Some Thoughts on the Super Bowl

Being from the Boston area, I'm a pretty big Patriots fan.  So watching last night's game was miserable.  Though, being objective, I have to admit it was a great game to watch.

A few things came to mind while I was trying -- unsuccessfully -- to get some sleep after the game.

Rob Gronkowski's ankle injury had a huge impact.  When a big tight end can't make quick lateral cuts, it's almost impossible for him to be an effective receiver.  Brady's interception was clear evidence that Gronkowski's ankle had an impact.  I don't recall ever seeing a linebacker defending a receiver that far down the field.  The ankle injury allowed a slower defender to cover him and freed up the corners and safeties to cover the Patriots’ receivers.

On the last drive of the second quarter, Brady ate up the Giant defense with his typical quick, short passes.  He was 10 for 10 on the 98 yard drive, virtually neutralizing the Giants' pass rush.  The Giants made a big adjustment at the beginning of the second half by rushing only 3 linemen; putting one man on Gronkowski and a tight zone on the rest of the receivers.  Brady had plenty of time to throw but nobody was open.  The Patriots couldn't adjust to the new scheme quickly enough and as a result could only put up 7 points in the second half.

Making quick adjustments is critical in business and sports.  The game you’re playing in today is going to be much, much different in six months or a year.  

Check out James Surowiecki’s New Yorker column this week on RIM and the fall of the BlackBerry; a company that, much like the Patriots on Sunday, couldn’t adjust until it was too late.

My Favorite Interview Question

This changes over time, but here’s my favorite question to ask a job candidate:

How do you see yourself adding value to a company?  That is, when you get a job, a company is going to invest in you and pay you (hopefully a lot), so, ideally, what would you like to be doing on a weekly, monthly, quarterly basis to ensure a high return on that investment? 

Typically, you can learn several things from their answer:

1. What they like to do
2. What they’re passionate about
3. What they’re good at
4. What differentiates them
5. How they see themselves fitting into an organization 

Of course I would never qualify or disqualify a candidate based on the answer to one question, but the answer to this question usually tells me a lot.

The Razorblade Strategy

Yesterday I wrote about how I'm long on Amazon. One of the reasons is that they’re in the process of aggressively implementing the Razorblade Strategy.  The Razorblade Strategy is when one item is sold at a low price in order to increase sales of a complimentary good.  It was made famous by Gillette -- they sell their razors for next to nothing and the blades at a high premium.  This creates a profitable recurring revenue stream, and recurring revenue is generally better than one-time revenue.  Printer companies also do this very well.  Printers cost almost nothing and Hewlett-Packard, as an example, makes nearly all of its profits on the sale of the toner (again, recurring revenue).  I remember reading that one ounce of HP print toner costs more than one ounce of Dom Perignon...

The price of Amazon's Kindle has nosedived over the last several months -- you can get one for $79.  Rumor is that they’re even losing money on manufacturing the devices.  They're hoping that by lowering the price more people will buy a Kindle and then buy the profitable digital media to put on the device.  This is a perfect example of the Razorblade Strategy at work and exactly why I believe they’ll compete well against Apple in the digital media space.

Typically, the major risk involved with the Razorblade Strategy is when the price of the complimentary good falls.  But with Amazon's scale and dominance in media there's relatively little risk for them there.

Amazon should race as fast as they can to get a Kindle in the hands of every consumer.  Good execution of the Razorblade Strategy, and a price of $79 versus Apple’s cheapest iPad at $499, is a critical and promising step in that direction.

Employee Promotions & The Peter Principle

Recently I made the following comment on a blog post:

I recall watching an interview with Bill Gates.  The interviewer asked him what was the biggest mistake he made when he was building Microsoft. Because I admire Bill Gates enormously, I was on the edge of my seat to hear his answer...

His answer: the biggest mistake he made was assuming that their best engineers would also make good managers.

Of course it's intuitive to promote the best tactical performers but given how often this fails I'm amazed at how companies -- big and small -- continue to use this approach.

A few days later, I came across a theory known as the "Peter Principle":

The "Peter Principle" states that in a hierarchy every employee tends to rise to his or her level of incompetence, meaning that employees tend to be promoted until they reach a position at which they cannot work competently.

It's easy to see how management allows this to happen in their organizations.  If someone performs well it's only logical that they go onto the next step in their career path.  But of course it's extremely dangerous for companies to operate with a bunch of employees that can't do their job well, much less competently.

The solution to this, I believe, it to shake up the old fashioned "career path culture" and build a culture that values the "do'er" and not the manager.  To promote this type of culture, companies should setup formal incentive systems that reward the employee without promoting them into management.  Incentives can include:

• Salary, bonus, equity increases
• Allow them to work on the coolest projects or largest accounts
• Allow them to work on exploratory or strategic projects
• Let them work side by side with senior management and/or the CEO
• Give them the best mentorship and training

Most cultures, especially in large companies, value the managers -- employees want to be "in management".  It's critical to setup values and formal systems that disrupt this type of culture to avoid mediocrity and the dangers of the Peter Principle.

Managing Email

I posted my approach to managing email in the comments of A VC the other day, thought I'd post it here as well.  I'd love to make the switch over to Gmail at some point, but right now it doesn't jibe well with my approach to emailing.

• using Outlook
• setup as many junk mail filters as possible so most email doesn't make it to my inbox in the first place
• go through my inbox every night and either delete, respond and delete or file it in a folder or leave it in the inbox to do later (often I don't get to every night but I do it at least a few times a week)
• this leaves me with an inbox full of important emails that I need to address at some point
• many of my colleagues keep thousands of emails in their inbox (important and unimportant), I don't know how people can manage it this way
• my strategy centers around good spam management and the "delete" button, I spend a lot of time deleting
• Gmail doesn't make sorting or deleting emails easy, you either have to check a small box with your mouse or use an awkward keyboard shortcut that is slow and unreliable
• in Outlook it's easy to sort emails by sender or subject line and it's easy select multiple emails to delete, and you can just hit your keyboard's "delete" button and they're gone 

Emailing is a pain but it's the best system we have, for now.  I've read that several companies have committed to phasing it out over the next few years.  That should drive some much needed innovation in the way we communicate at work.

So True

Saw this comment under Chris Dixon's post, The enterprise: buyers versus users.  His comment was in response to a commenter's theory that SAP is a mess internally. So true.

Beware of the Low Hanging Fruit

One of the most significant challenges that comes with the launch of a new initiative is knowing whether or not it truly has long term potential.  

To make this assessment even harder, when most initiatives launch there's always some low hanging fruit that can give you the perception that the initiative is working.  Smart engineers or good business people can usually prioritize the quick wins and grit their way to some success in the first few days or weeks of a launch.  But what's hard to evaluate is what will happen once all of that low hanging fruit has fallen off the tree.  A couple ways to help address this:

1. Ask each team member to create one perfect case study of success out of the initiative as fast as they can.  Rather than going out and getting 30 wins, ask them to get one win and dive into the detail.  Why did that win work?  What were the challenges in getting it there?  What might make this win different than others?  What might make it similar?   By diving into intense detail and building a case study on a winning opportunity, managers will be able to understand the strengths and challenges that they didn't know about at the beginning or can't see just by looking at results.  So often the true path to success lies in the detail.
2. Keep a simple to read and easy to update log of initiatives; include learnings (what worked/didn't) and results against your goal.  Use this log to set a benchmark for future initiatives.  Over time, this log will help you get a good feel for when the initiative has turned the corner on the low hanging fruit and is picking up steam or fizzling out.

Low hanging fruit is a good thing.  It can help build momentum and excitement around a new initiative and is often a great way to pick up insights that help a team move faster or prioritize more effectively.  But it can be a trap that leads to over-investment.  The simple steps above have helped me avoid that trap in the past.

Crisis Management Framework

Here's a very simple framework I use when dealing with a crisis at work.  The framework has worked well for me in the past.  Sometimes simply having a framework for dealing with an unexpected event can inspire confidence and help you get your clients and team focused on solutions.

1. What happened?
2. How did it happen?
3. What are we doing to fix?
4. How are we going to prevent it from happening again?  (include both short term solutions and long term solutions)

Missing Projections

Here's an interesting framework to use when considering why a group or company misses projections.  I'm sure it's not perfect, but it's interesting to think about it this way.

When you've missed goal by:

50% - Blame the strategy (it's way off)

20% - Blame the manager (you have an execution problem)

5% - Blame the team (they're either not paying attention or they're not accountable)

5 Ways to Grow Your Business

Here are 5 rules that I try to follow each day to help me stay focused on growth:

1. Train yourself to never blame your team, your boss, your product, your customers, your competitors or the market; this kind of perspective forces you to innovate.
2. If you're answering emails and returning phone calls all day you're not initiating.  Don't be satisfied for one second with an empty inbox.  Set aside time to initiate and create, on your own, every single day.
3. Always be a few steps ahead of your customers; satisfy them with the product they've bought, but spend most of your time leading them towards Version X.
4. The balance of getting results today but also building for the future is one of the biggest challenges you'll face.  Get comfortable with it, this never gets easy.
5. Separate what you do each day into two buckets: business as usual (BAU) and incremental growth (i.e. growth that comes from incremental work that you haven't done yet).  Focus 80% of your time on the latter.

Talk to Everyone

Over the last several weeks I've been lucky enough to talk with at least a dozen founders of web startups.  It's fun to hear their passion, ask them challenging questions and talk about where they see their products and companies going.  The thing that they all have in common is that they love to talk to about their businesses.  This is a key component of success in business.  Talk to everyone.  It reminds me of an experience I had earlier in my career. Several years ago when I was working with a biotechnology startup we we were looking for a commercial application for a diagnostic device that we were developing.  One of the promising applications was to measure levels of e. coli in meat.  We believed that we held a market advantage in two areas:

1. We could measure these organisms more accurately; specifically, we could reduce the number of false negatives (i.e. if the meat was tainted with e. coli, we were more likely to catch it)
2. Our tests were significantly quicker; they didn't require incubation, we could do a test in four hours versus the standard 10 hours

We flew out to Kansas to meet with a potential customer, a large meat processor.  We took a tour of their plant, talked to them about our product and everything seemed to be going great.  They were interested in the device, it seemed we had identified a pain point that we could address.

But that night, after a few drinks and a lot of steak, we began to hear a much different story.  It turned out that the beef companies were actually not interested in reducing the number of false negatives -- because it would increase the number of positive tests.  And when there are positive tests, they have to shut down the plant, send people home and clean the entire line.  This is extremely costly to them and they didn't want any more line stoppages than they already had.  This seemed counter-intuitive to us.  If the company let meat with e. coli out their doors and someone got sick, they'd be in big trouble.  Surely they were interested in more accurate testing, right?

Not exactly.  It came down to the law of small numbers.  From our contact's perspective, the odds that the e. coli in the meat would survive the ride to the distribution plant and then the ride to the supermarket and then the ride to a customer's home and then the 5 or 10 minutes on the customer's 500 degree grill was extremely unlikely.  Frankly, it wasn't a problem worth really worrying about.

Further, the time advantage we were excited about wasn't all that valuable either.  We learned that the plant works in 8 hour shifts, and as long as the meat was tested and ready for the next shift, 10 hours was fine with them.  Our time advantage was a 'nice to have' not a 'must have'.  And in order to truly win in this business, our product needed to be a 'must have'.  In short, by talking to the right guy, we found that we didn't have a market for our product.

The insight we gained from our trip to Kansas wasn't easy to get.  We had to fly out there and talk to a real insider, off the record, to determine that we didn't have an advantage.  And that's really the moral of this story...when you're working on a startup, talk to everyone that you possibly can.  Insiders, outsiders, friends, family, users, anyone that will listen.

You'll be amazed at how much you learn from bouncing ideas off of other people.  So often, businesspeople get burnt because they just don't know what they don't know.  Talking to everyone prevents you from getting burnt.

Business Review Agenda

Some colleagues have been asking me about the best format for a business review.  I thought I’d post my recommended agenda here:

1. Where Are We Now
   • High level overview of business
   • Metrics we track – Leading & Lagging
   • Actuals
   • What’s working/what’s not working
2. Where We Want To Be
   • Goals by week, month, quarter
   • Current gap to goal
3. How We’re Going To Get There
   • Initiatives
   • Pipelines
4. Why you should believe we can get there
   • Success Story (Case Study)
   • Proof Points
   • Qualitative Progress/Testimonials

The thinking here is that the person you’re presenting to wants to understand how you look at the business, how you’re doing, how you’re doing against goal, what your plan is to close the gap and, finally, some proof as to why they should believe in you.  Obviously, any smart manager will poke holes in each section and look for your weaknesses.  But generally speaking if you have a plan you believe in and can do each of these things well the meeting should go pretty smoothly.