Article first published as Why A Prominent Start-up Executive Wants You to Get Fired and Fail on Technorati.

Kim Kovacs, Founder and CEO OptionEase, recently spoke to a class of emerging entrepreneurs at UC Santa Barbara. With over 700 customers, OptionEase has become the leading enterprise class SaaS solution for stock option and equity compensation tracking and compliance. Kim shocked some of the students by telling them that she hopes they fail.

In this 8-minute video excerpt from her talk, Kim describes why, “failure is my favorite word at my company now.” Kim also discusses the importance of focus and why she does not hesitate to hire people who have previously been fired.

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You can watch Kim’s talk below or on YouTube here: http://youtu.be/jlM6E_zlGD4

Focus

The video begins with Kim describing her experience speaking at an Inc. 5000 conference. One of the primary messages she conveyed to the Inc. attendees was the importance of focus, especially during a startup’s early days.

“There are a lot of things that entrepreneurs need to do. Yes, you need to be dedicated. Yes, you need to have that entrepreneurial spirit and you’ve got to stay up late…but people lose sight of the fact that they (have to) stay hyper-focused. You have to stay on focus because, as an entrepreneur, you are going to get ideas coming at you every second. We encourage it…but it doesn’t mean you have to act upon (each idea). You never want to close your ears off, but you also want to be sure to remain on focus.”

Failure Is A Winning Strategy

Entrepreneurial failure is a myth. Entrepreneurs know that what others call “failure” is simply a bump in the road toward their ultimate success. As life-long learners, entrepreneurs view every experience as a valuable opportunity to hone their skills, establish new relationships and become more street-smart. For this reason, Kim encourages her employees to embrace failure.  

“People are so concerned about being successful all the time that sometimes they take shortcuts to be successful. I had a salesperson who would basically do anything with the client to get the deal. It was killing our company…she always had to sell something that didn’t exist. She couldn’t sell what we had.

(I told her) you’ve got to fail. You are going to lose deals. You’re going to fail and you’re going to learn how to overcome those failures with the next deal and sell what we have, not what we’re going to have in six-months. I am telling everybody (at my company) ‘It’s OK to fail.’

If you can recognize the failure before it becomes epic, that’s a really good thing. You’re going to learn way more every time you fail at something than when you are succeeding.”

“If (Roger Bannister) had run a four-minute mile the first time out of the gate, would he have run for nine-years? Probably not. He might not have recognized that it was the wind behind his back, that it was the training he was on, the shoes he was in, he may not have had an opportunity to test all those failure points.

If you ask someone who just got lucky how they (succeeded), they’re like, ‘I don’t know.’ They don’t know because they never had a chance to fail.”

Healthy startup cultures do not penalize employees for making mistakes because they know that the only employees who never make mistakes are those who never do anything.  Unlike Big Dumb Companies, successful startups must focus on achieving results and cannot afford to expend energy affixing blame. Such environments encourage employees to internalize and take ownership of their missteps, which helps them avoid repeating them.

Getting Fired

Kim told the UC Santa Barbara student entrepreneurs that they should never fear being fired from their jobs. According to Kim, “You’re not pushing the limits (if you are not afraid of getting fired). People in larger companies are reluctant to have you in their face about stuff.”

Kim went on to note that employees with stock options should aggressively question their bosses because they are essentially investors in their startups. As Kim puts it, “I really went right up to the edge and had I been in bigger companies, I would have been canned, for sure. People would say, ‘Why is she asking these questions?’ and I would always come back and say, ‘Because I am an investor in this company.’”

For employees who are fired, Kim counsels them to not despair. Rather, she encourages them to, “…think about why (they were fired). Was it the right place? Were they not receptive to you or was it just time? Sometime I have (hired) the best employees who were canned somewhere else and the reason they were canned is because they were way out-thinking the prior company. Push the envelope. At some point you’ve got to … be willing to take the risk.”

As Kim’s talk makes clear, startups should embrace failure, focus and previously fired employees. In an intellectually honest environment, more insights are gained by dissecting why a decision was wrong, than by ignoring mistakes, blaming others and taking shortcuts to achieve short-term success.

Image courtesy of Atom Smasher

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Article first published as Steve Blank Discusses Origin And Future Of Lean Startup Movement on Technorati.

I recently spoke with Steve Blank, author of the new book The Startup Owner’s Manual. Steve is also a Stanford Professor and noted marketing entrepreneur. He is credited with pioneering the Lean Startup Movement in 2005 via the publication of his bestselling, Four Steps To The Epiphany.

No matter how much you think you know about Steve’s lean startup philosophy, Eric Ries’ contributions to the movement, or the methodologies by which companies have put lean startup tenets into practice, I am confident you will be enlightened and entertained by Steve’s frank and insightful remarks. 

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You can watch / listen to my 20-minute interview with Steve below or on YouTube here: http://youtu.be/UD9BBkbg0ps

Preaching What You Live

The Lean Startup approach dictates that successful customer development is an iterative process. By conceptualizing, selling, gathering feedback and then developing a product, startups achieve success more quickly and economically.

This was exactly the approach Steve took when he self-published Four Steps via Café Press, at the behest of his then star pupil, Eric Ries, Co-Founder of IMVU and the author of The Lean Startup.

According to Steve, “The original version (of Four Steps) was printed on tree bark at Café Press. Eric (Ries) was a student in one of the very earliest customer development classes at Berkley. One of the best students I ever had. Four Steps was essentially my class notes. Eric said, ‘Don’t you know you can put this stuff on Amazon?’ So the fact that it is a badly edited, missing sentences, complete your own and finish your own sentences (book) – basically we can blame it all on Eric. I have to thank him for that.”

I have a copy of the initial Café Press version and I can attest to its rough edges (the book’s first sentence contains a typo). Once the book achieved commercial success, Steve then expended resources to edit and polish the book. It is fitting and instructive that Steve published Four Steps by putting into practice the lean startup methodologies embodied in the book.

Startup Business Plans Are Oxymoronic

Steve notes that in 2005, when Four Steps was published, conventional wisdom at business schools was that, “Startups are nothing more than a smaller version of a large company. That was the implicit statement. Large companies write business plans, why of course, that’s the organizing document for a startup. Ten year later… (we know that) startups are not smaller versions of large companies.

Large companies are organized around execution…so a business plan in a large corporation makes all the sense in the world. Most startups…(are) dealing with a series multiple unknowns. Yet we took this document, the business plan, because we knew nothing else and said, ‘Go write one of these.’

We now know… that startups search for a business model. My definition of a startup is, ‘a temporary organization designed to search for a repeatable and scalable business model.’ If you find one, you become a company. If you don’t find one, you become an ex-company. Customer development, in hindsight… was the first of… an emerging stack of entrepreneurial management tools.”

What’s New In The Startup Owner’s Manual?

Steve’s new book builds upon a number of sources, including: Four Steps, The Lean Startup and Alexander Osterwalder’s Business Model Generation. In specific terms, “the new… book… (leverages) Alexander Osterwalder’s business model generation book as the frontend of entrepreneurs thinking about their business. I now make my students draw Osterwalder’s canvas as the organizing way to think about your hypothesis.”

The other major evolution of Steve’s thinking is in the area of web and mobile businesses, the latter of which were nascent at the time Four Steps was written. In Steve’s words, “the second part is the most obvious, but I didn’t see it at the time (I wrote Four Steps). There is a different speed and a different customer development process, still four steps, but the tactics are radically different for web and mobile apps. You can get feedback almost instantaneously and the cost of iteration is as close to zero as technology will allow us to get. It’s not that the process is different, it’s just that the speed allows you to do some very different things. The new (book) specifically addresses how to build a web and mobile startup and distinguishes the path from physical products to virtual products.”

Enter Eric Ries  

I asked Steve to describe Eric Ries’ contribution to the Lean Startup Movement. “Eric was taking my class in Berkeley because the only way I would fund IMVU, the company he was the co-founder of, was if him and his co-founder actually sat through my class…I wanted them to actually sit through this process. Eric got it faster than anybody I had ever seen. (He) went back to IMVU…and implemented the first full-fledge customer development combined with agile engineering. He took it to a new level. He combined customer development and agile engineering in a way that no one had before and out of that, he derived a whole series of insights which became The Lean Startup. He took the lean method past the startup world into a much wider audience.”

Do You Need an MBA To Be A Startup Warrior?

One of my first posts was entitled The MBA Education And Other Oxymorons. MBA’s are frequent targets of derision in the startup world, as their career expectations are often misaligned with the scrappy reality of most venture’s early days.

Steve provides a thoughtful and nuanced explanation as to why business schools often fail when they attempt to teach entrepreneurship. ”My position is fairly radical… that says, ‘No.’ Most of the things you learn on how to execute (at) a company are actually destructive in the first year or two at a startup; eventually they converge. But you need a different body of knowledge that you will not get as a business school professor consulting for large corporations. This is why entrepreneurship (programs) in universities… are helped when they are taught by adjuncts with startup entrepreneurial experience either as venture capitalists or as retired entrepreneurs.”

As a retired serial entrepreneur and current venture capitalist who teaches entrepreneurship at UC Santa Barbara, I could not agree with Steve more.

I strongly encourage emerging entrepreneurs to seek out all of the books referenced by Steve during our talk, especially the newest of the bunch, The Startup Owner’s Manual.

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“It is difficult to see the picture when you are inside the frame.”
Eugene Kleiner, Co-founder Kleiner, Perkins, Caufield & Byers

A small percentage of people in each free-market society generate the jobs for everyone else. These entrepreneurs do not risk everything, work outrageous hours and put themselves under extreme pressure because they want to.  They certainly do not do it for the promise of riches. They do it because they have to, because they are driven to create something from nothing.

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Entrepreneurship is not a choice. It is a compulsion. It is not rational to put oneself into the uncertain, stress-filled environment of a startup. It is far more logical to take a 9-to-5 job with little stress and a lot of holidays. If it were a decision to be an entrepreneur, then most right-minded individuals would decide to turn back when they encountered the first inevitable startup crises. As noted in Your Startup Ideas Should Not Be Charming, most successful entrepreneurs are haunted by their ideas and feel they must execute them before someone else beats them to the punch.

Entrepreneurs want to matter. They do not want a job, they want a purpose. They want to make a difference and they know that if they do not show up for work, important accomplishments will not be achieved. In the early stages of their adVentures, entrepreneurs often sleep like babies, waking up every couple hours crying. Despite the stress and restless nights, most entrepreneurs would have it no other way.

Safety in Numbers

Most people choose to live in the midst of The Herd. They seek jobs created by others, allow their destiny to be controlled by exogenous factors and are quite happy to punch the clock at 5:30, Monday through Friday.

Milling about in The Herd may be safe, but the job security comes at the cost of controlling your destiny. Yes, you can moo loudly and hope for change, but this is akin to honking your horn while sitting in bumper-to-bumper traffic. Lashing out in this futile manner may temporarily relieve your frustrations, but it will not serve to improve your position within The Herd. Once you realize that no one heeds your plaintive mooing, you face a choice. Either give up and settle into a quiet, uneventful life within The Herd or take command your destiny; by departing The Herd and founding or joining a startup.

You might rationalize remaining in The Herd with the hope that you will lead it someday. Leading The Herd is certainly more fun than milling about its midst. However, even as a leader, you will be limited by The Herd’s collective lack of speed and flexibility.

Waiting to be anointed a Herd leader is a high-risk strategy. It generally takes an oppressively long time to work your way to the front of The Herd, just as it takes many years to rise to the top of most Big Dumb Companies (BDCs). Throughout this process, the possibility exists that a capricious factor, outside of your control, will preclude you from attaining a leadership position.

Should You Stay or Should You Go Now?

If like the Clash’s Joe Strummer, “the indecision bugging you”, then you may be ready to leave The Herd and follow your entrepreneurial yearnings. The longer you remain in The Herd, the harder it will be to eventually depart.

To avoid waiting too long, pick an age or a specific life event (marriage, having a child, graduation, etc.) and use this milestone as the catalyst to jettison from The Herd.  This approach will give you adequate time to plan your exit, allowing you to leave The Herd with no regrets, no misgivings and without looking back. If you amorphously assume that you will strike out on your own someday, you may find that John Fogerty was right – someday never comes.

The Herd University

Before you leave The Herd, learn as much as can from its leaders. Master how to cross rivers, defeat predators, survive blizzards, etc. Do not leave The Herd as a calf. Work for a BDC before you jump into your first adVenture. As described in Advice For Emerging Entrepreneurs, let the BDC train you and grant you opportunities to make mistakes on their time, on their dime.

Most successful entrepreneurs cut their teeth within The Herd before starting their own adVentures. For instance, P. Diddy worked as an intern for Uptown Records before creating his own Bad Boy label. Ray Kroc worked with the McDonald brothers for years before taking over McDonald’s and transforming it from a loose affiliation of regional franchises to an international corporation.  In both cases, these famous entrepreneurs learned their industries within a safe environment before striking out on their own.

Enhance Your IQ

“It is hard to see the opportunities all around you when you are standing in the middle of a crowd. However, if you lift yourself a few inches above the crowd, you instantly can see the opportunities that stretch from horizon to horizon.”
Ed Moldt, Wharton Professor

Point of view is worth 30-IQ points. You can greatly enhance your point of view, and thus your entrepreneurial IQ, by stepping out of The Herd.

Even when you are still part of The Herd, the view from its fringes is more expansive than from its bowels. By staying on the periphery of The Herd, you are in optimal position to first see and then take advantage of an upcoming prime grazing ground. The first step in leaving The Herd is to mosey over to its fringes, so you can gain a more informed point of view of the opportunities beyond The Herd’s reach. Joining a smaller herd might also make sense, as discussed in Make Yourself Irresistible To A Startup.

Cold Turkey Not Required

Begin your departure from The Heard by initially leaving for day trips. You can always come back to the safety of The Herd at night. Such short excursions will allow you to experience the challenges you will face once you depart from The Herd for good. In this way, you will build your confidence, contacts, and experiences incrementally. Each trip can last a little longer until eventually you are confident enough to undertake an overnight excursion. Such mini-ventures, as described in Small Ideas, Big Benefits, will not only educate you, but will reduce your risk when you exit the Herd.

Your smaller, more nimble part-time startup can outperform BDCs. You can will get to the waterhole first and sustain yourself on smaller grass patches. Thus, you can pursue new markets that are further from the mainstream and too small to interest a BDC.

You will work hard to stay in The Herd and sustain your part-time startup, but nothing will limit the amount of grass or fresh water available to you – your upside is boundless. In your own startup, you might experience lean times, but you never will be crushed in a stampede, like a middle-manager in a corporate layoff. In your startup, you control your destiny.

Listen… Do You Want To Know A Secret?

One of the most repeated statistics trumpeted by the popular press is that “Four out of five businesses fail”.  As is true with most Conventional Wisdom, it makes a great headline, but it is misrepresentative of the facts.

When the data are viewed in light of startups established by educated and experienced entrepreneurs, the success rate of such ventures increases substantially. When sole proprietorships are removed from the statistics, the success rate of startups improves even further. Sole proprietorships, which are inexpensive to form and effortless to dissolve, come and go as the founders move to other ventures, accept positions with BDCs, leave the workforce to attend to their families, etc.

When high-tech businesses, founded by appropriately educated entrepreneurs who received money from sophisticated investors are considered, the survival rates are even more encouraging.

In a 2010 TechCrunch article, Ron Conway discusses the success and failure rates of the ~ 500 companies he had invested in during the prior 12-years. Approximately 33% fail, another third return an approximation of the capital invested and the remaining 33% generate anywhere from 2x to “Google-x return.” Mr. Conway also notes that serial entrepreneurs have a 66% success rate after their initial venture.

There Is No Try

"You just can’t beat the person who won’t give up."
Babe Ruth, US Baseball Player

In the event that one of your adVentures fails, The Herd will always take you back. Trying and failing is just a dry run for the day when you eventually succeed. Even adVentures that do not result in a profitable exit are not without merit.

Failure is often rationalized by the expression: experience is what you get when do not get what you want. However, in the case of most startups, this adage is more than mere rationalization, because entrepreneurs invariably gain valuable experience from a failed adVenture.

By standing outside of the Herd, you can address the problem Mr. Kleiner so eloquently defined. Once you leave the Herd behind, you will gain an enhanced point of view that will increase your entrepreneurial IQ and greatly improve your adVenture’s ultimate chance of success.

Exercise I: Weekly Business Idea

Force yourself to identify at least one venture idea each day for ten-days, and then one idea per week thereafter. Looking for small ventures will help you open your eyes to the myriad of opportunities that surround you. The form at the end of this entry may help you organize your thoughts. Keep your write-ups to a single page.

Vincent Van Gogh was clearly a man who saw the world from outside the frame. In his long walks through the countryside, he would come upon a hill, a windmill or a tree and see an intrinsic beauty that compelled him to feverishly paint, even though thousands of other people had passed the same hills, windmills and trees without giving them a second thought. If you carry out the venture idea exercise for one month, you will start to see the world in a different way and eventually you will become an Entrepreneurial Van Gogh who can identify opportunities where others see nothing.

However, unlike Van Gogh, who died a pauper, your new perspective from beyond The Herd will allow you to enter life’s veritable cash booth and scoop up some cash by identifying and executing mini-ventures.

You should also watch Seth Epstein’s Guide To Uncovering Awesome Startup Ideas. This brief video reviews the simple strategy that this successful serial entrepreneur utilizes to identify and capture startup ideas.

Exercise II: Your Fortune Magazine Interview

Pick one or two of your mini-venture ideas that you are most passionate about. For each one, answer the following questions as if you were being interviewed by a writer from Fortune magazine. This will force you to thoughtfully consider the challenges that your mini-venture will face and how you might address them on a macro level. It is also just plain fun to fantasize about your success, something you should not hesitate to do often and with unabashed relish.

The scenario is that you are the Founder of a successful venture. You moved on to other interests while the venture was doing well and the venture subsequently foundered. You have just announced your plans to return to the helm of the organization and now every major business publication wants to tell its readers how you plan to right the ship.

Interviewer’s Questions:

• What three decisions did you make early on that proved vital to your success?
• How did you address the three most significant threats to your business?
• Despite your phenomenal initial success, mistakes were made. What do you view as the most significant mistake and what did you do to rectify it?
• It must have been nerve-wracking to start a business. What risks did you identify at the outset and what did you do to mitigate them?
• How did you establish and maintain your leadership position in the market?
• What happened? It seemed you were on top of the world when everything apparently fell apart.
• Knowing what you now know, what would you have done differently?
• I understand that you are again fully engaged in the business, what do you plan to do to turn the business around?

***********************
Mini-Venture Idea Worksheet
Structure each of your ideas into these six categories

1. Product Name

• State the anticipated name of your product/service
• Can you get the URL? You might want to read: Lousy Product Names

2. Customer Problems/ Pain Points

• State the problem/ pain points of the customers clearly.
• Are there any companies out there which already address these problems/pain points
• How do those companies do it?
• Are they successful?
• How would you be different from them?

3. Execution

• How will your product/service look like?
• How will your product/service address the market?
• State clearly how it will differ from existing products/services that already address the same market as yours
  

4. Market

Use a bottom up approach to identify the size of your target market. Don’t just state “it’s huge/gigantic”!

• Who is the customer? End-User? Retailer?
• What is the market? How does it look like? How does it work?
• How can you approach the market?
• How many customers can you serve reasonably?

5. Personal Applicability

• Which position will you hold in the company? Why? (Be honest)
• Which qualifications do you bring into your company?
• Which qualifications have to be fulfilled by your team members?
• Which additional intelligence do you need to start the venture?

6. Feasibility

• Is your idea feasible by you? (It’s ok to say ‘no’)
• Give reasons. It is important to state why you think it is reasonable or not. E.g. if your research has shown that the actual market for your idea is too small, then your product/service is probably not very feasible.
• Would you be able to find/hire your team?
• Can you implement your idea with personal money or do you have to raise money?

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They smile, they laugh on cue and they have a rehearsed response for every conventional interview question. They profess to be entrepreneurs, but are they actually Wantrepreneurs?

A Wantrepreneur is a well-intentioned person who wants to be an entrepreneur, but does not have the skills, personality and/or risk profile to be successful. When the going gets tough (as it always does at any startup) the Wantrepreneurs get busy emailing their resumes to prospective employers.

The costs of a mis-hire during the early stages of your adVenture are dramatic. As such, deploy unconventional tactics to separate the ATM Operating Wantrepreneurs from the Bank Robbing entrepreneurs.

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Find Their Inner Child

Gain an understanding of who the candidate was when they graduated high school, in order to assess who they are as an adult. Did you just meet the shy boy who spent his High School years writing in his journal or the boisterous verbal bully who used her wit to hide her insecurities? Maybe you spoke with the Class President voted ‘Most Likely to Succeed’ or the nerd who preferred video games over interpersonal relationships.

As discussed in When Hiring Entrepreneurs, Ignore Their Resumes, if you only focus on the candidate’s skills and experiences, you may learn the what associated with the person, but you might miss the who. Some of the key aspects of who the candidate is include their: creativity, risk profile, curiosity level and desire to win.

Get Personal

Another way to identify the acne-faced high school kid is to ask personal questions. Relax; I am not suggesting that you violate fair employment practices. When I say “get personal,” I am referring to non-typical questions designed to determine who the candidate really is.

Sample Personal Questions

• Did you move around a lot as a kid? If so, did you enjoy relocating? Why?
• How many siblings do you have? Are you the youngest, oldest, middle child?
• What do/did your parents do as a vocation? Did they enjoy their jobs? What were their dreams? Which of their dreams remain unfulfilled and why?
• Did you play any team or individual sports competitively? Do you still compete?
• Did you become proficient on a musical instrument? Do you still play?
• What were your hobbies when you were growing up and what are they now?
• What were your childhood dreams? How have they changed? Which dreams remain unfulfilled?
• Other than your parents, who had the greatest influence on your life?
• Were you always scheming to make money? If so, what were some of your more memorable childhood ventures?

Some people will be uncomfortable answering these questions. If so, they may not have the temperament required to succeed at a startup, where everyone is forced to work in close quarters and on multidisciplinary teams. A willingness to share who they really are and become part of the startup family is an important trait for all early-stage hires.

Insight In Numbers

Group interviews can also be an effective way to gain insight into someone’s soul. In one-on-one interviews, the applicant is always on. They maintain eye contact; smile at the right times, say what they think you want to hear and generally make a concerted effort to keep you from knowing what they are thinking.

In group interviews, maintaining an unflappable facade is more difficult, as the interviewers who are not in the midst of asking a question have the luxury of observing the applicant. Top negotiators often prefer to work in teams so that one team member can observe body language, devise questions, take notes and analyze the applicant’s responses, while the other interviewer is engaged in conversation. You can gain similar observational insights through group interviews.

Generally, two interviewers at a time are sufficient. Too many interviewers will heighten the artificial nature of the discussion and thus should be avoided.

Lunch or another out-of-the office locale is an effective forum for group interviews, as sharing a meal in a group setting further reduces the formality of the conversation and thus gives you a more accurate glimpse into the applicant’s entrepreneurial soul.

Even if you conduct interviews one-on-one, changing the environment is often an effective way to encourage someone to speak more openly about who they are, as opposed to the traditional discussion over a desk. Go on a walk, head out for coffee; anything that breaks the interviewing norm will help you better assess the candidate’s suitability for life at a startup.

Time For Tea And Meet The Significant Other

For significant hires, meet the candidate’s spouse or romantic partner. Even in a relatively brief encounter, you should be able to assess if the candidate’s significant other will be a hindrance that will make your startup’s inevitable lows even lower, or if they will they act as a positive force that will help their partner through the inevitable startup challenges. The vitriol generated in unhealthy relationships can seep into your organization and negatively impact your company’s morale and culture.

Job Hunting With A Rifle Or Shotgun?

Ask candidates to name the other companies they have targeted in their job search. Their response will give you further insight into the applicant’s startup proclivities. If all of their other interviews are with Big Dumb Companies (BDCs), then the applicant may not be an entrepreneur. Knowing that they are speaking with one or more BDCs will alert you to a potential incongruence in their career aspirations. If an inconsistency arises, address it in frank terms and assess the applicant’s response.

Negative Selling

Another tactic for determining a candidate’s entrepreneurial inclinations is negative selling. For instance, you might say, “You certainly have a great skill set, but I am not sure we can afford you.” This nicely sets up your future salary negotiations and it gives the candidate a chance to reach for the opportunity. It also encourages them to explain why they are an ideal fit for the position and communicate a degree of flexibility with respect to their compensation.

Negative selling avoids the applicant hearing only what they want to hear during the interview process. Challenging job applicants with potentially off-putting comments forces them to confront difficult issues. This approach also ensures that your new hires join your team with their eyes wide open, with a realistic understanding of the challenges that must be overcome in order to thrive at your startup.

Someone simply searching for a job will be unenthusiastic about an offer with a below-market salary. Entrepreneurial candidates will be willing to make monetary concessions in order to join an exciting adVenture, if you offer them adequate potential upside in the form of stock options. If the applicant does not appropriately value your startup’s equity, quickly usher them out the door.

Free Consulting

Assign promising candidates meaningful homework. For instance, you might ask them to research a potential new market, analyze a competitor or assess a new distribution channel. Preferably select a task that will add value to your team’s efforts – not a make-work project.

There are several potential positive outcomes from this approach: (i) you get the benefit of free consulting, (ii) the candidate becomes engaged in your business and thus can hit the ground running if they are hired, and most importantly, (iii) it gives you an effective window into their soul and true motivations, as well as an assessment of their skills and abilities. Prospective employees who are unwilling to engage in such assignments may be mercenaries who are better suited for life at a BDC.

Inoculation

The recruitment process is not over when you make a candidate an offer, especially when you hire A+ Players. You should anticipate that their current employer will attempt to win them back with promises of additional compensation, a promotion and possibly more equity.

You can mitigate the effectiveness of such win-back efforts by disclosing them in advance with the applicant. If you have the appropriate level of rapport, remind them that a last-minute scramble to retain them is flattering, but it would be more meaningful if such offers were proffered in the normal course of business, rather than as a last-ditch effort to retain the applicant. Help your candidate understand that the love they will receive once they announce they are leaving their current employer will feel great, but they should ask themselves, “Where was the love before I announced I was leaving?”

The consulting project referenced above is also a component of your inoculation strategy, as it gives you a legitimate reason to communicate with the applicant during the critical period after they accept your offer and before they complete their obligations to their current employer.

Try Before You Buy

Both your company and the employee will benefit from a ninety-day trial period and the associated near-term feedback. Unfortunately, formal employee reviews are too often shirked at startups. By institutionalizing a review early in the employee’s tenure, long-term problems can be avoided and the employee can ultimately become more effective through timely constructive criticism.

The trial period is mutual. As such, it facilitates correcting an improper fit between the employee and the position they are hired into. If it is apparent that the relationship is not working, the employee can move on to another organization that will ultimately facilitate their happiness and success.

The ninety day trial is also a good test to determine if the applicant is a Wantrepreneur. If they are just looking for a job, your unconventional request to enter into a mutual, trial period may offend them. You certainly hope so, as weeding out an ATM Operator early in the interview process is key when you are searching for Bank Robbers.

Note: This is Part IV in the Startup Team Building series. Read Part I HERE, Part II HERE, and Part III HERE.

Image source: bpsusf via Flickr

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Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs, Mark Cuban, Richard Branson, Walt Disney, Mark Zuckerberg, Michael Dell and Larry Ellison.

I recently reviewed Richard Courtney and George Cassidy’s published business book, Come Together – The Business Wisdom of The Beatles in the first entry of this series.  

Although the Beatles’ phenomenal career encompasses numerous startup lessons, many of the anecdotes cited in Come Together are trivial, while others are painfully obvious. However, despite the book’s shortcomings, it contains a number of insightful lessons emerging entrepreneurs can apply to their startup careers.

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More Beatles’ Startup Tips

This entry describes some additional Beatles-inspired startup tips, which I gleaned from both their successes and their failures.

1. Remain Optimistically Pessimistic

“I know on the plane over I was thinking, ‘Oh, we won’t make it,’ but that’s the (pessimistic) side of me: we knew we could wipe them out if we could just get a grip.” John Lennon, describing his misgivings during his first flight to America.

When they were four unknown, spotty-faced Liverpool teenagers, the Beatles shared a common vision. They unabashedly wanted to become “bigger than Elvis.” They were the only people who did not think their audacious goal was ridiculous. No one from England had ever enjoyed sustained musical success in America, let alone sold enough records to seriously challenge the King of Rock-n-Roll’s throne.

The Beatles’ naivety allowed them to believe the unbelievable. Entrepreneurs should be naive, as long it is coupled with a relentless work ethic and a pragmatic ability to execute.

Although they were utterly confident that they would achieve their long-term vision, the Beatles’ healthy pessimism motivated them to work extremely hard and to take nothing for granted.

Operate your startup in the same manner; assume the best and plan for the worst. Grand aspirational goals are achieved by executing innumerable, inglorious, incremental tasks. I further discuss how an optimistically pessimistic attitude benefited Oprah Winfrey HERE.

2. Dominate Your Home Market Before Going Global

Although the Beatles shared an outlandish vision to dominate the global music market, they executed their business strategy in an incremental manner. According to Lennon, they first focused on becoming popular in Hamburg, then on becoming the most popular band in Liverpool. Next they established themselves as the most successful band in Northern England before conquering London. Once the UK market was fully penetrated, they began touring the major cities of Europe. It was not until Beatlemania was firmly established throughout Europe that the Beatles embarked to America.

At their launch, many startups also aspire to audacious goals, just as the Beatles did early in their career. However, a startup that does not first achieve market validation in its home market generally does not achieve its long-term goals. In many instances, startups open international offices before their value proposition is fully formed. Kevin O’Connor, Founder and CEO of DoubleClick once told my UC Santa Barbara students (I am paraphrasing), “We went international way too early. This caused us to make the same thirty mistakes in thirty countries, when we really should have learned from those mistakes one at a time, before repeating them globally.”

Internet businesses are especially prone to the allure of immediate global ubiquity. Even Facebook incrementally conquered concentric markets; starting with Harvard, next expanding to the other Ivy League schools, then major universities and eventually to non-college students throughout the US.

Dominate your domestic market before entering foreign markets. If the Beatles had arrived in America before achieving success in Europe, it is doubtful they would have captured the US public’s attention. They learned from their mistakes in smaller, lower profile markets and thus did not replicate them when the stakes were higher. If you enter a foreign market too early, you increase the chances you will lose focus in your core market, while battling indigenous startups that have an inherent, home-field advantage.

3. It’s Your Band – Listen To Everyone And Then Ignore Them

“Every well-intentioned, high-judgment person we asked told us not to do it (sell books online). We got some good advice, we ignored it, and it… turned out to be one of the best things that happened to the company.”
Jeff  Bezos, Founder of Amazon.com

During the early days of the Beatles’ career, their manager, Brian Epstein, played a significant role. He instructed them to discard their leather outfits for their iconic Nehru suits. He further professionalized their act by encouraging them to not smoke onstage and to bow at the end of each set.

As their career progressed, Brian’s role became less prominent.  In an effort to remain relevant, he made the mistake of offering his unsolicited advice to John Lennon during a Sgt. Pepper recording session, telling him, “I don’t think that sounded quite right.” John did not miss a beat, saying, “Slag off Brian. You stick to your percentages and we’ll look after the music.”

In this instance, Lennon did what many entrepreneurs fail to do with respect to managing their investors. John made it clear to Brian that the Beatles’ role was to make the product and tend to the company’s operations.

Early in a startup’s career, venture capitalists often play a crucial role in shaping a business. However, the investor’s ability to operationally impact your business typically diminishes as your company becomes more complex. If your venture capitalist offers gratuitous advice regarding your operations, follow Lennon’s lead and suggest a similar (albeit a bit less pointed) role delineation.

4. Never Negotiate From A Position Of Ignorance

Brian Epstein was a 30-yr old former furniture salesman when Beatlemania hit America in 1964. When he was approached by savvy New York businessmen to license the Beatles’ name and likeness for various novelty products and toys, he firmly stated that he would not accept a penny less than 10%. The businessmen had a difficult time hiding their surprise, as the expected range for such licenses was between 20% to 40% of the product’s price.

By negotiating from a position of ignorance, Mr. Epstein effectively cost the Beatles tens of millions of dollars in lost royalties.

If you encounter a negotiation in which you have incomplete data, do not hesitate to pause the conversation and seek expert guidance. One of the reasons Mr. Epstein did not seek outside counsel was due to his personal insecurity. He was attempting to perform duties which outstripped his capabilities, yet he was reluctant to admit this fact to the Beatles.

A healthy startup culture fosters confidence. Your employees should never feel they will be penalized if they acknowledge that they need assistance.

5. Stay Humble & Don’t Forget To Laugh

Reporter: Does all the adulation from teenage girls affect you? 

John Lennon: When I feel my head start to swell, I look at Ringo and know perfectly well we’re not supermen.

One of the Beatles’ most appealing characteristics was that they remained self-deprecating, despite their enormous success. When they first arrived in America, they seemed as surprised by their popularity as the reporters assigned to cover them. Their humility and humor won over the jaded New York journalists whose articles and press reports were American’s initial introduction to Beatlemania.

Even in a healthy culture, startups are faced-paced, stressful work environments. Once you begin to achieve some hard-earned success, it will be tempting to start believing your own public relationship bull$hit. Don’t do it. Stay humble and use humor to help you, and your fellow employees, cope with life on the startup emotional rollercoaster.  

Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs, Mark Cuban, Richard Branson, Walt Disney, Mark Zuckerberg, Michael Dell and Larry Ellison.

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Seth’s comments were particularly intriguing, as he attended UCSB but departed school before graduating in order to start a successful clothing company.

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You can watch the 11-minute excerpt from Seth’s talk below, in which expounds upon the Seven Tools Of Awesomeness. You can also view it directly on YouTube here: http://youtu.be/9VwiGOQ01H0

1. Be An Active Listener

I assert in an entry entitled Listen that most people in western societies are ineffective, passive listeners. We are trained to treat conversations like tennis matches, each person lobbing the conversation back and forth, with few thoughtful pauses between each volley. Seth agrees. He encourages entrepreneurs to be active listeners by, "Listening to hear, versus listening to get your damn opinion in. Waiting to talk, that is how we work. That is not listening, that is waiting to say something."

2. Empty The Cup

Seth encouraged his audience to allow the other party to completely share their thoughts without interruption or interpretation. He has used this approach to transform contentious arguments into constructive, meaningful conversations, including the particularly angry confrontation he references in his talk.

3. Analysis Paralysis

Seth urges emerging entrepreneurs to, "Be on the playing field, not in your head. Too many people spend their time in the bleachers commenting about business, but where you are really going to learn something is on the playing field. On the playing field is talking to customers. Get on the playing field."

4. Go Streaking

Seth sees a number of corollaries between streaking and starting a venture. "Sometimes when you go into meetings, it feels like taking off your clothes and going, ‘I’m here.’"

Seth goes on to state that although operating a startup is often frightening, it is also exhilarating. "It is such a thrill when you do it…you feel this incredible joy and high." When confronted with the opportunity to streak, most people’s initial reaction is to recoil, which Seth believes is a non-entrepreneurial response. . "You got an idea, you want to go talk to someone, your brain goes cuckoo…like you are streaking. Your brain will talk you out of stuff. Jump. Go. Shut your mind up. Take action. Your know you are doing the right thing when you are pushing yourself. If you are safe, you are not an entrepreneur."

5. Breakdowns And Breakthroughs

Seth explains that success at a startup is predicated upon a series of breakdowns, which are punctuated by periodic breakthroughs, as graphically depicted above. In Seth’s words, "How fast you can fall off the horse and get back on is how fast you can move."

Successful entrepreneurs tenaciously grapple with each breakdown until they achieve a breakthrough. Individuals who do not have the stamina or creativity to master this process generally give up after failing to overcome the first few breakdowns.

6. Be Unreasonable

I believe that the Foundation Of  Entrepreneurship is the willingness to be unreasonable. Seth concurs, telling his audience that,
, "You guys need to practice being unreasonable. People will call you…’crazy’, (tell you to) ‘get a job’, whatever. Going the extra mile, asking for more, having more conversations… this is a critical ingredient to being a good entrepreneur, being unreasonable. The more you can stretch, the more outrageous you can be, do it."

7. Shut Up And Start

Seth’s seventh tool of awesomeness is the most straightforward – just start.
"I hear so many people say, ‘I’m going to write this plan and its going to go as planned.’ It’s not going to go as planned. So when you write your plan realize…it’s like writing a fairy tale. It’s not going to happen that way. Shut up and start. Have the courage to fail. Stop your brain. Sometimes, you just have to get back in the *ucking game."

If you follow Seth’s advice, you might live up to the immortal words of startup sage, Kenny Powers, "…a true champion, face to face with his darkest hour, will do whatever it takes to rise above. A man fights, and fights, and then fights some more. Because surrender is death, and death is for pussies."

Streaker photo courtesy VirginMedia

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I found this video compelling, because it provides insights into Jobs as an internal leader, rather than the externally facing, reality-distorting CEO. With that said, I realize that whenever a camera is involved, everyone’s behavior changes. Thus, if you are looking for rants, screaming tantrums or derisive putdowns, you will have to look elsewhere.

Rather than an imperious Jobs, the video shows him addressing his team’s emotional rollercoaster; from the initial euphoria, to the harsh realities of life at a startup. This process is complicated by the external reality distortion which Jobs was concurrently propagating outside of NeXT. This is an important balancing act for all startup leaders – one best learned from a master.

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You can watch the twenty-one minute video below or on YouTube here: http://youtu.be/sOlqqriBvUM. The video appears to be taken from an analog tape. Do not be deterred by the initial bad audio and tracking – skip to 1:20 to avoid the lame intro of Jobs harvesting carrots while wearing in a neatly pressed, white dress shirt. For those who may want to only watch portions of the video, I time stamp the major topics below.

Logo Madness <1:20 – 2:35>

The video opens with the unveiling of the company’s new logo. I groaned when the egregiously over-paid logo designer, Paul Rand, holds up a blank book and says, “Don’t get scared, this is not the design. The reason I did this was to floor Steve. You know, Jesus, a hundred thousand bucks down the drain.”

Mr. Rand obviously missed the irony of this statement. His logo, not the blank page, is what represented “a hundred thousand bucks down the drain.”

As I note in Lousy Startup Names, in their early days, startups should obsess on developing their value proposition and avoid paying over-priced consultants to devise clever logos.

In contrast to Paul Rand’s NeXT logo, the original Apple logo was created for free. It was not until it was apparent that the company had devised a sustainable value prop that money was spent to create the iconic, multi-colored logo which Apple used for the next 22-years.

Note the small army of NeXT employees flipping through Mr. Rand’s style guides. The logo presentation takes place during the venture’s first few weeks. The team is intoxicated with their new-found freedom, as most of them had recently departed the confines of Apple which, in their minds, had become a Big Dumb Company. They are soon sobered by the realities of startup life. 

First Offsite – Startup Exuberance <3:53 – 13:40>

In December, 1985, the company held its first offsite in Pebble Beach CA. For those of you not familiar with Pebble Beach, it’s a freakin’ expensive place to host an event.

The company had only been in business about 90-days at the time of the ocean-front retreat. While describing Jobs’ opening remarks, the narrator states, “In effect, he is planting the seeds of a new corporate culture.” Yes indeed he was, by both his words and his actions.  

At one point, Steve conveys that, “One of the things that made Apple great in the early days was that it was built from the heart. Now unfortunately, we didn’t always use our head.” Steve was also sending significant signals about the new company’s culture by selecting an extravagant venue for the offsite. Tip: No revenue = no ocean-front retreats.

After much debate, the company agrees on their number one priority: to deliver a compelling product to the higher-education market by the Spring of 1987.

The montage from 6:57 through 13:17 offers intriguing insights into a high-profile startup’s struggle to define itself. At 12:10, in response to a particularly pointed comment regarding potential product delays, Jobs replies, “Well, George, I can’t change the world. What do you want me to do? I don’t want to hear just because we blew it last time, we’re gonna blow it this time.” Such exchanges are enlightening, as it shows how Jobs (albeit with the cameras running) dealt with internal dissention.

Near the end of this segment, Jobs throws cold water on his team’s idealistic intoxication, stating, “What I want is probably irrelevant here. There are certain realities here, both psychological and market, that are gonna come into play…no matter what I say or anyone else says.” With these remarks, Steve is trying to balance the aggressive reality distortion campaign he was waging externally with the media, investors and potential partners with the reality clarity that is necessary within an organization.

In the next scene (obviously it is hard to know the true sequence of the remarks), Steve returns to a positive tone by reminding his team that, “I find myself making lists of things we don’t know and then I remember that our company is 90-days old and I look back, to all the things we do know. It’s really phenomenal how far we have come in 90-days.” The sincerity and pride in his voice is authentic.

Note the irony of the worlds’ leading technologists using an overhead projector, which makes the video seem ancient. I have included a photo at left, for anyone born after 1990.

Second Offsite – Financial Realities Suck <13:40 – 18:43>

In March, 1986, the company holds its second retreat. Although it was only been 90-days since the last company offsite, the tone is markedly different. Steve opens his remarks (at 14:10) by saying, “The honeymoon is over. All of those things we got for just being, are now… just old news.” Jobs is referring to the torrent of popular press un-earned adulation that the company received in its early days.

He goes on to say, “We are like every other startup. The bottom line is that the world doesn’t really care. What the world cares about is what we produce. We have been a startup for six months and we have been spending money…for six months. I hope…our feet are on the ground and we realize that we’re going to be judged like every other startup from here on out. And that is by what our product is and how timely we bring it to market. Not on the fact that we are really good people who had a lot to do with Macintosh. That stuff is irrelevant at this point.”

After Steve’s sobering remarks, the conversation shifts to finances. A woman, who I assume was the CFO or some such, tells the former Apple team, “There are not million dollar buckets out there to identify (for) spending cuts. It’s going to take everybody in this room to doing a mind-set change.” Jobs adds, “We are not scrounging. We used to find people who would give us good employee discounts. We’ve stopped nickel and diming for that stuff and it all adds up. One of the things I don’t see…is that startup hustle. It would be a shame to have lost the war because we won a few we battles. We are not keeping the war in perspective. The war is called survival. The war is called ‘not run out of money before we get our product in the market’.”

Steve is again trying to balance internal reality clarity with external reality distortion. He knows that he can distort the perceptions of stakeholders’ realities, but he must temper this by ensuring that his employees understand the reality that no company can survive indefinitely on investor capital. Not even a company founded by a really, really rich 30-year old.  

Legacy Building

The remainder of the video focuses on Steve’s legacy and is frankly rather boring. He relates, at length, an often told story about his trip to an elementary school during Apple’s early days. This anecdote is conveyed in a more energized and inspiring manner HERE, when Steve spoke to a small group in 1980.

In this early video, Jobs was not yet a technology celebrity and thus did not have an image to uphold, let alone a legacy to promote. Thus, he is relaxed and conveys an authenticity missing in many of his more widely publicized talks. For instance, a humble, understated Jobs jokes at the beginning of the talk that he was late because he could not find a parking space. He later interrupts his comments to amateurishly fumble with the microphone.

As has been widely chronicled, NeXT was eventually purchased in late 1996, 11-years after its founding, by Apple for $429 million in cash and 1.5 million shares of Apple stock (all of which was distributed to Steve). Jobs joined Apple shortly thereafter as its Interim CEO.

From its early, heady days as “Steve Jobs next startup,” to its many years of slogging it out in the dying workstation market, NeXT reached the finish line by modulating a balance between internal reality clarity and external reality distortion.  Nice job Steve.

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Since 1961, professional baseball has grown from 18-teams to 30. Over the same period, professional football and basketball leagues also expanded dramatically.

Although sports purists would no doubt quibble about the impact expansion has had on professional sports, most fans agree that the overall talent level has remained relatively constant, despite the significant increase in the number of professional athletes.

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Expansion League Teams In The Startup World

In the past year, the number of startup accelerators and incubators across the US has grown faster than expansion league baseball. This growth led Jed Christiansen to base his master thesis on the impact and efficacy of the phenomenon. In 2009 Jed created a Google doc to track the seed accelerators. By mid-2011 he noted, “As seed accelerators have exploded in number world-wide, it’s become nearly impossible to keep this (Google Doc) working.”

I recently discussed the explosion of seed accelerators and incubators with Brad Feld, who, as the Co-Founder of acclaimed startup accelerator TechStars, is uniquely qualified to opine upon the subject.

You can watch my seven minute discussion with Brad below or on YouTube here: http://youtu.be/wNad4MPWLcY

I started our conversation by asking Brad if he felt the recent surge in accelerators and incubators reflected a replay of the phenomenon we witnessed a decade ago, when incubators largely failed to generate reasonable financial returns.

Brad prefaced his comments by highlighting several meaningful distinctions between accelerators and incubators."I think there is a fundamental difference between an incubator and an accelerator… (this) distinction helps people understand why, (even though) … there is a saturation point, but we are nowhere close to it. The distinction between the two is that an incubator has an economic model that is based around having people be tenants. Having people being captive within some investor’s…sphere.

The money that went into them was usually very inefficiently deployed because it was deployed against infrastructure, it was deployed against a longer arc of build-up and you were into a company a while before you knew whether something was going to work or not.

With accelerators, it’s a very focused process, it’s 90-days long. We are actually giving the companies money, rather than taking money from them. So it’s a very early form of investment. If you use the mentor-driven model that we pioneered at TechStars, you get entrepreneurs who are deeply connected with the broader entrepreneurial landscape.

If their first companies don’t work, it’s totally fine, because they built… muscle around creating a startup that would take many years and lots more money to create.”

Brad went on to address the issue of a diluted entrepreneur talent pool and its potential impact on the efficacy of new accelerators.

“I am not going to say A and B and C players as in expansion baseball, because there is a wide variety of skill sets. It’s taking people that are relatively inexperience, (but) not entirely inexperienced.

Many experienced entrepreneurs choose to go through an accelerator because of the network effect and the dynamics of the mentor help that they get. But it’s people that tend to be entrepreneurs who are early on their company and entrepreneurial arc. It allows them to really accelerate their own development. We like to think that in 90-days, you get two years or three years worth of real, focused effort. Not just in terms of your concentrated effort as an entrepreneur, but because of what you are surrounded with.”

TechStars has expanded beyond its home base of Boulder, establishing regional chapters in Boston, Seattle and New York. In addition, it is accelerating accelerators in a number of regions by affiliating with third-party accelerators worldwide.  

Given TechStars’ “expansion league” strategy, I was curious as to Brad’s thoughts regarding the various saturation points of regional markets. For instance, in Los Angeles, there are currently 23 accelerators, incubators and colocation facilities, as documented in Ben Kuo’s recent SoCalTech series. As Ben points out, many of these organizations were formed within the last 12-months. “The goal of an accelerator is to get companies funded with seed financing. It makes a higher-quality company…the investors that are around the accelerator have a better choice of companies. Could you have a thousand companies a year going through accelerators? Sure. Could you have ten thousand? There some limit, but I don’t feel like we’re there.

In a big city like LA, could you have four or five (accelerators)? Sure. In a small town like Boulder could you have four or five? Probably not. You get saturation that is different, by geography.”

Given the rash of accelerators and incubators in LA, differentiation and market segmentation has emerged. According to Sam Teller, LaunchPad LA‘s Managing Director, “At Launchpad LA, we have two parallel goals that are often intertwined. First, to marshal our deep network and experience to help an exceptional group of LA startups grow their businesses and gain third-party validation from customers, partners, and investors. Second, to establish a physical hub for the LA startup ecosystem by opening our offices not just to entrepreneurs, but to mentors, investors, advisors, and other startups who we hope will benefit from our events and educational programming.”

Echoing Sam’s sentiments, Brad passionately believes that the impact of accelerators on a regional startup ecosystem grows over time. This effect is accentuated with the launch of each new accelerator. “There is a cumulative, positive effect because it continues to get the alumni group bigger, the network of mentors bigger, the network of investors bigger and the integration into the community deeper.

That said, is a two or three or year program that goes away…a net negative? No. I think it’s a huge positive. It’s another resource for entrepreneurs. I think you’ll see a lot of accelerators go away and frankly, that should be (considered) normal.”

Brad concludes his comments by underscoring his belief that the US is not facing a pending startup accelerator bubble. He believes that such concerns are a legacy of the dot com meltdown of the last decade. “Whenever there is a big amplification of stuff in the tech community…anybody who has been involved in it for more than a decade remembers 1999, 2000, 2001. On the one hand, you don’t want to repeat it. On the other hand, you want to be optimistic. So whenever there is something that feels like there is too much of it, the reaction is AGHHHHH.” <watch the video to see Brad’s untranscribable reaction – very funny>

Expansion League Success Factors
There are a number of elements which contributed to maintaining a high-level of game-play in professional sports, despite the leagues’ growth, including: improved conditioning, player specialization and the maturation of youth leagues.

With the proper infrastructure in place, the average level of human abilities can be enhanced, even as the number of participants increases. To this end, seed accelerators serve a similar function as minor league and college sports teams. By providing entrepreneurs with a safe, supportive environment to experiment, fail and ultimately succeed, accelerators have enhanced the talent of their participating companies, despite the dramatic growth in the overall number of accelerators. Brad sums up this reality by saying, “The more resources for entrepreneurs that are feeding entrepreneurs, rather than taking from entrepreneurs, the better.”

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Article first published as Five Business Tips From The Beatles on Technorati.

This part one of a two part series; you can access part two HERE.

Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs, Mark Cuban, Richard Branson, Walt Disney, Mark Zuckerberg, Michael Dell and Larry Ellison.

As any long-time reader of this humble blog knows, I am an ardent Beatles fan. Thus, when Come Together – The Business Wisdom of The Beatles was released, my hopes were high for a great read. Unfortunately, I was a bit disappointed.

Despite the book’s shortcomings, it contains a number of insightful lessons for budding entrepreneurs. Of the 100 business “lessons” articulated in the book, I highlight a few below that I feel are the most relevant and impactful for entrepreneurs.

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Beatles Business Lessons

My primary complaint with Come Together is the authors’ attempt to divine 100 meaningful business insights from the Beatles’ career. Although successful entities, including the Beatles, have much to teach entrepreneurs, 100 lessons is about 80 too many. Some of the examples are patently obvious (e.g., (i) drugs are bad, (ii) no matter how much success you have, you are not invincible, (iii) have fun, and (iv) negativity is a weakness), and others only relate to the Beatles in a tangential fashion.

In the list below, I have compiled some of my favorite lessons from Come Together, combined them with a few of my own Beatles inspired startup tips.

1.  What’s Your B7?

The Beatles consistently walked a challenging line between creating innovative art and remaining imminently accessible. They differentiated their product with subtle, unconventional techniques, such as the use of the B7 chord in I Want To Hold Your Hand.

After alternating very conventional C and D chords, John plays a B7 chord at the end of the line “I think you’ll understand.” For years the note was improperly scored as a B-minor chord because that was the conventional note one would expect following a C and D chord progression.

As the Come Together authors note, the instability caused by the unexpected and unorthodox use of the B7 chord is, “interesting and pleasing to the listener.” One strange chord is immaterial in isolation. However, the Beatles consistently differentiated their products by deploying surprising, adventuresome chord progressions throughout their career. At the end of this section, the authors challenge the reader by asking, “What is your B7? You and your competitors are probably using the B7 in all the conventional ways. Don’t be afraid to add a little instability, a little mystery…” to your company’s products and their underlying value propositions. 

2. Create A Culture In Which Junior Teammates Can Grow And Prosper

The Beatles were far from flawless. Entrepreneurs can learn from their achievements as well as their failures. One clear mistake was their underutilization of George Harrison’s talents. When the group was formed, George’s role was supportive with John and Paul writing and singing most of the group’s hits. However, as his talents and confidence matured, George’s songs eventually rivaled those of his band mates. Despite this reality, his legacy as a junior member of the team relegated him to a couple songs per album.

Once the group broke up, George released a three album set comprised of 23-songs. Appropriately entitled All Things Must Pass, the album spawned two top-ten hits and sold over 6-million copies making it the best selling Beatles’ solo release.

It can be difficult for junior members of a team to grow into positions of greater authority. This is especially true if they are part of a Serial Team and they held a junior role at the prior company. This phenomenon is partially due to the fact that the senior members of a Serial Team, much like a parent, fail to realize that younger team members have matured and are no longer as inexperienced as they were when they first joined the team. Like the Beatles, you may be underutilizing the overall talent at your venture if you are not allowing young people to grow into more impactful roles.

3. Over Deliver

With a few exceptions at the end of their career, the Beatles never included previously released singles on their UK albums. This tactic provided the Beatles with a strategic advantage over other musicians because fans knew that if they purchased a particular single, it would not appear again on a subsequent album. In essence, the Beatles offered a product with a higher value proposition as compared to many of their counterparts.

In addition to omitting previously released singles from their albums, the Beatles further enhanced their products’ value by creating double A-side singles, in which both songs were hits in their own right. The typical approach during the 1960’s was to put a “throwaway” song on a single’s B-side. Ignoring this music-industry convention, the Beatles released an unprecedented twenty-seven double A-side singles during their careers.

Your startup should strive to offer as much value to its customers as possible. It is seldom prudent to denude your value prop in the hopes of later generating incremental revenue through subsequent sales. Consumers will reward you over the long term if you over deliver on your value proposition. I discuss value prop maximization in more depth in MVP².

4. Innovator’s Solution

Clay Christensen’s follow up book to his classic Innovator’s Dilemma is titled The Innovator’s Solution. I can sum it up in a two words, “keep innovating.” One of the reasons the Beatles remain immensely popular over fifty years after their formation is that innovation was at the core of their organizational culture.

The innovations the Beatles pioneered are too numerous to list here. However, one discussed in Come Together is of particular note. At the apex of the Beatles’ fame, they stopped touring. They were willing to forego the Quick Buck in order to focus on honing their talents in the studio. In retrospect, the decision may not seem significant. However, at the time, most journalists were convinced that the Beatles career was effectively over. Their view was understandable, as no prior musical act had maintained its popularity without a heavy touring schedule.

After an unprecedented 10-month break from the public eye, the Beatles released Sgt. Pepper’s Lonely Hearts Club Band. Despite the fact that they created their first album in a single day, Sgt. Pepper was recorded over 129 days. It eventually sold over 32 million copies, making it the 8th best-selling album of all time (excluding soundtracks).

The Beatles partially satiated the void created by their lack of touring by creating a new genre, the music video. During their 10-month hiatus, two videos were shown on various television shows worldwide, thereby exposing millions of fans to the group’s latest music (Penny Lane and Strawberry Fields Forever), without requiring the band to take time away from their studio efforts. Brilliant.

Much like the Beatles, startups that constantly morph and evolve their strategic approach will keep their competitors off-balance while avoiding the Innovator’s Dilemma.

5. Innovator’s Solution

Most sophisticated investors agree that the startup team is the single most important variable when evaluating a potential investment opportunity. As I note in Your Startup Should Emulate The Beatles, Not A Flock Of Seagulls, one of the Beatles’ most powerful assets was the cohesiveness and balance of their core team. In addition, they were fortunate to be supported by a squad of managers, producers and publicists, each of whom helped to propel the group from obscurity to international fame.

Startups, especially in their early days, must be uncompromising in their pursuit of talent. If a recruit is not the best candidate you can reasonably find for a particular position, do not hire them. If you make one hiring compromise you can be sure more will follow. Speed is vital at a startup. However, hiring is one aspect of the venture creation process in which velocity should take a backseat to judicious patience.

Case in point: On the cusp of their fame, the Beatles fired their long-time drummer Pete Best and hired Ringo Starr. Loyalty matters and entrepreneurs should never fire people lightly. However, the Beatles would not have done Pete any favors if they had kept him in the group and then failed to succeed.

Book Verdict

If you are a Beatles’ fan and an SOB (Student of Business), you might enjoy Come Together. If you purchase the book assuming you will uncover a couple dozen entertaining and enlightening Beatle stories that you can apply to your startup, you will not be disappointed. 

This part one of a two part series; you can access part two HERE.

Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs, Mark Cuban, Richard Branson, Walt Disney, Mark Zuckerberg, Michael Dell and Larry Ellison.

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Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs, Mark Cuban, Richard Branson, Walt Disney, Mark Zuckerberg, Michael Dell and Larry Ellison.

For more than 30-years, Bill Gates has been at the pinnacle of the software industry. Like Steve Jobs, Michael Dell and Larry Ellison, he is one of the few startup Founders who remained at the helm of their respective companies throughout their entire maturation process.

In addition, like Steve, Michael and Larry, Mr. Gates also failed to graduate from college. I explore this peculiar entrepreneurial career path in further detail in THIS entry.

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1. Great Startup Ideas Come From Everywhere

"At Microsoft there are lots of brilliant ideas but the image is that they all come from the top – I'm afraid that's not quite right." [Tweet this quote]

Much like political leaders, corporate executives are often given too much credit, as well as too much blame. Effective startup leaders allow ideas to percolate from within their company, rather than attempting to monopolize the ideation process. They also internalize their professional failures while externalizing their team’s successes.

2. One Of The Most Important Startup Skills

"The best way to prepare [to be a programmer] is to write programs, and to study great programs that other people have written. In my case, I went to the garbage cans at the Computer Science Center and fished out listings of their operating system." [Tweet this quote]

In Mark Suster’s recent talk at UC Santa Barbara, he advised his audience of entrepreneurial students to master two skills: selling and coding. Mark noted that even if an entrepreneur does not become a master developer, by simply understanding the software development process, they will be a more effective startup leader.

No one ever accused Bill of being a master programmer. However, his first-hand knowledge of how software is created, tested and commercialized facilitated his execution of Microsoft’s initial strategy, in which it leveraged its operating system to create a suite of business productivity solutions.

3. Frugal Is As Frugal Does

"Instead of buying airplanes and playing around like some of our competitors, we've rolled almost everything back into the company." [Tweet this quote]

Gates, Ballmer and the rest of Microsoft’s executive team were extremely frugal, long past the company’s startup stage. This frugality was evidenced by the fact that everyone at Microsoft, even Gates, flew coach until well into the late 1990s.

As Bill’s profile heightened, flying commercial airlines became a security issue, which eventually outweighed the associated increase in travel costs. In 1997, Bill finally purchased a private jet. Ironically, a year later, he was hit in the face with a cream pie, ironically while exiting a commercial flight.

Microsoft was one of the first successful high-tech companies to not distribute its profits to shareholders. Bill believed that the cash which Microsoft generated would deliver a higher return to its shareholders if it were reinvested into the company’s operations, rather than distributed in the form of dividends. It was not until 2003 that Microsoft issued its first dividend.

4. Student Wakeup Call

"If you think your teacher is tough, wait until you get a boss. He doesn't have tenure." [Tweet this quote]

Despite not graduating from college, Bill has spoken to thousands of students during the past several decades. His advice is essentially, "buck up, it’s called work for a reason." During one college talk, Bill told the student audience, "Life is not divided into semesters. You don't get summers off and very few employers are interested in helping you find yourself." [Tweet this quote]

Bill’s advice reflects Microsoft’s hardnosed culture, which encourages internal competition and a ruthless pursuit of the truth. As noted in Core Values, the culture of your startup is entirely in your hands. Treasure it. Along with your cash, customers and employees, a healthy startup culture will prove to be one of your most precious assets. 

5. Banana IP

"Intellectual property has the shelf life of a banana." [Tweet this quote]

As described in IP Is Worthless To A Startup, most startups over estimate the value of their intellectual property. Unless your venture is focused on researching potential scientific breakthroughs, it is likely that your technology can be easily copied and your patents circumvented. Thus, focus on out-executing your competitors, rather than hoping you can thwart them in a courtroom.

Microsoft’s success is proof that the best technology is not required in order to dominate a market. High switching costs, massive distribution and ubiquitous mindshare have combined to maintain Microsoft’s market leadership, despite their glaring technological and usability shortcomings.

I am not suggesting you spurn product excellence. However, as you develop your Minimal Viable Product, heed Voltaire, who once said, "The perfect is the enemy of the good." Bill Gates has proven numerous times that "good, is good enough." 

Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs, Mark Cuban, Richard Branson, Walt Disney, Mark Zuckerberg, Michael Dell and Larry Ellison.

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