Your first customer

Enough with the top-down total addressable market (TAM). Enough with the press releases, the ads, the unsolicited e-mails, the planning, the strategizing and the writing of comprehensive business plans. Your first customer is the hardest one you’ll get, and by far the most important. And the best way to get it is to pitch your idea to people that might want to buy your product.

That first customer will provide market validation – i.e. someone actually needs your product. It will provide feedback – i.e. the little hints, tips, tricks and tweaks that focus your product offering to best service the customer. And finally it provides you with a reference, meaning someone that can actually communicate that the product had value to your second, third, your forth and so on, customer.

So pick up that phone and start pitching!

Designing a simple business part I: Working that idea

This is the first in a series of posts I plan on the topic of designing a simple business. The idea for the series started when I realized simplicity is a common feature of many of the great startups that are out there. If you can visualize a business it’s easier to evaluate it, and improve the individual parts. This first post deals with the initial idea, and the main message about your initial idea is to get you to simplify your idea - don’t bite off more than you can chew.

What is a business idea? - The three components.
A business starts off with an idea. The idea should be something that creates value for someone, said value must be deliverable to whomever it creates value for, and there should be some way of capturing this value (including protecting it). If this process seems simple for a particular idea, it’s easier to think of it as good.

A good idea exemplified
Imagine you’re the inventor of corrective eyewear (i.e. glasses). Until now there has been no product which deals with bad sight. You can probably pretty quickly see roughly how you could go about making money on this idea. Corrective eyewear creates value for people that have poor eyesight, it can be delivered through for example pharmacies, and you can capture the value through charging money on the spot. Additionally it is likely that you could protect the idea with patent, for instance the use of optical lenses for correcting eyesight should be patentable if you are the first to think of it.

The simplicity that makes this idea good comes from three aspects. Firstly, the idea deals with a specific need. Secondly, there is a clear path to market which may not cost you too much (i.e. it’s “doable”), and lastly there is a clear way to make money, as well as a clear model of how you can protect the idea (patent) while you build a strong market position.

Simplify your idea!
Too often entrepreneurs pitch ideas that are just too complex, and it comes from the typical business/engineering school instinct of wanting to cover everything. Every customer, every need that customer have/will come across in the foreseeable future. Every possible product that can cover these needs, and every application of said product. The reason we do this is that we think there’s more money in more customers, and more products. Which of course there is. However, very few companies end up where they thought they were going. Starting a business is all about adaptation. And to be successful, you need an idea that you can test systematically and improve upon.

Note that it’s not always that complex ideas are bad. They’re just hard to test objectively, because you cannot separate the issues. For this reason I propose that the first thing to do when starting a business is to simplify the business idea.

A complex idea
The other day I met a young aspiring entrepreneur. He was full of life, and eager to tell me his idea. I paraphrase:

“So what I was thinking was to automate grocery stores, so customers can just make a shopping list online, say when they want to pick their goods up, and just appear at the store. Also there would be no one working in this store, so you would check out everything yourself. Furthermore all inventories would be updated at the suppliers, so everything would always be in stock, but just enough to handle the daily demand”.

Ok, I thought, as he continued:

“Now I’m into automation, so I would make a system where deliveries would be made at the back and everything would be tagged with RFID-chips,( there’s so many cool things you can do with those), robots would then sort the goods and pick out what people order into bags. So everything’s ready when the customers appear!”

So what’s the need anyway?
This idea is so complex, and includes so many different aspects, that it's really hard to understand even what the actual need is. At first it seems the need is for a simpler shopping experience. But is it really simpler to go to a website and pick everything you need? How would you pay, do you need to enter your credit card number or would you pay on pick up? Do you need an account? How do you verify that the person that picks it up is the right person? What if someone else picks up your groceries after you paid for them? It could be a simpler shopping experience, but maybe it’s really just a faster shopping experience? Maybe removing the need for staff is a significant cost reduction for a store? Or is it just a cooler shopping experience?

In any case simpler and faster in this context are secondary needs. The consumer’s primary need is for groceries. Imagine the complexity of creating a grocery chain in and of itself. Imagine to then try to make it simpler and faster! Indeed you would have to compete on a lot of other factors as well. Would you for example be equipped to keep the salad green? And I'm not even going to attempt to comment on the capital needs to make this happen.

Let’s simplify!
Creating a new grocery store is very complex, and I think we can agree that doing so is probably not something you'd want to do. And if you are not deterred yet, let me assure you that you will not have an easy time raising funds for such a venture.

But there's a silver lining, because surely there are great ideas within this idea. From the idea, we can find many smaller ideas. The point is to start with something simple, something that you can easily test against the market. One way we can go about extracting ideas from his idea, is by looking at the needs, and finding solutions to service them. Let’s look at the need for lower costs for grocery stores, and see if we can extract something simpler. Now I’m not claiming that this is a good (or new) idea - just that it’s simpler, and therefore easier to understand and test in a structured way. Let us then ask the question, "how can we use automation to cut costs in a grocery store?"

A simpler idea to lower costs for grocery stores
One of the main drivers of costs for grocery stores is the staff. The main bulk of people working at grocery stores are those that scan items and receive payment. So if we could automate checkout it would represent a clear cost reduction. One way to do this is by allowing customers to do this job themselves. Self-checkout would be presented in stations, each station consisting of 5 registers, each with a scanner and a system for payment. At each station one clerk would be stationed to help customers that need help, to receive cash payments (if this is important to incorporate of course), and to make sure everyone is using it correctly (e.g. so they don’t leave without paying). The solution could be delivered on a store-by-store basis, so that a chain of stores would try it out at some locations first, and then scale it up when they were comfortable using the system. Value could be captured through a leasing based plan, and the idea would be protected by moving quickly to gain a first mover advantage (for those that believe in that sort of thing).

Evaluating the idea
Regardless of whether the idea above is good or not, we certainly understand better what it’s all about now. If we decided to start a company commercializing this technology we could write down hundreds of clear and testable hypotheses about the market, which we could then proceed to test, for instance:
-    Grocery chains wish to reduce costs by replacing staff
-    Customers are willing to check out their own goods
-    Cash payments are important for customers
-    Customers will generally be honest when scanning their merchandise

Some things would be confirmed, and some things would be completely different from expected. These things would have to be sorted out. This is where the real innovation lies. For example, if customers are dis-honest, how can you make the check-out desks verify that all goods was scanned, and that the correct goods was scanned?

Of course it’s not that straight forward in real life, you still need to consider your competitors, make a strategy to avoid being copied too soon, facilitate production, consider your costs and pricing structure, and so on. However, you can now visualize how the business might look. This is a necessary first step to formulating the hypothesis that needs to be true in order for your business to flourish. The next step would then be to start testing these

The next post will look more closely on evaluating your idea, and deals with the 10 questions you should spend 15 minutes asking yourself before you move ahead to more advanced and time consuming analysis' of your idea.

Lessons learned:
-    Ideas should ideally include how your business might create, capture and deliver value.
-    When you see how an idea might work, it’s easier to formulate testable hypotheses about the product.
-    Complex ideas, that are hard to visualize can and should be simplified.

Free-ranging skilled laborers

Whenever I have my hair cut I adhere to two rules. Firstly, I try to switch between hairdressers which I know and new ones, and secondly I give the hairdresser free reins. The first rule is really just in case there are better hairdressers out there than the ones I've been using, it’s about discovery. The second rule is the one that’s the most fun. It's worth noting here that I've been in college for the past five years, so it’s never really been a big problem if my hair was a bit weird. There has been no boss to send me home should I suddenly have a green mohawk, and thus I have been in a position to take high risks with my hairdo.

This is how it works; I go to a hairdresser and get seated. The hairdresser will ask me how I want my hair, and I’ll say something like ‘Oh, I really hadn't though of that…. What do you think? Ok, I trust you. Do what you think would look awesome!’ The reason of course is this: I am not an expert on hair, hair dressers are. They cut hair al day, they know what's cool! Imagining and describing new hair styles and judging their awesomeness is way outside my field of expertise. I trust experts to do this for me.

The really surprising part of the story is that I have never experienced, in five years of doing this, a truly horrific haircut. No green mohawks.  And what’s more is that I can see the hairdressers faces light up when I tell them. Apparently, this is not a common practice. Normal customers just want the handiwork, not the creative part, yet hairdressers are often times really good at that. I believe that if you free skilled and creative people, that they will sometimes do awesome things. This, I think, begs the question, ‘do we do this in other situations?’ I mean, when we hire ad agencies, do we bring a slogan, and an idea for how the final print media should look? Do we say, ‘Yeah, you guys should just design this…’ Because that seems like a really bad idea, right? Or do we go to architects get them to draw the exact house that we had already decided on. I think we do, and i don't think it's a smart way to buy services from skilled people. I think we need to let go, and trust that professionals are good at what they do.

It’s important, I think, to be aware that you have people around you that are good at things you aren't, and it’s even more important to utilize these people. When you micromanage people that knows what they’re doing, you get sub-par results. Letting people do what they do best will often give the best outcome. But yes, it does entail a risk. You don’t always get exactly what you wanted, and you won’t always have control over every part of everything you do.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

What I mean by "Killer Customers"

I find myself inventing terms sometimes, and lately I’ve been using the term killer customer as a parallel to killer applications. Today I thought I’d share with you what I mean by it and why it’s a good term to have in the back of your mind when considering start-ups.

A killer application is that thing about your product that is so awesome that it just compels people to buy it. It’s that first application of the technology that proves its worth. For example last year I came to talk with a student at the University of Oslo who had worked with some other people to create a software that reduced lag in networking. It would only have to be installed on a server and it would use some previously unused capacity to send redundant information and thus reduce lag significantly. My first thought when I heard about this was: “Give it to me! I’ll make us all millionaires”. Unfortunately (for me) it turns out it was open source, and the code was already meant to be implemented into the Linux kernel. But that’s really besides the point, the point is that I could see a killer application at once. Online gaming. Everyone that has ever played a MMO over a bad connection with loads of packet loss will understand why this is a good idea.

With this in mind, it's easy to imagine a killer customer: World of Warcraft. If this technology hadn't been open source it’s likely that they would gladly pay a lot to have it implemented. And with Blizzard on board it would just be a matter of calling those other MMO games to stack up the other millions. When that market is saturated you could go after video streaming, stock market information, and so on. A great opportunity.

The killer customers, thus, are the obvious customers that will give you cash flow quickly. Sometimes killer customers are those that need your product badly, and that will be glad to pay for it. Other times it may be someone that agrees to let you use them as a reference. For example I once met up with a start-up in Houston that was a spin-out from a major oil company, the company had extremely low market risk because the oil company had committed to being its customer should it succeed in productizing their technology. Having killer customers reduce your market risk, and will give you a much easier time getting funding and getting people to trust that your company will succeed. You don’t need to call them killer customers of course, just remember that the first customer is extremely valuable!

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

What does “make each other good” mean?

Part of my philosophy about teams is that each member should strive to better the other members, even at his own expense. This may sound weird, and in most cases it is in fact counter intuitive. That’s also why it deserves its own wording – making each other good, as well as its own blog post.

Let me give an example: consider two classmates that are applying for jobs after finishing their studies, they both have a lot of the same interests as well as the same educational background. This is a good example, because these individuals are not in a team, in fact they are competitors, it’s likely that they will apply for many of the same jobs. And just like them quite often team mates may find that what is good for one may not be so good for the other. Otherwise of course they would make each other good because there's no conflict of interest. But back to our example: So should they tell each other about interesting job postings they find? The intuitive answer is of course no, after all they are competing with each other for most of these jobs. Hmm, let’s look at some simplified math.

Let’s say these two have very specific interests, so that there’s not a whole lot of jobs, and they have to shift through a lot of information to find good prospects, now let’s say both find 10 jobs that are not overlapping, and that there are on average 30 applicants for each job (which I would say is a conservative estimate for good jobs these days). If they don’t tell each other they have a 1/30 chance to get each of their 10 jobs (assuming all candidates are equal of course) which means:

      1-(1- 1/30)^10 = 0,29

29 % chance for each of them to get at least one of the jobs. If however they share their information so that both apply for all 20 jobs, they only have a 1/31 chance for each job:

      1-(1- 1/31)^20 = 0,48

48 % chance each to get at least one of the jobs. The math here isn’t that important, it’s the principle that cooperation beats competition that is. This is transferable to other situations, but the issue however is how not to get locked in to a prisoner’s dilemma game where everyone wants everyone else to share but doesn’t share anything themselves. Nobody wants to share with people that don’t share back, and thus a negative spiral can reinforce itself until everyone walks around paranoid and keeping everything they do a secret. Sharing is a learned skill, one that involves reciprocity – quid pro quo. Teams and companies should be built on trust, we all know that, and one of the best reasons is that trust enables sharing, and sharing at (or despite) the expense of one individual creates synergy for the entire group.

Edit: I just thought of a little digression I should have included: When I was in the army I remember our sergeant would always ask for volunteers, and when nobody out of the 30 soldiers in our troop raised their hands the tension got so thick at times that you could cut it with a knife. One day we all decided that the next time he asked for volunteers we would all raise our hands, and the odds of having to do something would still be the same. This became a habit and later that summer it must have looked pretty neat when the officer in command of the entire base asked for a volunteer and saw 30 young boys eagerly raising their hands in the middle of about 1200 recruits that didn’t. We made our sergeant look extremely good that day, and that was not a bad thing for us.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

What do you sell? A new view on brand based products

What do you sell? I guess there’s already many ways of classifying this, nevertheless I would like to add one more. Do you sell a product or a commodity? Our economy grew out of what were largely commodities; agricultural products were traded in markets, often at market prices. Cotton is cotton, the only differences between vendors are price, quality and quantity.

As our society closed in on the industrial revolution we made a leap forward, we started making products. Pants are not equal to each other, even if they are made from the same material. The reason is that when we add some sort of processing to our commodities, we make them into products, but a side effect is that products vary more in terms of (perceived) quality than commodities do. Sure there’s good cotton and bad cotton, but nothing that justifies the kind of price differences we see in for example clothing.

This insight is something that is often overlooked, especially in economic theory. After all, consumer’s perceptions are hard to measure in numbers and models, and are thus often let out of the equation altogether – just represented by the demand function. The solution for this is usually to assume perfect markets, which, if they exist at all, mainly describe commodity markets. This is the source of our propensity to think that price is the only thing that matters. If the market leader in an industry is about to launch a product that competes with mine, the instinct is to lower price or increase quantity. This is often the wrong thing to do.

Economic theory has however also created useful tools. One of the best ideas, in my opinion, is the concept of utility. In all simplicity utility is a measure of the relative satisfaction from, or desirability of the consumption of various goods and services, and can as such contain whatever criteria consumers (or businesses) use to decide on which product to buy. In this view utility is the only reason people buy products, and the explanation why people buy something is simply that it yielded the best utility for the price.

Though many would disagree with me, utility is in my mind what sets commodities apart from products. By this I’m not saying that commodities don’t have utility, of course they do, or people wouldn’t buy them. What I’m saying is that it’s the very nature of the utility that sets them apart. For commodities the utility is given, there’s no added value, just “real” value. For products utility is made up, it’s socially constructed; it’s whatever you think it is. This is where you can charge more for your products than they cost to produce.

So what do you sell? Do you sell a product or a commodity? If you sell a commodity you would want to switch to a product at once. Cotton can be de-commoditized by adding socially constructed value, “It’s organic!”  The same applies to other commodities. If, on the other hand, you sell a product then you should understand what “utility” constitutes in your marketplace. The utility of clothing is certainly not only that they cover up parts of our bodies we don’t want others to see, or keeping us warm – if that was true, clothes would be commodities and priced close to production price.

So ask yourself - and don’t settle for the first answer – "What do I sell, and what should I do about it?" It may be the first step to really understanding branding at it’s core.

16 One-liner lessons about entrepreneurship

I came over this post where Pam Moore (@pammktgnut) asks entrepreneurs to share their most important lesson in less than 140 signs. There certainly were a lot of great answers, but I have selected 16 one-liners that I thought was the best. So in descending order, building up to the best quotes, I give you 16 one-liner lessons about entrepreneurship:

#16

“Cash flow, cash flow, cash flow – never as much or as quick as needed; and, the more successful your company is, the more critical cash is.”

(Marshall Maglothin - Owner of Blue Oak Consulting)

#15

"Only buy from manufacturers that treat customers like you treat your customers. (...) find manufacturers that appreciate your business.”

(Julie Walbrun - Owner of YellowBearShop.com)

#14

“Most of your initial business will not come from where you expected. Have alternatives for those who promise to deliver – they often let you down.“

(Diarmuid Sexton - Director at Adroit People  )

#13

"Your principal competitor is typically not another company like yours; it's often your client deciding to do it themselves without you."

(Bob Kenney - President at Kenney Marketing & Advertising)

#12

“Persistence is the key to longevity, and I have learned quickly not to take ‘No’ personally.“

(Ned Van Riper – Director at Finetooth Consulting)

#11

“The simple stuff is so important.
Answer your phone when it rings.
Be early to every appointment.
Always be positive... even when it’s a bad day.“

(Paul Gruenther - Senior Real Estate Consultant)

#10

"Have passion! It's contagious."

(Lisa Chang - Director at Yenius Interactive Marketing and at inTouch Broadcast)

#9

"Networking is not about selling - it's about contributing to others, building relationships and being authentic at all times."

(Debra Brown - Director at Mastery Path Community Interest Company and at Global Hugs Ltd)

#8

"Identify what critically needs to be done and get on with it without delay."

(Mark Ridgwell - Business Strategist at Knowledge Genes)

#7

“Realize what you think is your business could possibly change, don't be afraid to adjust the mold. It's your mold so bend it as you please.”

(Lisa Cash Hanson - President / Owner at  Blueberry Baboon  )

#6

"Never take Business advice from a lawyer - Take legal advice from a lawyer."

(Tony Robinson - President/CTO at Pioneer Technology)

#5

“Take responsibility for failures just as you do successes.”

(Thomas Rees - Founding Manager at Rees Networks, LLC and SoberLivingSearch.com)

#4

"I've learned to add in a fudge factor to estimates so I can under promise and over deliver."

(John Gilbert - Consulting Entrepreneur and Owner at Add-Options)

#3

"Be ready to shift your position and stance. Rigidity is equivalent to rigor mortis."

(Kalpesh Desai - Advisor to the Board at Columbus IT Middle East and Chief Executive Officer at Agile Financial Technologies)

#2

“The most important factor in any business is connecting with customers. Without customers, you don't run a business, you have a hobby.”

(Donnie Bryant - Owner and Direct Response Copywriter at Donnie Bryant)

#1

"Be humble and patient, but bold and aggressive, know your plan always and update daily."

(Kyle G. Porter - Founder at Sports Bar Digital and Principal at KGP Consulting)

So there it is! If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

Killer apps and USP’s – find them, use them!

New products need to provide value. We all know that. But further than that it needs to be clear what the product does and why people should care. This will let your product escape the trap Google Buzz, New Coke (or even better Crystal Pepsi), Cosmopolitan Yogurt, Palm, other PDA’s, and countless other products that no one in the world could understand what were good for went right into. Products need to have a clear intrinsic purpose, and they need a company around them that clearly explains externally what the product is, what it does, and why we should care.

New products should have a killer application. For example Twitter’s killer app was status messages that fit into a text message. Now it’s important to note that a killer app isn’t necessarily what you will end up doing. The killer app is what you start out doing! Today I don’t care if Twitter updates fit into a text, now I use it because I already am. Killer apps allow you to find a niche that’s big enough for you to start growing your business. For example I think that in [insert random number here] years there will be a big company that deals in robots, kind of like a Microsoft of robots. If I wanted to start that company today, I wouldn’t care what robots would be in 20 years, I would find a small niche in which to start making robots today that could provide me a basis for new niches and eventually a world leadership in robots. Maybe I would start with toy robots? Certainly I could make a lot of fun stuff without requiring too much AI at the offset? Nevertheless a killer application is something more specific. It’s something that makes my robots intrinsically better than other robots. Maybe my toy robots could play board games? Certainly the technology to allow robots to play the games already exist, the only technological challenge left would be to get the robot to recognize the game, the location of the pieces and give it the ability to move the pieces autonomously.

USP’s are something else, they’re extrinsic, but they are very much related to killer apps. A USP is a Unique Selling Proposition, to understand it fully you should go to your local supermarket, locate the aisle that has toothpaste and read the tag lines. Every brand will have toothpaste for whiter teeth, cleaner teeth, anti-bacterial, anti-bad breath and a few that attempt to do it all. Think about it, do you really think there’s a lot of difference? Most of the toothpaste is just filler anyway, the parts that differentiate the products are measured in parts per million, so it likely wouldn’t be all that difficult to put all the good stuff in a single ultimate toothpaste. Continuing the robot example above, we could for example use “A friend for life”, or “Playmates forever” as a USP. This is how people understand your product. Notice that the USP don’t only separate the product from other robots, but other toys as well.

The difference between the two is that the killer application is the use of your product; the USP is what separates your product from all those others in the mind of the consumer. For start-ups however you often find yourself being so original that your product will be mentally sorted in a new category. In these cases, it pays to use the killer app to create a USP because you fortify your position as the one that provides that application. Combining a clear view of killer apps, niche markets, product positioning and business strategy will align different interests in your company so that product designers, business strategists, marketers, finance people, sales people and so on all understand what the company is setting out to do, and can agree on it.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

What Facebook is missing out on...

It strikes me as somewhat absurd that Facebook don’t see the opportunity they are presented with in face of the recent criticism. The criticism, as you are probably well aware off, is in my view best summed up in Leif Harmsen’s words “It is not ‘your’ Facebook profile. It is Facebook’s profile about you”, he considers it a repressive regime akin to North Korea, and he’s not alone. Yet this isn’t anything new. It’s more a case of the “commoners” starting to question what the more tech savvy ones of us have questioned for quite some time, and thus the topic has gained some momentum in the mainstream press as well.

The problem is obvious, as problems often are, but the solutions keep escaping the minds of clever people. Or does it really? A related debate I have followed since I first heard a discussion about social networking 3.0 at Stanford in 2007, is about how we can transfer ownership, and more importantly control over user information to the users. The simplest solution is of course just to pressure sites like Facebook to change their terms of use, but a more lasting solution would include the possibility for users to bring their friends, pictures and other information with them between social networking sites. Undoubtedly there are many design issues for such a system, for example I certainly have multiple online identities; my Facebook content isn’t really suitable for my LinkedIn page and so on. And where would my information be hosted? Would I have to buy server space in case someone wanted to view my profile while I was online? Would the standard allow new networking sites to add slots for specific information that were only suitable for that site (like favorite recipes for a cooking site, or where I’ve been for a scuba diving site), and how would I controll what and how much  information is sent to each site I visit?

This however isn’t the biggest problem; the reason why such systems haven’t been implemented is that no one with the leverage to create this system has done it yet. This system has to be made by the right people, people that can reach critical mass. At present, only geeks and idealists would bother to learn how to use a totally new system, especially because something like that sounds very complicated. The average user doesn’t want complicated stuff, they want simplicity, and they just want to use the product. So to reach critical mass for such a system you would have to have some way of gaining a lot of users for it fast. Like a big already existing user base, like Facebook has, but wait - why should Facebook make this system? Facebook like it the way it is, they own your content (or their content about you to be accurate), and can use it for pretty much whatever they want. In addition to this Facebook enjoys users that have extremely high switching costs, something which might be their biggest competitive advantage. It seems that Facebook is in a perfect place.

So why should Facebook do it?
The first reason why Facebook should create a system for sharing information is that it would buy them credit. It would buy them credit with the tech community for being open and with the media for listening to them. It would buy them credit with normal users because they would feel safer and because they have the option to leave. Remember why some people escaped the Matrix? It turned out that given an unconscious choice nearly 99 % of test subjects would accept the program anyway. I see no reason why this shouldn’t hold true for Facebook as well, as the primary reason people leave is because they are malcontent by Facebook’s closed systems and strict privacy policy (at least if we believe random Internet chatter - which we do).

Secondly, and maybe more importantly, I believe that if Facebook don’t do this, others will. Services such as Google Accounts and Open ID don’t have a long way to go to allow users to store information that at their request can used by third party sites. Right now Facebook can deny Open ID and other such services to provide login to their site, but can they still do that in 3 years? Right now they can delay the inevitable move to such services, but as I wrote in a blog post some time ago, change happens when change is due. Change isn’t always created willingly, it’s just there and those that catch the wave gain momentum, furthermore no surfer ever caught the back of a wave. If people gets used to logging in to their favorite sites through a third party provider, I’m not sure Facebook can withhold the pressure.

The third reason Facebook should use their user base to create an open, user owned system that can transfer information easily from site to site is that whatever disadvantage Facebook sees in having users logging in to their site via a third party provider will be Facebook’s advantage against new social sites. If users are used to using their Facebook login when they log into pages on the net, they will expect new sites to follow this convention, thus granting Facebook some limited power to monitor and control new services.

The fourth reason Facebook should do this is because there’s bound to be a business model in it. What this model is, I’m not sure, but it could for example be that commercial sites would have to pay a small fee to use the service, or that when you log in you get redirected through Facebook’s ad page.

The fifth and final reason is that this would be a good first step towards extending into new forms of web services. When users already have a login, it should be easier to gain momentum for new and exciting products. Google has already realized this when they launched both Wave and Buzz (though this seems to be bad examples, as both services are virtual ghost towns). Having a customer base like Facebook’s is an incredible asset, in the case of Facebook an asset that remains close to unexploited. Surely marketing new web services through Facebook would ensure enough users to create critical mass for many services?

Maybe Facebook as we know it today is just a stepping stone? I certainly think that they should consider expanding their services, and specifically they should start making a product that they could easily gain market leadership with almost immediately, namely an open profile service that provides an API for other services to let users log in with their Facebook profiles. With the share number of users Facebook has it shouldn’t be a problem becoming the market leader in this "sort of related" market.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

"It’s all about making each other good"

When I was a kid I followed football (or soccer as some would have us believe it’s called), and as any kid I was cheering for my local team - Rosenborg. As faith would have it Rosenborg was by far the best team in Norway, and I’m not saying that just because it was my team, they actually won the Premier Division every year from 1992 – 2004, exactly when I was growing up. They were world class, yet they were comprised of mainly local heroes. It would almost be an exaggeration to say they were a professional team, I mean Norway is small and the town I’m from even smaller, so that the pool of players that could be recruited locally were limited. In fact it’s said that when Rosenborg played Milan (a game which they won 2-1) in the 1996-97 season of the Champions League, that the captain of Rosenborg were so psyched to meet these “real” players that he asked them all for their autographs before the game started. So how could this little team of local heroes win against teams such as AC Milan, Olympiacos or Borussia Dortmund?

The coach of this particular team was another local hero that had in his days been a pretty good player and had played for Rosenborg and Vålerenga in the 1960’s. To this day I’m convinced that it was he that made Rosenborg so great and that it to a large part was two things that he firmly believed. Firstly he believed in always being offensive, under his reign Rosenborg consequently followed a 4-3-3 formation, which for those of you who don’t know the sport that well is a fairly offensive set-up. Secondly, and maybe more importantly he believed in having each individual tone down for the good of the team, he meant that if everyone tried to get the team better the team would be better than the sum of the talent. I remember hearing him speak once, I must have been about 10 years old, and he said this, he said “It’s all about making each other good”. And that’s a sentence that has resonated with me ever since. A week or so later I saw a game they played and I noticed that two of their players had played their way past the goal keeper, which had given up about 10 meters or so behind them. They were both at the goal line and one of them has the ball and could easily have put it in, but he didn’t, he passed it to his friend and let him score the goal. This so drove home the idea that it’s all about the team and not about individual glory.

I think we all have something to learn from this, if you make those around you shine they might shine on you next. In fact it’s inevitable. I try to make this my philosophy to, when we have exams at school I don’t mind sharing my thoughts on how to read or how to write assignments, when I work somewhere I don’t mind sharing my expertise with others and when I have a business idea I tell everyone I know about it. And if someone asks if they can have it, or use it, or even just tell someone else about it, I say “of course – go crazy”. Why do I do this? Well, firstly I don’t think anybody will steal my ideas without my permission (they’re honestly not -that- great), but more importantly I wouldn’t mind it if they did. How could that be bad for me?

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Are you a bottom-up or a top-down thinker?

It’s such a cliché that entrepreneurship and innovation is dependent on creativity. Personally I think creativity is a good thing, but generally I think people attribute the success wrongly to creativity. What’s really the reason that creative thinkers succeed, it seems to me at least, is not so much their creativity but what causes it. Creative thinkers are relentless bottom-up thinkers and it’s this bottom-up thinking that causes them to be both successful and creative.

So what is this notion of bottom-up and top-down thinking? Well, imagine that you are writing your business plan and you come to the part where you need to estimate sales, this should be a well known situation for most entrepreneurs. A top-down thinker will start at the top, he will say something like, well, the market for my product is a $4 billion market, and if I get 1 % of that I’ll make $40 millions. A bottom-up thinker will start at the bottom, he will say something like, I know I can sell my product to these 15 companies, which means I’ll make $2 million. Then when I have those as references I believe I can get those other 100 companies, and then I’ll get those 1000 over there.

This is a mindset that works in many situations. In product development the top-down thinker will start by looking at what the product will look like when it’s done. The bottom-up thinker will start by looking at what is at his disposal, and then try to see what can be achieved. A similar notion has been termed effectual reasoning versus causal reasoning. Causal reasoning is the kind of reasoning thought in business schools. Student’s get to start with pre-determined goals, often set in the text of an assignment and some knowledge or assumptions that they are given, from this point they need to navigate their way, using theory, to the correct answer. The sad part is that causal reasoning is also thought in elementary schools and up, so by the time we get to university level most remnants of effectual thinking has disappeared. Is this why entrepreneurs such as Richard Branson, Steve jobs, Michael Dell, Coco Channel, Walt Disney, Henry Ford, Bill Gates and Ty Warner all dropped out of school?

Effectual thinkers don’t necessarily start with a predetermined goal, they start with what’s available to them and look at what they can achieve using those resources. When you think like that you also become more creative. A good example is an assignment some students got at Stanford. They were divided in to 14 groups and each group received an envelope with $5 in seed capital in it, they were told that the assignment was to make as much money as possible until next week’s class. They could plan as much as they wanted, but when they opened the envelope they would only have two hours to complete the task. Interestingly, none of the three top groups used the seed funding. But that’s another story. The winning group made $600 in 2 hours. Such an assignment, though it had a predefined goal of making money, is a practice in effectual thinking because they had no limitations on what to do. The students were only given the resources ($5 and an Ivy League education) and had to come up with ideas as to how to act themselves.

I see way too little of this kind of thinking going around. Business managers do stay away from this kind of reasoning, and in many situations rightly so. I wonder however if there is a way to switch between the two sets and use whatever is appropriate for the situation? The really sad part is that we don’t teach our children and our future leaders to think bottom-up or effectually. In fact we teach them not to. The ideal thinking in the civilized world is causal and top-down, firmly founded in the scientific method. Maybe it’s time to see what would happen if we let children talk back and challenge our ideas? Maybe we would be surprised, and maybe they would turn in to decent human beings anyway? Well, I’m digressing, but in any case I think that we need to rethink. The lesson from this was meant to have you think about what kind of thinker you are. In many cases it seems to me that each way of thinking has its pros and cons, but if we can learn to use both sets of thinking we can surely be much better thinkers.

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How to start a movement!

Many startups rely on word of mouth and so on. Maybe it’s even too many; at least VC’s would have us believe that you should do something else too. Because, more often than not, others might not be as excited about your product or company as you are. This being said, if you are going to start a movement around your product or service, or around an issue that you care about, it’s not as easy as you think. Look at this goodie from the internets (sic), and watch a real life case study of a movement starting up and catching on. I wonder if entrepreneurs that rely on word of mouth, viral marketing and communities have something to learn from this!


Talk: Derek Sivers: How to start a movement at TED 2010

How to deal with uncertainty - the maximize options approach

In a recent blog post I wrote that it is becoming increasingly difficult to forecast the future. As I imply, the problem is choice: Lower distances between people increases the ripple effect of individual choices, and technology together with consumerism increase the sets of choices, and options available to each choice to create an exponentially growing possible futures.

"Difficult to see. Always in motion is the future.” (Yoda)

Simply put I would claim that the uncertainty of the future is a function of the number of people that make choices, times the number of choices available, times the number of options available in each choice, times a coefficient for the impact of each choice. As all the factors that go in to the function have higher values now than they did earlier the uncertainty increases. What I don’t mention is how to cope with the increasing uncertainty; this is what I will address here.

Economists love choices, because they apply math to find the “right” choice. Consider that you’re in a TV game show, you get presented with two choices, a) 100% chance of $ 10 000 or b) 50 % chance of either $0 or $50 000. Any economist will tell you that the options are worth respectively $10 000 and $25 000, so you should choose b) (this is because given enough similar choices the average outcome would be those numbers). Now, if however, you chose b) and you lost and had to go home with $ 0, did you make the wrong choice? Many will say yes, because you lost all the money. These people think that a good choice is a choice that you would not change after you see the outcome; this seems to me like it is a bad definition. I think that you always have to judge a choice based on the information that was available at the time, thus it was still the right choice! If you are presented with a choice of this type, you should follow this procedure.

The problem, as the clever reader has already deduced, is that you rarely know the numbers. And this is exactly what forecasting has been occupied with since the beginning of the industrial era; how can we put numbers on stuff that we know very little about? There are tons of books on this subject, so I won’t go in to it, but rather utter my proposition on how to deal with uncertainty in choices in these days, and especially in the years to come. First, let me repeat myself, in instances where numbers are available or could be attained, follow the above procedure. This is for all those other instances.

I already professed my love for platform technologies, but I haven't explained why, so here goes. The more malleable a technology is, the more uses it can have, thus the more ways it can be successful should it fail in its intentional use. The more adaptable a technology is (Cēterīs paribus), the higher is the probability that its owners will find an application that is profitable. Consider a hypothetical example, two companies are specializing in medical technology, both companies have a development cycle of 15 years, and neither has any information about what its competitors are doing. One company is certain that it can make a cure for let’s say AIDS, and the other is certain that it can make a platform that will cure every bacterial infection known to man, but would only be able to market it for one use at a time. Assume that the technical challenge is equal, and that the main risk is that competitors beat them to market. Which company would you invest in? Since neither has any information about what their competitors are doing (the premise of uncertainty), I would invest in the bacterial platform company. The AIDS company has one chance to succeed, if someone else beats them to market they are dead, finito. If someone else makes the bacterial technology, the company can just change its marketing to target another disease, because the drug can target all diseases, but just market towards one at a time.

By the same principle, even if I don’t believe in global warming I believe in environmentalism, because an earth with rainforests have more options that an earth without them. A country with a highly educated workforce has more options than one without it. A company with several paths to market has more options than one with only one path to market. A technology with many uses has more options than one with limited use. A user friendly computer has more options than one that’s not. A diverse education gives more opportunities than one that’s specific. This principle is universal.

But, you may ask, how does this relate to forecasting the future? Well, the concept I’m trying to explain has two implications for you. Firstly, it means that if there are high uncertainty go with the option that leaves more options open. Secondly, when creating something, try to leave as many options open for as long as possible. If you don’t know how things are going to turn out right now, maybe you will have a better understanding in the future, thus closing doors prematurely is extremely dangerous and will become even more so in the future.

To wrap it up, here are some simple predictions made following this principle:

• Mobile phones that allows anyone to create uses will have more uses than a mobile phone that don’t, thus cell phone producers that have open platforms will outlive those that don’t.
• Countries that have an adaptable workforce will be less affected by upheaval, because they can shift the workforce over in other industries temporarily or permanently should disaster strike in a specific industry.
• Renewable energy producers that use existing infrastructure, such as oil from algae, will be more successful than those that gamble on technologies like hydrogen that requires major rebuilds of gas stations etc, because they have more potential customers, quicker.
• On demand television will outcompete fixed programming, because people will have more options on when and where to watch. On demand television also have more options on how to make money - the business model.
• The deck of cards will survive Monopoly, because you can play many more games with a deck of cards. Also you can do magic, tell someone’s fortune or even use them for a raffle.

The point is that the more adaptable you are, the more likely are you to survive turbulence or achieve your goals in an uncertain world. Forecasting is great, but when that fails, you should try to keep your options open. Even when traditional forecasting is a possibility you should consider looking at what has more options that are favorable to your goal. It’s always better to have two ways to success than just one, especially when the probabilities of each way actually leading to success is unkown.

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The five year forecast problem: A reason it’s becoming impossible.

Imagine for a second that you lived 4000 years ago, how difficult do you think it would be to forecast with some degree of certainty what the world would look like in 20 years? A fair bet would be that it would look very much like it did at the time of the forecast. If however you imagine yourself back in our time, it’s fair to say that such a 20-year forecast would be largely inaccurate. I think we all agree that forecasting has become more difficult and I pose that it just keeps getting worse. Why is this so?

I believe there are three driving forces to this. Firstly, the earth is finite; it has a fixed size, when population increase in a finite space, the distance between people decrease, and each person can reach more people. The direct effect of this is that there are almost no isolated pockets of people in the world, as opposed to 4000 years ago when there were almost only isolated pockets of people. This means that ripple effects of choices reach longer.

Secondly, the numbers of choices we are presented with are increasing, something that is reflected accurately in the movie Trainspotting: “Choose Life. Choose a job. Choose a career. Choose a family. Choose a fucking big television (…)” and so on. While most of our newfound choices are trivial in nature, such as what brand of cereal you want for breakfast, also the number choices that have severe effects are increasing.

This leads us to the third force, technology, which is more of an enabler of the second force. As technology gets more sophisticated, and more accessible, more people have access to items that they can use to affect the world in the direction they please. With more people, more choices and larger ramification of each choice, the equation that would accurately predict the future becomes immensely complex.

To illustrate this we can look at the incident at the WTC in 2001, how do the three forces affect this event? Firstly, the fact that people live closer (globalization) caused friction long before the bombing, as we all know, many people in the Arabic world were growing more hostile to western interference, while the west was growing more hostile to Arabic hostility, though one may put forth hundreds of arguments of race, religion, oil and so on, there can be little doubt that globalization and the shortening of distance played a crucial role. Secondly, not only were there a number of people with motivation to do something, there was a significant number of people with the possibility. Advents in travel and technology made it possible to get to the US, and the vast number of targets available to the terrorists made it impossible for the Americans, even if they knew that an attack was imminent, to predict where. The sets of choices of how and where to strike was so vast that prediction was nearly impossible.

The WTC bombing is but one example, if you compare the financial crisis of 1929 and 2008 you will find that the ripples of the latter traveled much further, faster. However the effects were less significant because more people had thought about how this could be handled, more choices were available. Also more people were in a position of power to induce a financial crisis, experts are still at it about what caused the crisis, was it a bubble? Was it the sub-prime market? Was it regulation? Or was it corrupt bankers? The fact that more people can willingly or unwillingly cause crises of various sorts, also leads to the inevitable fact that the future becomes more uncertain, because it’s not only determined by measurable events, but also by random choices made by people not on anyone’s radar.

The point here is that there are so many options, that however unlikely one isolated event is, it is extremely likely that several extremely unlikely events will occur. It’s not very likely that a specific fortune 500 company goes bankrupt in the next 20 years for example, but it’s very likely that at least one of them does. When there are several thousands of large events like this that will without a doubt happen, we can be certain that the changes in the next 20 years will be profound (so gambling on status quo is the bet with the worst odds), but since we don’t know which immense and unlikely changes will occur, just that some will, we have no way to know in which direction the world will shift. So we are left with the certainty that things will change, and the certainty that we don’t know in which way the world will change.

This also raises another concern. If the forces I have mentioned have driven our path to uncertainty, then we can expect the future to become even more uncertain in the future as these trends continue. Technology continues to evolve, the population to increase, and more people are getting the ability to make greater choices. So what will happen to our ability to predict the future? And what consequences will this have?

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Thoughts About Way Too Needy Products or The Microwave that Went ”Me! Me! Me! Me!”

We have so many manufactured items around us that we often forget they are manufactured goods that at some time got bought, paradoxically we rarely think about many of these products. While we live in a mutually dependent relationship with these items, some product developers don’t understand that new products have to fit into the already existing eco-systems that are our lives.

In our everyday lives we interact with hundreds and maybe thousands of products, in fact mostly anything that we use are products of some sort, (look around you now, how many things that’s not some sort of a product can you find?) We once created all these items, but they also influence us back. I like to think about manufactured goods, services and anything that for some reason can be called a product as living in a symbiotic relationship with mankind, we depend on them, they depend on us. The reason we keep them around is because they (help) perform small tasks that makes our lives easier, for example a door can be opened or closed – a very practical notion that allows us to separate rooms and give them different functionality, different rooms are equipped with different products that perform tasks that naturally occur in that room, for example toilet paper, one of my favorite products, belongs in the bathroom and makes the tasks performed in there easier to handle.

The paradox is that we rarely think about how many products we are surrounded by in our lives, if you ask people how many products or items that was once manufactured they own, most people would grossly underestimate the number. This is because we only think about our iPhones and laptops and televisions or whatnot, we don’t think about door handles and the paint on our walls, we don’t think about that stack of newspapers or that jar of jam in the fridge. The fact of the matter is that we have so many things around us that are products that we can barely wrap our minds around it, which is a good thing. If we constantly went around being reminded of all our products we wouldn’t find time to do anything, and that’s why most products are made to blend in to our lives. So why does some product developers feel that their products are so important that they can disrupt the natural flow in the eco-system of man and his creations?

Let me give a couple of examples: Fire alarms beep too often and too loudly when the batteries go out, I get it! It’s important, but seriously, it can wait until morning. Some microwaves do the exact same thing, every 10 second it will let out a beep until you have opened the door. Why? Maybe the stuff I was heating said to let it rest for a few minutes, can’t I watch TV until then? Yet another example, to quote David l. French: “My Pantec phone...is so needy that in addition to sucking down juice like a college kid on St. Patty's day it makes you press 3 buttons before it even allows you to make a call.” Facebook e-mails you each time something barely happens, and it’s too damn hard to turn off (I just set my spam filter to catch *@facebook.com), I had to delete iTunes, because it kept downloading updates the size of entire musical albums every month, and frankly I don’t use it that much. And what’s with trying to force me to install Safari? I don’t want it!

Needy products are becoming an epidemic, and it needs to be stopped. If you are a product manager, try to think less about how important your specific product will be and more about how your products can fit into the lives of your customers. Products exist to make our lives easier or better, and people making products need to realize this and start focusing on the users’ interaction with products within the context of their lives. Products should not act as high-maintenance girlfriends or drama queens. Get serious guys; start making products that I want to keep around me.

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Why the iPhone succeeded, a case of recognizing complex unmet needs, not technology revolution!

It’s hard not to notice that the players that were dominant in the cell phone market a few years ago have been marginalized by players such as Apple and Blackberry. It’s easy to attribute this to technology saying that the iPhone was so technologically superior to the phones of the time that it was inevitable, or that iPhone redefined the cell phone industry. However, it is important to note, I think, that the iPhone wasn’t mainly a technological innovation, in fact the technology to do most of what the iPhone does had been available for years, what happened was non-technology based disruption that largely was due to the incumbent industries inability to meet a very complex user need. Let’s look at the case of the iPhone to see what really happened.

Consumers were screaming for increased use of their cell phones, yet there was no solution in sight, but let’s for the purpose of limiting this post look at music as an example, keep in mind though that music is just one example and that you can replace “music” with “content” or “applications” in most places where I use the word. So, the consumers were screaming to use their cell phones for music, yet there was no good solution in sight. There were three parts of the infrastructure that needed to come into place, the content, the device and the network capacity, these were controlled by three types of actors with differing interests that would have to come together to put music on phones in a user friendly way: cell phone manufacturers, record labels (content providers) and phone carriers.

The manufacturers was happy with the way things were, incremental innovation, mostly in design, lowered the product life cycle so that new phones was bought all the time, they didn’t have to spend much on marketing, because consumers often bought what they were recommended in the (carrier owned) stores, so the best marketing was to have good relations with carriers, making sure both players made good money on selling that particular phone. The market mechanisms seemed to have stabilized, leaving no reason to think there was any change around the next corner. The manufacturers were largely dependent on the carriers. Since the stores where cell phones were bought generally belonged to the carriers, people chose their phone on the basis of what carriers offered them, the best thing a manufacturer could do was to be present in as many stores as possible, and just make sure they didn’t fall behind the other brands in innovation. Indeed a comfortable place to be for a large firm.

The record labels viewed cell phones as a treat, this seems to be their strategy with most new technology, so consumers were pirating music and putting it on their phones, with little revenue finding its way to labels. The labels would have preferred a pipeline of music that went through carriers, for example you would by a song for a few dollars through SMS or WAP. For consumers this took too long and was too expensive, for them it was easier to just use their pirated/ripped media library on their computer and use a cable or whatnot to transfer the songs to their cell phones. The phones didn’t have any storage capacity anyway to support buying a media library that would just work on your phone. In an effort to limit pirating, the music industry didn’t even make an effort to expand their market by finding a viable business model in cell phones or mp3-players.

The carriers on their part had a wholly different agenda, music didn’t really interest them. When a carrier imagined a future where wireless high speed internet access, together with technologies such as Skype was dominant, they got sick to their stomach, because that was a world where they were redundant. The carriers have been selling subscriptions that has a monthly fee and fixed prices on for example calls and texts, by adding free or cheap cell phones to the mix they could confuse buyers into buying subscriptions with crazy margins. If phones become internet based (with for example Skype as the carrier), they will at most be able to maintain the monthly fees, a prospect that will allow consumers to better understand what they are paying in relation to other carriers, this will lead to a lowering of the carriers margins, and force them to compete on price.

Needless to say, the phone carriers wanted to postpone the introduction of high-speed internet to phones and thus didn’t want music consumption to go through the high-speed connectivity that the consumers needed to effectively use their phones for music, because this connectivity could also facilitate other uses. For them the “pirate music on your computer then transfer to phone” model was sufficient, and no one bought a lot of music from the crappy stores they had anyway, why go into a market that clearly can’t be solved in their best interest? This stifled the innovation among the manufacturers, because, as noted above, they didn’t want to upset the carriers that they were so dependent on. And besides, they didn’t own any content that could be sold anyway, how would they make more money from adding functionality which someone else would get the revenue from (if anyone would get any revenue at all), and that their most important partners didn’t even want or push for? They settled for having the capacity to play music, in their crappy homemade players, and consumers would have to take it or leave it.

Enter Apple. Apple had three resources that allowed them to enter, they already had a deal with the record labels; the labels acting on their fear of becoming obsolete had agreed to sell music through iTunes for use in mp3-players, given that all effort would be made to limit the ability to copy the music, which suited Apple well. Apple also had the expertise to create ways for consumers to interact with the technology, this is really the only expertise Apple had that separated them, the technology, which is the third resource, was widely available, and Apple had a large engineering division that could make the phone. What happens is that Apple enters as a cell phone manufacturer and has a deal with the record labels. The high speed connectivity that carriers didn’t want and that the other manufacturers didn’t see any point in providing was pivotal to Apples plan, they wanted to make money not only on their phones, but on the extras as well, like iTunes. Apple also had a plan to sell other content, but let’s keep with the music for this post.

Apple had an advantage over the other manufacturers; they had a congregation that would buy their product no matter what. The iPhone was also perceived as an iPod with phone capability; to consumers this was just as good as phone with mp3 capability would have been. In addition consumers already knew how to consume music on mp3-players, they didn’t to the same degree know how to do this on their phones. Thus the iPhone was perceived as a better music player than the other phones, but not as inferior when it came to the phone capability. The incumbents in their infinite wisdom had their core competency in making phones, however this wasn’t perceived as important, because any technology company can make the phone part of a phone. These reasons add up to the fact that consumers wanted the iPhone, whether their carrier recommended them or not, this represented a shift in power, from the carrier’s power over the manufacturers, to Apples power over carriers. Even if the smart phone, here exemplified as the iPhone, likely will be the death of the carriers current business model (as noted above) in the not so distant future, the carriers needed to scramble to make sure they would be the one that had a monopoly on marketing the iPhone, because now the consumers would buy the carrier that had the iPhone, not the phone that carrier recommended.

Though I limited this post to apply to music it could just as easily apply to other content, such as movies or games. The point is that Apple sees an opening where the increasing needs of consumers are not reflected in the market offerings, and where the players that are necessary to fulfill this market need are looking the other way. If the three types of actors above had put their heads together, they likely would have seen this path to profit, and would have acted on it, but they were busy following different agendas. The genius of Apple lies in realizing that more sophisticated phones wasn’t the need at all, the actual need was made up of at least two different needs, the need for better phones and the need for some way to use the better phones. Apple set about to provide both at the same time, and it was this that gave them the ability to enter the market for cell phones with such a success.


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Why brands matter

I came across a quote the other day, and I’ll poorly paraphrase it here. The quote explains why the Coca-Cola Company and many other firms have market values that are way above their physical assets and reminds us all that brands matter. Allegedly the brand manager for Coke in the 80’s said that, and I paraphrase to the best of my ability, “if all the factories and inventories of the Coca-Cola company burned down tomorrow, we would be back in business in 2 months, making just as much as we do today, if however, all knowledge of Coca-Cola disappeared from people’s minds tomorrow it would take us 100 years to come back”.

Building a brand may often seem costly and pointless, but keep in mind how important the brand has been for companies that target consumers directly. A brand may not always be the right solution, especially in cases where you only buy once (like building a house), or where the market is driven largely by price (like aluminum), but when it is the solution you had better take it seriously!

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Choosing a company name

There are many things to consider when choosing a name, for a product or for a company, the central concept to keep in mind is that this is your brand name, not just a name that should appear in a business registry somewhere. The first thing to consider is your product, if you chose to market your product on the basis of a certain aspect of it, what is called a Unique Selling Point (USP), you should have a name that describes the benefit. Examples of this strategy are Duracell (durable battery cells), 7-Elleven (from the original opening hours) and Microsoft (small and therefore effective software). When your product is branded on the basis of more experience related aspect, names that trigger the imagination around the experience is more suitable, examples of this include Bounty (chocolate), Nike (the Greek god with wings on her shoes) and Häagen-Dazs (made up "to convey an aura of the old-world traditions and craftsmanship"). In this way company names can help the marketing of the product.

Another way to look at it is to classify names from fictive to descriptive on a continuum, on one end you have totally made up names, like Kodak, and on the other end you have names that describe the product, like Kellogg’s Corn Flakes. Descriptive names can also describe the situation of use, like After Eight, the target group, like Teen Magazine, or other aspects that are relevant to the product. In between you have names that are based on other things that are relevant to the company but not to the product, like Six Apart, that took their name since the two founders were born six days apart, names based on place of origin, like Scania, which is Latin for the place in Sweden the company was founded. Names can also be descriptive without it being of the product, like Camel for cigarettes or Amazon for the online bookstore. Yet another approach in here is to describe the product in another language, such as French, Latin or Greek. By choosing names that are not related directly to the product you lose the customers instant realization of what the company does when hearing the name, but you can make names that are more distinct from others, reducing the risk you will be confused with competitors.

A third way to name a company can be based on rhetorical principles, meant to induce people to remember the name better. One way is alliteration, the repetition of consonants in the word, like Coca Cola, if you repeat the vowel, this is called assonance, for example Poco Loco. You can use rhymes or imperfect rhymes, Poco Loco again, or Black and Decker as an imperfect rhyme, names can also rhyme in the beginning of the word, Copenhagen Consulting Company is an example of this. My personal favorite are oxymoron’s, United Nations is a good example, Soft and Crunchy another. Metaphors are popular, Microsoft Explorer or Apples Safari. Palindromes are word that can be read the same both ways, like Omo, the Norwegian detergent. Spelling errors annoy people, but it does stick to the brain, just make sure it’s obvious that it’s on purpose, have you for example seen  del.icio.us? or Reddit (read it in) for that matter?

Just remember to pick a name that fits your product, that is unique, that is not too long, that has a free domain name, that is easy to remember, that doesn’t have alternate meanings in other languages where you plan to enter (like the Finnish anti-freeze Super-Piss) and that doesn’t get confused with other brands.

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Stepping out of the box (part 2): Techniques for stepping out of the box

This post continues from this post, and explains some steps that can be taken to step out of the afore-mentioned box.

Start anywhere but at the start
If you were to write a book, a criminal novel, where would you start? Most people I guess, would figure out a plot, and then start fiddling with the details. What if you just started to write? Don’t have a plot; don’t know how it ends or who the killer is. Just write something crazy, introduce us to the situation where the protagonist comes across the murder. Put in as many weird details as you can, then start working them out. The result will be very different than if you start by deciding how the murder took place, how the murderer covered it up and then write the book. In inventing it’s the same, most people start either with a technology or an unmet need. Don’t do that, find somewhere else to start. Find a crazy theory of where to start.

How about this? Most people start companies that they either know something about or that interest them. Find out what you know the least about and start with that. Find something that interests no one and start there. Think about roads, extremely boring, and I know nothing about making them. Maybe that’s a good place to start, exactly because I don’t know anything I can’t have any preconceived notions, I don’t know that I have to make the roads using asphalt and stone, maybe because I don’t know that I had to go to a university to ask someone, maybe I went in to the wrong building and met the wrong guy, but maybe it turned out that he had just invented a cheap material that would be perfect for roads, only that he hadn’t realized what the material was for? Maybe he had invented something completely different and you could go with that instead?

Find a starting place that is outside the normal, then you force yourself to think in a new way.

Challenge yourself beyond your capability
The previous example also advocates this point. A friend of mine considers himself a pickup artist, which means he goes out twice a week to pick up girls, and are fairly successful. However, he never uses the same approach twice, so each time he picks up a girl the difficulty goes up, and so does his success rate. My theory is that the more approaches he use, the further he comes from what is normal to do when picking up girls, and the less he is categorized as “the guy who just want to get laid”. It also shows that he is having fun, he’s a cool guy, that loves what he is doing. He says random things, and because of that he get’s random results. My point is that for us that accompany him we always think “that is never going to work”, but sometimes it does, and we are as surprised each time. The thing is that you never discover new grounds if you keep doing the same stuff. A business example would be the notion that start-ups cannot sell to fortune 500 companies. So people will generally tell you to not try. Why not? You have nothing to lose, call Microsoft, tell them about your product, request a meeting. Don’t think your product is good enough? Well, then your that guy sitting on the sideline saying that’s never going to work while your friend steps out of his comfort zone and get the girls. Embarrass yourself, fail, but try; you will be surprised at what you can achieve!

Give yourself over to chance
We make our decisions based on our assumptions, that means that there’s systematic errors in your decision making. If you want something new to happen you can throw a dice. Should I go to that interview or that interview? Throw a dice, let chance decide, not because there’s faith and everything is supposed to happen and so forth, no, because then you end up in situations that you normally wouldn’t be in, and then you get to think about problems that you normally wouldn’t.

Ask someone different
Take the Play-Doh example above, the solution to the problem wasn’t anything that was in the toolbox of the director or the MBA’s, it was a preschool teacher that came up with a solution. Again, if you keep doing the same you get the same results, if you ask the same people you get same answer. MBA’s are all in the same box, so ask someone that’s outside the box, maybe that can shed light from an angle you haven’t seen. If you however are a preschool teacher try asking an MBA. If you are a CEO, try asking someone on the floor, of you are an entrepreneur try asking an athlete.  Find people that are different than you, that think different, that knows less, ask them and listen to them. It's not always those that should have the answers that have them, we often just assume they do. Did you know that monkeys can pick stocks just as well as professionals? Often better? Consider this excerpt:

“In the four years since [Chicago Sun’s Monkey] has chaired and inspired this contest, his stocks have posted annual returns of 37 percent, 36 percent, 3 percent and, in 2006, 36 percent, beating the major indexes every time. It's proof that you don't have to be an insider CEO, an insider hedge-fund manager or a loudmouth on CNBC to make money in the market.”

(read the entire article)
How about that? So maybe amateur investors should stop listening to professionals and go ask the monkeys, or even start making their own theories - that shouldn't be based on the ideas of the financial advisors. (I would go get a sociologist to explain the nature of socially constructed reality if I wanted to make money on stocks, stock brokers don't even know what it is and yet the sociologist will claim thatit controls their every move).

It’s ok to be wrong
Seriously. It is. Whenever in an argument over what’s right and what’s not, try to think “what if I’m wrong”. A good way to do this is to whenever you have a discussion about something, take a break, go to someone that agrees with you and argue the other point. Often we are so sure that we are right that we cannot for the life of us even consider the alternative, but remember that the other person is just as likely to be right if that person believe in her ideas as strongly as you do!

Question all assumptions!
It’s well known that kids have an easier time learning languages than adults. Is it true? I don’t know. It takes a kid two years to learn their first language in a way that they can make themselves understood, and still it’s a couple of years before they speak it any good. I’m pretty sure I could learn French in four years if that’s all I had to do. That kids can learn to speak languages easier than adults is a cultural assumption. It’s something we all (or most of us) believe to be true. The thing is that it doesn’t have to be true, it can of course be true, but if you start questioning these assumptions when you come across them you will surprisingly often find that maybe they aren’t always true. The man running the factory in the example above assumed that his product could only be used for cleaning wall paper. His assumption was wrong, now we assume that making Play-Doh was his best course of action, maybe we are wrong? When you talk to someone, try figure out what yours and theirs basic assumptions are. Challenge them.

Crisis
When everything goes as planned it’s easy to keep routinely doing the tasks you have always done. When crisis appear, that’s when you have to think about new ways to do something. In a way crisis force you to consider option you otherwise wouldn’t, a teenager might not get into the educational program she wanted, so she has to look for new options, a company might discover that their product is no longer in demand, so they have to find new products, or new uses for their products. A new father might discover that his life is turned upside down, so he has to change his routines and his survival strategies.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

Stepping out of the box (part 1): Taking the red pill / Drinking the Kool-Aid

What is the box?
Coming up with radical inventions requires you to step out of the box, but what does this mean? Well, the box is a metaphor for your preconceived notions. The box is the Matrix. It is the world that has been pulled over your eyes and blinds you from the truth. It is said that Edison once fired a man for salting his soup before he tasted it; the reason is that this implied that the man was so blinded by the box that he forgot to check its validity. The man couldn’t know that soup needed salt if he hadn’t tasted it, but of course he assumed that he had to salt it because he had eaten so much soup that the salting was on autopilot. The box are all those things we take for granted. From the small things, such as “hamburgers are eaten with a side of french fries, not rice” to the big things, like, “the earth orbits the sun”, some of these assumptions may be true, but this isn’t really the point, the point is that the assumptions block us from thinking differently.

Why should we step out of the box?
First let’s look at why we are in the box. Our minds are designed to maintain the reality we believe exists, and generally this is very useful. What if you had to rethink how to open a door each time you walked through it? What if you had to decide if you liked your girlfriend each time you met her? What if the doctor had to convince you that the drugs you are taking actually will help each morning? It would make life extremely tedious, and the strain on our cognitive ability would be very high, so that our brains would require a lot more energy, i.e. we would need bigger brains and more to eat, which isn't good from an evolutionary perspective. Another reason we are in the box is because it is useful to maintain a sense of stability and reality. Research even shows that after people make a decision on any topic the brain will start to justify the decision so that you won’t change your mind so easily. This also goes for belief. Think about politics, when you decide that a certain party or politician is the one that should be elected it is really hard to change. This is called cognitive dissonance, and is just one of many mechanisms that help us maintain a healthy sense of continuity and reality, it makes us feel consistent. Historically this was useful because it freed up the brain to solve more important issues with its limited resources, in modern day society it's useful for that very same reason.

The problem with our sense of continuity is that it blocks our ability to think about what the world would be if it wasn’t the way it is. This is why US presidents are reelected more times than not. We strive for continuity, because we don’t understand how the world could be different. Stepping out of the box allows us to think about the world in new ways. It allows us to see things that others cannot see. First when you free your mind from the idea that transportation is either by foot or by horse can you start thinking about cars. Did you know that the wheel was never invented on the American continent before the Europeans arrived? They had circles, but no wheels, how weird is that? And no one can blame them, this is how our minds work. We see everything that exist as obvious and natural (the wheel for you and me), and everything that don’t exist, well it generally doesn’t occur to us.

Let me give you an example. I heard an anecdote that goes something like this: Once upon a time, in the olden days a man was running a factory, this factory produced a type of malleable sticky clay that was used to remove sot from the walls. You see, back in those days people warmed their houses by burning coal, and this left residue on the walls. A person would then buy some of this clay-like substance and roll it on the wall, the sot from the coal would then stick to the blob. Since the blob was white the coal would color it so you could even see when it was so dirty that you had to get a new one. One day however the sales started declining, a thorough market analysis revealed that people were using less coal to heat their houses, thus the demand for white clay-blobs fell as well. The manager of this factory started to worry, so he hired the best MBA’s in the kingdom to figure out what to do. The MBA’s effectivised the routines, lay off people, streamlined shipping and so on until they had reduced the cost of the factory to the point where it was impossible to reduce them further. The factory was however still in a crisis, because the problem of course wasn’t the cost, it was that no one needed their product. So what was he to do? In total despair he went to dinner to his sister, she was a preschool teacher, and as casual dinner conversation he explained everything and that he was probably going to lose his job and would have to shut down the entire business. His sister asked if she could look at the product and the manager fished out a piece of white clay from his pocket, his sister started molding it into shapes, and decided to bring it to her daycare the next day to show the kids. When she came back, she suggested making the clay in different colors, calling it Play-Doh and marketing it to kids. Today this business is much bigger than the wallpaper cleaning business of decades past ever was.

The moral of the story is of course that when you look outside the box of your usual surrounding you find solutions that you wouldn't otherwise find. This manager hired MBA’s, and no offence to MBA’s, they’re great, but they all think alike. If you need someone to think different, then don’t use people that think like you and each other. If you do the same, then how come you expect different results? MBA’s have a set of tools, and when you have a hammer, a surprising amount of problems looks like nails. Only when the manager (by chance in this case) got someone that thought differently to think about the problem could a radically new idea come about. To continue reading click here.

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.

Familiarize yourself with the market in 3 steps!

Starting something new often requires you to read up on an industry and do those tedious swots, pestels and other analysis. The problem with these is often that the assumptions you take into the process are also the ones that comes out. If you think many small companies in the industry is an opportunity for intruders, well than that’s where you place it in the analysis, and that’s what you’re going to base your recommendations on. Only now it’s no longer just intuition, it’s derived from a model. Anyone else see the problem here? This framework doesn’t solve this, but helps you ground your understanding of an industry’s players in reality, and that’s a good start for a market analysis. The purpose of this analysis is the give you, the analyst, a tacit understanding of the industry as well as some models that describe it. So let’s dive in!

1. Define area, get lists
In my thesis I needed to understand “biotech companies in Norway”, I went to the business register and looked through the classifications that companies could choose from when they register the company. From this I chose (by using my preconceived notions) some classifications that may or may not contain biotech firms. The classifications included everything from "Research and development activities within biotechnology" to "Production of medical and tooth-technical instruments", as you can imagine some categories proved more relevant than others, but I’ll get back to that. Now I had a list of about 2000 companies, most probably not relevant since I included most categories that could be biotechnology.

This list of course can be anything; maybe you don’t want to look into a specific industry, but maybe a geographical area. If you want to start a company in your town, you could get a list of all companies in that town (however your dataset may be too big to actually get through) to understand what the major industries are and so forth.

2. Google, classify, sort, iterate
When I had the list, the next part was easy, I picked a category that I really believed in, "Research and development activities within biotechnology", started at the top and typed in each name in Google. The companies that have websites was easy, I just found somewhere it said in simple terms what they were doing and pasted it in next to the company name. For example the company Biosergen in Trondheim claims they are “a biotech company developing new drugs based on cutting edge biosynthetic engineering of natural products, combined with chemical synthesis”. Next to the “what we do” column I start making categories. This is where you should leave your assumptions at the door. Take the first two companies, and ask yourself “if I had to place both companies in a category what would that be”, for me it was “Biomaterials”, the third company then either fit’s in the category or needs a new category. After a few companies I realized this was not a good classification system, but by then I started understanding better, so I changed the categories. This is the iterate part of the process, change the categories.

The companies that do not have a website you can call and ask politely what it is they do, “Hey, I noticed you were classified as a --- company, but I can’t find your website. I was just wondering what field your company is in”. I noticed that I could do about 200 companies a day, and trust me, after a day or two you know the categories by heart and really gain an understanding of the industry that no SWOT or PESTEL analysis can give you. And if going through 2000 companies sounds like a lot, well, you are right, but over half of them were removed from the analysis because after 10 companies in the category I realized that I probably wouldn’t get any biotech companies from there. This of course depends on how thorough you need to be. If you have little time the try to spend a day, start with the most relevant category and just sample the rest, you still get a pretty good understanding of it all.

3. Model it
When you have worked for a while and are comfortable with your categories you should take a brake and define the categories you have come up with, then you start to see that some categories are overlapping or for some other reason should be better defined. For example for a while I operated with a category “Drugs” and a category “Therapy”, the distinction was really useless and I merged them, together with another category into “Treatment”. Other categories I ended up with was “diagnostics”, “research institution”, “services” and “supplements”. You should take the categories, define them properly, for instance “Treatment: Companies in this category are companies that a) at present or in the future will have as a core competency to treat ailment or b) facilitate that caregivers (such as doctors) use their products in order to give treatment or c) in any other way be a service provider based on their product that treats patients”. It is worth noting here that for my purpose I removed companies that weren’t based on biotechnology, because I was only really interested in that sector, not in for example hospitals.

Once you have the excel sheet with all the companies, sorted by category and with a short description of the company you can start modeling it. Make a box for each category, write down how many are in it, what they typically do, how big is this category, who are the biggest actors. Draw arrows and new boxes; try to make a model of the industry or area based on your analysis.

Extra tips and tricks:

• You can use several categories for each company, but from different sets. For example a company can be "Treatment" in one column and "Oslo" in another. But in each set of categories you need to be mutually exclusive, if one category is "Treatment" and one is "diagnostics", you don't want a company to be in both. Have mutually exclusive categories in each category "set", but feel free to use more sets based on different criteria.
• The initial list should be made thinking it's better to include companies that's not what I'm looking for, than to exclude companies that I am looking for.
• Many lists that you can get also contains more information that the name of the company that can be useful when modeling, such as location, revenue, year founded an d so on.
• If you are more people, try spending a few hours on your own classifying the first 100 companies, meet and see what categories you have come up with. Why do you have different categories? Which are best? Try then to classify the next 100 together using a system you have agreed on. If you still have companies to classify separate and do different companies, you now have a common understanding of the industry.
• Use this analysis before the swot or pestel or whatnot, the findings here can be valuable in understanding what it is you will do, and what topics you should look into in the other analysis.
• After modeling try to talk to people who work in the industry, how do they perceive it, do they agree with your understanding of the industry? Did you miss anything?

If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.