Book Summary: Hard Things about Hard Things by Ben Horowitz

The book is Ben Horowitz’s memoir with a particular focus on his company Opsware and the lessons he learned there.

 

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From Communist to Venture Capitalist

Ben’s father was a communist, and he grew at the People’s republic of Berkeley. His first job was at NetLabs, which was run by professional management with little appreciation for the product or the technology. This job taught him the importance of founders CEOs. The job took a toll on his personal life, and to stabilize that, he left and joined Lotus. As soon as he came across Mosaic, he was mesmerized by the Internet and applied for Netscape. Marc Andreessen interviewed him, who is now his business partner at A16Z.

Leadership is the ability to get someone to follow you even if out of curiosity.

I will survive

Ben started LoudCloud, which was doing well before the dot-com bust. Its primary customers were all startups, and the customer bankruptcies decimated the revenue growth. The private funding was hard to come by, and Ben decided to take LoudCloud public. The Saas model of recognizing revenues only when they are earned (whereas the software revenue is recognized as soon as it is sold) and similar issues made the S-1 filing look bad. It got termed as IPO from hell. The reverse split to keep the stock price high enough further destroyed the fantasies of the employees. The IPO roadshow on the east coast was severely impacted by his wife’s on the west coast allergic reaction leading to the emergency room. The IPO happened at $6 per share. No one, not even the underwriting bankers were happy. The macroeconomic condition worsened, and the revenue guidance could not have met in the further quarters. So, the finance department suggested that let’s reset it completely, rather than doing that in steps.

If you are going to eat shit, don’t nibble.

The underwriters, Goldman Sachs and Morgan Stanley, dropped analyst coverage in response; the stock fell to $2. Then 9/11 happened. Then 26/11 Exodus, Loudcloud’s largest competitor, a $50 billion market cap company with $800 million raised filed bankruptcy. Ben realized that the operations are too fragile; he thought of acquiring Data Return and realized that neither’s future is bright. So, he decided to exit the cloud business completely and extract out the software business, which was built for cloud automation (Opsware). The stock slowly rose to $4, and Ben decided to raise $50 million from private investors. That’s when Atriax, the largest customer who owned $25 million, filed bankruptcy. The plan to raise money was put on hold, and the acquisition was sought out. EDS and IBM were played against each other on an artificial deadline of eight weeks. EDS wanted to Loudcloud more than IBM. It eventually made the acquisition, excluding Opsware, for $63.5 million. It even licensed Opsware for $20 million a year. 140 employees got laid off, another 150 went to EDS, and 80 were left with Opsware. On Bill Campbell’s recommendation, Ben stayed with the employees on the west coast when announcement happened in New York. In Bill’s words, “If you don’t treat the people who are leaving fairly, then those who stay back would never trust you again.”

If you don’t treat the people who are leaving fairly then those who stay back would never trust you again

This time with feeling

The stock price has fallen to $0.35, and NASDAQ warned that the stock would be delisted. Some members of the executive team who did not understand software accounting & sales had to let go of. The stock price rose to $7. But then EDS, which accounted for 90% of the revenue, wanted to cancel the contract since the deployment has not gone as smoothly as expected. EDS gave Opsware 60 days to fix all the issues. The head of the EDS servers’ team loved Tangram and hated CA products. EDS was going to get the latter for free in a deal. Opsware did the diligence of Tangram, found it to be bad, but even then acquired it for $10 million, which was a 67% premium to its market value at that time. Opsware offered Tangram for free in that 60-day window. The problem seems to have been solved. But then BladeLogic started to beat Opsware. The stock price was back to $2.90. The company went for another war-mode for the next six months. When things were going well, it was decided to go beyond server automation and look into network automation.

All decisions are objective until the first line of the code is written. And then they are emotional.

Ben could have built something internally or acquire another company. All decisions are objective until the first line of the code is written. And then they are emotional. Ben, therefore, decided to see if there is a possibility to acquire before starting an internal effort. Among the four automation companies, the cheapest one (Rendition networks) had the best architecture. Ben believed that the market was wrong. Opsware acquired Rendition networks for $33 million, three months later, Cisco paid $30 million to license its technology. Slowly the acquisition offers started to tick in. Virtualization was also taking over. The share price was about $7. Ben talked to the team, and almost everyone wanted to exit. He decided that the price would be $14. HP acquired it for $14.25 per share ($1.65 billion in cash).

When things fall apart

No Plan B

Startup CEOs should not play the odds. Statistics are against them, and they don’t change the difficulty of the task at hand. A good startup CEO can focus and make the best move when there are no right moves.

A good startup CEO has the ability to focus and make the best move when there are no good moves.

An excellent principle to follow is the first principle of Bushido: keep death in mind at all times. So, you may conduct yourself properly in all actions. Being a startup CEO is a fierce struggle, if you don’t like it, don’t do it, but if you do it, don’t take it personally, find the best move, persist, and convince the team to follow you.

Share all the news

As a startup CEO, share the news, both bad and good. It builds up trust, brings in diverse opinions, and allow bad news to be known faster. When people bring problems out in the open, they get solved. A culture that punished people from talking about the problems prevents the free flow of the information. An example would be “don’t bring me a problem without bringing a solution”.

In any human interaction, required amount of communication is inversely proportional to the level of trust.

Layoffs

Loudcloud went through three layoffs but still got sold for more than a billion-dollar. Layoffs destroy the morale of the employees who are left. Unless they are done right.

Layoffs destroy morale of the employees which are left. Unless they are done right.

If the financial situation requires, the CEO should clear off his head of the past glory, execute quickly to avoid leaks, be honest about the reason that its company’s failures and not the individual’s performance issues, layoff must be completed by the manager since the employee is going to remember every last detail of this day, the CEO should address the entire company, and after the layoff, the CEO should be present and visible. Messaging and execution are essential for people who are staying.

The messaging and execution [of layoffs]  is important for the people who are staying.

Firing

Firing an executive is relatively more straightforward since they have been on the other side of the table.

  1. Root cause analysis – Figure out why the executive was hired in the first place. It could be a poor job role definition based on some abstract idea. Hiring could have been for lack of weakness. Hiring for the scale too soon, which might be attained in some hypothetical future. Hiring a generic “great” head of sales, ignoring the unique situation of your company. An Executive who had a mismatch of ambition or failed to integrate into the company.

Hiring should be for strengths not for the lack of weakness

There is no great head of sales. There can only be a great head of sales for your company for next 12-24 months.

2. Inform the board
Call board members individually and face them, then call the board meeting, give a good severance package to the executive, ensure that his reputation is preserved.

3. Prepare the conversation
State decisively (“I have decided” not, “I think”), be clear on the reason, and have the details fo the severance ready. Let him decide how to communicate the decision to the company and the world. You cannot let him keep his job, but you absolutely can let him keep his respect.

You cannot let him keep his job, but you absolutely can let him keep his respect.

4. Inform the company
Inform their direct reports, other staff members, and the company, in that order, on the same day. CEO should ideally fully take over the role in the interim.  It will also help the CEO decide whom to hire for the position.

Demoting a friend

As the company grows, sometimes, it is crucial to demote an early employee who can no longer head the bigger unit anymore. It is essential to sacrifice his good for the good of other employees. This ends up messy. He might want to leave; if he stays on the same team and reports to a new boss holding his position, he might try to sabotage things. Acknowledge his contribution, be decisive in the language and admit the reality that if you as a CEO are under-skilled, it is even harder to develop him and that in itself is a bigger recipe for the failure.

Loser Lies

Humans listen to leading indicators of good news. Revenue grows, immediately hire more. Revenue falls, no immediate action. When a company struggles, leaving employees are labeled with “they were bad anyway”, lost sales deals are deemed to be lost because competition gave the product away for cheap. These are all lies that we tell ourselves. It is important not to fool ourselves with them.

Lead Bullets

Sometimes, there are no silver bullets, and there are several lead bullets that are required to improve the product. This saying is true more often when the customers are buying a similar product from the competition because it is simpler, faster, and/or easy to use. At that time, pivoting or building a new feature is akin to looking for a non-existent silver bullet.

Nobody cares

Nobody [except you] cares about the underlying cause of why things are going wrong. It does not help them at all. Don’t waste time explaining why things are going wrong; spend it on trying to make them right.

Don’t waste time explaining why things are going wrong, spend it on trying to make them right.

People > Product > Profit

Ben wanted to hire a new head of sales, Mark Cranney aced the interview but was from a lesser-known university and did not look like the head of sales. The more time he spent with him, the more he was convinced that Mark is the right guy. He fought against the whole board, and the decision turned out to be great in the long run. Hiring the right people and taking good care of them is of the highest importance to an organization.

A good place to work

Being a good company does not matter when things go well but can be the difference between life and death when things go wrong. The only reason someone would stay at a company going through a bad phase is that he likes his job. When things go wrong, a bad company won’t be able to hold onto the employees, and that’s when the death spiral begins.

Training

Even new workers at Mcdonalds get the training. Training is one of the highest leverage activities a manager can perform. It sets the basis for performance expectations. It ensures consistent product quality. Training ensures employee retention, since people leave, primarily, because they hate their manager or aren’t learning anything new. The most basic training to start with would be the functional training for the job functions and the management training for the managers.

Hiring from Friend’s company

Hiring from a friend’s company is always tricky. Either you will hire mediocre people or their top-notch employees. It will never go down well since the trickle of employees leaving will begin after that. During the interview process, tell the candidate that you need to do a background check with that CEO friend and to let you know if you don’t want that to happen.

Big companies execs transitioning to small companies

In big companies, execs are interrupt-driven. They always have incoming requests to process; their job is not about taking new initiatives but fine-tuning the existing ones. In small companies, the requirement to take the initiative is much higher. Big company execs are good at following processes, at small companies, they have to create one. Screen them right at the time of the interview by ensuring that they have the self-awareness of this. Train them heavily by assigning them an initial set of tasks.

Hiring an Executive

The two biggest mistakes which can happen are “looking for the lack of weakness and not strength” and “hiring on some abstract look & feel”. Hire the right person for your company at this particular point in time. List the specific set of strengths you are looking for. The CEO must make a final solo decision without being influenced by anyone else.

When employees misinterpret managers

An organization should not be run as a black-box with the sole focus on metrics and quantitative goals. Such a focus usually leads to an incorrect prioritization of the goals. Run the organization as a white box, many questions to judge its progress and performance would be more qualitative; for example, long-term competitive edge,  customer satisfaction, etc.

Management debt

Short-term, expedient decisions with expensive long-term consequences can lead to a management debt. The three most popular ones are – putting two in a box (promoting two people to the same position and making them share responsibilities when only one is required), overcompensating someone (because they got another job offer), and no performance management. Most experienced CEOs opt for hard choices in these cases to avoid management debt. A good HR division provides management quality assurance; it designs a good process, works with managers to identify bottlenecks, and finds out unspoken problems inside the company.

Company politics

CEOs who avoid politics, accidentally, end up encouraging it.

The right kind of ambition is ambition for the company’s success and the individual’s own success being a by-product of it.

If one executive complains about another’s behavior, get both of them into one room to resolve the issue. If an executive complains about another’s performance and you already knew it, then it is already too late; you should fire that executive since improving skills is doable, but regaining the support of the organization is hard for him/her. If an executive complains about another’s performance and it’s new news, strongly disagree right there and then evaluate the complaint objectively. Individuals optimizing personal achievements over the company are bad. Worse if they are managers since that encourages employees to do so.

Titles and promotions

Employees love titles, and for an organization of beyond a few tens of employees, everyone needs to know who is who. The author believes that titles are one of the cheapest things which a company can offer, so if a better title helps to hire an employee, use it. Mark Zuckerberg has the opposite thinking, where he prefers leveling down the new hires to avoid giving them better titles than existing employees. People at any level compare themselves to the worst person at the next level and want promotion as soon as they reach that level. Such promotions leads to the law of crappy people. A good promotion process, to avoid that, must ensure the criteria of whether an employee is ready for the next level is an objective one.

When smart employees are bad employees

Some smart employees are bad.

  1. The heretic – The one thinks a bunch of morons runs the company. This thinking usually happens because he feels disempowered, is fundamentally a rebel, or is immature. It is difficult to fix this situation since once an employee has taken a public position, it is a credibility hit for them to change their stance.
  2. The flake – If an employee is not reliable, all the intelligence is a waste.
  3. The jerk – Bad behavior cripples communication. If the VP of marketing is a jerk, then no one will bring up the issue of marketing in the meeting, communication will slowly break down, and the topic of marketing will never come up. A few jerks who are making massively positive contributions are ok, but adding more of them will destroy the company.

If anytime someone raising a concern about marketing is attacked by VP of marketing then topic of marketing will stop showing up in the meetings.

Old People

Hiring senior people into a startup is like an athlete taking a performance-enhancing drug; if all goes well, you will achieve new heights. If all goes wrong, you will start degenerating from the inside out.

One-on-one

A one-on-one is an employee’s meeting where he can talk about issues, frustrations, and a manager must have regular one-on-one with their employees.

Company Culture

Properly designed culture might look bizarre from the outside, but that’s a coincidence, not the end goal. Amazon has desks made out of doors, A16Z fines its partners 10$ a minute for being late in a meeting with founders, Facebook has the motto to move fast and break things.  All these things reflect the core values of the company.

Scaling a Company

Scaling a human organization requires an organizational design (all have shortcomings, choose the one which suits best), and a corresponding [communication] process. The organization should dictate the individual leaders and not the opposite scenario, where the personal ambitions of the individuals dictate the organizational structure. If you want particular individuals or groups to communicate more, put them under the same manager. The further away people are in the organizational chart, the less they will communicate.

The further away people are in the organizational chart, the less they will communicate.

The Scale Anticipation Fallacy

Hire executives who will do the job for the next 12 months, don’t anticipate and try to hire executives who can handle scale longer than that.  Any judgment passed on an executive by comparing them to some hypothetical size of the company in the future is a bad idea. Scaling is an acquired skill, act of judging them in advance creates prejudice. And even hiring more experienced executive does not help since you would have to reevaluate eventually whether s/he is the right person or not. Rather than passing an absolute judgment, always think whether you can hire a better person at this point and who will s/he be.

How to lead when you don’t know where you are going

After Ben sold Loudcloud business to EDS, the stock price of Opsware fell to $0.35 a share, putting market cap half of their cash in the bank. NASDAQ threatened to delist them. Ron Conway told Ben to talk to Herb Allen (Allen & Company). Herb and their clients bought the share over the next few months, bringing the price to $3 a share. Herb later told Ben that even though he knew nothing about technology, he decided to invest in Ben’s courage and determination.

The most challenging CEO skill

In a human organization, things are bound to go wrong. A CEO usually takes two extremes, one where s/he takes the blame for everything and gets too stressed out and other who s/he tries to casually pass up every broken thing as normal, which frustrates the employees and turns the organization into crap.

The fine line between fear and courage

The most critical decisions test courage far more than intelligence. The right decision is obvious, but the pressure to make the wrong one can be overwhelming. Going with the crowd is always the safer choice but not always the best outcome. Every correct decision makes you more courageous and the wrong one more cowardly. The financial bar for starting a company has gone down; the courage bar remains high it has ever been.

The most important decisions test courage far more than intelligence.

Ones and Twos

There are two core skills for running an organization. Knowing what to do and getting the company to do what you know. The “ones” are good at knowing while the “twos” are good at getting the company to move. Ones gather data from many sources and make good decisions. They dislike execution-related tasks like process, goal setting, and performance management. Twos have a love for action and find it challenging to make critical decisions. An ideal CEO should have both the skills. This leads to a tricky CEO transition problem. Most CEOs will be ones and have twos reporting to them, promoting a two to the CEO could be harmful. Microsoft did that with Bill Gates to Steve Ballmer transition in 2000. Promoting one from deep within can cause the executive twos to leave, GE did with Jack Welch in 1981 and that turned out to be phenomenal. No easy way to do the transition.

Follow the Leader

There are characteristics of a good leader. Ability to articulate a vision (“Steve Jobs”), right kind of ambition  – ambitious but not selfish (“Bill Campbell”), and ability to achieve the vision (“Andy Grove”). A peacetime CEO maximizes and broadens current opportunity, wartime usually has just one bullet to hit the target. Google moved from peacetime (“Eric Schmidt”) to wartime (“Larry Page”) as of the writing of this book.

Making yourself a CEO

CEO has to make a lot of unnatural moves, constantly evaluating people is one of them. The end goal of your feedback is to open up rather than close down discussion. Don’t try a shit sandwich, be authentic. As a CEO have an opinion on everything. Continuously give feedback so that people won’t take it personally and will focus on the content instead.

How to evaluate CEOs

Some employees make products; some make sales, a CEO makes decisions. That’s what a CEO is judged on. The best way to judge CEO is on his/her strategy, decision making, ability to convey that to the company, and achieve desired results measured against a set of objectives.

The first rule of entrepreneurship: There are no rules

Right when Opsware was in a bidding war between BMC and HP, the  E&Y partner from BMC’s diligence process claimed that the reinstatement of finances is required unless the contracts were amended in 48 hours. Ben was able to gather the three [bank] customers and change the contract. BMC still backed out, and acquisition happened for $14.25 when Ben was expecting it to be $15. His learning was that there is no point arguing when things go south, accept it, and get on.

Accountability vs. Creativity paradox

If you punish people for not meeting deadlines regularly, they will avoid hard problems. If you don’t hold them accountable to the deadlines, then hard-working employees will feel bad. This paradox is hard to deal with. As a general rule, senior employees should be better at forecasting. Deadline slips are more probable if the task is tough. And always hold people accountable if they took a stupid risk.

Freaky Friday Management Technique

Read it at Ben’s blog

Should you sell your company?

If your company is getting an acquisition offer for its product or the business, consider the eventual market if you think that the final market can be much bigger than what your company has realized and can you be number one in that. If it is yes on both counts, then it is better to stay on the course. For example, Google rejected $1B offers, and they were pursuing a massive market.  Pointcast, on the other hand, was not pursuing a large market, and by rejecting $1B offers, it made a mistake.

 

Book summary: The Lean Startup by Eric Ries

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The book consists of the learnings which the author had while working on his startup IMVU. The book focuses on the concept of validated learning and the build-measure-learn feedback loop. It tries to bring in a systematic approach to measuring the progress at a startup. A startup has a true north, its vision. It employs a strategy that includes a business model, a product road map, and a view of partners, competitors, and customers. The product is the result of the strategy. Products constantly change (engine tuning). Strategy changes occasionally (pivot). Vision rarely changes. In general management, failure to deliver results is caused by failure to plan or failure to execute. Both are frowned upon. But in the modern economy, both are useful tools for testing new ideas.

Vision

A startup is a human institution designed to create a new product or a service under conditions of extreme uncertainty. Success under such scenarios requires rapid experimentation.

Learning

There is a lot of learning involved in the process, and sometimes, when things go south, people resort to saying, “I learned a lot”. What’s more important is to figure out validated learning. The goal is to cut down to the absolute minimum effort required to learn what customers want and eliminate everything else. Eric Ries wrote 3-D avatars as IM add-ons for popular IMs in 2004. During the user testing phase, he realized that not only do users not understand what an add-on is, they also don’t mind installing a new IM software. A lot of heavy IM integration turned out to be a waste of effort. After this, Eric and his team launched several experiments regularly to test what works and what doesn’t.

Another counter-intuitive thing that IMVU experimented with is charging early. Many startups delay charging their customers. Not having any revenue is better than having low revenue since the former invites the imagination of overnight success once they start charging. The downside is that it can lead to the creation of a product no one is willing to pay. Conclusion: start with a low-quality prototype, charge customers from day one, and use low-volume revenue targets for accountability.

Experiment

Nick Swinmurn had a hypothesis that people will buy shoes online. Rather than purchasing inventory upfront, he took photos of shoes at local shoe stores, and if the users bought it, he would buy and ship it to them. This minimum product tested customer demand as well as many other business issues like payments, returns, and customer interaction. Amazon acquired Zappos acquired for $1.2 Billion.

  1. An experiment starts with a hypothesis. A value hypothesis tests whether the product/service will deliver the value to its users. A growth hypothesis tests whether new customers will be able to discover the service.
  2. To test the value hypothesis, find some customers to experiment. Don’t go for an average customer but find an early adopter, whose needs are most accurately served by the product.
  3. Now, build a concierge minimum viable product. Such early adopters are more forgiving of the quality of the product, and their feedback is useful to know whether the product fulfilled their needs or not. If users complain about a missing feature and they’re on the roadmap, that’s a good thing, since it implies that the team understands their customer. If there is a feature that is on the roadmap, but the user does not complain about it being missing, then that’s an indication to remove that feature.
  4. The results will guide you to validate the hypothesis.

Steer

The Build-measure-learn feedback loop is at the core of the Lean Startup model. After building the MVP, the goal is to rapidly learn and iterate upon the product based on the user’s feedback.

Leap

All startups make some assumptions (leap of faith) about their viability. In the case of iPod, there were two assumptions, users would put earphones in a public place (“analogous to Walkman”), and they would pay for the music (“antilogous to Napster”).  Only the second one was a leap of faith. Verifying these assumptions is paramount. Toyota does it via Genchi Gembutsu (“go and see for yourself”). Toyota’s minivan, Sienna’s chief engineer, drove through North America. He realized that kids are most appreciative of their environment and launched the new model with a particular focus on interior comfort for long trips. This lead to significant success for Toyota. Scott Cook, the founder of Intuit, believed that someday people would use a computer to pay bills and track expenses. He verified that the market for such a product by calling random people over the phone. One pitfall to avoid here is analysis paralysis. One can keep repeatedly talking to customers and whiteboarding over and over again. But many errors in such a strategy would go unnoticed since they depend on subtle interactions between the user and the product.

Test

Groupon started as a “collective activism platform”. That assumption failed. Andrew Mason experimented with a WordPress blog and a mailing list to sell discount coupons. They had no fancy forms on the site. The idea took off, and slowly every aspect of it was automated. It is essential to get early results with a buggy product then to perfect about based on assumptions that might not hold in the future. It is counter-intuitive for entrepreneurs who want to build a high-quality product.

Drew Houston had a hard time convincing investors about DropBox. VCs thought that the market is crowded, no one made money, and the problem was not an important one. Drew believed that all that was because all the current products were of low-quality. Rather than spending years doing thorough integrations, he made an excellent video demonstrating the seamless behavior.

Wizard of Oz is a useful testing process for such situations. Rather than building an automated system, fake it with a human. It is faster for learning what users want.

Sometimes, a user’s quality metrics are very different. Users care about how much they enjoy the product, not how much time was spent building it. IMVU had no time to build a smooth movement of avatars from one place to another. So, they decided to and were ashamed of, cheat by making avatar re-appear at the destination instantly. Users rated this teleportation among the top three most liked features. Therefore, it is of paramount importance to remove any feature, process, or effort which does not contribute to the learning you seek.

Some entrepreneurs fear the competition that MVP will bring in, usually, from large companies. Most of the time, the Product Managers at the big companies are overwhelmed by good ideas. If not, they can still copy the product at a later stage. And the fear of being out-executed remains.

Measure

After building an MVP and putting it out for the early adopters, test the riskiest assumptions first. Now define a baseline metric, a hypothesis to improve the metric, and a set of experiments targeted towards the same. Once you have the results, decide whether to pivot or persevere. One of the biggest dangers is to get stuck with vanity metrics like total registered users. They paint a rosy picture but does not tell you whether the product improvements are making it better for the user or not. AAA (actionable-accessible-auditable) metric would measure the impact of a particular feature.

Grockit followed the Kanban model, where there are four buckets – backlog -> in progress -> built -> validated. Each was containing at most three features. After validation, either they made the feature or discarded it.

Pivot or Persevere

A startup’s runway is the number of pivots it can make. Votizen started as a social network for verified voters to discuss civic actions.  That did not take off. Then it pivoted to @2gov, which allows users to recruit more verified voters for their petitions. This product has higher usage, but still, very few were willing to pay for it. They pivoted further to businesses as customers, who, despite signing the letter of intent, decide to eventually not buy the product. The final pivot was to use Google Adwords for acquiring users who want to pay to acquire more users. That worked out. Startup Visa Act was solely a result of that social lobbying.

Wealthfront pivoted from a virtual stock trading/gaming platform to an online service offering money management by professional money managers (ashishb’s note: and after the book was written, further to index-based investing).

Most entrepreneurs regret delaying the pivot. Vanity metrics, not having a clear success hypothesis, and being afraid of the failure, are the usual causes of delaying the pivot.

Types of pivots

  1. Zoom-in Pivot- A popular feature becomes the new product. Votizen moved from voter social network to a voter contact product.
  2. Zoom-out Pivot – The current product becomes a feature of the new product.
  3. Customer segment Pivot – The target customers change.
  4. Customer needs Pivot – where the customer base remains the same, but the product changes to suit them more. Potbelly Sandwich shop started as an antique store in 1977. It decided to sell sandwiches to bolster traffic. It eventually pivoted to become a sandwich shop.
  5. Platform Pivot – The product changes from a single-use product to a platform for the other products.
  6. Business Architecture Pivot – Geoffrey Moore observed that most companies follow either a high margin, low volume model; or a low margin, high volume product. Former is usually for B2B, and the latter is generally for B2C. A business architecture pivot is jumping from one to the other or vice-versa.
  7. Value Capture Pivot – where the way business makes money changes.
  8. The Growth engine Pivot – The business’ way of reaching new customers changes.
  9. Channel Pivot – The distribution channel for the product changes.
  10. Technology Pivot – The underlying technology to do task changes.

When pivoting to a strategy followed by a successful company, it is crucial to copy the essential and not just the superficial features.

Accelerate

Batch

It is counterintuitive, but smaller batches are much better for lean startups. They appear inefficient but allow faster turnaround for the product leading to a more rapid iterative cycle. It helps in earlier detection of a problem as well as quick feedback from the customers. Toyota used the small-batch approach to compete with its much more capitalized American counterparts whose batch sizes were relatively bigger.

Grow

New customers come from the actions of past customers. They inform others, end up showing the product to others, or end up purchasing the product again. Sabeer Bhatia grew Hotmail by adding a signature “Get your free e-mail at Hotmail” to every outgoing email. If you are asking whether your startup has achieved a product/market fit, then you are not there yet. When the product/market fit happens, it leaves no room for doubt.

Adapt

As a startup grows, it has to adapt to the changing customer base. Early adopters are more forgiving of the quality; later ones are not. Five whys help one to diagnose the problems and build the right set of things that should go into an employee training manual.

Innovate

Big companies can innovate, but for that to happen, they should secure resources for internal teams, provide an independent development authority, and the internal team should get a stake in the outcome. Toyota calls the manager in charge of running the development of a new vehicle, shusa (Chief Engineer). The parent organization must be protected to create this platform for experimentation. If the existing managers feel threatened, they will have an incentive to work against the new project. Also, if such a unit is kept hidden, it will attract more political battles since existing executives will be wondering what else could be hiding. Therefore, any team should complete ownership to run an experiment and see the end-to-end results. Every company has to deal with four types of works – launching a new product, scaling it for the broad adoption, combating its commoditization by incremental improvements,  and maintenance of the product in the long run as a part of the company’s product line. All the steps are essential, but the last stage of becoming the status quo is a hard one to swallow as an entrepreneur.

Book summary: Great By Choice by Jim Collins

The book compares a set of 10 pairs of companies over a timeframe of over 20 years to demonstrate what choices do the same companies make to become great. The great ones (10Xers) were not lead by visionaries, they were not more innovative, they did not try to move too fast, and they were not luckier ones either.

book_cover_great_by_choice

Characteristics of great companies

  1. Fanatic discipline
    Great companies aim for consistent growth. They aim for marathons, not sprints. They not only try to maintain their velocity in an adverse environment but also try hard not to over-reach (and exhaust) themselves in favorable conditions.  Southwest started service in ~4 new cities every year, Intel aimed for doubling the transistor count every 18 months, and Progressive Insurance aimed for 96% combined ratio. Just having good intentions don’t count, only good outcomes matter.
  2. Empirical creativity
    Great companies try a lot of small things (low cost, low risk, low distraction) first before committing themselves to a new direction. They aim with bullets and then after hitting the target fire cannonballs along that trajectory. Southwest copied PSA’s model of no-frills low-cost airlines. PSA shoot itself in the foot by heavily investing in the fly-drive-sleep model which failed miserably. Microsoft supported and believed in OS/2’s success but had a small team which worked on Windows on the side.  OS/2 failed and Windows won. Steve Jobs started with only two retail stores for Apple and then iterated on them till they were perfected out for replication. The invention of the iPod was a bullet in itself, which Apple never expected to become so dominant in the longer run.
  3. Productive Paranoia
    You can only learn from the mistakes you survive.
    Great companies ensure that they have sufficient margin to deal with a catastrophe. Their balance sheets are more conservative. They take more conservative risks. Their leaders zoom out to check the macro conditions before zooming in back. Southwest had contingency planned before 9/11. While other airlines badly suffered, Southwest became, even more, stronger going through the storm. Motorola 68000 was a superior design, a paranoid Andy Grove recognized and fired back with a better ability to deliver chips on time and by going around the globe winning contracts.
  4. SMaC – Specific, Methodical, and Consistent
    Great companies develop a set of SMaC practices which may slowly evolve over time (as a result of empirical creativity and productive paranoia). Average ones keep changing their targets. Intel was focused on memories, due to tough competition from Japanese, they shifted to processor business (which they were already experimenting with). AMD shifted its target market multiple times from second-sourcing to high-end to customer-centric innovation. Microsoft shifted from PC to Internet-centric world in 1994 after realizing its importance.
  5. Return on luck – Great companies don’t encounter more lucky moments compared to others. What differentiates them is how well they capitalize on them. In fact, it is the bad luck which kills the mediocre ones.

Book summary: The science of happily ever after by T Y Tashiro

The book is an interesting take on what it takes to attain a happy marriage and why only ~30% of us end up in happy marriages.
The book is divided into three sections – what is love, why we fail in the game of love and what can we do differently to succeed at it.

book cover the science of happily ever after

The nature of love

Why happily ever after is so hard to find

  1. In the western world,
    1. 50% of marriages end up in divorce,
    2. ~10-15% are separated without divorce and
    3. ~7% go along with an unhappy marriage
      which implies only 30% live happily ever after.
  2. Being “in love” is equivalent to having a “liking” (fairness, kindness, loyalty) and a “lust” (sexual desire).
  3. Post-marriage, liking declines at about 3% annually while lust declines 8% annually (in first 7 years of marriage) => from a long term perspective, it’s better to invest in liking than lust.
  4. Children’s fairy-tale belief about love is a beautiful girl falling in for a brave hero and they fall for each other in minutes. This is far from what happens in reality

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Book summary: Bogleheads guide to investing

While the book is overall a good one, unfortunately, it contains a lot of generic financial advice which I decided not to include in the summary.

Bogleheads guide to investing

Bogleheads guide to investing

Choose a sound financial lifestyle

  1. Borrowers borrow money from the future in the form of credit loans till the lifestyle collapses, consumers consume money paycheck to paycheck, keepers focus on accumulating wealth over time.
  2. The focus on net worth mentality over paycheck mentality actively works in keepers favor.

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Book Summary: “Influence: The Psychology of Persuasion” by Robert B. Cialdini

The book talks about various psychological tactics used by compliance practitioners like salespeople, waiters, car dealers, and fundraisers to influence us into saying yes to something to which ideally we would have said no.
The author went and took sales jobs as a car salesman and waiter to see these tactics in action.
He referred to these tactics as six weapons of influence. Each of them forms the basis of a chapter in the book.

Influence: The Psychology of Persuasion

Influence: The Psychology of Persuasion

Weapons of influence

Weapons of influence consist of identifying fixed action patterns and exploiting them. Compliance practitioners use them as a basis for influence.

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Book summary: The Last Lecture by Randy Pausch

The Last Lecture

Some salient notes from the book

  1. If there’s an elephant in the room, introduce it.
  2. Even if you are in the position of strength, be fair.
  3. Have something to bring to the table, people would be more welcoming of you to join in then.
  4. Get the fundamentals right, fancy stuff does not work without that.
  5. When you are screwing up and nobody says anything, they have given up on you (that’s a really bad place to be).
  6. Playing sports is not about learning the technicalities of the game but about teamwork, perseverance, sportsmanship, the value of hard work and ability to deal with adversity.
  7. The brick walls are there for a reason. They are not there to keep us out, they are there to give us a chance to show how badly we want something.
  8. Manage time explicitly like money
  9. You can always change your plan, but only if you have one.
  10. Ask yourself: are you spending your time on the right things
  11. Delegate your work as much as possible
  12. What’s more fun than fulfilling one’s own dreams is to help someone else fulfill their dreams.
  13. Use positive language, “When does this [Disney] park close?” is to be responded with “This park is open until 8 PM”.
  14. Don’t complain about your problems, whining does not help, focus on working harder instead.
  15. Almost everyone has a good side, if you wait long enough, it will come out.
  16. Focus on what people do not what they say.
  17. Experience is what you get when you didn’t get what you wanted.
  18. You can be an optimist if you have a contingency plan for what to do when all hell breaks loose.
  19. A bad apology is worse than no apology.
  20. No job is beneath you, do your best at whatever job you are put to.
  21. Rights come with responsibilities.
  22. If you lead your life the right way, the karma will take care of itself. The dreams will come to you.