse, or friend then surrounding yourself with people who are better spouses, parents, and friends will compound in the same way.

Creating Art is Fundamentally Human (Instagram is worth $1 billion)

~ avichal ~ 6 Comments

Some products allow anyone to become an artist and tap into the human desire to create art. Products that enable this desire can have a tremendous adoption curve. Pinterest, Instagram, and Tumblr are all examples of this phenomenon. I think the ability to turn anyone into an artist is (part of) what creates a religious fanaticism in each product’s users.

With a few re-pins, you can create collections on par with any magazine. Or with a few taps, you can create pictures that look as though they should be in a museum. The beauty of lowering the friction to being an artist is that as the community gets bigger, it actually gets better! This is the opposite of most communities — think about Yahoo Answers today.

Pinterest and Instagram are not frivolous. They are the most efficient tools ever invented to create art. And creating art (just like sharing and connecting with our clans) is one of our most basic desires. Companies that own this behavior online are worth A LOT of money.

Startups Win by Cheating

~ avichal ~ 3 Comments

Many engineers believe that if you build a great product, everything else will take care of itself. Unfortunately startups rarely work this way. Building a great product is a necessary, but not a sufficient condition for success.

Types of Unfair Advantages

Startups usually win because they exploit an unfair advantage — they cheat. A small advantage can give a startup enough momentum to succeed on the quality of its product.

You have to figure out where you have an unfair advantage. This can help filter or eliminate opportunities, and helps you focus on how to acquire the advantages your company will need to win. An incomplete list of advantages:

  • Information Advantage – If you worked on Facebook’s feed algorithms and leave to start a business built on Facebook distribution, you have an information advantage.
  • Access Advantage – If you were previously VP of Sales at a company and are going to sell a new product to your previous company’s customers, you have an access advantage.[1]
  • Technology Advantage – you have patented technology or defensible (non-trivial) technical advantages that is core to your business. This is very rare for startups. Engineers tend to over-estimate the defensibility and true value of their technology.
  • Data Advantage – you have access to data no one else has access to yet. For example, a company I consulted with had access to a non-public API from a major retailer that allowed them to advertise to users in a way no one else could.
  • Reach Advantage – if you’re already a celebrity, you can reach people for free. Kevin Rose used his reach on television to promote Digg in the early days. Jessica Alba is using her celebrity to promote her diaper company. They “cheated” to jump start their business.

Example

Zynga was kickstarted because Mark Pincus was an angel investor in Facebook (Access Advantage) had early notice that the FB API was going to launch (Information Advantage). Zynga became a launch partner and had a head start on almost everyone in the market.

Every entrepreneur and company has ways to “cheat.” Unfortunately, too few entrepreneurs spend time thinking about what their unique advantages are and what unique advantages a company in their space would need to succeed. If a company can get those two to align, they have a much easier time getting off the ground. And getting off the ground is the hardest part of doing a startup.

Footnotes

1 – I’m not advocating violating any employment contracts/laws or being shady. For example, you could sell a non-competitive product to your former clients that became your friends.

Cultural Competence

~ avichal ~ 9 Comments

What is Cultural Competence?

Core competence is a factor that cannot be easily replicated and gives the business a competitive advantage in delivering their product or service to customers. Core competencies are how a business does something.

Cultural Competence is the lens through which opportunities are identified and evaluated. Cultural competencies are how a business figures out what to do. [1]

Implications

Every business, no matter the size, has cultural competencies.

  • Cultural competencies are a reflection of the founders’ personalities. It’s no coincidence that Google was started and led by Ph.Ds, Apple by a designer-perfectionist, and Amazon by a quant from a hedge fund.
  • Cultural competencies are directionally set as you go from 0-20 people. If you achieve product-market fit, you will only deepen your cultural competencies. You can inject new culture via new (strong) leadership, but the existing leadership has to be receptive. The larger the organization, the harder this is.
  • Product market fit is easier to achieve if you work with your cultural competencies, not against them. Often times when a company builds the wrong product, the market they are pursuing does not align with their cultural competencies.
  • If you understand your cultural competencies, filtering potential opportunities becomes much easier. Be honest about whether or not the market you are pursuing can be won given your cultural competencies.
  • Don’t emulate another company’s cultural competencies, as many do against Apple. Pursue a market through your own cultural competencies to create a differentiated (and more successful) offering, as Amazon has done with Kindle Fire.

How do Cultural Competencies develop?

Cultural competencies are an emergent property of people in an organization. It starts with founders who pursue ideas and markets they understand. If they get traction, they hire a team that thinks about the opportunity similarly (belief in the vision). If they achieve product market fit, they hire more people. These people then pursue scaling a business in the way that has worked best thus far, reinforcing the cultural competencies and world view. This yields more revenue, which results in more people hired to support that core business. At each iteration, the new hires cause a deepening of existing cultural competencies.

An example: Amazon vs. Google

Amazon and Google share core competencies. They’re focused on large data problems, machine learning, exploiting massive infrastructure, experiment driven monetization, and more. They have non-overlapping core competencies, as well. Amazon has phenomenal customer support and logistics, while Google has deep expertise in search and performance-based advertising.

Given their similar core competencies, no one should be surprised that Google and Amazon both pursue the smartphone and tablet markets. However, their approaches are dramatically different because of their different cultural competencies.

Google’s cultural competence sees the world as signal and noise that must be filtered. A minority of the signal is commercially useful, and Google monetizes the shit out of it. This is how they manage to make money on search, email, and maps when few others can.

Amazon’s cultural competence sees the world as a series of transactions on which it can build a platform. Amazon pursues opportunities that will facilitate repeated transactions and then builds the platform to own all of these transactions. The Kindle was made to drive the sale of digital books. Free Shipping and Amazon Prime are levers to drive more sales on Amazon. It’s all about increasing and owning transactions.

How Cultural Competence Skews Perspective

For Google, Android is the key to owning mobile search and ads. Google’s cultural competence perceives Android as a moat for Google’s castle — search and ads. For Amazon, Android is about selling more video content, pushing Amazon Prime (which results in more sales on Amazon.com), and the Amazon Android Market (a digital goods store). Amazon’s cultural competence sees Android as a platform to enable more commerce and monetize directly.

Same platform, yet dramatically different perspectives, and ultimately different ways to extract value out of the ecosystem.

How Cultural Competence Impacts Product Success

It is not a surprise that Google makes a small amount of money directly from Android. Google’s cultural competence does not align with what the market demands from a direct monetization product — Google Wallet, Checkout, and the Play Market are examples of how Google fails because their cultural competence prevents them from building the right product.

For example, Google has rich analytics in the Android Developer Console and has search baked into the core Android experience. Given their cultural competence, it makes sense Google would prioritize these features. At the same time, the platform has no subscription billing and has yet to create a seamless integration of apps and content, 9 years after iTunes revolutionized digital content delivery. Google’s cultural lens has led them to either build the wrong product or be unable to come to a decision about what the right product is for a direct monetization market.

Meanwhile, Amazon has had no problem defining a transaction platform because of their cultural competence, and they execute on this market opportunity efficiently because their core competence is building transaction based products. Amazon has demonstrated this in multiple markets.[2]

Google’s lack of direct monetization from Android is not a surprise. Apple’s lack of monetization via iAds is not a surprise. Amazon’s lack of monetization through auctions is not a surprise. [3]

Credits

Thanks to Elad Gil, Curtis Spencer, Aditya Koolwal, Dan Siroker and Yin Yin Wu for reading drafts and providing input.

Appendix


1 – I just created the term “cultural competence” to apply to something that people have talked about informally for a long time, so the definition will likely evolve. The concept itself has been floating around in lots of brains for a long time. Edit: Turns out it’s been used in the HR world to mean something different (see comments below). So the definition in this post is more of a “secondary definition” than an “invention”


2 – Another Amazon vs Google example
Hosting platforms are another great example of how cultural competence skews outcomes. Amazon looked at Amazon Web Services the way they look at their retail site. Find the simplest set of things people will buy, then broadening out to related offerings. They manage inventory, demand, and have efficient pricing. Amazon figured out what developers wanted (S3 and EC2), sold it to them, and then expanded the offerings.

Google’s cultural lens skewed their perspective towards thinking that what developers want is the most efficient way to manage large amounts of data and not worry about scaling. Most businesses don’t have Google scale problems and don’t want Google’s internal platform approach to manage their non-Google problems. They need something that works with existing (open source) systems and leaves them the freedom to customize infrastructure. Google tried to apply it’s cultural lens to a market, rather than find a market where it’s cultural competence would give it a competitive advantage.

Hosting is fundamentally a retail problem, not a signal vs. noise problem. Amazon Web Services does $1 Billion in revenue and Google has been tweaking App Engine for years. This is a prime example of how to filter opportunities and pursue ones that align with your cultural competence.

3 – Examples of Cultural Competence Failure
Companies that have a strong cultural lens will stay focused and thrive. Those that dilute their cultural competence die because they lose a very important filter for which ideas to pursue and how. Companies that try to build outside their cultural competence tend to fail as well.

  • Apple – Apple’s cultural competence is finding large industries full of geeky products and Apple’s core competence is building simple, cool status symbols in their place. Laptops, desktops, phones, and music players are all examples. Ping (their music social network), MobileMe, Pages/Keynote/Numbers, and iTunes are great examples of where if the product succeeds by piggybacking on their hardware business, not because it’s a great in its own right.
  • Facebook – Facebook’s cultural competencies lie in identifying opportunities to enable sharing. Every software, app, or platform upgrade is about fostering more connections and data flow between people. Facebook sees markets as an opportunity to get users to share more, find out more about their friends/connections, and elicit relationships (family, friends, worked with, who likes whom) that were previously unknown. When they try to extend this into another area, like daily deals, they don’t do well. Daily deals are not about the relationships between peers, they’re mostly about Facebook’s relationships with merchants.
  • eBay – has core competencies in peer-to-peer transactions (sometimes with goods changing hands). eBay’s cultural competence is around bringing groups of people together into a marketplace and getting them to trust each other and the marketplace. When they diverged from this (Skype, StumbleUpon) they failed. When Skype and StumbleUpon spun out from this cultural lens, they thrived. When eBay applied their cultural competence to Paypal, it worked beautifully because Paypal is fundamentally a trust network.
  • HP – has core competencies in manufacturing, distribution, and enterprise sales. What is their cultural lens? How does HP decide what opportunities to pursue and how to leverage its core competencies? They’ve floundered on this for quite some time.
  • Microsoft – has core competencies around desktop software, business applications, and selling through enterprise distribution channels. Their cultural competence has always been finding ways to make businesses more efficient with their PCs. They make a healthy profit in their servers and tools division since this aligns nicely with their cultural lens. Every time they stray away from this cultural competence, they struggle. Signal vs Noise businesses (Bing) burn cash and Entertainment (Zune, Xbox) operates at break even.