See original post at BRYCE DOT VC:

There’s a small myth in startupland that goes something like this:

VCs invest other people’s money, Angels invest their own money.

It often surfaces under the auspices that VCs have an emotional or financial distance from their portfolio companies as they are simply managers of other people’s money.

The problem with this myth is that it ignores a reality of the venture business; which is, that if you’re a founder/partner/managing director of a fund you are also an investor in that fund.

Let me explain.

When a firm sets out to raise a new fund there is always a discussion about the “General Partner (GP) Commitment”. This is the amount of personal capital the managers of the fund plan to commit to it. For some, it’s a signal to institutional investors that the GPs have skin in the game and are aligned with their interests. For others, they see it as a fantastic investment opportunity to back themselves and the founders they work closely with.

Minimum level GP commitments start around 1% of committed capital. Some GPs choose to meet the minimum threshold, some chose to invest much much more. Some GPs put in a relatively small portion of their personal capital, others commit a significant amount of their personal net worth to their funds.

I’m sure there are funds that have managed to skirt the requirement of a GP commitment but I don’t know any of them. So when I hear  that VCs are only investing other people’s money I cringe as it’s simply not true.

A portion of every check we write at OATV has the capital of each partner here behind it. That’s important to us and it should be important to the entrepreneurs we back.

See original post at BRYCE DOT VC:

Over the course of my career as a VC I’ve been involved with a bunch of fundraising. Raising money for our fund. Raising money for our portfolio companies. Advising friends on their fundraising. Lots. Of. Fundraising.

Some of that fundraising has been very successful. Some less successful. And some has been an absolute disaster.

Of the raises that have fallen into the latter category I’ve seen a common theme. At some point in the process, the investigating VC asks the question aloud “how big can this get”. The question itself is not the issues; rather, it’s how long that question persists and festers throughout the ensuing funding conversations.

I was reminded of this fundraising red flag while reading of Rand’s recent adventures. He was right to take note of this exchange (which occurred after their termsheet was signed):

 In a phone call with Neil, she heard him comment that they “needed to do more digging into the market.” In her opinion, this was very peculiar, as investors typically have a thesis and great quantities of diligence long before talking to companies, nevermind prior to a signed agreement. In fact, when Neil approached us, it had been under the auspices of excitement about the SEO/inbound marketing field. One of the things we liked best about them had been their strong belief, passion and knowledge about the SEO landscape. Questions about “market size” and “opportunity” at this stage seemed peculiar.

Had I been advising him at the time I would have told him to stop everything and address that question. No single question has killed more fundraising discussions than this one. It can be framed as a VC wanting to get their arms around the “size of the market” or questioning “how big can this get” or “scale of the opportunity”. But there is a fundamental problem with this line of questioning.

In every single case that I’ve seen this question persist over more than 2 meetings, it has NEVER been resolved.

NEVER.

I’ve watched entrepreneurs go through Herculean efforts in building models to size markets, dissect competition and build analogous growth stories from other industries. And I’ve seen well intentioned VCs burn meeting after meeting with these entrepreneurs genuinely trying to resolve this nagging concern for themselves.

The problem with early stage investing is that markets can never be sized in Excel. If they could be reduced to a formula, we’d all be working at hedge funds. No, the essence of early stage investing is more instinctual.

An investor’s instinct around something as fundamental as whether your business can reach the scale needed for venture capital returns is one that won’t be found scouring the latest market forecasts from Forester or Goldman Sachs. It won’t be found in endless meetings and it won’t be found in detailed financial forecasts or market sizing exercises.

It will be found in the connection an investor makes to you, your product and your vision. Either they will believe it or they won’t. If they do, they’ll want to invest. If they don’t, they’ll simply keep wrestling with the question of “how big can this get” in an unresolvable circle of swirling doubt. All of the Excel wizardry in the world won’t resolve it.

See original post at BRYCE DOT VC:

While the media debates the recent billion plus dollar valuations being thrown at Y Combinator alums AirBnB and Dropbox, they’re missing an opportunity to discuss what I see as the most interesting innovation happening among Y Combinator startups.

This profile of Weebly in The San Francisco Chronicle touches ever so slightly on it:

Despite significant user growth since 2007, Weebly is run by a team of just 13 people, in a space only slightly larger than the Penn State dorm room where founders conceived it. Fanini, the chief technical officer, still works in a closet

On less than $700,000 raised to date, Weebly has built a thriving and profitable business. This growth and profitability positioned them well to raise a significant round of funding at a healthy valuation that will allow them to really scale out their service.

In the traditional venture landscape where “success” is often measured by how much venture capital a startup can raise, Y Combinator is grooming a new generation of entrepreneurs on the fundamental principles of doing more with less and building products based on profitable business models from the outset. Raising as little capital as possible to discover a market then raising less dilutive capital once it’s been found.

As a result, both Dropbox and AirBnB were able to command billion dollar valuations after having raised only a relatively small amount of venture capital ($7M and $8M respectively). Contrast that with other web startups who raised significantly more money to before crossing over into the billion dollar club- Square ($65M), Twitter ($55M) and Facebook ($40M).

Training a generation of entrepreneurs to live as cash efficiently as possible during the market discovery phase of a startup, to me, is the biggest innovation happening at Y Combinator these days. And its clearly paying off.

See original post at Inspired Startup:

Let’s soak the rich – apparently that’s what most Americans think should happen to reduce the deficit including Warren Buffett.  A recent CNN poll says that 63% of Americans wants to raise taxes on the rich.   Everyone knows that our federal deficit is unsustainable.  It’s clear to me that one of the biggest bubbles that we’re building is the government debt bubble - we’ve shifted the consumer, housing, and financial bubble to the government.   The stimulus we’ve put into the economy is nothing short of staggering.  We have to get more efficient and make hard decisions on the federal budget.  Should we follow the public’s outcry to soak the rich?

The President defines the rich as someone who makes over $200,000 a year.  Some interesting stats – “About half of Americans who file tax returns pay almost all the income taxes; the top quarter of filers pay 86% of the taxes; 10% pay two-thirds of the taxes. A mere 1% of Americans earning income pay 38% of the tax revenues—in 2008, that was $392 billion paid by them, out of a total take of $1.03 trillion.” (Thomas Donlan, Dow Jones & Company).  Do the rich need to do more?  I’d argue yes, but not in the traditional sense of more taxes.

Personally, I don’t have any problem providing tax cuts to the poor and the middle class where the need is greatest and where the extra income will be spent right away.  Where I have a problem is not expecting more from the rich.  This is why I’d argue that it is up to the entrepreneurial community and the “haves” to step up and take risk and invest – in a way that drives growth and jobs something I believe the government cannot efficiently do and shouldn’t do.

Most of my uber-rich friends are in capital preservation mode.  I don’t personally believe in trickle-down economics, once the uber-rich has enough capital for their family and future generations they go into capital preservation mode and minimize risk and taxes.  Often times, they’ll buy treasury bonds or other capital preservation investments that do not inherently drive efficient growth.  With limited estate taxes, generational wealth can be passed along to heirs who do not have to work for their money or create sustainable businesses for their employers or themselves.  We should encourage the rich to invest in new businesses and put their creativity and knowledge to work.  Take this crazy idea for example:

Create jobs and more wealth creation: Fund every entrepreneur.  I’m an angel investor that has invested in over 32 companies and I don’t have the means to invest in every opportunity I see, but why can’t we fund every entrepreneur to give their dream a shot.  Here’s how I would do it.  The entrepreneur needs to put up 50% of the cash for the startup and gets matching funds from any “rich” individual for a company to get started up to $50K.  The investor gets to immediately write-off the entire investment off of ordinary income (very similar to a charity) up to the amount of the increase in taxes that Buffett or Obama proposes.  If the “rich” do not make the investments, they must pay the additional taxes levied.

Here’s where it gets more interesting for the entrepreneurs: The investment reduces risk for the entrepreneur and the investor.  The entrepreneur gets someone who can provide guidance on how they became rich and could be a source of additional capital, advice, mentorship, and networking.  The investor gets to see a return on their investment that should be larger than a muni-bond or treasury.  Even if the venture fails, the entrepreneur and investor gained valuable experience that can be passed onto the next venture.  These days, technology companies and businesses can get their unit economics and business model working on a small scale with a budget less than $100K.

Every person in America who has a dream can do this, they have to have their own skin in the game (50%), they have to marshall resources from friends and family (just like every entrepreneur does), and there is a government subsidy for the rich to invest and to take risks.  Even if just 1% of all these businesses succeed, the profits and jobs created will be substantially greater than the tax subsidies provided by the government.  Those who are unemployed get to use their creativity to build businesses and investors get an opportunity to participate in investing in non-traditional companies.

Based on my limited interaction with entrepreneurs, this could create over 10MM new businesses (3% of 300M).  If we find the next Microsoft, Google, Zynga, Facebook, Starbucks – which is highly likely we could create over 10MM new jobs for the economy in the near term (2% = 20,000 strong companies with ~500employees).  The cost would be the tax deduction for $50,000 against 10MMbusinesses or $175B (assuming a 35% tax rate) if this was all new investment dollars and would be levied as a tax hike only if the “rich” do not make any investments.  We need the rich to invest more, innovate more, be entrepreneurial, and be rewarded for doing well – the rich and the entrepreneurial will help America get the economy and the federal deficit back on track.

I’m sure I’m not the only one with this idea.  What do you think?  Wouldn’t it be great to see more people creating opportunities when jobs are hard to come by?  Perhaps we can find an entrepreneurial way to build a bridge to the prosperous future for everyone especially those who are unemployed and are struggling.

See original post at Dan Shapiro:

Shortly after the sale closed, John Cook interviewed me about the experience.  He did a great job of transcribing all of my verbal gems, like “Maybe that is an economic way of looking at it, or something that I am unfamiliar with.”  I’m not even sure what that means.

It was the best I could muster in the middle of a crazy, exciting, wild time.  But looking back, I realize that there’s an important question there and I didn’t do it justice.  Selling a company can be a very lonely decision, so I want to revisit John’s question and share my thinking with others who might be making the call.

 

It was a great deal for the shareholders

Most VCs don’t care how long your company takes to show a return – they don’t get to re-invest proceeds of their deals, so if you exit early, the money sits in a bank account earning interest for years instead of contributing to their returns.  Since my investors were angels, they would look at the exit on a time-adjusted return basis.  Or put simply, if I could give them back their capital plus a great return in just six months, that could be a terrific outcome.

It was our #1 choice of acquirer

Most startups are acquired.  Actually, most startups fail – but of those that are successful, most are acquired.  Given that an acquisition was, one way or another, the most likely outcome for Sparkbuy, I compared Google to a list of about a dozen other potential acquirers.  They were at the top of my list.  If was going to go to work for The Man, I was more excited about The Man being Google than anyone else.  The employees (both of them!) felt similarly.  Even the investors appreciated the bragging rights of having a portfolio company sell to Google.
Further, the people who I would be working with were amazing.  Scott Silver has always been one of my engineering leadership idols.  After trying to recruit Phil Bogle to Ontela I knew I wanted to find a way to work with him.  While I’ve never been excited about having a boss again, Nick Fox was someone I actually knew I’d enjoy working with and learning from.

I was excited about pursuing the Sparkbuy vision at “Google-scale”

The Sparkbuy product was launched out of a personal frustration with consumer electronics shopping, but the problem is much broader.  It’s just hard to find reliable, accurate, unbiased, quantitative information about products.  Search engines favor old prose over fresh data.  Sparkbuy was about helping consumers make better decisions.

The team I’m working on now is taking that opportunity to the next level.  With business development resources, the Google brand, Fortune-100 budgets, and an appetite for giant risks, we can tackle problems at a broader scale than ever before – making consumer purchasing easier, better informed, safer, and faster.

Working a real job sounded like a good idea for a while

After eight years at startups, the idea of pulling a steady paycheck for a few years was seductive.  Some personal events, while ultimately amounting to nothing, made me feel like having great health insurance wasn’t a bad idea either.  (Soapbox sidebar: health insurance reform is key to promoting entrepreneurialism and small businesses in this country!)  I loved the idea of keeping a more regular schedule, and spending a bit more time with my family.

The money was life-changing

While I’m not in the position of my good friend Rand, who’s gone on the record saying that his life savings is $25,000, I was not previously wealthy.  The Ontela/Photobucket merger was a spectacular deal for all parties involved, and I didn’t take any cash of the table – I’m still 100% invested in Photobucket.  That means the Google sale accomplished three lifelong goals for me: allowing me to set aside enough to pay for my twin toddlers’ college educations, funding my wife and my retirement account, and giving us a financial cushion that means I’ll never have to work at a job I don’t love. It also meant that, overnight, I can pay some karma forward and start investing in startups that I’m excited about (more on that soon).

I get to swing for the fences

Some people are wired for the “billion dollars is cool” kind of risk that folks love to write articles about.  I wasn’t, at least not until I figured out the aforementioned three problems.  At least I was in good company, though – my new great-grand-boss, Larry, famously tried to sell Google for $1mm and failed.

But this lets me play the Shawn Parker game without regrets.  When I start my next company, I can swing for the fences.  Or self-fund it and do something that I love, without worrying about maximizing shareholder value.  Which brings us to…

The company was in a great position to raise money, but I didn’t want to

As the CEO of a startup, I’m dedicated to pursuing value for the investors who’ve extended me their trust.  One of the primary inputs to my decision making is how best to create value for shareholders over the life of the company – it’s not the only consideration in decision making, but it’s a big one.

One of the reasons I founded Sparkbuy was that I was excited to try a different way of building a company.  While I was at the helm of Ontela (now Photobucket), we raised over $30mm.  That’s a ridiculous amount of money.  We had a lot of fun and accomplished some amazing things along the way.  I worked with a team of fantastic people and was never happier than when I was going in to work to spend time with them.  If I had it to do over, I’d do it the same.

But I find there’s two type of people in the world – those who like refining one thing over and over and getting really good at it, and those who like trying new things.  You can guess which category I fall in to.  I wanted to try something different – a smaller raise ($1mm), angels instead of large VCs, and growing organically based on revenue.  That’s what I did with Sparkbuy, and it was a good decision when I made it.

But markets continued to heat up to a fiery glow.  The valuation of comparables in our space was shooting through the roof.  Competitors were raising rounds in the double-digit millions.  It was becoming increasingly clear to me that the best strategic decision for the company was to raise a large financing round at a lofty valuation and grow like crazy – but I wasn’t particularly excited about doing that.  In other words, what I thought was best for the company wasn’t what I, selfishly, wanted to do.

If I hadn’t sold, I would have raised money, and I didn’t really want to do that.

It was time to spin up a B2B strategy

Much as Sparkbuy’s direct-to-consumer website was winning rave reviews from users, there was new and substantial interest was on the part of other companies.  We were getting offers to do long-term deals with Fortune 500 companies that would generate huge revenues over a period of years.  Of course, pursuing those would have required raising a bunch more money.  Once again, this was what I did at Ontela; and once again, while it was fun, I wasn’t excited about pivoting Sparkbuy in that direction.

The biggest risk was still ahead of us

The bigggest challenge for any consumer startup is how to profitably acquire customers.  We knew from the start that this was the largest risk factor for Sparkbuy, and with the launch of our beta (a month before the sale), we were just starting to dig in to this problem.  I had a list a mile long of initiatives to drive profitable growth, but in the end all you can do is experiment and iterate, and it can take a long time to find the magic.  Our value as a company wouldn’t hit a new inflection point until we solved this problem, and it was a long ways off.

To sum it all up

Some of my investors were overjoyed.  Some of them were sad that Sparkbuy would never grow in to its own.  I’ve been called a sellout, and people have told me that I epitomize what’s wrong with entrepreneurs outside the valley.

It’s all cool.

I don’t claim my decisions are right for any other company, or anyone else.  This was not the hardest decision I’ve ever made.  It wasn’t even in the top 10.  There were a lot of moving parts, but at the end, it was simple.  Google hit my “life changing” number, provided a great return for my investors, gave me and my coworkers terrific jobs, and made it all happen six months from the day we were incorporated.  I’ll have other companies some day, and I’ll play them differently.  Your decision, should you be called on to make it, may be quite different – but I hope it leaves you feeling as lucky as mine has!

(One more thing: you should subscribe via RSS so you get new articles. You can also follow me on Twitter, or get new articles by email.)

See original post at Andrew Chen (@andrew_chen):

There’s more than one way to use this tool
A/B testing is a very useful tool that can be used to develop better product designs, rather than just evaluating landing pages.

In a classic A/B test, you’re metrics-driven and want to pick whatever test variant ends up with the higher numbers. This is a useful tool, but is only applicable to scenarios like signup flows where the conversion is obvious. This post will describe some different tactics that are metrics-informed and end up as an aid to your product design process, rather than driving it.

The tactics I’ll describe are for:

• Updating your product without negatively impacting numbers
• Streamlining your product by measuring and removing unused features
• Designing for the right level of prominence

Updating your product without negatively impacting numbers
Product teams are constantly pushing small updates to their products in response to customers and what’s happening to the market. When an update affects a key part of the product, particularly to the main signup flow or core viral loop, it’s often important to ensure that it doesn’t hurt the numbers.

For example, let’s say you’re building a new social site and you have a Facebook-integrated “friend finder” option that you want to add. If you build this and test it, you’ll likely find that since it’s unoptimized, it’ll have worse initial numbers. A classic A/B test will often eliminate the new design because it performs worse. But instead of killing it prematurely, you can use an A/B test to iteratively “bake” the new design with a small % of users until it’s ready to replace the old one.

If you know that it’s important to have this type of Facebook integration in your product design, what you do is leave it in, but only expose 10% of your users to it. Then keep making small updates to the design, working on the copy, call to action, and other aspects, until the new design performs as well as the original.

In this way, you can update your product without impacting the numbers negatively. And unlike a classic A/B test where you aim to just pick a winner, instead you are using it to incrementally benchmark a new design until it’s ready to replace the existing one. For this, you are design-led because you know you want to execute this product in a particular way, but you use the A/B test as a safety net to make sure you don’t push out something that’s not ready.

Streamlining your product by measuring feature usage
There’s an important design principle that says, “Do less, but better.” I’ll elaborate on my POV of this philosophy more in a future post, nevertheless many product teams struggle to remove features, or even to quantify unused features.

For example, you might have a legacy feature that suggests people to follow on your social site, which you’d like to replace with a Facebook-based “friend finder” screen instead. Sometimes it can be difficult to get rid of navigation on something like this because it’s not clear how many people are really using it and how that affects their behavior overall, especially new users

A nifty way of using A/B tests to handle this is to run an A/B test to remove the feature, and get the following information back:

• How many people actually get exposed to this feature? (Based on what % of people get added into the experiment versus your active users during the test’s time period)
• What metrics are affected by people who have this feature removed? (As long as the metrics are neutral to positive, then you can remove it safely)
• If some metrics are bad, can you counteract it by adding something else to the new design?

Similar to the process of updating your product, the important notion here is that you have a particular action you want to take on a design level (simplify the UX) and you use the A/B test as a tool to aid that design goal. In this case, rather than going with whatever has better metrics, instead the goal is to go with the better design as long as it’s neutral or better on the numbers.

Designing for the right level of prominence
As you model out the key metrics for your product, there’s often important assumptions that need to be made on things like what % of your users invite their friends, or how many friends they invite, etc. Oftentimes, entire product strategies hinge on making sure that certain kinds of metrics get hit- it could mean the difference between being a viral eyeballs business versus one based on lifetime value and ad spend.

From a product standpoint, this manifests itself as trying to figure out how prominent to make things like “Invite friends” or “Import your addressbook” or “Subscribe to the Pro version.” To build a great UX, you often want to make something as low-prominence as possible while still making sure it’s easy and accessible for users.

A/B testing can help a lot here since you can test multiple versions of prominence and see where it takes you. If you want to prove that a model is even possible (for example, in the very best case could we get 20% of our users to invite their friends?) then you can make a popup that asks for friend invites constantly and see if you are even close. The point here isn’t that you would ever actually close the experiment with the obnoxious popup, but rather, it helps you do a sensitivity analysis of what might even be possible, to see are realistic values within your model.

You can use this technique hand-in-hand with the other ones listed above so that you eventually take a high-prominence version of it and iterate until it’s acceptable to show to 100% of the users.

Final thoughts
The thing that all of these ideas share is that you are using A/B testing as a tool to aid in a broader and stronger design POV rather than slavishly following whatever has the better metrics outcome. As others have discussed before, it’s the difference between data-informed versus data-driven. Many features you’ll want to do in your product have lots of qualitative value, even if the short-term quantitative benefits are difficult to measure or not there at all- using these advanced tactics lets you continue to push out dramatic new designs but without hurting the metrics your business depends on.

See original post at cdixon.org – chris dixon’s blog:

If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.

That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property.

Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody. Accordingly, it is a fact, as far as I am informed, that England was, until we copied her, the only country on earth which ever, by a general law, gave a legal right to the exclusive use of an idea. In some other countries it is sometimes done, in a great case, and by a special and personal act, but, generally speaking, other nations have thought that these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.

- Letter from Thomas Jefferson to Isaac McPherson

See original post at BRYCE DOT VC:

Just over a year ago a dear family member of mine lost his job. At almost 50 years old, trained as a mechanical engineer and with the same company for the bulk of his career he was let go. He quickly found himself in the worst employment market our generation had ever known. After a search for a lateral move into another company failed to yield a job he set out to create a higher order set of skills. After matching his own interests to current technology trends, he decided to retrain himself for the world of security and computer forensics. Within 3 months of enrolling in a masters program on the subject he found work in his field.

Fast forward to now and he’s within striking distance of his masters degree and a few hours of training from receiving two additional professional certifications. Most importantly, he’s loving his work, excelling in his field and positioned well for the future. Hearing him retell his story at a family gathering this summer gave me a chill up my spine and a smile from ear to ear.

I thought of that his story as I read news this weekend of an ambitious automation plan unfolding at Foxconn. For those unaware, Foxconn is a large manufacturer behind many of the electronics we user everyday. They employ over 1 million people. And, over the next 3 years, they plan to add another million to that workforce. But, those 1 million new hires won’t be people, they’ll be robots.

Time will tell what impact these robots may have on the current employees of Foxconn, but Arik Hesseldahl from AllThingsD, makes an important observation based the impact of automation on the auto industry:

“as anyone who knows even the barest details of the history of factory automation in the U.S. auto industry is aware, robots have a funny way of causing job losses. While Foxconn already uses some 10,000 robots now, the story says, the number is going to multiply by a factor of 100, to one million robots within three years. If those numbers turn out to be accurate, there is simply no mathematical way that some portion of the 1.2 million people currently in Foxconn’s employ can avoid losing their jobs. And that can’t help but cause other unexpected ripple effects throughout the Chinese economy.”

It’s highly likely the Foxconn robots will have a similar impact. And they should.

The role of any technology whether it’s software or electronics should be to free us up to build higher order value. Much of the ecconomic predicament we find ourselves in today is a result of not rising up to create that higher value that automation and technology free us to do. Instead, many are clinging to the institutions and processes of the past in hopes this wave of technology revolution passes, leaving them unaffected. Unfortunately, it won’t. As Seth Godin put it in his fantastic post titled The Forever Recession:

“Protectionism isn’t going to fix this problem. Neither is stimulus of old factories or yelling in frustration and anger. No, the only useful response is to view this as an opportunity. To poorly paraphrase Clay Shirky, every revolution destroys the last thing before it turns a profit on a new thing. The networked revolution is creating huge profits, significant opportunities and a lot of change. What it’s not doing is providing millions of brain-dead, corner office, follow-the-manual middle class jobs. And it’s not going to.”

So, here’s a rule for anyone looking to build a business or career in the 21st century- any task that can be automated will. Plan, train and build accordingly. There is so much higher order value yet to be created. And the rate innovation is only going to continue to accelerate.

The robots are coming. Whether we thrive or struggle to survive in this new reality is entirely within our control. The family member I mentioned above is thriving and I think there’s a lesson in his experience we can all learn from.

See original post at Andrew Chen (@andrew_chen):

The “Ultimate Driving Machine” is a classic slogan that makes BMW compete based on position, not features.

It’s hard to keep things simple, especially when adding so many new features
In my recent post on the virtues of marketing simple products, a couple readers wrote in to write a really interesting questions – here’s a particularly interesting one by Mark Hull:

How do you ensure that by simplifying your product too much, you are not losing a competitive edge by a lack of additional features/functions?

Every product team struggles with this question- it seems like naturally adding more featureset adds more power to the product, yet at the same time adds complexity that makes it hard for new users to even get started. This is a common problem in the initial version of a product, because most of the time the first version doesn’t work, and the most obvious way to solve the problem is to just keep adding features until it starts to click. Yet does this ever work?

Don’t compete on features. If your core concept isn’t working, rework the description of the product rather than adding new stuff.

Make sure you’re creating a product that competes because it’s taking a fundamentally different position in the market. If the market is full of complex, enterprise tools, then make a simpler product aimed at individuals. If the market is made up of fancy, high-end wines, then create one that’s cheaper, younger, and more casual. If the market is full of long-form text blogging tools, then make one that makes it easy to communicate in 140 character bursts. If computers are techy and cheap, then make one that’s human and more premium. These ideas are not about features, these are fundamentally different positions in the market.

BMW is the Ultimate Driving Machine
My favorite example of differentiated market positioning in a very crowded market is BMW’s “Ultimate Driving Machine” slogan. It’s not just a marketing message, you know it’s true when you sit inside a BMW and turn on the engine. Among other things, you’ll notice that:

• The center console is aimed towards you, the driver
• The window controls are next to your stick so it’s easier for your right hand*
• … and obviously the remarkable driving experience

Furthermore, when you go to the dealership, the entire experience keeps reinforcing the “Ultimate Driving Machine” message. The point is, the positioning is about the driving experience and the engineering to back that up.

In a price and features comparison, it’s unlikely that BMW would ever come on top- it’s expensive, and very little of the money goes into the interior and niceties that you’d expect out of a Mercedes. Yet people end up buying BMWs not for the features, but because it’s a fundamentally different car than a Mercedes (or at least it feels that way).

I’ve always felt that Apple goes this way too, where their products are more expensive and often do a lot less than competitive devices, yet win because they have a more cohesive design intention across their whole UX. Again, the idea here is more about competing via a differentiated positioning rather than based on a feature checklist.

You’ll never win on features against a market leader
The other important part to remember is that for the most part, if there’s a winning product X on the market, you’re unlikely to win by creating the entire featureset of X+1 by adding more features. Here’s why:

• First off, that’s crazy because you have to build a fully featured product right away, and that might already take years to match a market leader
• Secondly, as described in the Innovator’s Dilemma, if you’re mostly copying the market leader and then adding features, those features are likely to be sustaining innovations that is likely on the incumbents roadmap already- by the time you’re done, they’ll either have it or just copy you

Instead, the idea is to have a simpler product that attacks the low-end of the market leader’s product by taking a completely different market positioning. That way, you don’t have to build a fully featured product and you can take a completely different design intention, which leads to a disruptive innovation.

Ramifications for startups building initial versions of a product
I think there are three key ramifications for teams building the first version of a product.

The first is: Don’t compete on features. Find an interesting way to position yourself differently – not better, just differently – than your competitors and build a small featureset that addresses that use case well. Then once you get a toehold in the market, you can figure out what to do there. This doesn’t mean that new features are inherently bad, of course- they are fine, as long as they support the differentiation that you’re promising.

The second thing is: If your product initially doesn’t find a fit in the market (as is common), don’t react by adding additional new features to “fix” the problem. That rarely works. Instead, rethink how you’re describing the product and how you deliver differentiated value in the first 30 seconds. Rework the core of the experience and build a roadmap of new features that reflects the differentiated positioning. Avoid add-ons.

The third is: Make sure your product reflects the market positioning- this isn’t just marketing you know! If your product is called the Ultimate Driving Machine, don’t just slap that onto your ads and call it a day. Instead, bring that positioning into the core of your product so that it’s immediately obvious to anyone using it- it’s only in that way your product will be fundamentally differentiated from the start.

* UPDATE: An astute reader, Greg Eoyang, pointed out that the modern generation BMWs (E90s) are different now- I have an E46 that’s a few years old, so I was basing my observation on that. He writes:

First of all, a most modern BMWs do not have the window controls near the stick, that’s like 2 generations old, they are on the windows just like Honda’s these days.  BMW doesn’t even tell you about a lot of the features that have been standard for a long time – such as speed variable volume on the radios – Wide Open Throttle switch (back in the non-CPU days, it cut off the air conditioner when you floored it) – They have improved the concept of a car which is more than the features.

Thanks for the additions Greg!

See original post at BRYCE DOT VC:

The rise of the iPad became that much more interesting this week as sales numbers from Apple’s quarterly earnings poured in.There’s been plenty of clear and concise analysis done over the last few days, so I will stay way from that.

But, I do want to highlight one theme we’ve touched on here before via a few excerpts from the others.

From the NYT:

As one example of its success, Apple turned its tablet into a $6 billion business in the quarter. That is twice as big as Dell’s entire consumer PC business.

From Business Insider:

if the iPad were lined up against all other computers, it would be the fourth-biggest computer brand in the world — after HP, Dell, and Lenovo, and ahead of Acer. 

Run a Google search for PC and here’s what you get.

See what I’m getting at?

Apple isn’t competing with PC manufacturers by making a better, faster, smaller PC, they’e competing by not making a PC at all.

This is an industry disrupted.

PS- it was Michael Dell who famously advised Steve Jobs in 1997 to shut Apple down and give the money back to it’s shareholders. Tonight Mr. Jobs will be dining on irony with a side of smug self satisfaction.