Extreme accountability: The Entrepreneur’s Superpower

Most startups fail. About 1 in 2 survive 5 years. In IT, that’s probably more extreme.

How many companies do you deal with today, which are over 10 years old? Remember how many search engines there were in the late nineties, most of which don’t exist, or at minimum, don’t exist any more as a viable alternative to Google and Bing.

Enter the entrepreneur. He is a visionary, a dreamer. He sees what others don’t see. Or he is just deranged.

How does this happen?

Eric Reis has a theory: “Hidden among these mundane details are a handful of assumptions that require more courage to state-in the present tense-with a straight face: we assume that customers have a significant desire to use a product like ours or that supermarkets will carry our product. Acting as if these assumptions are true is a classic entrepreneur superpower….If [these assumptions] are true, tremendous opportunity awaits. If they are false, the start-up risks total failure.” Typically, this refers to assumptions that everyone else overlooks. That’s why it takes guts, cojones even. At the very core of being of an entrepreneur, you will find someone who has the guts to face reality how it really is, and constantly test his assumptions. This is not necessarily difficult intellectually, as you can have an army of accountants keep track of systems, models, and spreadsheets. You can even build it into the product, such a system to allow you to test refinements of your business idea.

At the very core, this is about courage, not spreadsheets. It’s the very essence of creating a new business, when nothing existed before. It’s equally applicable to the pimply-faced php hacker trying to create a “social network” in his bedroom, as it is to the clean tech industry veteran who needs to raise 500 million in order to take a punt.

It’s been called various things in the past. In Steve Jobs’ case, it was called a “reality distortion field”.

Here is a conversation between Andy Hertzfeld and Bud Tribble, the guy who coined the term:

“Bud, that’s crazy!”, I told him. “We’ve hardly even started yet. There’s no way we can get it done by then.”
“I know,” he responded, in a low voice, almost a whisper.
“You know? If you know the schedule is off-base, why don’t you correct it?”
“Well, it’s Steve. Steve insists that we’re shipping in early 1982, and won’t accept answers to the contrary. The best way to describe the situation is a term from Star Trek. Steve has a reality distortion field.”
“A what?”
“A reality distortion field. In his presence, reality is malleable. He can convince anyone of practically anything. It wears off when he’s not around, but it makes it hard to have realistic schedules. And there’s a couple of other things you should know about working with Steve.”
“What else?”
“Well, just because he tells you that something is awful or great, it doesn’t necessarily mean he’ll feel that way tomorrow. You have to low-pass filter his input. And then, he’s really funny about ideas. If you tell him a new idea, he’ll usually tell you that he thinks it’s stupid. But then, if he actually likes it, exactly one week later, he’ll come back to you and propose your idea to you, as if he thought of it.”

This ability of Steve’s has even been parodied by a Dilbert comic strip.

What would it take to get you to that level?

Are you making this common split-testing snafu?

In case you didn’t know, SNAFU is a military slang acronym meaning “Situation Normal: All Fouled Up.”

More and more, I hear founders saying that they’re working on a product, who’re concerned whether or not there will be any demand when they launch. I’ve seen it come up in surveys, in youtube videos, even during personal conversations with founders.

After all, there’s more and more noise out there. We’re all getting overstimulated by hundreds of marketing messages and notifications per day. The more we do, the less relevant this messaging is.

How do you find unmet needs, to position your product effectively? A critical piece of building the right product is to address latent demand. Often, demand exists. It just isn’t immediately obvious where.

There is a hint in the book Lean Startup. First you need to prove what Eric Reis calls the “value hypothesis”, before you try to go after the “growth hypothesis”.

The value hypothesis claims that “the product delivers value to customers once they are using it.” This requires a deep understanding of:

  • who your customer is
  • what problems they have
  • how big of a niche they are
  • how much demand is growing
  • and most importantly….why they would buy from you specifically.

in addition to number of other factors, if you want to build a business and not just launch a product. If you aren’t sure that your customer needs what you plan to provide, then optimizing or scaling up sales is a waste of time and money.

So for example, split testing is a form of optimization of a message that already works. Running a split test before before you know that your product is attractive and valuable to your prospect is pointless. Yet many newbie founders have this belief from I don’t know where that split testing is what they should be doing.

Nowadays, to that I say…BS.

Here’s what you can and should do before you even reach for split testing or conversion optimization.

List out your assumptions, so that you can prioritize them in the order of riskiness. See if you can or want to de-risk the launch even at this stage:

  • An easy way to identify riskiest this is to work backwards from an imagined failure of the project. You’re having a chat with a close friend or collegue over beers, and you say it would have worked if it hadn’t been for X.
  • Once you generate a list of these, say 20 different ones, then prioritize them in a google docs spreadsheet.
  • Once you have this, start with the riskiest one and think of how you can test this assumption. With advertising, it’s often quite easy and quick, because you have direct access to your audience.

Apologies if this is a bit pessimistic, but it’s a powerful method to both plan a product and learn about a new market. As a side benefit, once you’ve tested the assumptions, you confront and abolish any big worries you have. It’s also completely specific to your product idea. It doesn’t matter if it worked for anyone else in any market. You generate quantitative proof of your assumptions are valid or not before proceeding.

Oh, and by the way, be prepared that a few of your big assumptions won’t be right. That’s the usual experience of most entrepreneurs with this approach. In fairness, these false assumptions are the assumptions you want to learn about as soon as possible. You don’t want make decisions still thinking they’re true.

Once you’re done that, there’s another exercise worth going into. Testing the your value proposition in your ads and your landing page MVP, so that you know what speaks to your market. People get hung up on what value prop is, but it’s quite simple. It’s the reason someone buys from you. Their (nor your) reason why. Of course, only test value props that you’d be comfortable selling and building.

See, this is where the MVP naysayers have it wrong. A landing page MVP isn’t a smoke test. If you’re using it to validate yourself and tell you how smart you are, your mirror will be more effective. And cheaper. And you’ll learn just as much.

Test your value props.

The fastest path to identifying your value prop with advertising? I thought you’d never ask.

Why, Launch Tomorrow of course. My book Launch Tomorrow delves into exactly how to do that with paid adverising and a landing page MVP.

Download a free chapter over on the sidebar.

Is premature optimization a warranted concern?

Here’s a wonderfully geeky question from a forum I’m on, related to lean startup:

I have a product that I want to test. I’ve built the one-pager website and set up some Facebook advertising to figure out the messaging / features that makes people sign up to determine the direction I will eventually build towards.

I have three ads: A, B, A+B
and three website versions: A, B, A+B

My question is whether I should test the advertising AND the website versions at the same time. I want to test quickly, but I’m worried that if someone clicks advertisement A and then lands on website B, it won’t be relevant and it will skew my data.

Is this a warranted concern? Should I test the advertising first, then the website version? Or should I do both and just figure that, with enough users, the data will smooth itself out faster then if I test one at a time? Any insight would be greatly appreciated.


Couple of things:

  1. Yes it is a warranted concern. When you send traffic from ad A to landing page B, you lose them. You can set up ad A to point to landing page A, ad B to landing page B, and so on. Then by rotating through all ads, you’ll implicitly rotate through all of your landing pages.

    This “scent” which a prospect follows is really important. You may be losing people. They land on a LP which doesn’t correspond to their post-click expectations. This may skew your results.

    The goal here isn’t necessarily to convert, i.e. get a lot of signups. It’s to measure user behavior and preferences. Discover where you have latent/unmet demand.

  2. The right test depends on what you’re trying to learn and what your hypothesis is exactly. For example, why are you even split testing in the first place? If you start split testing too early, it ends up being premature optimization. Understanding why you are split testing will help you formulate a meaningful hypothesis. Split testing only tells you if option A is relatively better than option B.

    You’re better off first choosing a threshold for conversion, then running ads to see if you hit that threshold. It’s a different type of statistical test and way of thinking about the problem. Then you’re also learning more about demand.

  3. You will achieve statistical significance faster focusing only on user behavior around ads. Clicks. Based on that you can “test before you test”, and find out what larger/full tests are worth doing in a full environment.

As a rule of thumb, understanding your users better will usually be more profitable than understanding your product idea better.

If you want to go into greater depth about using landing pages rigorously to learn about your market, then check out Launch Tomorrow. It clears up a lot of the confusion around new products and landing page MVPs. Why blunder your way through? Launch Tomorrow‘ll take care of ya.

38 different ways to prove your case

While ideally you have some sort of proof direct in your headline and ad, your persuasiveness argument relies on how well you prove your point. You see, it’s ultimately about belief and feeling.

As heavy hitter Gary Bencivenga says:

Almost everyone in the world, in every field of human endeavor, is desperately searching for someone to believe in. Be that person and you can write your own ticket. Belief is today’s most overlooked yet most powerful key to boosting response to any ad, in any medium. Harness it and you unleash the core atomic power for exploding response.

Most prospects want to believe the claims you make in a landing page, yet the claims challenge their world-view and the status quo. You need proof, ideally proof that resonates emotionally, in order to get them to take action.

A landing page, or a salesletter, is like a one-to-one conversation between you and the prospect. You put various things on the landing page, designed to instill a particular reaction in the reader’s mind.

A good landing page is written in a conversational tone. Short words, short sentences, short paragraphs. In fact, you can read it out loud to ensure that the text “flows” well. call friend.typexnick.2

Imagine it as a phone conversation with a friend. They call you. They bring up a problem they’re struggling with. You say something surprising. You empathize with their pain. You talk about an approach you’ve used in the past or a product you can recommend to address it, as you know it will help them out. At the end, you help them buy the product or implement a solution in their lives. Empathize with your reader in the same way you’d empathize with that friend on the other end of the line.

Direct response progenitor Eugene Schwartz puts it well:

It is the facts that the prospect believes in and accepts, and the way that he passes that acceptance along from one fact to another, that determines the ad’s development, the arrangement of your claims and your images and your proofs, so that there is a step-by-step strengthening, not only of your prospect’s desire but of his conviction that the satisfaction of that desire will come true through your product.

You are building up the emotional weight of your argument as much as you can. You want the solution to become real in the prospect’s mind.

When you are making claims about the benefits your product has, your prospect is likely to not believe a claim that you make. It’s that “yeah, right” knee-jerk response. On the phone, you might be able to tell based on voice tone. Some prospects might tell you outright that they don’t believe you.

Proof counters that pushback. It’s your job, as a product creator or founder, to provide strong counter-arguments to this type of objection. In other words, your copy explicitly addresses the prospect’s objections. Show exactly how your solution can solve his problem. Or hers.

Well, the best type of proof is a poignant detail that knocks out a line of questioning or thinking. That’s why direct response copy that sells is clear.

If you want to know what types of proof you can use, I’ve got your back. In its next update, Launch Tomorrow will include at least 38 different types of proof you can include on your landing page.

You can get a copy over here.

To be crystal clear, most of the 38 different types of proof don’t require you to even even have a customer, much less a success story.

Even on a landing page MVP, it all comes down to knowing how to present your product.

[image: typexnick]

4 characteristics of headlines that make sales

One of the TV shows I’ve been catching up on lately is Newsroom. It’s a deep drive into modern media capitalism, with a lovable grump for a news anchor named Will McAvoy.

It’s also a fascinating watch for anyone who has or wants to have an audience. There’s lots of issues raised which are poignant far outside the newsroom. Like Shakira.


For example:

– Intern.
-Come on over.
This is the overnight book.
The night crew puts together every story and every press release from everywhere.
Go through this and separate it into four piles– knew that, didn’t know that, don’t care, and Shakira.
But that one’s just for me, all right?

In this conversation snippet, one of the staff, Neal Sampat, explains a key newsroom process to an intern. The staff filters incoming breaking news notifications. They’re old school. They use printouts of the newswire. Given that she’s handed a stack of paper about a foot high, all she’s likely to read is the headlines. The four piles sort out news stories which are geniunely new and important. Everything else is de-priortized.

For a newsroom, this is critical. Their audience depends on them to share the most relevant news which impact their lives. After this first cut, the staff meet to plan the order in which the news will air that night.

Your headline needs to have the same effect on a new reader. Would it make it into the “didn’t know that pile”? You know, the pile which also doesn’t include the “don’t care” pile.

Why is specifically the headline so important? According to Copyblogger, 8 out of 10 people will read the headline, but only 2 out of 10 will continue reading. That means your headline is the singlemost important part of your copy. It requires the most effort to get right, say about 80% of your time…especially in persuasive content. Do you see why interviewing your customers and knowing what they want is so critical?

This has always been the case. Direct marketing legend John Caples analyzed high-performing headlines in his classic Scientific Advertising. He found four critical elements to headlines that pull sales:

  1. Self-interest
  2. News
  3. Curiosity
  4. Quick easy way

Self-interest is pretty much a pre-requisite in every case (it’s why features aren’t enough). Without a hint of self-interest, you’ll lose your reader’s attention almost immediately. Beyond that, some combination of the other three will help interest the reader enough to read the next sentence.

And hook in your reader you must.

That’s the sole purpose of your headline.

To turn the browser into becoming a reader.


5 legit reasons to raise funding for lean startups

Concerned you might be not lean if you raise funding? That’s actually a pretty common myth related to the Lean Startup approach.


Let me ask you this.

Have you ever received a “recycled” present?

While it’s clearly new, it doesn’t actually match your interests. In fact, you know that the giver received that present from someone else a few months earlier. It’s likely, therefore, that they never opened it, and just gave it to you.

That’s similar to the day-to-day experience of a tech startup investor. I actually worked at a VC fund in the past. More on that in future emails. Download a free chapter of Launch Tomorrow to get in on the action.

Many times a day, VCs get pitched equity in a tech startup. The founders don’t want the equity. They prefer cash. This immediately reduces the equity’s perceived value, in the VC’s eyes. In some cases, screams desperation. If the founders, who have lots of equity they got somewhere else, are willing to give it away…what does it say about the company’s value? About its prospects? About what the founders believe about the company?

A common question that I get from people first looking at tech startups is why tech startups need so much money. After all, it shouldn’t cost that much to throw a product prototype together. Isn’t it all just self-serving hype?

Not always.

There are five strategic reasons to raise money in the tech startup world:

  1. Funding customer acquisition
  2. Hiring top talent
  3. The “land grab”
  4. The “pre-emptive strike”
  5. The cash flow shortfall

So, starting from the top.

In all but a handful of businesses, if you can’t buy customers, you don’t have a business. Sometimes an idea takes off and goes viral. For the mere mortals out there, though, you need to figure out how to acquire customers and serve them profitably. Paid advertising, in particular, has a bad name because it’s easy to misuse with other people’s money. It’s easy to fool yourself and others that something is happening, unless if you know what you’re doing. Admittedly, most investors aren’t keen on providing money just to acquire customers, unless if you have already proven you can do this. Turn $1 into $4. Or $40. A marketing expense can reliably generate profit.


Recruiting talent to help you execute also costs money, particularly if you are breaking new ground technically. Figuring out how to scale certain technical problems (like search or constructing social graphs) requires serious technical chops. The number of software engineers capable of doing that is pretty small. And the first guys who scaled Google, for example, were self-taught. Moreover, to be blunt, the guys in most cheapo emerging markets live in much smaller markets. They’ve never had to solve these problems in their home country. So you need to hire smart people and keep them happy.

Now–we get to the really good reasons why raising money is a good idea. The strategic ones. If you and your competitors are creating a completely new market, there is a land grab going on. Whoever can get the most market share–wins. There’s an old rule of thumb from Davidow who ran Intel’s marketing during their high growth phase. Having at least 30% of market share leads to consistent profitability in most niches. At that point, you can influence what happens. Until you get to that point, you’re a commodity vendor. So while it can be a bit abstract, getting a strong footing in a niche will help establish you as a player. If you’re in a niche where this is happening, suddenly paying for growth has whole new meaning to investors. You only need to be a little bit better to beat out the competition, after all.

The pre-emptive strike is similar to the land grab, but more defensive. Let’s say you are a cheeky bootstrapper. You enter a market adjacent to niches already inhabited by companies with deep pockets. You’ll be at a loss when they decide to enter. For example, Google entered the search market, knowing there were a lot of well-funded competitors at the time. Yahoo, Lycos, and Altavista to name a few. Moreover, there were big tech players like Microsoft who had kind of missed the boat, but still had a lot of money. They could catch up quickly if needed. Think Bing. If Google had tried to bootstrap their way into the market, despite having better technology, they could have lost. Instead, they got funding. They built their technology to be completely scalable, while building up goodwill with users. Then, after 6 years of funded growth, they finally introduced advertising to monetize the growth. In 2004, they launched Adwords.

Last but not least, there’s the cash flow shortfall. This is more common in tech companies that combine hardware with rapid scaling. In essence, though the same financial problem happens across the sector. There’s a long list of well known companies which blew up, despite having a sales growth trend: Osbourne, Spectrum. That’s right. High growth, high sales, high profits, yet low cash inflows. If there is a long time gap between a sale and getting cash, the company won’t have enough cash to fund operations. Scaling their operations becomes impossible without that. You may need an exponentially growing staff to service your exponentially growing revenues. You need inputs like parts for a hardware company–also at an exponentially growing pace. Unlike in software, manufacturing at scale is complicated and costly. Should you think this is a throwback issue from the 1970s, what about the Internet of Things? What about hardware startups today?

So there you have it. Five legit reasons to raise money for your startup.

If you want to get on that path, you’re much better off using the Lean Startup approach. Don’t take external money, if you don’t need it. Stop selling yourself (and your business idea) short.

Validate your idea. With Launch Tomorrow, you can be certain that you’ve proven people want to buy what you’re selling. Or thinking of proposing. Or building.

Build the right product. Make sure you can acquire customers profitably.

Then get funding. And break out the bubbly.

Finding the perfect cofounder

A lot of founders I speak to struggle with finding a co-founder, particularly on the technology side. While they have an idea, they want to find someone who will help create that technology. Often development cost is a consideration, so equity seems like the easiest way to get address that.

I find there's three big issues with this approach:

  1. If your problem was correctly validated, you'd be making enough sales that you'd be able to pay a developer to build out your idea. Pre-sell if you have to. Often, you don't need a product to make the sale. You need a solid understanding of your audience's needs to make a sale.
  2. At the same time, try to empathize with developers and understand their motivations. Developers are a curious bunch. Often, they're more motivated by getting to play with new technology. They want to solve difficult problems. Overcoming intellectual challenges. If you can frame what you are doing as an intellectual problem, you'll have a much easier time speaking with developers.
  3. Make sure that anyone you recruit as a co-founder is critical to executing your vision. Don't leave gaping holes.

For example, one of Steve Blank's startups, a game building one, went bust. They didn't have a hard core gaming developer on the co-founding team. The easiest way to identify any major gaps in your co-founding team, take a look and your canvases (Business Model Canvas or Lean Canvas). Here's more: http://qz.com/321585/to-pick-your-perfect-startup-co-founder-do-this/

You may, in fact, need a developer. You don't need one until you've validated your problem and proposed solution. Otherwise, you're giving away your equity. Customers must clearly indicate that they're willing to pay for what you're thinking of building.

Another good way of recruiting a technical co-founder is to ask the developer to help you interview customers. Have them help out with founders' work, what co-founders do. Have them interview customers about their problem. Then, once they get back into creating technology (where they feel comfortable) they'll benefit from a much clearer sense of what's needed. Not just what they hear from you. In that case, you can then focus on marketing, growth, and everything else your startup needs. The developer can build exactly the right solution.

The #1 mistake of Lean Startup newbies

Yesterday I was speaking with a gaggle of early stage tech entrepreneurs about Lean Startup. They were eager to learn more about about hypothesis testing. Newbies wanting to learn about the Lean Startup approach.

geek.ben k adams.jpg

Yet they were falling prey to what I call the “solutionizing bias”. They only wanted to talk and think about solutions. And making sales. It’s so tempting, easy and natural for founders to fall for that trap.

As entrepreneurs, we’re naturally optimistic go-getters. We have a solution for every problem. We want to help out.

Yet when you’re building a new product, you don’t know whether your solution is important for your customer. If you don’t prove that first, then brace yourself for a long uphill battle.

Your solution solves a problem your customer has. The customer cares about their problem, not your solution. Before you think about solutions, you need to know whether the problem your solution solves is important. In your customer’s eyes.

That’s why validating your product idea is so important. First ensure that the problem you’re addressing affects a large percentage of your target market.

If you focus on your solution only, you won’t know which problem is worth addressing. It’s blinding.

Imagine you’re reading a market research report about the biggest problems of your target market. In that report, there is a pie chart.

Let’s say your prospects have 4 different problems: A, B, C, D. 40% consider A their main concern, 30% B, 20% C, and 10% D.

Yet, you’ve already built a solution. You realize it addresses problem D.

For the same amount of marketing effort, you’ll get 4 times less results than another founder who addresses problem A.

In my experience with building products, I’ve managed to build products that addressed problem E.

In other words, it was a problem I thought the market should have, but actually didn’t. I was dead in the water. I write about an example like that, and how to prevent it from happening to you, in Launch Tomorrow.

While it’s critical to think in terms of sales you’re going to make when you start a business, first check if you are addressing a meaningful problem first. One that a big chunk of your market thinks they have. And that they’re willing to pay for a solution. Then you set yourself up for hockey-stick growth.

Only then do you build a money-making machine.

Otherwise, you might as well be a missionary.

If you follow the one-day launch sequence in Launch Tomorrow, you’ll get a decent blueprint to do exactly that. Build what your customers want.