Ever heard about the ultimatum game? It’s probably one of the most important concepts related to entrepreneurship, and one that had profound impact on my business.

Here’s how it works:

You’re walking down the street when someone approaches you with a weird proposal: he’s offering you $100 that you get to share with a random stranger who gets to decide how to split the money between both of you. If you agree on the split, you both take your shares and walk away with free money. If you don’t agree, neither of you gets any money.

Now if the other person deciding the split is fair enough to offer you a 50/50, or a 40/60 split to his advantage, you’re most likely to agree and take the money. But something interesting happens around the 30/70 split: most people reject the offer and walk away with NO MONEY.

In other words, you’ll walk away from getting $30 of free money because you don’t think the other person should get $70…

Because you don’t think it’s a FAIR deal.

And this is a good example of how our emotional justice system overrides our rational thinking, causing us to miss great opportunities in many cases.

Why is this important for entrepreneurs?

As you’re creating your product, you often think about what would be a “fair price” for you and your customers. Most entrepreneurs use a formula that is a combination of the time/effort it took them to create the product, and a percentage of the value it’s providing to potential customers.

But what if instead, you decide on offering a price that makes your customers feel YOU are getting the unfair end of the deal? What if you let them run with the $70 or even $80, and you get to keep only a $20?

Here’s an example on how I’ve applied this concept and got amazing results.

When I launched Keynotopia 3 years ago, I promised customers free updates for life. Since then, I’ve added thousands of new UI components and icons that provide more than 10x the initial value they had paid for, and they all got all of these updates for free!

Whenever there is a new update, like the recently launched iOS7 prototyping templates, I get some customers asking where they need to pay to get it, and others emailing me to advise me to charge monthly fee for these updates.

And my answer has been always the same: “enjoy it, it’s a free update.”

I could definitely be making extra money by charging a recurring monthly fee, or an annual update fee, but I’ve always decided against it.

Whenever we launch a new free update, I receive dozens (sometimes hundreds) of emails from existing customers thanking me for it, sharing with me stories about how the templates enabled them to validate their ideas, get angel funding or land new clients, and promising to spread the good word about the product. That’s worth a lot more in personal gratification and word-of-mouth advertising than the money I’d be getting from charging for those updates.

To my customers, I am getting the unfair end of the deal, and they try to make up to me by spreading the good word about the product.

At the end, I think we’re all getting our fair shares of that deal, but it wouldn’t have worked out that well if I were too concerned about having my fair share in the first place.

Related Posts:

– Hacking the status game

Every one fails at some point or another. However, very few can survive so many failures, and fewer would take one hit after another, and turn them into a lifetime of accomplishments.

The following is the true story of a man who did exactly so…

On a cold autumn evening, a middle-aged man stood alone by the shore of Lake Michigan. The plan was simple: to walk into the cold water and swim until he gets tired and drowns.

Before him was a life full of failures and shame: he was expelled from college, the business he started had gone bankrupt, he’d lost all the money he’d borrowed from friends and family, he was unemployed, and his two year old daughter Alexandria had just died from Polio.

Removing the burden of his own life sounded like the best option; that way, his family doesn’t have to deal with him coming home drunk every night, and his life insurance policy would provide for them for years to come.

As he was getting ready to commit to his suicide plan, he was seized by a strong voice that caused time to stand still while speaking directly and clearly at him:

“You do not have the right to eliminate yourself. You do not belong to you. You belong to the Universe. Your significance will remain forever obscure to you, but you may assume you are fulfilling your role if you apply yourself to converting your experiences to the highest advantages for others”

Despite being a pragmatic engineer and a rational thinker, he didn’t question or resist that experience. He didn’t know if the voice was speaking at him or coming from within his own head, but it sounded like a plan worthy of trying.

Little he knew that the simple plan of turning his life around and offering it to the greater benefit of others would transform him into one of the most successful scientists, designers, architects, engineers and authors.

By the time Buckminster Fuller died at 87 (55 years of having this transformative experience by Lake Michigan), he held 28 patents, wrote 28 books, received 47 honorary degrees, and traveled around the world dozens of times teaching and lecturing. His most popular invention, the geodesic dome, has been reproduced over 300,000 times throughout the world, and during his lifetime, he commanded millions of dollars in research and development budgets.

But Fuller’s contribution wasn’t just his inventions, but the philosophies and principles that led to these creations and accomplishments:

“A human being fulfilling her role in the universe is entitled to being sustained and supported in a similar way that nature sustains and supports its own ecosystem. Financial gains should not be factor in selecting an area of work; a person would make money if he concentrated his efforts on activities that made sense and supported the greater good of humanity.”

Fuller’s beliefs were supported by his observations of the perfect design and order that governed nature, and his life was a perfect validation of these philosophies: he never worked for money or attempted to accumulate wealth, he turned all his profits toward doing further research and product development, and he never attempted to market and sell his ideas or tried to impress others with them. Instead, he identified problems that no one was fixing, created artifacts, and waited for the problem to become critical enough to gain massive public awareness then introduced his solutions.

In a time where many products are born out of ideas rather than critical problems, Fuller’s words couldn’t be more true:

“Find something that needs to be done, and that no one else is attending to, and go do it”

Recommended Readings:

– Buckminster Fuller’s Universe

– Pilot for Spaceship Earth

It all happened too fast…

The raft entered the rapid, heading directly toward the rock wall, and bouncing up and down through the waves. I heard the guide yelling something about leaning in and holding on. The side of the raft hit the rocks and was thrust by the strong current further up the wall. The four people who were sitting across on that raft a minute ago were now almost directly above me, holding on to their dear lives.

Then Ralph fell off the raft and was swept away by the strong current.

But that wasn’t the worst part…

The huge raft behind us was now entering the rapid, with 9 people onboard, and was heading on a direct course toward the rock wall that Ralph was trying to swim away from.

I heard our guide yelling “NO! NO!” and took a final glance at Ralph’s floating body disappearing behind the big blue raft.

I closed my eyes and clenched my teeth. That was NOT how I’d imagined a relaxing white water rafting trip to end…

***

It started out a beautiful Friday morning on the banks of the south fork American river. My girlfriend and I had camped the night before, and woke up on the sound of crashing river waves. One of the perks of running your own business is that you can decide when to take your weekends, and we had decided that Thursday and Friday would be our weekend, and booked a white water rafting trip.

But what I did not expect is that we’d end up on a raft with 60+ year old seniors who’d just made their big escape from of a retirement home in the East Bay to come and have an adventure on the river.

“This is going to be booooooring!” I thought.

Once we got into the water, I realized I was wrong: Apparently, when the remaining years of your life drop to a single digit, you start to take life less seriously, and more adventurously. After all, hitting the ground a couple of years sooner, and hitting it on your own terms, is more exciting than going quietly on a bed in a retirement home.

These guys turned out to be a fun and relaxing crowd. And when the raft was floating peacefully on a quiet segment of the river, I asked them:

“When you look back at your lives so far, is there anything that you regret, or something you wish you would have done differently?”

“I wish I had taken music more seriously,” said Marianne, “I grew up in a family where everyone is a performer or a musician, but I’ve chosen the safe route and took on a career that I didn’t like. Now I wish I’d continued my practice and never fallen into the status quo”

“I wish I had relocated to a foreign country where I’d learn a new language and experienced different ways of living and thinking, instead of locking myself up into the same culture and perspective my entire life,” added Kent.

“I wish I had become a rock star,” Doug said with a smile that carried a hint of melancholy, “As a child, I’d always believed I could become one, but when I grew up, I worried what people might think if I had tried and failed. The closest I can get to that dream right now is to grow a pony tail and sing on Karaoke nights at the retirement home”

In turn, each of them added to list of wishes and regrets, except the gentleman sitting quietly at the end of the raft.

“What about you, Ralph?” asked Lindsey, “What would you have done differently if you were to live your life all over again?”

“Absolutely nothing,” said Ralph with a confident smile.

“Why is that?” I asked “What did you do with your life?”

“I started 8 companies, hired and worked with the best people, and had a blast every single day of my life!” Ralph answered “I’d do it exactly the same if I were to do it all over again”

I smiled and nodded in agreement.

“What about you?,” asked Lindsey who was now more curious to get everyone’s answer.

“I’d have started my business much sooner,” I replied, “I thought I had to wait until I knew what I was doing, but that was a mistake. I still don’t know what I’m doing, but I became much better at figuring things out as I go.”

It was Ralph’s turn to smile and nod in agreement.

***

Less than an hour later, Ralph’s body was being carried through the cold waves toward the rock wall, and a huge blue raft with 9 people onboard was on course to crash his head against it.

Fortunately, the guide steered the raft away from the rocks in the last moment, turning it around so that two people could manage to pull Ralph into the raft.

For the remainder of the trip, I contemplated the regrets of the group on that raft…

I realized that all regrets were things that people DID NOT do, rather than things they DID. They did not follow their dreams out of fear of failure or worry of judgements. And it’s only near the end of the journey that they realized they should have done all those things when they had the chance to, and before it was too late to do so.

And the only person with no regrets was someone who did what he wanted over and over again.

I didn’t ask Ralph if his companies succeeded or failed. It didn’t matter. What mattered is that he started them. And for that reason alone, he had no regrets.

Related Posts:

– What I wish someone had told me 4 years ago

– How I launched a profitable product in 3 hours!

– How to prototype iPad apps in 30 minutes or less

Over the years, I’ve heard mixed opinions about this topic. Some people say keep your job and work on your idea on the side, because you need the income and you never know if your idea is good enough. Others say having a job will prevent you from giving your full attention to your idea, which might be the reason it fails or someone else beats you to it.

And I’ve seen friends who left their jobs pursuing an entrepreneurial dream, only to start looking for another job a few months later, and others who never regretted their decision to quit.

In my case, I quit even before having an idea or a plan. My corporate job was draining my energy, and I knew that quitting was the right thing to do. Not having mortgage or kids definitely made that decision easier, but it took three years and a couple of failed products to start generating revenue from my ideas. In the meantime, I supported myself by consulting for other companies, which gave me the freedom to work when I needed to make money, and to focus on my products full time otherwise.

I am not recommending quitting before having an idea or a plan, but in retrospect, it was the best decision for me.

So when should you keep your full time job?

– If you need a regular income to sustain your current lifestyle, pay your mortgage, put your kids through school, etc…

– If your idea isn’t clear enough, or if it hasn’t been validated or tested with the market.

– If your job is actually giving you the experience you need (business, marketing, design, development,…) to execute on your idea.

– If you have enough time to work on your idea during the evenings and weekends, and you’re seeing good progress and results.

Sometimes having less time to work on your idea may work to your advantage: you’ll be more focused and more productive, and you’ll be wasting less time reading news and attending events. Having less time will force you to use it wisely.

And when should you quit your job to pursue your idea?

– If your job is draining you from the energy you need to work on your idea.

– If you have enough savings, or another source of income, that can support you till you start generating money or secure some funding.

– If you can consult or freelance for other companies to make some money while working on your idea. This is a great option because you’re in control of your own time, and you work only when you need to.

– If you can quickly implement part of your idea that becomes profitable enough to support your work on expanding and improving the product. This is my favorite option because your idea has already been validated, and you no longer need to divide your time between making money and working on the product.

Keynotopia, which was launched in a weekend and became instantly profitable, was literally a bullet point in a large product vision and business plan that I had been working on at the time. I stripped it out and launched it as an individual product, and it’s now helping me bootstrap that larger vision.

At the end, it doesn’t matter whether or not you quit your job. What matters is that you do work on your idea. If you’re passionate enough and you believe in it, you’ll make time either way.

Related posts:

– How I launched a profitable product in 3 hours

– What I wish someone had told me about startups 4 years ago

I recently learned an interesting fact: Most of the fuel in a space shuttle is burnt in the first few minutes of launch, in order to bring the shuttle to enough speed and altitude to escape Earth’s gravity without falling back.

That speed is called escape velocity.

Once the shuttle breaks free, much less fuel is needed to make it to the orbit.

Why is it interesting?

Because starting something feels the same.

A great effort is initially needed to break free from the gravity of our inaction: thinking about the idea, talking about the idea, reading about other people’s ideas, and anything that’s not “working on the idea”.

During that gravity stage, much effort is needed just to get something off the ground. That’s why most people give up on their ideas too early, believing it’s going to always be this hard, and without seeing significant results.

But once we reach escape velocity, less effort is needed to keep pushing up. Our effort is then used to move forward, and to change direction. We have momentum, we’re getting results, and we’re improving them.

And most importantly, we have a new habit: action.

We shouldn’t feel intimidated by the effort it initially takes to launch an idea and get it off the ground, or frustrated from the lack of early results. This is normal.

Our biggest challenge is not failing; it’s starting.

Once we’re moving, and once we’ve reached escape velocity, it gets better.

Or at least, it feels better 🙂

I recently had a very interesting conversation with a friend who recently launched an online business, and it surprised me how our fears are never what they seem to be

It went something like this:

B.: I need your help. I launched my product a few months ago, but I am not getting any sales.

Me: Do you have traffic?

B.: Not much, about 100 visitors a month

Me: Then you need to get more traffic. You probably need at least 100x that amount in your market to start seeing any sales.

B.: And how do I get that many people?

Me: It might take a while, but find out people who would love to have your product, or who are buying similar products and tell them about it. Start with people you already know, then ask them to spread the word.

B.: I thought about sending a blast email to my contact list telling them about the site, but I am afraid they’d visit it and never buy anything.

Me: Then at least you know that there is something that needs to be fixed or changed. In that case, you contact them and ask them why they didn’t buy and what you can do better for them to buy next time.

B.: hmmmm….

Short silence…

B.: OMG! I just realized that I am not really afraid that my idea would fail, I am afraid that people would think my idea isn’t good enough. I am not afraid of failure, I am afraid of rejection.

That was one of the fastest entrepreneurial epiphanies I’ve witnessed, and it made me reflect on my own fears as well.

Maybe what we’ve always believed to be a fear of failure is really a fear of rejection, which is a much more instinctive and concrete form of fear. Maybe that is the threshold that is keeping too many people from following their ideas: becoming outsiders, and being judged or ignored by others.

The other option is not to follow our ideas, which makes us automatically accepted among the multitude who never followed theirs, and that’s a very comfortable and safe place to be.

Because failing isn’t fun. And being rejected isn’t that fun either.

So how do I deal with it?

I keep some distance from my ideas and products. I love what I am working on, but I don’t identify myself with it. The fact that it fails or succeeds doesn’t make me a failure or success, it just means that I gotta keep improving it, or try something different.

So. What are you *really* afraid of?

You will also like reading:

• How I launched a profitable product in 3 hours
• What I wish someone had told me 4 years ago
• How to prototype iOS apps in 30 minutes

Photo Credit: Pranav Mistry

Being a good hacker is an invaluable skill. But is being a coder the same as being a hacker? Is it possible that coders are at a creative disadvantage to hackers who don’t know how to code?

Here’s a story that helped me see the difference.

I was recently invited to mentor at Startup Weekend. On Friday night, we gathered to eat pizza, pitch ideas, create teams and discuss launch plans. At the end of the day, everyone was feeling great about what they’d be working on for the rest of the weekend.

I arrived Saturday morning to find people hard at work. Some people stayed overnight to jump start their ideas. That’s the startup spirit!

But I was surprised to see so many teams already writing code! It seemed that the rush to get something up and running by Sunday evening made most teams focus on implementing their first ideas, rather than exploring different ideas and hacking the best ones.

Sounds familiar?

One team stood out because they didn’t have any coders. So they spent their time creating prototypes with PowerPoint, going around the room testing them with other teams, getting feedback, and returning to their table to discuss and refine their ideas. They were the loudest, most animated, most outgoing, and they seemed to be having lots of fun. Most importantly, they were progressing much faster than other teams because they weren’t lost in the details of figuring out how to make something work in Rails or PHP.

On Sunday morning, they had an epiphany that made them abandon all their previous prototypes and go back to the drawing board. I saw them creating a new concept in a matter of hours. Because they didn’t write code, they didn’t feel bad about throwing away previous day’s work (that’s what prototypes are for, anyway). And because they were using PowerPoint to “hack” their concepts, they were able to get new idea done quickly.

On Sunday evening, they didn’t present a working application, but they walked the audience through a great presentation with a click-thru prototype of the final concept. Not only did they present the final idea, but also took the audience through all  the previous ideas and iterations that led to it.

The result? They won first place!

They didn’t win because their idea was significantly better or more functional than other teams’ ideas. There were many great ideas that weekend. But when other teams were focusing their limited time on implementation detail,  that team stayed focused on high level aspects of their ideas, and spent more time hacking it and less time coding.

They weren’t coders, but they were hackers. And that ended up working great for them!

Many founders believe they are at a disadvantage to someone who knows how to write code.  They believe they are not hackers because they are not coders. The truth is they might have a creative advantage because they won’t be jumping into code too soon. Instead, they’ll be forced to “hack” their ideas and test them using high level tools and platforms that will keep them at the level of detail. They’ll be focused on solving user problems, rather than solving implementation problems.

Hacking isn’t just about coding skills. it’s a mindset of getting things done while focusing on what matters the most at each stage, without getting lost in the detail too soon.

Last year, I played a game that changed my life.

I was taking an improv class, and the instructor gave us a game to play before getting on stage, so that we can turn off our over-rationalizing minds and get into the flow. The game was called Status, and it went like this:

A stack of card was shuffled face down on a table, and each person was asked to choose a card without looking at it. Then the instructor asked us to get on stage, and raise our cards against our foreheads so that they are facing the rest of the group.  Each person was automatically assigned a “status” corresponding to their card. Then the instructor suggested a business situation for us to enact in a way that helps each person guess the number on their forehead correctly. How would we do that? By changing our postures and tone of voice to match our estimated status and how it ranks against the status we see on other people’s forehead. For instance, if I am guessing the card on my head to be a 8, and I meet with a queen, I’d lower my voice and stand in a way that reflect the other person’s status dominance over mine. And if I meet a 5, I’d assume a higher posture and voice and may be give an order or two. If the person suddenly assumed a different posture and voice, it could mean that either she or I have the wrong guess. The goal wasn’t to challenge each other, but to help each other make the right guess.

After playing the game for about 15 minutes, I had guessed that my number was 9. I was a 10.

So what was shocking about that game?

Almost every person correctly guessed  the number on his or her forehead, or was off only by 1! Could this mean that it wasn’t a game we were playing for the first time? Could it be that we’re playing that game over and over every day?

We went to that stage preconditioned to accurately guess how we stack against others based on how they spoke to us and treated us. And that random number that we were holding on our foreheads didn’t just change how we deal with others, it changed how we perceived ourselves when others reacted back to it.

What was equally fascinating was when I decided to go against my guess, and acted as higher status than the other person no matter what their status was. A person who was confident he was an king and went around stage acting like one, started yielding when I consistently used a high posture and tone of voice during the conversation. Another who was a 5 suddenly started taking advantage of the situation when I lowered my voice and avoided eye contact.

This demonstrated that by simply deciding to change my own status and acting accordingly, the other person almost immediately granted me that status and at times, changed their own.

That was ridiculously amazing!

For the following weeks, I started experimenting with this game in real life: I’d go into conversations picking a random number for myself and others, assume my posture and tone to match, and enjoy seeing strangers changing their behavior quite randomly. Sometimes I’d make it more fun by swapping statuses with the other person halfway through the conversation and enjoy seeing many people transform in front of my own eyes.

Posture, eye contact, and tone of voice were my weapons.

But since then, I’ve come to realize that I was having the best social interactions with people of equal status. If that’s not the case, I’d use the status game weapons to “level up” the conversation.

I also don’t accept that my being different makes me worse or better than anyone else. Life diversifies its own portfolio by giving us various roles to play. But we are not the roles we play, and we shouldn’t get our sense of self-worth from them.

Next time you’re in a conversation with a friend or stranger, try imagining that you’re carrying the ace card, act with a matching confidence, imagine everyone else holding the same card, and treat them with the respect that other aces deserve.