Friday Sabbatical

Whatever you’re doing this Friday, I hereby invite you to take a mini-sabbatical from it. Check in with yourself. Feel your breath, the sensations of sitting, or standing, the contact between your body and the world. Notice what’s going on without trying to influence or change it, and simply feel what it is to be alive. This, right now, including everything even COVID, is your life. Be here, just for a second.

The above is way more important than the below.

That said, there are five things below which I think are also pretty important (even one request of my readers), so I invite you to please enjoy:

1. There’s a sense that the world is disintegrating. That everything that was once solid and reliable — life, liberty and the pursuit of happiness, say? — is now falling apart at the seams. This well and truly sucks. This week I refreshed one of my favorite books on the topic: When Things Fall Apart, by Pema Chodron. She articulates beautifully the fundamental reality that things are always falling apart, and our peace is reliant solely on us embracing that fact. This feeling of disintegration is usually a solitary one, so it’s truly unique (and maybe important) that this time, everyone in the world is confronting the reality of disintegration together. The world is dying all around us. And the world will continue afterward.

2. Speaking of, COVID feels like one of those moments in history with a Before and an After. We know what the world was like Before, and here are experts from all over the spectrum predicting what life looks like in their field, After. I hold out hope that the last one is prescient, as I think it makes life much more raw, visceral and ultimately worth living.
And, if you’ve read Yuval Noah Harari’s work, do yourself a favor and read his latest essay, an analysis on the bridge between Before and After, and the two decisions that citizens of America are already making that will reshape our society after COVID (whether we’re aware of it or not).

3. In 1970, Milton Friedman said “the sole purpose of a business is to generate profits for its shareholders.” Based on current events this can now be understood to be demonstrably not true (if it wasn’t already), as business leaders across the globe are stepping up in what effectively amounts to a wartime effort to combat the virus, putting people’s wellbeing at par with or above their own profitability. A personal mentor of mine, founder of Cascade Engineering Fred Keller, who even in peacetime operates by a more complete set of rules than most companies, urges business leaders not to waste what we’re learning through this crisis.

4. The world is changing, and people are feeling tremendous pain, both physically and economically. No matter who you are, you can help.
PHYSICAL: Godspeed to the heroes in the healthcare field right now, some of whom I speak with personally. Even if you’re not in that field, Tim Ferriss has an excellent episode on his podcast about how you can help.
ECONOMICAL: This one is hitting more people than anything right now, as 1% of the US filed for unemployment in the last week alone. There are a few ways to help, including the United Way’s COVID Fund and Humanity Forward’s fund, each helping individual people make ends meet. If you are struggling yourself, findhelp.org and here are good places to start.

5. Finally, an issue near and dear to my heart. The CARES (Coronavirus Aid Relief and Economic Security, the naming of which is probably why it took so long to get passed) act was passed, and includes $350bn in potentially forgivable loans for any small business (<500 employees) to help them get through COVID without layoffs. It’s truly the mack daddy of programs available right now (soon) to business owners.
HOWEVER, in Congress’s efforts to avoid giving undue favors to big business, they have constructed the Act in a way that unfairly penalizes venture backed startups. Check out this Twitter Thread from a leader in the VC community and the NVCA for details, but below is a synopsis:

  • Otherwise eligible businesses <500 employees are subject to something called the SBA “affiliation” rules. Basically, SBA determines the 500 employee test by looking the applying entity, as well as all of its “affiliates”. Unintentionally, a company applying for a loan that has “significant” minority stakeholders – such as one or more VC firms, or a family office, or major angel/HNW investors – will be subject to a requirement that the 500-employee limit be applied *IN AGGREGATE* to all of the *OTHER* portfolio companies in which that minority investor is also a minority shareholder.
  • Let’s use VNN as an example, a company of 70 employees, which you’d think would be well underneath the line. We’re who this program was written for. However, since we have about five VCs with “significant” interest in our company (guessing here as to the definition of significant), as written we would be ineligible for this funding because “VNN’s employees” would include all the employees at those five VC firms, as well as all the employees from all the companies they have invested in, even as those entities are entirely unrelated.
  • The rules weren’t meant to disqualify small VC backed startups from accessing the exact same small biz loans offered to literally every other small biz, but someone missed this scenario so that’s what it does. VC backed startups are the ONLY small businesses ineligible.

So a request: We have contacted our local Chamber and Congressman, but we need help. If you have connections to the Senate or the House, please reach out to them and explain the situation. The entire unfortunate situation is due to something called the SBA AFFILIATION RULES. If you don’t have any direct connections, you can contact the Senate Small Business Committee at +1 (202) 224-5175. And if nothing else, please share this info far and wide (just copy/paste. No need to attribute — just get it out there). In advance, thank you.

And as always, please let me know what you think in the comments, or if you stumble upon something excellent I should be aware of let me know that as well.

I see how you got there, Billy McFarland

I finally got around to watching the Fyre Festival documentaries, two distinct movies (Netflix and Hulu) each chronicling the rise and spectacular fall of what might have been the largest, most exclusive party in history, held by Ja Rule and a frat bro named Billy McFarland, who is now serving 6 years in prison.

First off, if you haven’t seen them, you should. It’s like watching a train wreck in slow motion, in which the people driving the train are smiling and telling passengers they’re safe and are going to go right through an invisible tunnel while at the same moment the train accordions against the mountain car by car. It’s glorious and horrifying.

Second off, after giving some thought to the horrifying manipulation of people, the careless disregard for people’s safety, the blatant misrepresentation of the truth, the wholesale financial fraud and the general nastiness of the whole situation, I’m left with one distinct conclusion:

I see how you got there, Billy McFarland.

In fact, I would go so far as to say that Billy McFarland (and Steve Jobs wannabe Elizabeth Holmes, for that matter — I see how she got there too) is the logical conclusion of some unique characteristics of what we know as “startup culture,” and that if it hadn’t have been Billy and it hadn’t have been Fyre Fest, it would have been someone else. Perhaps you or me.

The best practices of building a startup nowadays are based loosely around the Lean Startup methodology, which I’ve written about before, and specifically the absolute critical importance of validating customer demand before building anything. In the same way that previous cycles threw money at good ideas with great powerpoints (see dot com bubble), today’s entrepreneurs have been instructed to take the old adage, “fake it till you make it,” as gospel and user manual. Because the largest risk to any new enterprise is whether consumers actually want to pay for what you want to build, techniques to test consumer behavior have become dogma.

It’s a general truism that “you can build anything, it’s just a matter of time and money.” So it follows that the only thing that’s really risky is figuring out whether people want the thing you’re planning to build. Figure that out, and you can figure out how to actually build the thing after. Building the thing is “details,” and you should never “let the perfect be the enemy of the done,” are things I’ve actually said before in my career.

The essence of all this is to figure out if people want it, and then after that figure out all the other details. This is key. I’ll come back to this later.

The best example of this I can think of off hand is Dropbox, the file sharing program you probably already use. Before launching their first product, they went out to test the assumption that people would pay for file sharing service that worked like magic, and to do so they created a video, walking through how the product would work (or something close to it), and then asking people to sign up, in advance of the product actually being built. Now, the guys at Dropbox were up front about the fact that the product wasn’t yet available and in fact people were signing up for nothing, yet. So fair play to them, no issue there. And they learned a ton, and are now the posterchild of how an effective MVP (minimum viable product) can be something very different than an actual product.

So what did the startup world learn from that? Well, that we needed to get customer commitments up front, before building the product, to validate customer demand. Marketing is good, but definitely, for Heaven’s sake don’t actually build the product until you know whether people want it, because building it is where all the cost is.

From this, and following Dropbox’s example, an entirely new startup category blossomed, with landing page builders like LaunchRock, Unbounce, Leadpages, and the like. With these, it became easy to stage digital experiments to validate customer demand:

  1. Launch landing page which shows off your tool or technology as if you have already built it and it’s available for sale
  2. Put a “buy now” button on the bottom of the page with a price, just as if your imaginary product were real and available
    1. When clicked, this goes to a dead link, or a page that says “coming soon” and asks people to enter their email address to be notified when it’s ready
  3. Send paid traffic to your landing page
  4. Track conversion % (the number of visitors / the number of people who clicked the button thinking they were buying your imaginary product)
    1. If the number is high enough, then go build that thing, knowing that people want it
    2. If the number is too low, scrap the idea and maybe tell the people who signed up that it’s not coming (but probably not)

It only took me like 30 seconds to type that whole process above because I’ve done it so many times. It’s one of the most effective tools I’ve run across to validate customer demand, and has proved invaluable in ensuring I spent time and money building things that were likely to succeed (and more importantly, didn’t spend time/money building things people didn’t want). Much better than surveys, experiments like the one above allowed me to closely mimic the actual buying process, so that I would get data on consumer buying behaviors in an environment as close as possible to the real thing. Once buyers clicked a button where they thought they were actually buying a thing, then build it.

For that matter, probably the best example of all this is Kickstarter, where you don’t need a product at all, just a compelling story to get people to preorder your product before you make it. And where 9% of all products flame out without ever delivering on what they promise. This is all acceptable and reinforced by our startup culture.

But it’s also not that different from what Billy McFarland did. Billy basically ran a lean startup experiment at massive scale, figuring he’d figure out how to deliver the party once he was sure people wanted it.

Then when he learned that people were into what he was selling with those orange Instagram tiles he made the mistake of going waaaaay overboard on marketing the shit out of it before he bothered to figure out how to deliver the actual party. Of course it would have been better if, once he had learned that people wanted to party on a deserted island with models in bikinis and Blink 182 (imagine), he had taken a beat and simply asked himself “ok, Billy boy, are we sure we can pull this off? How are we going to do this?” But I’m sure he believed in his own hype and ability to pull off the impossible (sound like anyone we know and admire?), so instead he doubled down on scale and scope. Then, when he had built it into the biggest party in history, he finally looked around and figured hey, we can make this happen, right? In the Netflix documentary you can see him trying to create his own reality distortion fields at that point, channeling his inner Steve Jobs.

This whole thing was a mistake, sure. But more on the lines of a tactical error than a moral travesty. And an error I could have absolutely seen myself making with my own customer development experiments. And if his reality distortion field had worked, if he would have pulled off the party, he’d be just another in a long line of Silicon Valley all stars, proving the primacy of the American spirit over all odds. But it didn’t, and he found himself deep in the shit.

Granted, once there he made some stupid and indefensible decisions on how to dig himself out, which is where the real fraud came in (not to mention some seriously uncomfortable situations for his coworkers). I can’t explain or defend his decision to do such brilliant things as cook the books, or try to sell discounted tickets to other shows that he didn’t have, while on bail during the trial for selling tickets to Fyre festival. What he did once he was down at the bottom of the hole I have a hard time relating with (but it’s worth remembering he was 26 years old, an age eight years younger than I was when I figured out how to work a wash sink), but I can certainly empathize with all the steps down the stairs.

Billy McFarland simply went for it at a massive scale, in a way that had it worked people would have been singing his praises (for the outcome AS WELL AS THE PROCESS), and failed to deliver. This whole thing is different from 9% of Kickstarter campaigns only in scale and publicity, and because some dumb kid didn’t know when to quit.

Leave it to America to crucify the logical outcomes of the cultures we create, especially when they don’t win.

How to build a sandcastle (or anything)

1990

I woke up slowly to the sun shining through the sheets, and pulled my blanket up over my face to bring back the darkness. I was settling back into my dream when I remembered. I jolted awake.

The sandcastle.

My dad and I spent all day building it, while my mom sat on the beach reading her book. My dad said the trick was to start by making the sand wet so it was strong. We filled my blue bucket with water and sloshed it over the sand, making a wet spot partway up the beach. Then we went back to the water and filled the bucket with wet sand. We packed it down tight and brought it back up to the wet spot, and when we flipped the bucket over on its head the sand that came out was shaped like a castle. But you had to lift it up so quietly. Otherwise the sand falls apart and you have to do it again.

We made four castles like this, and then my dad showed me how to make the walls connecting the castles. We smooshed sand into tall walls, and then we carved windows in them so the sand soldiers could shoot arrows at the bad guys. We had to make sure that the walls were flat on the top, too, so the people could walk across them without falling down. I did a wall all by myself, but it wasn’t as flat as the other ones.

Then we did a trick. We took wet sand in our hands from the water and ran so fast back to the castle and dribbled the sand in our fists and made spikes on the top of the castle. Every spike we did special like this. These were for protection. We made little windows in the spikes too with a stick, just like the castle in the beginning of movies. This way the townspeople could see out.

My dad never made a sandcastle with me before. It was perfect.

I threw on my clothes from the floor, dirty from last night but that’s ok, and ran downstairs. My dad was eating breakfast. He was usually gone when I woke up, but at our vacation house he didn’t have to go to work so he was there and he smiled when I came down. I told him I wanted to see the sandcastle we made, and he said he’d come with me down to the beach. We ran down the stairs and took off our shoes and ran onto the sand. My dad couldn’t keep up with me because I’m so fast.

But it was gone. Our sandcastle was gone, and the sand was wet everywhere around where it was, not just in the one spot. I cried and cried, and my dad hugged me. I hated the sandcastle. It was perfect, but it was gone.


2020

I thought of that day so long ago with my dad, when I built a sandcastle with my son at the beach in Northport last summer. We wetted the sand and used a bucket that looked almost like the one I remember to create the turrets. We crafted the walls just so, and added the spikes that were my favorite part when I was young. My son lit up when he saw how the dripping sand stalagmited into spikes on the corners of the castle. That was the best part. Well, that and when I showed him how to draw the windows. I told him we had to make it just perfect, so the townspeople could live there. He found two pinecones and put them inside the castle, and said they were the mayors. He was so proud. It was perfect.

I told him it wouldn’t last, that it would be gone by tomorrow, but even though he acted like he understood then, it still hit him hard when the tide came in and washed everything away. He said he hated it, and he wished we had never made it. He cried so hard, I almost wished we didn’t make the sandcastle. Well, maybe not, but at least I understood.

I’m so glad we made the sandcastle, but I’ve stopped caring about sandcastles long ago. I’m so glad because I got to spend time with my son, and see the gleam in his eye when we dribbled those spikes for the first time. I can still see it now.

It’s gone, but it was perfect.

Focus on the road, not the wall

Running a venture-backed startup before profitability is like flying a plane you can’t steer toward a thick, steel wall. The only option is to throttle up faster and faster, accelerating to take off with enough distance to clear the wall (reach profitability), or somehow find a way to move the wall backward before you hit it (raise follow-on financing).

There is precedent to this wacky situation, out of which has come best practice.

Professional NASCAR drivers are trained to focus solely on the road, because history has shown that if they allow themselves to look at the wall, they’re likely to hit it.

It’s so difficult when running a startup from a balance sheet to not fixate on that wall, but Jeff Gordon might tell you your life depends on it.

When to stop “crushing it”

I’ve been “crushing it” for almost as long as I’ve been running a startup.

That’s not to say that things have always been up-and-to-the-right. We’ve had more than our share of WFIO moments along the way. But to most anyone I spoke with, we have always been crushing. I made sure of it.

I have always kept the key metrics by which we actually were crushing it at the ready at all times, because you never know who you’ll talk to and you need to be on your game when opportunity knocks.

There’s tremendous value to this. I have literally been in an elevator with an investor of limitless resources, and needed to position my company in the best possible light in less than 30 seconds to pique his interest enough to take an actual meeting with me. If I didn’t have that highly packaged version of our story at the ready, I legitimately would not have closed that round of financing. I certainly don’t mean to diminish the importance of presentation, as it’s critical to startup success.

That said, it’s worth knowing when to turn it off, too. And doing so can counterintuitively be a path to success.

If you’re always “crushing it,” you risk sugarcoating real problems that need attention, and prevent the outside perspectives that may actually help solve those problems from having a clear way to engage. In “crushing it” you present the image of success, but you may unwittingly do so at the cost of real, actual success.

Startups are hard. Over time we’ve cycled through periods of legitimately crushing it, and periods where I didn’t think we would make it. That up and down ride is the nature of the game, and the secret is that EVERY startup hits highs and lows, even though most don’t talk about the lows.

That’s for good reason. Talking about the lows will never get you funded. But on the other hand, “crushing it” communicates that you don’t need any help.

And sometimes we all do.

The (not so) new leadership: Context > Control

Many leaders still see their job as directing the activity of the people working for them, setting up detailed systems designed to remove the variability from human behavior and achieve predictable outcomes.

This approach to management stems all the way back to 1911, when Frederick Winslow Taylor released his opus, Principles of Scientific Management. His techniques were responsible for dramatically increasing the output of industrial era factories by limiting the freedom of employees to make decisions, instead creating detailed scripts to drive very specific, management-prescribed, behaviors. By creating a system that forced every employee to conform to standards in every situation, Taylor ensured maximum compliance, which at that time equaled productivity.

But that was a different time, and those employees were doing repetitive tasks in a factory. Today’s workers are asked to navigate rapidly changing markets and produce results in all kinds of situations, so compliance, at best, comes with many caveats. But many managers still use those techniques today. You see the issue.

Today, the most successful companies adopt a context > control philosophy to management. At VNN, it looks something like this:

  • Leadership’s job is to create context
    • Establish long-term vision, short term milestones needed to move toward that vision, and set any hard guidelines outside of which employees may not go (the goal is to make these as broad as possible)
    • From there, avoid making decisions wherever possible
    • Instead, ensure that everyone within the organization has the appropriate context to make their own decisions. Ensure everyone is aligned to where the organization is going, and understands their role in achieving the vision.
    • Then align some more (HT Patrick Lencioni).
  • Individual employees’ job is to use good judgement
    • Each employee is empowered to make the best decision for every situation in which they find themselves, based on the context provided by leadership

This way, the people closest to the situation, the ones best equipped with the most information about the situation–namely the employees–are the ones making most of the decisions. Meanwhile, leadership spends most of their time answering questions, providing feedback, coaching, training and generally ensuring that the decision makers (employees) have the context needed to make decisions in the moment that are aligned with overall company priorities.

Doing this admittedly requires humility on behalf of the leadership, as they need to embrace the fact that they cannot keep up with the pace of business on their own, and empower their team to help them make critical decisions (and then support them when they decide things different than you would). But I’ve found that if you empower your team, and expect them to step up, they do.

When they do, the rewards are many. In addition to better serving customers (by ensuring the person they’re talking to is empowered to help them without checking with their boss), this approach has proven to lead to a more engaged and productive employee base, and a greater level of innovation throughout the organization.

I remember the moment when I realized we had implemented this effectively at VNN: I had given feedback to an employee that I didn’t think a project he was passionate about would work, but I also let him know that, as always, my opinion was context and it was his decision, within the parameters we had constructed. He decided to go forward with it, busted his ass on the project around his core responsibilities, and it’s now one of our most successful business lines. I had to eat some humble pie on that one, but there’s no question that VNN would be less successful if I had dictated that particular decision.

What was a radical philosophy as recently as a few years ago, what I’ll call “context > control,” is quickly becoming mainstream. It’s not there yet, but organizations like The Ready, Whole Foods and Google are all leading the way, and VNN is working every day to do the same.

Many leaders still want to control every aspect of their organization. But the companies that let go of that control, democratizing decision making and embracing the full capabilities of their employees, will outpace those who centralize decision making and look to control results.

They already are.


In a future post I’ll detail exactly how we went about implementing this approach at VNN, and the structures we use today to ensure everyone has the appropriate context to UGJ (Use Good Judgement, which we stole from Netflix like any good artist).


It’s also worth noting that the above is nowhere near the leading edge of management. Recognizing the futility of pretending to control the future, some companies have gone so far as to eliminate the annual budget entirely. We still have a budget, but I must say this is very intriguing.

Do Less, Better

Inspiration sparks the best ideas, creative process crystalizes them, and perspiration makes them come to life. Three parts of the value creation chain.

We startup founders are excellent at the perspiration part. We push and push, optimizing for a constant state of busyness, checking off more boxes than we did yesterday. Eliminating more gaps in our schedules in favor of “GSD” (getting shit done).

In doing so, we feel productive. We’ve been conditioned to “do more, faster“. And that’s not wrong, but the question is at what cost?

Inspiration and creativity require one thing: Space. The very thing that our quest for productivity would have us eliminate. We’ve been sold a line that we must hustle ad infinitum, and bought it wholesale with little awareness of the implications.

Nothing happens without perspiration. It is the core characteristic of successful founders, and foundational. But successful founders get that part, and then go too far.

With the way we glorify the hustle as founders and leaders, is it really a surprise that true inspiration and creativity have become so rare? Why everyone is just the “AirBnb for pet crates” or the “Uber for luggage”?

The case for the startup psychologist

Cofounders are effectively married, so why do we not invest in couples therapy for startups? It works.

There is no more fundamentally important relationship inside a company than between its cofounders, and no area in which things can get more royally screwed. By extension, that applies with only a very slight reduction to the founding team and/or leadership team, the group of people with varying functional areas who through their relationships guide the direction and success of the company.

Market, strategy, culture, all of these things are important. But none of them can overcome bad relationships within the leadership of a company.

So why do we, as founders and investors, not invest in nurturing and securing those relationships? And in the rare cases where we do consciously, why do we expect success from people without any professional expertise?

We rely on board members, usually business leaders all, and the founding team itself to fix these matters. This is like handing a drill to Mike from Accounting and asking him to fix your cavity. He’s not trained in dentistry, so you don’t hand him a drill.

A board and founding team are not doctors in psychology (much less do they possess the required dispassion to do the job with objectivity), so why in the world do we so unquestioningly trust them with managing the psychological dynamics of the leadership team, the single largest lever in our organizations?


I’m piling on here, as it is definitely encouraging to see groups like Freestyle Capital investing in the mental health of their founders. This is critically important and they are pushing the envelope, far, to do even that, but it’s about more than the mental well-being of the individual. We need to go farther, and invest in the mental well-being of the leadership team (if not the organization).