2018-09-19

My Entrepreneurship Principles: Culture

While I was hunkered down surviving Hurricane Florence, I had further opportunity to reflect on my principles as an entrepreneur. In the first part of this brief series on Mindful Entrepreneurship, I laid out my keys to the entrepreneurial process. In this second part, I will focus on culture.



Culture
  • Culture matters a lot. In my experience, ventures don't succeed or fail because of business models or technologies but rather because of people. Creating a culture of exploration and freedom to experiment is key to any learning organization, but especially to a startup.
  • A startup's culture must free its employees to take big swings and to risk failure. A startup can't "play scared" but rather must be open to failure. The key is to fail quickly, fail cheaply, and - most importantly - fail mindfully, learning and adapting through the process.
  • A startup is a learning organization and learning is its primary function. It is essentially a neural network programming itself and reprogramming itself through interactions with the  market. Learning isn't a black magic buzz word, though; it is a process that can be measured. I find one of the best ways to tune a culture's learning orientation is to use performance metrics to track the rate - hypotheses tested per unit time and cycle time per hypothesis test - and efficacy - hypotheses validated over time - of its learning processes. Fancy people call this "innovation accounting." To me it's just measuring the processes that are vital to the success of the venture.
  • An absolutely crucial cultural element of any learning organization is psychological safety. In a psychologically safe environment, team members regardless of level feel free to challenge assumptions, to critique initiatives, and to risk failure. Psychological safety can be measured and I am a proponent of assessing it frequently. 
  • Learning organizations need a healthy dose of skepticism, without which it is easy to get caught up in zeitgeist or invest in scaling unvalidated business models. A simple tool I use to foster a culture of skepticism is frequently asking, "Why?" This challenges team members to focus on their evidence - not their conclusions - and demonstrates that it is OK to ask to see that evidence and debate whether it really does lead to that conclusion. Especially with new team members, I will often ask, "Why," about my own ideas to accelerate their onboarding into a skeptical culture. 
  • Skepticism goes a long way toward combating groupthink but I also believe in the value of diverse teams. Research shows time and again that diverse teams make better decisions than homogeneous teams and, more importantly for a startup, diversity brings inherent differences in perspective that are crucial for a startup searching for a path through the infinite, unknowable future.
  • Contrary to much of the current startup mythos, I believe in a startup culture of work-life harmony rather than hyperwork. Balanced, well rested team members work more productively, stick around longer, and generate better insights than those who are overstretched. I try to foster intentional breaks during the work day, have walking meetings when possible, and adopt very open policies regarding hours, leave, etc. (I've always been inspired by the Netflix culture policy.)
  • Finally, I think it's important to have fun in a startup. This can mean different things to different people but the point is that fundamentally working on an exciting venture should be a joy. I try to bring my own fun to the office (high tea in the afternoons if I'm dragging, Formal Friday so our normally casual interns get to dress up occasionally, ad hoc games of Calvinball throughout the office space) but, moreover, I encourage others to bring their own fun, which is often contagious.
Culture doesn't create itself, though, so my next post will be on the leadership necessary to instill such a culture and execute the entrepreneurial process.

2018-09-12

My Entrepreneurship Principles: Process

I have recently been reflecting on the principles that I believe make entrepreneurial ventures successful. Today, the 56th anniversary of JFK's famous moon speech, a speech that inspired a nation to accomplish an impossible goal, seems like a good day to try to distill those principles down into a succinct post. I won't claim to have all the answers (On the contrary, one of the aspects of entrepreneurship that attracts me most is that I am learning all day every day.) but I have a track record of one big win ($40M revenue in three years with a nine-figure exit), a few medium wins (eight-figure exits), and a few smaller ventures that never quite achieved our lofty goals but did solve real customer problems and grow to $1M+ revenue with healthy profits.





If I had to describe my set of principles, I might call it "Evidence-based Entrepreneurship" or "Mindful Entrepreneurship." Or, if I were feeling particularly plucky, I might be so bold as to label it "Heroic Entrepreneurship" since I believe so deeply that entrepreneurship is a journey. "Heroic Entrepreneurship" has a connotation that sounds a bit arrogant - but let's not forget that there are many tragic heroes in addition to the triumphant ones!



Entrepreneurial Process

  • Startup entrepreneurship is a search. To quote Steve Blank, "A startup is a temporary organization searching for a scalable, repeatable business model." Large, established organizations excute known business models while a startup searches for an unknown business model. This is an incredibly important distinction because searching for the unknown is a very different process - requiring very different skills, culture, and metrics - than executing the known.
  • Use the scientific method. In their search for that scalable, repeatable business model, startup entrepreneurs must be honest with themselves about how much they do not know. They have hypotheses about a business opportunity and the startup process comprises rapid iterations of testing those hypotheses, learning from the results of those tests, and generating new hypotheses to test.
  • Test efficiently. Hypothesis validation isn't as binary as it sounds. For example, you can "validate" market demand very weakly, a 1 on a scale of 10 ("A couple of my friends said they would buy this."), or very strongly, a 10 on a scale of 10 ("Thousands of online users preordered our product for our desired price."). A 1 isn't always helpful and a 10 isn't always practical. My startups try to push validation as far along the spectrum as we can cheaply and quickly. Cheap and quick tests help us generate more targeted follow-on tests or, if our hypothesis is refuted, test a new direction ASAP.
  • Effectuation: start with your means. Steve Blank is great but he is pop science. I put greater stock in real, academically rigorous science about entrepreneurship. Within that category, I have been very impressed with a body of work called effectuation. Effectuation research has demonstrated that the best entrepreneurs don't pre-define a goal and then acquire the means to achieve that end. They actually do the opposite; they start with their means (who they are, what they know, whom they know) and they envision new ends that are only possible through their unique combination of means. This is an important distinction because it requires that entrepreneurs use divergent rather than convergent thinking.
  • Effectuation: leverage surprise. The best entrepreneurs expand their means through partnerships but they also have another secret weapon: serendipity. In the startup world, it is a question of when, not if, an entrepreneur will be surprised. To quote Mike Tyson, "Everyone's got a plan until you get punched in the mouth." The best entrepreneurs not only don't fear surprise; they actually take proactive means to embrace it. Serendipity has a strong (and underappreciated by those with large egos) effect on successful ventures and, while you can't control it, you can increase your collision rate with it by meeting other people, continuing your education and encouraging employees to get out from behind their desks. I also increase my serendipity collision rate by being open and transparent about my startups rather than secretive.
  • Effectuation: Set affordable loss and increase returns. There is a perception that entrepreneurs are big risk takers but studies show that we are actually more risk-averse than the population as a whole; we simply view risk differently and take more calculated risks. Corporate managers are trained to set a desired return and then take every action to minimize the risk that they won't hit that target. The best entrepreneurs invert this mindset; they set their maximum affordable loss and then, as long as they are within that constraint, they swing for the fences to maximize returns. This mindset allows entrepreneurs to pursue opportunities aggressively rather than playing scared.
  • Effectuation: Create the future. The best entrepreneurs don't try to predict the future; the future success of a startup is not only unknown, it is unknowable! Rather, the best entrepreneurs are comfortable with that uncertainty and instead strive to create the future. This attitude that, to quote the Terminator franchise, "The future is not set; there is no fate but what we make for ourselves," is a key reason that I believe entrepreneurship is empowerment.'
  • Play by different rules. David would never beat Goliath by going toe-to-toe with him and trading punches. The US would not have won its revolutionary war by standing out in the open according to the typical "rules" of warfare of the time. Similarly, when I am trying to lead a startup to disrupt industry giants, I always seek ways to capitalize on their constraints (and our lack thereof).
  • Work smarter not harder. It is easy in a startup to become so focused on what you are doing that you don't pause to consider how you are doing it - or whether you should be doing it at all. This is confounded by startup cultural mythos that encourages bragging about working long, hard hours. When we are missing deadlines, I believe in pulling our heads up to consider how we are working rather than exhorting the team simply to work longer and harder. Working longer and harder is the path to the Dark Side of burnout and is fundamentally unsustainable. I also believe in setting time and scope constraints that motivate the team to work quickly, work smartly, and maintain life balance.
  • Disagree and commit. I really like Jeff Bezos's methodology of fostering real conflict and skepticism but then committing 100% to the results of the discussion. A startup will have a hard time building consensus; big, disruptive opportunities are, by their very nature, controversial and contrarian and, again, so much of what people believe about a startup is wholly unproven. A good startup team has diverse perspectives and passionate personalities so it is important to let those perspectives clash. These passionate discussions should be based on evidence but, at the end of the day someone(s) may still disagree. That's OK, but when we make a decision, we need everyone to commit to it, even if they disagree. History will prove us wrong sometimes and that's OK too; it's part of our journey. By committing to our startup's direction, even when some disagree, we keep moving forward rather than bogging ourselves down agonizing over each decision. In so doing we move quickly and agilely. 

This post on process is long enough already so I will end it here and follow up soon with my principles on entrepreneurial culture and leadership. In the meantime, what do you think of what I have laid out so far?