2 Mental Tricks That Will Make You a Better Entrepreneur

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This week at StartupYard, our current batch of companies has been in the tall weeds trying to finalize their marketing and messaging for our press launch, which went off last week.

The cliché expression for the feeling they are experiencing is “jumping off a cliff and building your wings on the way down.” A version of that quote is often attributed to Reid Hoffman, who uses it to describe entrepreneurship generally. In fact, the quote originated with the science fiction author Ray Bradbury, in a review of the National Air and Space Museum in Washington D.C.

In a way that makes much more sense. The quote describes inventiveness and forced creativity. It can be the realm of the entrepreneur, but it is more generally the realm of anyone creative.

The reason I mention this is that a founder can be both very strong in creativity, and still very unconfident in their ability to creatively communicate with customers. That’s what my job with them is all about.

Creativity and Empathy

This week I’ve done two workshops with our startups. One on “Storytelling,” and the other on “Customer Personas.”

To me these are essentially the same topic. Stories are the way that the human mind invents and creates the future, and how we understand our past. It is about how every “character,” or person undergoes an arc, and how those arcs interact and impact each other. Building personas, in the way I see it, is how we examine our assumptions about people, formulate tests of our insights, and discover ways to empathize with and understand those who use our products.

Here we’re going to talk about some simple mental tools that are going to help you ideate and test your own assumptions about your customers, in order to better serve and sell to those who need your products most. In many ways these will not be unfamiliar concepts, but to the mind of an engineer or a maker, they are often mysterious and elusive in terms of application, particularly when it comes to marketing.

I’ve written a number of posts on this topic, so I encourage you to start with these. Go on, I’ll wait.

…

Double Loop Learning

Double loop learning is a basic model for creative and flexible thinking. In essence, it suggests that there are two ways to approach the learning process (such as in product development), a “single loop,” or a “double loop” process.

 

Here is how they look: 

 

In the Single Loop Thinking:, you begin with assumptions (a mental model), logically leading to a set of rules, which lead to a decision. From there, you adjust your decision based on feedback.

In Double Loop Thinking: You do the single loop, but at the same time, you go back to the initial assumptions and adjust the mental model, which may cause you to adjust the rules, and not just the final decision.

Example of Single Loop: In deciding on buying a car, I imagine the car I want to buy: Color, Type, Make, Model. Using this model, I decide which dealership to go to, and how much I can expect to spend (making rules). Based on this, I decide on a dealership. Now I go to the dealership, and I find out if I can get the deal I want for the car I want. If I can’t find the car, I go to another dealership (information feedback to decision).

Example of Double Loop: I do all of the above. But I also ask myself: should I be trying to buy this type of car? Were my ideas realistic? Based on what I learned from my visit to the dealer, what other cars got my interest, and might be better for me? I adjust my expectations, and make a new decision about the kind of dealer I need.

Why it Works:

Single loop is in fact the way we are taught to learn in school. We are given rules, and told to apply them continuously, looking for the correct decision given the stated rules. Just think of all that math homework you had to do.

That kind of singular repetitive learning works most of the time, particularly when a desired outcome is pre-determined. However, this can also lead people to forget that the initial mental model may be flawed, particularly after gaining real experience with it. 

The most typical case in startups, is the startup that makes some early decisions about who the customers were and what they wanted, but never came back to those assumptions, and ends up serving a smaller niche than necessary, because all their later decisions are based on data they’ve gathered so far. The longer a company remains in this “single loop,” the less likely they are to challenge their original assumptions and thus be able to successfully pivot to a new market. 

 

Here is a concrete example using a classic business case many people face even as kids:

Single Loop:

1. I decide to sell lemonade. I choose a location for my lemonade stand and a price for the lemonade, based on my intuition about what people will pay. 

2. I observe the sales cycle. How many people visit, and how many people convert to buying a lemonade.

3. I slightly adjust prices and location to optimize my sales.

4. Go to 2.

 

Double Loop:

  1. I decide on a location for my lemonade stand and a price for the lemonade based on my intuition. 
  2. I observe the sales cycle.
  3. I slightly adjust prices and location to optimize my sales.
  4. I re-examine my initial strategy, and try a new location, or even a new product (maybe ice cream?) 
  5. Go to 2.

The OODA Loop

 

Ok, maybe running a startup isn’t exactly like flying a combat mission in a $50m fighter jet in the U.S. Airforce. Still, you can learn from the mental training that fighter pilots, spies, and military strategists use on a continuous basis – often minute to minute.

 

It’s called the “OODA Loop,” for Observe Orient Decide Act, invented by Air Force strategist John Boyd, called by some “the greatest military thinker no one ever heard of.” Here is a very thorough explanation of the general philosophy behind it, written for a popular audience. In as simple terms as possible, the OODA Loop is a mental tool which forces its user to continually adjust their future expectations, based on current realities.

Why it Works: 

The OODA loop is a tool for forcing oneself to continually affirm their past decisions using current information, and to drop previous assumptions and goals based on current circumstances. The OODA loop is used as a mental tool to keep you focused on the current moment, and what is happening around you, to avoid sticking to a strategy which is not working, and to continually notice new opportunities. 

Boyd’s central thesis has become a core principle of modern warfare, and a frequently used technique in sales training, and even by professional chess players. The core tenet is this: the mental models one holds tend to lose their usefulness in chaotic situations. Therefore, updating our mental models, or “orienting” our expectations can help us to make better decisions for any given situation.

What does that look like practically? I’ll refer to a thought experiment that Boyd himself proposed:

“Imagine that you are on a ski slope with other skiers…that you are in Florida riding in an outboard motorboat, maybe even towing water-skiers. Imagine that you are riding a bicycle on a nice spring day. Imagine that you are a parent taking your son to a department store and that you notice he is fascinated by the toy tractors or tanks with rubber caterpillar treads.”

Now imagine that you pull the skis off but you are still on the ski slope. Imagine also that you remove the outboard motor from the motorboat, and you are no longer in Florida. And from the bicycle you remove the handle-bar and discard the rest of the bike. Finally, you take off the rubber treads from the toy tractor or tanks. This leaves only the following separate pieces: skis, outboard motor, handlebars and rubber treads.”

The thought experiment then asks us to orient to this new situation by putting all the elements together, not in reference to how they were introduced, but rather only focusing on what the elements themselves are, or can be.

You are on a ski slope. You have skis, you have a motor, you have handlebars, and you have rubber treads. What’s going on?

Spoiler: You’re on a snowmobile. That’s what’s happening. Nothing you learned to this point other than those facts matters. To master the OODA loop, you have to be able to clear your mind of these details when they are no longer useful.

The OODA loop focuses on observing the current situation, combining that data with experience and knowledge, and making a decision focused on what is happening right now. 

Actually we are quite familiar with elements of the OODA loop in pop culture. Films like The Bourne Identity, or the recent Bond films show classic outcomes of the use of OODA loop, which is the result of real special operations personnel training the actors and consulting on the scripts and fight scenes.

The tension that arrises from these films, in which we observe someone using the OODA loop, comes from the audience being slower to understand how the protagonists are processing situations. As an audience, we have a hard time dismissing details and living in the moment, so it is exciting to see characters who are unpredictable, and yet acting very logically.

This scene from The Bourne Identity is a classic example of the OODA loop in action.

Here’s another from the classic film Top Gun, handily labeled so you can follow the steps that the fighter pilots are using. This video has an added bonus in that Maverick, played by Tom Cruise, fails to use the OODA loop, and suffers the consequences.

 

The Monty Hall problem

The OODA loop is a practical tool in decision theory. Probably the most famous case of a practical application is the so-called “Monty Hall Problem.”

The problem was first articulated in the 1970s in response to an American game show called “Let’s Make a Deal.” The problem goes like this:

“Suppose you’re on a game show, and you’re given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what’s behind the doors, opens another door, say No. 3, which has a goat. He then says to you, “Do you want to pick door No. 2?” Is it to your advantage to switch your choice?”

What’s important here is differentiating between a decision strategy, and a single decision. While the chances of the original choice being correct are indeed ½, the odds that the initial choice would be correct over many iterations are only ⅓. That means that if you consistently stick to your choice, you will only win ⅓ of the time, whereas switching will give you a win ⅔ of the time.

Why?

Think of the problem again, but with different numbers. Suppose there are 100 doors. 99 with goats, and 1 without. Now suppose you picked a door, and the host them revealed to you all 98 other doors with goats behind them. Now do you switch your choice? Whereas your initial choice had a 1/100 probability of success, your new choice, has a much higher probability. This time it’s 99/1.

If you don’t believe me, you can actually test the phenomenon here.

Applying the OODA Loop

Now that we see the difference between decision theory and probability, we can begin to understand better how the OODA loop works. Because it requires that we observe according to the latest data, we begin to see that applying decision theory in real life becomes more practical.

Take this situation:

You walk into a bar, and observe a group of large men in military outfits standing at the bar. The men are sweating profusely and breathing heavily. No one speaks. You see that all of them are carrying rifles or pistols. They appear not to notice you.

Your observation moves to orientation: your judgement says there is probably trouble. Based on the available data, you decide that turning and walking out will draw attention and cause them to panic, or even attack you. Challenging them is too dangerous, as you are alone and unarmed. You decide to continue past them to the bathroom, where you know there is probably an exit.

You get out of harm’s way and look and listen from safety. The men stand quietly. Eventually a bartender appears and they order beer. The men begin to laugh, and one of them explains to the bartender that they are just coming back from a game of airsoft.

Orientation Leads to Better Decisions

Notice first of all that observation and orientation happen always before a decision is made, or an action taken. The decision is then subjected to another round of observation, where the first set of data are taken together with the new set.

We see from this example that quick reactions are, over the long run, less important than correct decisions. Anyone who has been trained to drive a car in mountainous areas has probably been told that the best decision when a deer runs across the road in front of you is to hit the brakes, but not to turn. This is not because turning is unlikely to help you avoid the deer, but rather because swerving away *is* more likely to cause you to crash the car (possibly into another car).

Those with relevant experience know that the deer will mostly likely run away if you slow down but don’t turn. If you turn, the deer can become confused and may hold still, causing you to hit him anyway. Even if you hit the deer front on, this is less likely to endanger your life than a side collision or losing control of the car. Either way, your best decision is not to turn: no reaction is better than an overreaction.

If in the former example of the OODA loop in the bar, you had reacted as quickly as possible to the situation, you would have made mistakes. First of all, you would have suddenly run out of a bar that was perfectly safe. Or worse, you might have attacked a group of men who were armed.

If you had challenged the men, you might have been killed, or beaten. If you had run out, you might then have called the police, causing further trouble, and perhaps even unneeded violence. If you think that’s overselling it, keep in mind that police shoot civilians with distressing regularity, in some countries, for such offenses as holding a mobile phone, or a toy gun. That often occurs because the police are not trained properly – such as with the OODA loop. Your effective use of the OODA loop could prevent that from happening.

Thus, in this situation, a slow reaction was preferable to a fast one, which is why you made a conscious decision to continue to the bathroom, rather than to engage with a situation you didn’t understand yet. You then moved back to observation and orientation. Discovering that the men are just coming back from a game, you may decide that no further action is necessary.  If the new situation, by itself, does not appear dangerous, you may then decide to dismiss your concern, or you may decide to continue to observe.

OODA for Entrepreneurs

As Malcolm Gladwell points out in his book Blink, which explores decision loops in human interactions and business, as well as in historical conflicts, an ability to continually orient to one’s current circumstances is the greatest predictor of failure or success- a predictor more powerful than numerical data or objective observations.

Consider how this can be applied in the thinking of a small business. In the fact of numerical advantages, or sudden threats (such as bad PR, or even a troll on twitter), to what degree is your decision making purposeful, and designed to accomplish a known goal? Are you capable of altering your strategy to take advantage of new information and new events?

Observing new facts is easy to do. But consciously challenging an existing mental model is much harder. Reacting to data only after deciding *how* to react, can make the difference between a major gaffe, and a well-handled situation. Those who are able to act according to the most relevant information in any given moment are likely to win in the long run. Just as in picking stocks, or playing poker, success is found in not allowing your initial strategy alone to determine your future actions.

As John Boyd himself put it, to paraphrase: “in any game, the winner is most likely the one that can orient to new developments and alter their decision making as a result.”

 

StartupYard is Accepting Applications for Batch X: Automation, Blockchain, and the Future of Work.

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StartupYard, Startup Founder, Brutal

11 Ways Being a Startup Founder is Pretty Brutal

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Are you a startup founder? Welcome to the suck. Last week I emailed StartupYard alumni to ask them one question: “What has been the most brutal part of your startup journey?”

We talk a lot about the joys of success and the feeling of accomplishment our founders get from overcoming their challenges. Actually though, being a startup founder can be pretty brutal sometimes, and there are plenty of situations where there is no real silver lining. A big part of making it as a founder is relying on your friends and your mentors when things go bad. Even if there isn’t a way to fix it, we can help you move past it and use the experience to grow and mature, even just a bit.

Brutal Doesn’t Mean “Not Worth It.”

It’s rare that a negative emotional or inter-personal experience as a founder is enough to make our alumni give up- in fact we’ve never seen it. Still, it can make the world of any entrepreneur lonely and discouraging, sometimes for long stretches. The best founders have to stick out those patches and make it through anyway.

I’ll be quoting our founders in this article without revealing names. There are some things we can learn from, that are still best not discussed in detail. Here is what a few of our alumni had to say:

  1. Partners Suddenly Change Directions

“Representatives of [A Big Tech Company] said we would ‘build an ecosystem together.’ They got us really excited. 3 months later they ended that initiative and nothing happened. Everything we thought was going to happen never did.”

  1. People Waste Your Time

“I traveled hours to meet this VC, only to find out he wasn’t interested at all. I talked with him for 20 minutes, then traveled hours home for nothing.”

“People want to meet you and they want to cooperate with you, and they can’t do anything. They don’t have anything for you. They’re doing it just to do it. You have to be able to say no at some point.”

  1. People Break Apart

“I had to break up with my co-founder, whom I have known since childhood. It was for the sake of the company, but it made me very sad.”

“I saw that our vision of [my co-founder’s] role, was not the same. He wasn’t doing what we had agreed, and we suffered for that.”

  1. Investors Get Cold Feet

“We shook hands on an agreement. I followed up with him the next week, and he never returned my email. He didn’t even say why he was backing out.”

“We were going to sign, literally that week. The papers were all finished, and they backed out. We had to start from zero.”

  1. Customers Are Harsh

“You change one crucial feature in a way [your users] don’t like, or it doesn’t work for 1 day, and they kill you in the [app store] ratings. They absolutely kill you.”

“The product was just not working well, and I was trying to ignore it. I was trying to be positive, but we needed to really close in and refocus on our existing customers. It was very hard to admit the product was not what we were promising.”

  1. Sometimes Nobody Cares

“We invested in this whole campaign. We thought it was really valuable and people were going to like it, and share it, and buy the product. Nobody did. Not one person.”

“Some features you think are going to be a killer, and nothing happens. Other times it’s something stupid, and everybody loves it, which is confusing.”

  1. You Have to Let People Go

“I had to reduce the staff. It was very hard, even though they knew it could happen. I have since felt cautious about getting close to new people I hire. I am afraid of having to do that again.”

“She was really a great fit for the role, with the right personality and the talent, but she just didn’t want to do the work required. She didn’t have the commitment, and I had to let her go.”

  1. You Run Out of Money

“We were going to be broke in like a month or two. It was either fire everybody right now, or we make a product and sell sell sell. That was a scary time. We kept everybody, but we worked our asses off to do it.”

  1. You’re On Your Own

“You feel a real let-down when you leave the [StartupYard] program. It feels like there was all this momentum behind you, and now you are flying on your own and you don’t feel so confident all of a sudden.”

  1. Your Relationships Can Suffer

“She put me on notice. I knew I couldn’t make her happy and do this, and I had to do this, so we took a break, mutually. So many people depend on you, it’s not possible to be everywhere.”

“[My co-founder] and I were friends  since we were in high school. I think we will get past this and be friends again. But not right now.”

  1. You’re Not Always Sure Why You’re Doing it

“It just wasn’t working. It wasn’t happening, and I was just sticking with it ‘to the end.’ I felt very alone.”

“I fear the risk of failing, so I just try to keep things going, but why am I doing this if it’s going to be like this forever? I don’t want that.”

Luck, and getting Getting Past the Brutal Parts

Every founder in our experience has at least one story like this one. Usually they have lots. The only thing that separates the startups that fail from those that succeed, apart from a lot of luck, is sticking through the hard parts. One of the best ways to do this is to build a very strong network of advisors and mentors. That’s something accelerators like StartupYard can help you do.

Are you ready to build the network that will take you to the global market? View StartupYard’s Open Call for Startups:

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Pitching, StartupYard

Is The Startup Pitch Session Dead?

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As the most recent startup conference season has gotten rolling, I’ve been on the road to different cities in the CEE region. Warsaw, Kiev, Budapest, and soon Gdansk and Vilnius among others.

Certainly there are more startup conferences than there ever were in the past, so we’ve become increasingly choosy about which ones we attend. Today to evaluate a conference opportunity, we ask first “will they let us speak and present StartupYard,” and second “will we get 1 to 1 time with startup founders?”

The Best Startup Conferences Aren’t Tradeshows Anymore

I must say this is somewhat a reversal from the days when I first attended tech conferences. It used to be all about the pitch sessions. The whole event would be organized around a few keynotes at different stages, and a series of pitches, often with a big prize to draw startups and a crowd. That is the experience at places like Slush and Disrupt, as well as the former LeWeb.

We’ve written before about how useless this carnival approach can be for many who try to make real connections and tangible progress at such events. The light show outshines the personal connections, unless you are the type of person who can work a room full of strangers like a pro networker. You’re probably not. Natural social butterflies are rare in this business.

The most shiney startups would pitch, and then I assume they’d be bombarded with interest from investors who compete for their attention, rather than the other way around. This system had its obvious problems, but the worst was that it gave many startups the impression that they were shopping for the best offer from investors, rather than looking for a real match with the right investor.

My personal disgust with this dynamic culminated with an investor keynote in which a particular VC, who will go unnamed, patronizingly explained to startups that they need to “be the hot chick at the party,” for investors, and “play hard to get,” and assorted other bogus mind games that make founders impossible to deal with. Sexist and gross, of course, but also counterproductive and boring.

Obviously this is self serving, but StartupYard simply does not compete on the size of our investments, and we don’t want to talk to the “hot chick,” we want to find the company with the best team who want to make a real global impact. For a long time that kind of investor and startup attitude made conferences less than effective in helping us to scout and make relationships with startups that could fit well into our program.

The Pitch is Dead: The Conversation is Back

So I say with some relief and hope for the future, that it does appear that the up and coming startup focused events around CEE, the ones not burdened with heavy price tags and expensive catering, are doing away largely with the pitch competition format. Big ticket events focused on the public, corporate executives, and big speakers are still around, but happily startups are gravitating to more personal events where they can have time to really talk to people.

At Wolves Summit in Warsaw just last week, there was a pitch stage, but there were only around 50 seats, and I didn’t attend a single pitch session.

I was too busy taking great meetings with relevant startups, arranged in advance with intuitive software, and held in 4 different halls with a stunning 120 tables in total; most of them occupied. Interestingly too, at Wolves there is effectively no main stage, and consequently no temptation by the organizers to book big headlining speakers– a decision that inevitably leads to higher prices, more tech/startup tourists, and less time for startups to meet with each other and with investors.

When Wolves got started in Warsaw, the event was a pitching event. It was held in 4 screening rooms, and mentors were in fact pitching judges. As a result, very little personal interaction could happen because people were too busy with the pitching. The event has steadily improved with the focus on personal interaction.

Conferences that have built their reputations on speakers who charge €25,000 or more to talk about their salad days at Apple, or as VC investors, early Google employees, or startup founders, have becoming increasingly irrelevant for early stage, truly disruptive young companies that don’t have a splashy B2C concept and a great marketing gimmick. That’s ok. There is a place for more entertaining or corporate driven conferences with more flash, but for early startups, today there are much better options.

As the startup ecosystem in CEE gets more high-tech and less flashy and B2C, personal interaction is more important than ever.

At conferences like Wolves or Startup Fair Lithuania, speakers are unpaid volunteers, meaning only those with a strong urge to share their stories and a good reason to do so are speaking to smaller groups who are attracted by more than just a name or someone’s impressive resume.

That’s good news as far as I’m concerned, because it means that increasingly conference organizers and startups are understanding what is really key about these events: becoming a place where the relevant parties can make connections with each other. Today you see fewer startups sending their head of marketing or sales to conferences, and more likely you see the CEO and CTO there themselves. Even companies that are later stage seem to be doing this more.

Are Pitches Still Relevant?

Very much so. But not in the way they used to be. Not only conferences, but also accelerators and incubators have been recently questioning the pitch format for Demo Days as well. The key criticisms are exactly the same as for conferences, which is why at StartupYard we’ve continued to evolve the format to bring the greatest value to investors, community members, and startups.

We still strongly believe that preparing a killer pitch is a very important discipline for a young company and a first-time founder to master well. It forces founders out of their personal bubble, and defining the content of a pitch demands that startups make tough and necessary decisions, while striving to achieve things quickly that can become part of their story. All that is good and very much needed.

At the same though, much else has changed. For example, the stage portions of our Demo Days are now shorter than they were before. We’ve reduced keynotes significantly from the past (they used to take an hour or more), and we focus on holding the Demo Days in spaces where our startups can have meaningful contact with attendees after the pitch, and for much longer, up from maybe an hour in the past to multiple hours of 1 to 1 and group conversations. Demo Days are becoming more interactive as time goes on, and I see this happening in other accelerators as well.

We also introduced an official “Investor Week” a few years ago, and that has grown very popular. Investors who attend the Demo Day can now book a meeting with any of our startups in the following week, eliminating the fear that they won’t get in any facetime with the companies they want to meet.

Pitches are still relevant. But today’s connected world means that content is easy to share and to find. Personal contact, face to face, is more valuable as a result. By all means, work on your pitch, do your pitch, share your pitch, but don’t forget what a pitch should lead to: a real conversation.

 

mentors engaged with founders

How Smart Startups Keep Mentors Engaged

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A version of this post originally appeared on the StartupYard blog in January 2016. As a new group of Startups joins us in the next few weeks for StartupYard Batch 10, we thought we’d dive back into a very important topic for them: How do the smartest startups engage their mentors?

But first: why do some of even the most successful startup founders continue to seek mentorship?

Strong Mentors are Core to a Successful Startup

Mergim Cahani (right), CEO of Gjirafa, one of StartupYard’s most successful alumni, is an avid startup mentor himself.

Founders have to balance mentorship with the day-to-day responsibilities of their companies. But sometimes founders approach mentorship as a kind of “detour” from their normal operations- something they can get through before “getting back to work.”

This is the wrong approach. Having worked with scores of startups myself, as a mentor, investor, and at StartupYard, I can comfortably say that those who engage with mentors most, get the most productive work done. Those who engage least, are generally the most likely to waste precious time. 

How can that be? Well, simply put, the first line of defense against the dumbest, most avoidable mistakes, are mentors who have made those mistakes themselves. I’ve seen this happen: a startup decides they’re going to try a certain thing, and it’s going to take X amount of work (often a lot of work). They mention it to a mentor, who forcefully advises that they not do it. The mentor tried it themselves, and failed.

Now this startup has 2 options: proceed knowing how and why the mentor failed, or change direction to avoid the same problems. Either way, an hour-long discussion with a mentor will probably have saved time and money, simply by raising awareness. I have seen 20 minute conversations with mentors save literally months of pain and struggle for startup founders.

Recently, one of our founders reached out to a handful of mentors for information on an investor who was very close to signing on as an Angel. The reaction was swift, and saved the founder from making a very serious mistake. The investor turned out to have a bad reputation, and was a huge risk. As a result, mentors scrambled to suggest alternatives and offer help securing the funds elsewhere. That is what engaged mentors can do for startups.

Engaged Mentors Defeat Wishful Thinking

There’s a tendency, particularly among startups that haven’t had enough challenging interactions with outsiders, to paper-over issues that the founders prefer not to think about. Often there “just isn’t enough data,” to prove or disprove the founders’ theories about the market.

Conveniently, “lack of data,” or “need for further study,” can serve as an excuse for not making decisions. That’s one of the main reasons startups fail – refusing to make a decision before it’s too late.

We like to focus on things we can control, and things we have a hard time working out appear to be outside of that sphere, so we are more likely to ignore them, or hand-wave their importance away.

Founders sometimes long to go back into “builder mode,” and focus solely on executing all the advice they’ve been given. And they do usually still have a lot of building to do. But one common mistake -something we see every single year- is that startups will treat mentors as the source of individual ideas or advice, but not as a wellspring of continuing support and continual challenges.

The truth is that a great mentor will continually put a brake on your worst habits as a company. They will be a steadfast advocate of a certain point of view- hopefully one that differs from your own, and makes you better at answering tough questions. But you have to bring them in.

Treat Your Mentors like Precious Resources

I can’t say how many times great mentors, who have had big impacts on the teams they have worked with, have come to me asking for updates about those teams. These mentors would probably be flattered to hear what an effect they’ve had on their favorite startups, but the startups often won’t tell them. And the mentors, not knowing whether they’ve been listened to, don’t press the issue either.

Mentors need care and feeding. They need love. Like in any relationship, this requires effort on both sides.

But time and again, mentors who are ready to offer support, further contacts, and more, are simply left with the impression that the startup isn’t doing anything, much less anything they recommended or hoped the startup would try.

Mentors who aren’t engaged with a startup’s activities won’t mention them to colleagues and friends. They won’t brag about progress they don’t know about, and they won’t think of the startup the next time they meet someone who would be an interesting contact for the founders.

This isn’t terribly complicated stuff. Many founders fear at first that “spamming” or “networking,” is the act of the desperate and the unloved. If their ideas are brilliant and their products genius, then surely success will simply find them. Or so the thinking goes.

Alas, that’s a powerful Silicon Valley myth. And believe me: it doesn’t apply to you. Engaging mentors is just like engaging customers: even if you’re Steve Jobs or Elon Musk, you still need to be challenged and questioned. You still need support.

As always, there are a few simple best practices to follow.

1. A Mentor Newsletter

Two of StartupYard’s best Alumni, Gjirafa and TeskaLabs, provide regular “Mentor Update” newsletters. These letters can follow a few different formats, but the important things are these: be consistent in format, and update regularly. Ales Teska, TeskaLab’s founder, sends a monthly update to all mentors and advisors.

In the email, he has 4 major sections. Here they are with explanations of the purpose of each:

Introduction

Here you give a personal account of how things are going. You can mention personal news, or news about the team, offices, team activities, and other minutiae. This is a good place to tell small stories that may be interesting to your mentors, and will help them to feel they know you better. Did a member of the team become a parent? Tell it here. Did you travel to Dubai on business? Give a quick account of the trip.

Ask

This is one section which I love about Ales’s emails. I always scroll down to the “ask” section, and read it right away. Here, Ales comes up with a new request for his mentors every single time. It can be something simple like: “we really need a good coffee provider for the office,” to something bigger, like “we are looking for an all-star security-focused salesman with 10 years experience.”

Whatever it is, he engages his mentors to answer the questions they know, by replying directly to the email. This way, he can gauge who is reading the emails, and he can very quickly get great answers to important questions or requests.

Audience engagement happens on many levels. Not everything engages every mentor all the time, and that’s important to keep in mind. A simple question can start an important conversation. You don’t know what a mentor has to offer you until you find the right way to ask for their help.

Wins

Here, Ales usually shares any good news he has about the company. This section is invaluable, because it reminds mentors that the company is moving forward, and making gains. A win can be anything positive. You can say that a win was hiring a great new developer, or finally getting the perfect offices. Or it can be an investment or a new client contact. These show mentors that you are working hard, and that you are making progress and experiencing some form of traction.

You’d be surprised how many mentors simply assume that a startup that isn’t talking about any successes, must have already failed. StartupLand in can be like Hollywood that way: if you haven’t seen someone’s name on the billboards lately, it means they’ve washed out.

The fact might be that you’re quietly doing great business, but see what happens when someone asks about you to a mentor who hasn’t heard anything in 6 months. “Those guys? I don’t know… I guess they aren’t doing much, I haven’t heard from them in a while.” There’s no good reason for that conversation to happen that way.

KPIs

Here Ales shares a consistent set of Key Performance Indicators. In his case, it is about the company’s sales pipeline, but for other companies, it might be slightly different items, such as “time on site,” or “number of daily logins,” or “mentions in media.” Whatever KPIs are most important to your growth as a company, these should be shared proactively with your mentors.

If the news isn’t positive, then explain why. You can also have a little fun with this, and include silly KPIs like: “pizza consumed,” or “bugs found.” This exercise shows mentors that you are moving forward, and gives them a reliable and repeatable overview of what you’re experiencing in any given week.

I heard one mentor complaining not long ago about these types of emails. “The KPIs don’t change that much, it’s always the same thing.” But he was thinking about the startup in question. The fact that the KPIs hadn’t changed might be a bad sign to the mentor, but probably the absence of any contact would be worse. At least in this case, the mentor might care enough to reach out and ask what’s going on.

2. Care and Watering

Mentors aren’t mushrooms. They don’t do well in the dark. Once you’ve identified your most engaged mentors, you need to put in as much effort in growing your relationship as you expect to get back from them.

How can you grow a relationship with a mentor? Start by identifying what the mentor wishes to accomplish in their career, in their life, or in their work with you. Do they want to move up the career path? Do they want to do something good for the human race? Do they just want to feel needed or important?

A person’s motivations for mentorship can work to your advantage. Try and help them achieve their goals, so that they can help you achieve yours.

Does a mentor want his or her boss’s job? Feed them information that will help them get ahead of colleagues and stand out. Mention them in your PR, or on your blog to enhance their visibility.

Does the mentor want to be a humanitarian? Show them the positive effects they’ve had by sending them a letter, or inviting them to a dinner.

Does the founder yearn to be needed? Include his/her name in your newsletter and highlight their importance to your startup. These things are all easy to do, and can be the difference between a mentor choosing to help you, and finding other things to do with their busy schedules.

ideas

Your Ideas are Worthless. You Should be Glad.

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Yesterday we received an email that I can only describe as an “hysterical screed” from a disappointed startup founder who felt that his ideas had been “stolen” by the likes of Y-Combinator some years ago. The email included links to an elaborate set of documentation including YouTube videos that compared two products that sort of, kind of do similar things.

Note, neither the message nor the documentation ever contended that any actual intellectual property, such as code or wireframes, had been stolen. Only the ideas behind them.

What was more arresting was the content of the email, which verged into conspiracy theorism and fantasy.

We get our fair share of weird mail. Investors seem to attract people who combine sad desperation with megalomania. Some just want money. Still when Cedric sent me this email saying: “Maybe a blog post?” I responded: “Hell yes.”

I am not posting this to defend the good name of startup accelerators worldwide, nor to defend StartupYard against such an accusation. I’m also not posting it to ridicule this person, because I am sure their problems are deeper than professional disappointment.

Rather I’m hoping to show startup founders how insidious and destructive the concept of “Idea Ownership,” really is, and why they ought to think very hard before making accusations of IP theft. Again, not because these accusations are particularly damaging to those who are accused, but because they are quite damaging to those who make the accusations, and to the many people out there who have great ideas to share.

You’ve Got an Idea? That’s Nice Dear.

The general gist of the supposed conspiracy was summed up in a few bullet points I will paraphrase (though I won’t give free publicity to the author):

Step 1: Accelerators Collect Startup Ideas (via F6s)

Step 2: We “Steal those Ideas” and Give Them to “Our” Startups

Step 3: We Exit Companies 5 Years Later for $300m

Please understand, I am not exaggerating. It was taken as a given that finding the best ideas out of thousands of applications would lead to multi-hundred million dollar exits.

If only that were the case! How easy life would be for accelerators like StartupYard. Not to mention those lucky startups we would give the stolen ideas to.

But sadly no, it just does not work that way. Your ideas are pretty much worthless. Let me explain why that is:

  1. Your Ideas Aren’t New, and We Don’t Care

The central plank of this theory is that investors and VCs are out digging through your garbage and listening to your phone calls trying to steal your ideas.

We’re not. You know why? Because we’ve heard them already. Yes, even that one. A typical VC is pitched a couple of hundred ideas a year. I see around 400-500 a year. Every year. It gets so that when I hear a pitch these days, I sometimes struggle to remember whether I have already met the founder who is pitching, because I know about the idea already.

What was funny to me about this particular email was that the idea the author purported to own was not only not a new idea, it was a problem already being solved by existing enterprise software. The pitch was for turning existing functionalities into an SME level product. That’s what we call “an execution play,” in investor lingo. It means the idea is the market, not the product.

You should know this if you’ve ever been to a pitching event with a Q/A. There’s always a smarty-pants judge who points out he’s heard every idea before. Most of them have, it’s just that lazy judges say that instead of something more useful. We’ve all heard the ideas before. There’s nothing new under the sun.

That’s ok because we don’t care much about ideas. We care about finding big problems to solve, because that is going to determine how successful your company is. The thing about big problems is that everyone knows about them. If they didn’t know about them, they wouldn’t be problems to begin with.

So our biggest problems with picking startups is finding the right team to solve that problem, and doing it at the right time.

Just think about this logically for a minute: you have an idea, and it’s a pretty good one. Genius in fact. What industry is it in? How big of a problem does it address? How many people work in that industry? How many people are customers or users of the products of that industry?

ideas, startupyard, accelerator

Even if we’ve never heard an idea before, it usually takes about 30 seconds of googling to figure out it isn’t a new idea. Even if we can’t figure that out, one of our alumni or mentors can, and frequently do. The question is not whether an idea is new, but whether the problem being solved is real.

The bigger the problem you’re solving is, the higher the likelihood that somebody, somewhere (and more likely many people, everywhere), have had the same exact thought. Their description of it might be different, and their way of fixing it might be different, but the idea is effectively the same.

2. Ideas are Easy to Copy. Vision cannot be copied.

We choose startups based on their vision, and how that vision makes sense for that team, that technology, and the problem they want to solve. It is mostly about people.

To someone not familiar with our thinking, it might look like we hear ideas, then “give them” to our startups. But, thats pretty misleading.  It would be like accusing a filmmaker of watching other films, or being inspired by literature. Ideas are wonderful and sometimes very clever. They are just never really entirely new. If they were, they wouldn’t make sense when you heard them.

Of course the iPhone would have been a truly new idea before the invention of electronics. But then, nobody ever had any reason to imagine such a thing before the discovery of electricity, let alone computing and the million other nested inventions in a smartphone. Inventions are always a blend of established knowledge with new approaches.

This popular phenomenon of “idea theft” is more pronounced today in the tech industry than in almost any other- and it’s particularly true in products that rely on a simple central value proposition that is easy to copy. Many products can “do the same thing,” but very few can do it in just the right way.

Look at Facebook, and the endless accusations of their “stealing,” the Stories idea from Snapchat. It’s true that Facebook recognized an opportunity when it presented itself, but the idea of using media to create a narrative was invented in the past few years is ludicrous. Do we accuse Uber of stealing the idea of a livery service?

One of my favorite ever blog posts about this topic is from the creator of the game 3s. When I first read this piece when it was published, I was a fan of their copycat competitor, 2048. Since then, I’ve adopted 3s and actually played it on a near-daily basis for the past 3+ years. Today I understand the piece very differently. What I saw then as mostly whining about competition, today I see as a powerful argument in favor of vision:

“We wanted players to be able to play Threes over many months, if not years (…)The branching of all these ideas can happen so fast nowadays that it seems tiny games like Threes are destined to be lost in the underbrush of copycats, me-toos and iterators. This fast, speed-up of technological and creative advances is the lay of the land here. That’s life! That’s how we get to where we’re going. Standing on each others shoulders.

We want to celebrate iteration on our ideas and ideas in general. It’s great. 2048 is a simpler, easier form of Threes that is worth investigation, but piling on top of us right when the majority of Threes players haven’t had time to understand all we’ve done with our game’s system and why we took 14 months to make it, well… that makes us sad.”

What this really is, is a startup founder talking about how simple his idea was, and how important his dedication to his craft was to the delivery of a special product. He was absolutely right to point out that comparisons between his product and the copycats were unjust, and would eventually be judged premature.

He may not have ended up with the most popular game, but he did end up with the best game, and customers paid for that game, not for the copycats (which were free). They “lost” in terms of being a market leader, but they succeeded in their vision for their users and product.

When you actually stop to think about it, it’s hard to name a lot of first movers in tech who managed to dominate their industries, or even survived. As CBinsights has pointed out using data supplied by failed startups themselves, “late to market” doesn’t even qualify in the top 20 reasons for failure.

  1. First to Market Isn’t a Predictor of Success

Shockingly, being first on the market is not a powerful predictor of success. In fact, study has shown that it may be associated with a higher risk of failure. MIT Sloan Management Review noted over 20 years ago that claims of first-mover advantage among successful businesses across a broad base of industries was caused by an effect known as “Survivorship Bias.”

Survivorship Bias, a form of selection bias, occurs when we attempt to judge the relevant qualities of a group, such as a group of startups, after they have become successful, while ignoring the qualities of those who don’t make it. This can lead us to misjudge the importance of some qualities in survival, because we are not looking at all the data.

The logical error is easy to spot when you know how. If I told you that a study of billionaires shows that 75% of them wear white shirts, but only 25% wear other colors, you could conclude that having a white shirt improves your own odds of success. But you would likely be in error. The population as a whole might be 90% white shirts, meaning that in fact another color is even more correlated with success when looking at all the data.

Think about that the next time you dress a certain way because Steve Jobs did. That would be aggressively missing the point.

Survivorship bias arises when we don’t have good data on failures, obviously because they have failed. However, there are ways of determining that survivorship bias is at work. For example, the inconvenient truth that the failure rate for Silicon Valley based startups is actually *higher* than in many other regions. As the Guardian suggests in the above article, this is precisely because so many successful companies are based there. The local standards for success are higher, so failure rates rise.

Does that mean you should or shouldn’t move to Silicon Valley? I don’t know. I know it does mean that moving to Silicon Valley is not guaranteed to help you.

Want even more proof of why first to market is overrated? Of the top 10 startups according to StartupRanking.com, not a single one of them was first to market. Some, like Slack, were not even the first multi-billion dollar companies in their own category. Booking.com offered private flat rentals in the 90s, a decade before Airbnb, and Couchsurfing was founded in 2003, a full 5 years before.

4. Most Ideas Don’t Come from Startups Anyway

A dark and terrible secret of the tech industry -just kidding, it’s obvious- is that most of the ideas that end up getting made don’t come from the founders themselves anyway. The core idea is there, but the final product with market fit is usually a distant cousin of the prototype- the work of many minds.

Where do most actionable ideas come from? Users, customers, advisors, investors, partners, friends, family, and hatemail. I’m only sort of kidding on that last one. The point is that startup founders generally start with wanting to solve a somewhat unclear problem in a somewhat unclear way. They attend accelerators and get early users, investors, and corporate partners on-board to help them make the problem and the solution more clear and actionable.

The really successful founders are not idea machines, they are execution machines. They know how to listen, recognize a good idea when they hear one, make it work, observe the results, and adapt further. There is great creativity and invention in this process, but it is not about ideas, it is about empathy, passion, and skill.

You Should be Glad Ideas Are Worthless

Now that I’ve ruined your beautiful vision of the perfect idea that will make you rich, I will give you a moment to thank me.

You should be happy after all: now you can get on to the stuff that really matters, like building a company you can be proud of, that provides something your customers really value.

Here’s another reason you should be celebrating: you can work on anything you want to. Somebody else already tried it? Not like you will. The problem is already solved by somebody else? I bet some of their customers aren’t happy.

Oh and nobody can credibly accuse you of “stealing their idea,” since ideas are not automatically intellectual property. Intellectual property is the work product of an idea, not the idea itself. Copyright applies to words and images and code. Patents require you to actually design an invention and describe how it works in detail; even then, it’s not automatic. A patent is for the bread slicer, not the sliced bread.

ideas,

Call the lawyers. We’ve got a live one.

If someone has already done what you want to do, thank God somebody has already proven you can make money in this field- that makes your job a lot easier. Or thank goodness somebody else tried this and failed. Now you know not to make those same mistakes. See? Now that ideas don’t matter, the world is truly your oyster. Go forth and start up.

Startups Fail

Our Top 3 Reasons Startups Fail: Featuring CB Insights Data

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This is going to be a post about what makes startups fail. But first of all, if you don’t regularly read CBinsights and receive their newsletters, then stop reading this post and go sign up. There’s a reason most newsletters don’t have 400,000 weekly readers.

If you do, then you may have seen a bit of content that CB insights has been updating consistently since 2014: The Top 20 Reasons Startups Fail. This is a list compiled from a sample of over 100 “Post-mortems,” written by founders and employees of high profile startups that failed.

The list is ranked by the number of times a specific reason for failure is cited – each post-mortem contains some combination of these reasons:

StartupYard’s Top 3 Startups Fail, and How to Avoid Them

We won’t detract from this piece by hashing out every reason startups might fail. Instead, we’re going to focus on 3 of these reasons, and how to avoid letting them kill your startup before it starts.

Some of these reasons also explain why we choose not to work with some startups that apply to our program. If you’re thinking about applying to an accelerator or talking to early-stage investors, then these are important questions to ask about yourself and your business.

  1. Ignoring Customers

Oh boy. This is a big one. For me, this is the big one. The mistake that kills a startup dead like a beautiful rose in a dry vase. Ignoring your customers, refusing to think about them and to be driven by their needs, is the kiss of death.

It all starts so innocently: a humble coder working nights and weekends on a passion project. That’s the way a startup should start, but the nature of a startup is to grow – not just in size but in mentality.

Every startup investor and mentor has had this conversation:

Mentor: who are your customers.
Founder: Well we are our own customers.
Mentor: Yeah… but who is going to be your customer? What do they need?
Founder: They need our product.
Mentor: Why?
Founder: Because it’s awesome. They’ll love it.
Mentor: Yeah but… why your product? What not a competitor?
Founder: Because we are newer/smarter/cheaper/better UX, etc.
Mentor: How do you know that’s what they’re looking for?
Founder: Because we are the customer.

Points to you if you can spot the tautology in this reasoning. I strongly agree that a problem you are passionate about solving has to be one that affects you. In that sense, you should be your first user, you just need to remember that the customer is somebody you can also learn from.

A good way of remembering that is this: you didn’t buy your product. You built it. Your customer will buy it. Even if you both have the same problem, you are not the same person.

Again, it’s essential to create something you would use yourself. It just isn’t enough. Great products involve a deep insight into the motivations of customers; even when that insight is a very simple one, or an instinctual one, it does not come about by chance, but by observation and curiosity about people.

Thinking About Your Customers:

How to avoid this one? It happens that we’ve shared a lot of content on this theme. Positioning for Startups, Bulding a Killer Customer Persona, and The “We” Problem, are good places to start.

In short, it comes down to having a process. Here is one you can try:

  1. Develop customer focused product/messaging frameworks (aka: Positioning)
  2. Make educated guesses about your customers in that framework (aka: Personas)
  3. Test these frameworks with real people and an early product or mockup.
  4. Redevelop your product and business strategy based on what you’ve learned

There’s not one way to do this, but there are plenty of ways to do it poorly. Not having a clear idea of what you know and don’t know about customers is a mistake that’s easy to avoid. Paul Graham put it this way in one seminal blog post:

“When designing for other people you have to be empirical. You can no longer guess what will work; you have to find users and measure their responses.” -Paul Graham

2. Lacking Passion

“You need passion,” we are so often told. Less often are we told what that means.

I think this is why some founders confuse “having passion,” with “being energetic,” or “assertive,” or “dominant.” These are not the same things.

Passion comes from within – it’s not a performance art; it guides what you say but also how you think, what you are willing to do, and what setbacks you are willing to accept. In short, it’s not about how you behave, but about who you really are.

Everyone has some passion. It’s the thing that keeps you up at night, and bothers you throughout the day. A little voice in your head telling you something needs to be done.

Understanding their own passion is pretty hard for some people. We’ve seen that a lot. We spend a lot of time with founders trying to find out what gets them really engaged and excited about their work. What gets you out of bed in the morning is what’s most important in your work.

One of the first thing we ask applicants to StartupYard is: “Why are you doing this?” The answer says a lot about your passion.

A lack of passion is easy to spot, if you know what to look for. Here’s an overview of the qualities that typically tell us a founder lacks the passion they need to move forward:

  • Risk Avoidance: Founders who are unwilling to take risks, such as leaving a job, moving to a new place, or bringing on a co-founder.
  • Waiting: The founder who bases their decisions on the actions of others; who waits rather than acts with intention. “I will leave my job if you give me funding.” “I will decide what to do based on what investors say.”
  • Focused on Money/Valuation: Some founders who are overly focused on “getting the best deal,” do so because they value control and personal gain more than achieving their stated goals.
  • Motivated by Opportunity: I sometimes say: “don’t pitch me an opportunity, pitch me a company.” A founder who talks about getting a piece of a huge market might not be doing what they do out of a love for the work.
  • “Win At All Costs” Attitude: In my opinion, this happens when founders confuse passion for ambition. Ambition isn’t a bad thing, but it isn’t passion for what you do- it’s a passion for winning. Your passion for helping customers has to ultimately outweigh your personal ambitions, or else you won’t make decisions based on what’s right for them (and thus your business), but rather what fulfills your ambition.

Seeking your Passion: How do you know you’re doing things for the right reasons?

In my view, this is a simpler question than people often make it. We are taught from an early age that we should emulate those who are successful, but education systems often don’t help us to really understand why successful people are special to begin with: because they have a passion for what they do.

For all the tactics, tricks, and habits of the rich and famous, passion underlies everything. People succeed when they do what they are good at, enjoy it, and are willing to work harder at it than anyone else.

Just consider the following questions if you want to get in touch with your true passion:

  • If I were rich, would I stop doing this?
  • Are there better uses of my talent?
  • Am I waiting to enjoy what I am doing?
  • Am I doing this in order to be able to do something else?

If your answer to any of these is “yes,” then you ought to think hard about what you’re doing. You haven’t yet found your passion.

3. Missing Product-Market Fit (PMF)

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” – Andy Rachleff, CEO, Wealthfront

Even if you’re doing something you really care about and you’re doing it for customers you understand really well, you can still fail to make the right product for the right market.

Andreessen-Horowitzs  has a fascinating post on product market fit, in which they quote Andy Rachleff who developed the PMF framework, starting with what he calls a “Value Hypothesis:”

“A value hypothesis identifies the features you need to build, the audience that’s likely to care, and the business model required to entice a customer to buy your product. “

There are two sides to the PMF equation. Market, and Product. Missing PMF means failing to address a specific market with exactly the right product, at the right price.

Right Market

Andreessen-Horowitz heavily emphasizes finding the right market first, which is another way of saying that you must identify the right problem to solve. If you pick the wrong market, you can end up building a product that people love, but won’t pay for.

This happens more than you’d suspect: plenty of popular products have never gained good PMF. Even mega-popular products like Twitter can teeter on the edge of failure, and take over a decade to achieve PMF (which Twitter seemed to do only in 2017, with their advertising business and focus on media and news).

Other orphans of bad PMF are products like Tumblr, Vine, Soundcloud, and BetaMax tapes. Each of these has either failed, or is now on life-support. The latter example of BetaMax is included in this extensive list from Business Insider. In fact, virtually all the products in this list failed because of lack of PMF. Not because the products were bad, but because the business model didn’t work: the market didn’t sustain them.

The Right Product

“First to market seldom matters. Rather, first to product/market fit is almost always the long-term winner.” – Andy Rachleff

So picking a problem you can solve, for a market that wants a solution critical. Still, you can manage this and still fail. The product that solves that problem also has to appeal to the customer enough for them to use it.

A great example of this also comes from BI’s list: The Apple Newton line, which lived from 1993 to 1997, and which Wired later called a “Prophetic Failure.” What most people don’t know about the Apple Newton line was that they very accurately predicted three distinct product categories, which would emerge in the following 15 years: the smartphone, the tablet computer, and the modern consumer laptop.

In many ways, looking at a Newton from 1995 feels like looking at a cyberpunk version of a modern device, made to look like a 90’s product.

 

The Newton failed in three categories that would go on to be the fastest growing market categories in history for computing, but still failed because the technology wasn’t ready. As the project lead Steve Capps said later: ““We were just way ahead of the technology. We barely got it functioning by ’93 when we started shipping it.”

The series failed at least partly because the market was not ready for such devices, but also because of its infamously bad character recognition feature. Even though later editions of the devices improved on the original, it was too late for Apple, which would spend the next 20 years rebuilding itself and slowly reintroducing all of these concepts in the form of the iPhone, iPad, and Macbook.

Testing the Value Hypothesis:

Like listening to your customers, PMF is all about trial and error. Make certain assumptions, test them with a minimum viable product, make more assumptions, and test them. The clearest milestones for PMF come from customer feedback about the Value Hypothesis.

You can begin to test this hypothesis right away, even with just an idea- with no product to show. It’s pretty simple: if you get confusion, lack of enthusiasm, or even hostility, either it’s the wrong product or the wrong market. Find out what the person you are talking to does want, and also look for others who do want the product you’re pitching. Chances are the answer is somewhere in the middle.

This is a bit like fishing. Either change the location or change the bait. It just takes time and consistency. Fish long enough, and you can get lucky.

For example, I was attending a tech conference a few months ago, when I got the chance to meet the former Senior Vice-President of a major electronics company. He mentioned that he helps early stage hardware companies find PMF, and I mentioned we had just such a company seeking PMF: Steel Mountain.

He asked me what the company did, so I gave him the 90 second water-cooler pitch. Within a few moments he was nodding. When I got into some of the features, he was saying: “yes… yes.” When I finished, he exclaimed: “I can’t believe no one has done this! When can I buy one?”

This, I must repeat, was the former Senior VP of a major electronics company, whose products you probably own. Nobody had ever pitched him this particular idea in just the right way before. That is a powerful indication of PMF.  You don’t have to convince the customer they need the product, because they know they need it.  

Still I may lack some important information. Is this customer representative of a distinct market segment? Is the business model workable for the target market? Does the product work the way they want and expect?

You still have to explore all those details, but enthusiasm for the product’s core value proposition is a great milestone. It was then the Steel Mountain team’s job to continue testing the product with the same customer and others like him.

 

Feedpresso, StartupYard

Feedpresso: Better News, One Reader at a Time

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Tadas Subonis, CEO and founder of FeedPresso joined StartupYard during Batch 7, in early 2017.

At that time, the Feedpresso project was an android app with a small clutch of dedicated users, that helped a person organize and consume the news of the day. It was sort of like Flipboard, but it learned from your reading habits over time to provide a better mix of content you would hopefully find interesting.

Building a content product is a huge challenge, and Feedpresso was no exception. While they rolled out new features, brought feeds online and to iOS, they were bedeviled by the age-old problem of their business model. People who liked the free app didn’t want to pay for it.

So this year, Tadas sat down and wrote an update to shareholders. There would be a significant break in the pattern. Feedpresso would now focus on a very specific kind of customer: the kind that values news enough to pay for the tools to get it. All plans would be paid only.

Feedpresso will reset its strategy, focusing on people in the tech business, who are looking for high performance news aggregation.

I spoke with Tadas last week about the transition, and about his new goals for Feedpresso in 2018. As you’ll see in Tadas’s telling, this transition hasn’t been easy. But today his guiding metrics are not what they were a year ago:

Lloyd: Tell us a bit about your product pivot towards curation and the tech industry.

Tadas: After spending almost a year learning from our failures, we’ve learned (or at least I hope so) that we need to connect with our customers and really dig into their needs, and that’s not possible if we don’t have a very specific person in mind.

We took a look at our audience and ourselves and we realised that a clear audience that we can understand and communicate with is Technology Business professionals. These are people who know the worth of quality content, and are willing to pay to get more out of it.

People that are busy and are in a need of constant updates as the competitive landscape is constantly changing – new best practices, new MAs, and new technologies.

It’s not just about news either.

Another important aspect of the new Feedpresso is that it is a curation tool that helps our customers build their base of knowledge. Organizing and contextualizing timeless content that is important to you is something that’s surprisingly difficult to do with existing solutions.

The way content is presented to us, it has become difficult to give it our full attention, much less to remember it and review it given new information. Whatever is on your feed today is gone tomorrow (or in 5 minutes).

I think that many people feel overwhelmed in today’s culture of newsfeeds and tweets, and unable to really remind themselves of the things they find most important. So we are aiming to help customers contextualize what they read, and build up a record of their knowledge to better understand what they know, and how they know it.

You can see the need for this being met already in other ways, for instance by newsletter curators like Azeem Azhar, who work hard to create a context for modern events that readers can refer to into the future. My feeling is that everyone ought to be able to do that for themselves.

We need to bring back deep reading and reflection.

We’ve even started doing a Technology Business Review newsletter for our customers which turned out to be a success (it has a 70% open rate!). I think this is more evidence that people need more tools to contextualize the content they are consuming and keep track of it.

 

Lloyd: What’s led you to the decision to shift your focus onto power users?

Tadas: I’ve been made to realize, how true the advice by Paul Graham is: “Build something 100 people love, not something 1 million people kind of like.”

It doesn’t matter if you have a thousand customers if they do not care about your product. It is even worse when they all are so different that you can’t even talk to them, because there is nothing you can ask or say that would be relevant to all of them. Even more, the responses you do get are so diverse that the direction to go next is totally unclear. You end up trying to just get more users, any way you can.

Now I see that this is mostly what happens with freemium news products. They just become a machine for catching eyeballs, just like the content they are helping to spread. They don’t end up helping anyone. They just become another layer in a chain of distractors.

I think that serving the need to get more eyeballs on news feeds has really negatively impacted the people at the end of that process. We see more stuff, of lower quality, and it does have a measurable effect.

We are told that people won’t pay for news, which means news isn’t the product anymore, the readers are the product. I think that’s just not good enough.

I am not alone I think.

Last year while we were at StartupYard, Facebook was still denying that this problem existed. Today they are being much more open about it, and admitting that they’ve made some big mistakes. People are really negatively affected by the toxic environment of falsehood and anger on display now.

That is not saying it’s all terrible. Also in 2017, newspaper subscriptions grew faster than any year in modern history. People want to pay for news again. People want quality, and advertising is supporting quality less and less, so paid news is coming back. This can be a moment where people decide it’s worth it to get the right tools to read the news.

So that’s the environment we are in, and we’re targeting a very selective set of customers, who I think understand this problem well, and want it solved.

We’re pretty much back at square one as a business, and we’ve started rebuilding our audience around this new understanding of the problem we solve. Our advantage this time is that we know what the problem is, and we have the tools in place to build on, and try to solve it.

Lloyd: Are you close to a sustainable business model? How much more work do you need?

Tadas: That’s a good question. I have my eyes set on 1000 paying customers this year. That would make this a sustainable business. 1000 could be a lot, or it could be not very much, depending on how well we execute the next phase.

We have just a core handful of users who made the switch with us to a paid product. We’re learning from them every day.

Our customers have a lot of options to choose from, and even if the alternatives are inferior, it becomes really difficult to stand out in the crowd. This is why I believe a shift to focusing on a core set of customers who know the value of the product well is the only way forward.

Lloyd: What are your next steps for the product?

Tadas: The next step in the product is to fix myself  – I still think that there is so much space for improvement in the way we communicate with our customers. Before that is improved, we can’t have a clear direction in the product.

And here I don’t mean clear regarding what new features to add. I think that there is still a gap in the understanding of what fundamental problems our customers have. This news environment is evolving every day, and I don’t think anyone has the answers yet as to how to fix it. But we think we have the right approach, and we have to explore it with our customers.

Lloyd: How can people support the new Feedpresso?

Download us on the App store, or Android, or visit our website at Feedpresso.com to learn more. Get in on the ground floor with a new way of reading the news.

Shareholder, Claimair, StartupYard, Central Europe, Accelerator

How to Write an Outstanding Shareholder Update

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Shareholder updates can be hard, particularly if you have bad news. 

There are basically three ways founders tend to approach this: they can pretend everything is fine (a lie by omission), they can rationalize their past decisions and find a way to shift the blame off of themselves (aka: “our timing just wasn’t right”), or finally they can own the situation and focus on the future.

So it always makes us feel good when we see an update of the third kind, like the one we got recently from Jakub Havej, Founder and CEO at StartupYard Batch 5 Alum ClaimAir. With his permission, we are sharing the bulk of his end-of-2017 shareholder letter.

As you can tell, ClaimAir had a tough year. Things didn’t go the way Jakub hoped, but on the other hand, his team and the business both matured remarkably in that time, and today they are on a stable footing, looking to grow again.

It takes a lot of courage to admit when things aren’t working, and Jakub showed that courage to his shareholders. The feedback he got was incredibly positive, and his letter is something any young startup can learn from.By the way: You can help ClaimAir by using them to get compensation for flight delays, lost baggage, and other flight issues.

Visit ClaimAir and See How Easy it Is. 

At the bottom, we’ll talk about what makes this letter special. Now, here it is:

 

Dear Lloyd,

Last time I wrote you, ClaimAir was in the middle of fundraising. And it seemed very good, around €100k was hard-committed at that time.

And you know what?

It didn’t end up working out. It turned out that one of the interested investors faced credibility issues. The other one revoked his commitment without stating any reason.

And then, hard times began.

The company was running out of money. I continued with the fundraising, but after a while I realized that it needed time… time we didn’t have. I felt I couldn’t control the fundraising process. I was just sending out emails and was eagerly waiting for any replies that often never came.

I felt desperate.

“ClaimAir seems very interesting. Please keep us posted about the progress, so we may consider the investment in several months.” – the most common response.

Fortunately, it didn’t last long until I changed my mindset.

Instead of only pursuing investment for the sake of faster growth, I primarily started focusing on the profitability of the company. My inner engine has become fueled by motivation to make ClaimAir independent of external financing.

It was a pure instinct of survival, supported by opinions of people like Jason Fried, founder and CEO of Basecamp. It shortly happened that I liked that approach.

“If a restaurant served more food than everybody else but lost money on every diner, would it be successful? No. But on the Internet, for some reason, if you have more users than everyone else, you’re successful. No, you’re not.” – Jason Fried

Businesses must generate profit

A growth of acquired cases, our most important metric until that moment, had become irrelevant overnight. I didn’t care about new cases, because they didn’t bring immediate revenue. It wasn’t the case with more than a thousand existing claims, whose total sum of requested compensation exceeded €700k.

As a result, my team refocused on the management of legal cases, those that were handled by our legal partners. We needed the enforcement to be done much faster and we needed our lawyers to understand that.

We started playing a tougher game with airlines.

Just in a matter of few months, our activities have started bearing fruits. In summer, our monthly net revenue was averaging to €6,500. Three months later, we’ve doubled that!

 

Keep costs under control

Claimair, Shareholder, Startupyard

We’ve been increasing revenue while cutting costs significantly.

“When running a startup, costs are the only thing you can effectively control” – Cedric Maloux

Reducing costs was necessary. Even though it was hard for me to dismiss some people, it was inevitable. Being always transparent about the company made this much easier.

This step also forced us to optimize our activities even more, avoiding the reductions of having a devastating impact on our daily operations. This approach needs to be sustainable.

Finally, by the end of November, we made it.

For the first time in our short history, we ended a month with a positive cash flow. We generated €3,300 net profit, which completed our short-term mission.

Claimair, Shareholder

It’s not easy to enter this market

I remember my discussions with investors. Many of them claimed that it’s easy to copy our business and enter the market. Well, it’s not true at all.

Not only do you have to find smart team members, develop an automated platform, put all operational processes in place, but you must be also successful with enforcement of the rights of air passengers. To achieve this, you must establish a network of legal partners all around the world. Last but not least, it’s a matter of fact that lawyers won’t take you seriously and won’t accept favorable conditions until you’re big enough and deliver a tangible volume.

Our industry is so specific and you need to combine a lot of aspects to get the ball rolling. As long as we’re motivated and innovative, I’m not afraid of newcomers.

We’re still raising funds

It’s interesting to realize that “profit first” approach, which is much closer to my personal attitude, almost naturally attracted both our existing and new investors. Thanks to our results, we were able to raise money for a cash-flow cushion at a very fair valuation from new and existing investors in the past few months.

What’s next?

For a few upcoming months, I’m going to insist on generating profit together with securing a slight organic growth. We’re going to take on only as much work as is comfortable for the team.

As it has been planned for quite a long time, we’re going to prioritize the baggage segment. It’s still our unique value and the acquisition is much cheaper due to the missing direct competition.

Last but not least, we’re going to improve the product for travelers. B2whatever… we’ll design the service that works for the person on the other end. I’ll share more details in my next update.

Next reading

In November, we’ve been awarded a “Scaleup of the month” by EBAN (European Business Angel Network) – read more.

I was interviewed by Roklen24. I spoke about startups, aviation trends, and our recent product updates – read more.

Sincerely,
CEO – ClaimAir
Jakub Havej

What We love About this Shareholder Update:

A great shareholder update hits a lot of bases. Here are the ones this letter covers very well:

  • It tells a human story, covering past, present and future.
  • It admits problems, and offers solutions.
  • It acknowledges and answers shareholder concerns.
  • It asks for help.
  • It argues in favor of the business and the team.
  • It provides solid data.

Honesty Matters.

Really, in the world of speculative businesses, we see only one viable way of dealing with the inevitable challenges you face. That is to be frank and honest, first with yourself, and second with the people who put their trust in you. What is most important about this note is that it is part of a consistent pattern of behavior. If you make a habit of telling the truth, your life ends up significantly easier to manage. In the short term, a lie or even an omission might be convenient, but in the end, it will create more pain than it is meant to avoid.

So if you’re a founder who is facing similar challenges (and you probably will at some point), do yourself a favor, and take a page from Jakub’s experiences.

6 Ways StartupYard Helps its Alumni Post Acceleration

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One impression some startup founders have about accelerator programs is that they are a “one-off” activity that lasts for just 3 months, at which point a company moves forward to either grow and scale or falter and die.

Thus the constant objection some founders have to attending an accelerator: “It’s going to take too much of my time.” And yet the purpose of a good accelerator is to be a platform for growth, and a means to save time and deliver faster than you could otherwise.

An accelerator’s value has to live largely outside the time-frame In fact, over 7 years of operation, StartupYard has continued to grow its role in the post-acceleration success of our invested companies.

While we’ve always tried our best to take care of companies that have been through our program, these years of experience have continually shown us that our involvement is often as critical after the program as during it. That has led us to greatly expand our post-acceleration activities with alumni.

Here are some of the things a good program should be able to help alumni with:

Fundraising and Prep

An important part of growing a sustainable business is laying the proper groundwork with co-founders, employees, and investors from the beginning. This is an area where young companies fail needlessly. Flexibility and a “move fast and break things” attitude are great until they become roadblocks to growth. When you’re at the stage that you need capital to execute sales and development faster, you’ll need what any serious company does: a plan.

Yet few early-stage companies have access to the experience and resources they need to set up their ownership structure properly, much less to continue to manage that structure in a way that serves existing shareholders, and prepares the company for future investment. Then there is the need to develop a full set of contingency plans based on different levels of investment, with optimistic and pessimistic assumptions considered and accounted for.

Unlike a typical Seed fund or VC, StartupYard works with founders from the pre-incorporation phase if necessary, and can guide the creation of a growth plan that makes sense, and can make the company investible in the future.

Many of the blockers to necessary investment for growing companies are avoidable. They’re things that can be overcome early, or they can become a drag on your success. Few companies make it from incorporation to venture funding without a few nasty surprises along the way. These can be greatly limited by an early-stage partner whose job it is to make sure you’re laying the right foundation.

The Alumni Network

Often forgotten, but very important in our experience, is the role of our alumni network in helping new StartupYard companies gain a foothold. Like the mentor network, our alumni group is composed of people who have experienced every challenge young companies face. Not only that, the alumni have been in the founders’ shoes in the very recent past.

Because our alumni maintain such a close relationship with our team, they can be continually called upon to share their working knowledge of their industries, and make connections for new startups that even our mentors can’t. After all, who knows better how to approach customers with a brand new idea than someone who has just done it themselves?

StartupYard, DemoDay Batch 8

StartupYard Alumni

To a surprising degree, our alumni have also come to constitute a base of early customers and partners for our newer startups. As our network grows to inhabit more industries, the chances that a fresh startup can begin cooperating with an alumni company grows every year. In our last two batches, multiple new startups have signed alumni companies as their first customers. The process also works in reverse: our newer companies have also become customers of our alumni.

The Negotiating Table

One of the biggest hidden advantages of being a StartupYard alum is the leverage it can bring to negotiations with new partners or investors. Of course, name recognition and the social proof a founder gets from attending our program are important, but they extend beyond just getting that first meeting with an investor.

Because the accelerator is a stakeholder, we are able to weigh in on the side of our startups to ensure that they are treated well and fairly by their later investors. Tech investors know, or quickly learn, that their access to deal flow depends on the reputation they’ve earned with us and other programs. Investors who are founder-friendly and straight-shooting are invited back, while those who don’t play fair will find that startups avoid them.

Here our mentor network also improves the position of our startups in negotiations. Being able to receive feedback from other alumni and mentors from the same industry helps founders to approach business deals better armed with the knowledge and context they need to make the best deals. Often too, our management team and mentors are involved in deals as advisors, bringing increased confidence and experience to the negotiating table.

Hiring

Of all challenges an early to mid-stage tech startup will face, hiring is perhaps the hardest. This is a problem that gets harder as companies grow, rather than easier. Finding and retaining talent is the number one barrier to growth for such companies.

Though StartupYard isn’t a talent agency by any stretch, again, planning is the best defense against this inevitable problem. That’s why we focus from the beginning on helping our startups to make the right early hiring decisions, so that their growth down the line won’t be disrupted unnecessarily by having to make drastic changes to the team in mid-stride.

This planning process includes not only understanding what kind of talent a young startup can afford, but also what types of people founders should hire first. Does a company need a COO or an outside CEO? Does it need a business development specialist, or should it hire a crack product development leader first? These questions are vital to the early success of young companies, and they’re very easy to get wrong.

Business Development

Business development with our startups is never confined to the brief 3-month window of acceleration. In fact, that’s more like an introductory period. Our startups continually tap our mentor network and corporate partnerships for business development for months and years after leaving the program.

We frequently connect alumni with new members of the network, as well as fielding requests from mentors and partners to connect them with our startups. As our network continues to grow, it becomes a richer resource for alumni and mentors both, often keeping connections going for years after the program. StartupYard’s in-person events and ongoing activities keep an open door between alumni and the broader network, so that early-stage companies that have grown in maturity and abilities can come back to mentors and partners when they’re ready, and mentors can keep up to date on what the companies are doing.

Press

Finally being part of StartupYard also means being part of our press operation. Though we aren’t the darling of the international media that Y-combinator is, our name recognition in Central Europe is high in the tech media, and we can leverage that name and our existing relationships with media outlets to highlight the activities and successes of our alumni.

In media, “relevance” is an important factor in getting any story told. Journalists look for familiar names and common connections to determine whether a startup or a particular story is noteworthy to its audience. Having the name of a well-known investor behind you helps to create that context for journalists and their readers, and makes it much more likely that you will receive coverage.