I get asked this question often: “What is the appropriate amount of time for my co-founder to be working on our startup?”  There’s a lot that can be written on this topic, but here are a few thoughts on some things to consider when first starting out:

I think people often substitute time with metrics that more accurately measure their desired outcomes.  Most likely, your desired outcomes are to have a partner who is achieving his/her milestones (short term and long term), and who has dedicated mind share (the company has his/her foremost mental and emotional attention).  If this is the case, then the task becomes finding metrics that fairly and accurately measure these objectives.

The first objective is best measured by mutual agreement and understanding of personal milestones and how they are tied to various forms of compensation.  In my opinion, almost all founder compensation in a startup should be tied to, or at least contingent upon, the achievement of performance milestones, and time dispersed in such a way that incentivizes long term alignment with the company and real value building.

The second objective, mind share, becomes more complicated in circumstances in which the co-founder requires income sources beyond what the company can presently provide.  Regardless of the financial arrangements, it’s important for you to feel that your co-founder is committed.  Having a detailed understanding of your co-founder’s other commitments, and contingencies under which those commitments would require additional time is crucial.  In this way, I don’t think it’s unfair that you ask a co-founder to resign from certain activities which could lead to excessive distraction.  You want someone who is focused on building long-term real value with you, not someone taking a “wait and see” approach.  This focus is a must.  When the sacrifice endured by co-founders is asymmetric, resentment will quickly build because of the disparity of risk (I call this Asymmetric Risk Resentment, or ARR, as in the noise you make when you experience this).

Regarding your co-founder’s work within your company, establishing metrics that measure his/her response time to issues that are both time sensitive AND important is one way in which, over time, patterns will emerge about his/her mindshare.  I want to stress that the issues you measure need to be both time sensitive AND important – one of the easiest ways to scare away co-founders (especially technical co-founders) is to demand their immediate attention for time sensitive, unimportant issues – an unfair metrics by which to measure anyone. As best as you can, define upfront with your co-founder what types of situations could be both time sensitive and important, so that you both know it when you see it.

Much buzz was created recently when LivingSocial offered Amazon.com $20 gift cards for $10. However,  one commonly overlooked and even misreported aspect of the deal is Amazon’s role.  In fact, they are not a sponsor of the deal – which most likely means that LivingSocial ate the ~$13M cost of the promotion.  Why would they do this?  Because they’ve calculated that the average life time value (LTV) of a customer is way north of $10, meaning that the average LivingSocial customer will generate more than $10 of present day value over the lifetime of their relationship with LivingSocial.  The $10 CCA figure is probably low, given that the majority of customers who took advantage of the offer were existing LivingSocial customers – but it’s also likely that any breakage in the deal accrues to LivingSocial (meaning that LS doesn’t pay for the gift card until it’s actually redeemed on Amazon).   All in all, LivingSocial probably netted a few hundred thousand new names/email addresses, in addition to a hell of a lot of PR.

But a much more interesting angle could be how this deal catapults LivingSocial forward in the long-term battle with Groupon.  Could part of LivingSocial’s deal with Amazon involve Amazon sharing the eventual purchase data from the resulting gift card redemptions?  This data could then be used to better personalize future deals for each user based on previous purchasing history  (selling Amazon gift cards isn’t really adding much value to this data, if the eventual purchase is opaque).   In this case, the real question becomes not just how many new customers they acquired, but now how many dormant customers they’ve engaged and can start building purchase profiles for.  This makes a ton of sense to me – especially given that the real prize in the group buying space will be awarded to the company who can build the deepest purchasing/preference profiles of customers.  It’s also a great reason for Amazon to finish what they started, and outright acquire LivingSocial.

A question I’m often asked is “What’s strategic for Facebook?”  My answer is – think of the most lucrative online consumer markets, and assume that Facebook, at some point, will try to bring those markets within its “walled garden.”

Last week Facebook announced the launch of “Open Graph,” a protocol which allows any website to add Facebook’s “like” buttons to their content, as well as tap into Facebook’s social graph data.  The “catch” is that all data from said “liking” will revert to Facebook, adding to the meta data that it already stores about each user.  This is somewhat troubling, as the quantity of data collected by Facebook dramatically enhances their ability to accurately predict your tastes and influence your future purchasing behavior.  (As Chris Dixon points out in a blog post from last year, systems get smarter not by inventing new algorithms but by creating new sources of data).  Facebook has created a wonderful new source of data – your browsing history and preferences throughout the whole internet.  Many bloggers are predicting that Facebook’s internet domination is now unstoppable.  While I agree that Facebook is almost certain to be a dominating force for years to come, I think it’s important to point out its weaknesses, some of which could be exploited by existing competitors or startups, and put a serious damper on what many are concerned will be a private data monopoly.

Facebook’s underlying assumption is that social proof (items that your friends have “liked” or purchased) will make you more likely to purchase a particular item.  But on Facebook’s website such recommendations are out of context; they bring purchasing/liking data to users while they’re in “social networking mode” instead of the much more effective reverse – bringing social purchasing/liking data to users while they’re engaged in behavior that shows purchasing intent (e.g. they’re on an e-commerce site).  Open Graph solves this problem by distributing social to all points of the web where social proof could influence user behavior.

Does this mean it’s “game over” for anyone trying to compete with Facebook in this space?  I say no.  While this is an aggressive step forward for Facebook, there’s still a big weakness -“social trust”- relating to who’s in your social graph and why.

Social proof generally works in one of three ways.  Either a product or service is 1) best selling in its category, 2) recommended by someone with relevant expertise, or 3) recommended by someone who you recognize as sharing similar tastes/preferences.  Method 1 is irrelevant to this post, as this data is readily available, so I’ll speak to the other methods.

Relevant expertise (in humans) is something that both Facebook and Google are missing – something which Aardvark attempted to address before they were acquired by Google.  It’s an important key to converting via social proof - which leads to the real question- is there really that much expertise in your Facebook social graph to harness?  My guess is no, it’s too limited.  Facebook is more of a graph of people you know, whereas Twitter is a graph of people you know and people you wish you knew, which makes it a lot more useful in determining who has thought leadership in which domains.  Facebook might ultimately decide to pull down the barriers of your siloed graph for purposes of conversion –  if they can determine who among their 500 million users has enough relevant expertise within a domain to monetize traffic most effectively.  Until then, I’m not sure I’ll buy my next computer based on what my Aunt Gertrude bought.

The third type of social proof is when someone who you recognize as sharing similar tastes/preferences recommends a product or service.  Amazon should have been all over this a long time ago.  Currently Hunch.com is doing a great job tapping into the “taste economy.”  Their AI is smart because, as Chris says, they’ve created new sets of data from which to draw.  This is also Facebook’s biggest strength.  They’ll have billions of data points with which to create terribly accurate taste prediction algorithms.  But – the output is a recommendation from a computer program, not from a person.  Recommendations from algorithms aren’t bad, but I think the conversion rate is much higher if the recommendation is associated with a person who you recognize as having similar tastes to your own.  While the chances of these people being in your Facebook Graph vary, the chances of you recognizing them as people who have similar tastes as your own is pretty low.  In fact, I’d argue that on Twitter, which is more of a “peer graph,” these people are more likely to exist on your graph AND you’re more likely to recognize them as having similar tastes to your own, as these preferences are often revealed through dialog.

These issues of trust, both the trust users assign to a recognized “authority” within a domain, as well as the trust users assign to those with tastes similar to their own, are integral to making meaning of any social graph.  This is why the biggest hurdle faced by Facebook or any platform trying to improve monetization of social transactions is the determination of who within a graph owns the trust of a user, and in what domains a user trusts that person.

This is the key to converting social sales. The recommendation engines will get the clickthrus, but only trust will optimize the conversions.

In the last few years, I’ve had the opportunity to be involved with a number of enterprise software companies in an advisory role.  As an advisor, I usually end up jealous of the leadership team, as they get to go through the process of finding product/market fit – talking with potential customers to make sure that all market assumptions are tested.  This process, to me, is one of the most fun experiences in all of business.  Not only do they get to learn a ton about the industry they are trying to serve, but they get to build relationships, and are usually the first to know when the team is ‘on to something’.

What surprises me is how many startups completely bypass this process, almost always to their own detriment.  In these cases, not only is the startup just floating by on a set of best guesses, but they are also missing the chance to read ‘between the lines’ to find real, untapped opportunities to deliver value to customers.  In fact, these companies have no chance at what I think is the best possible situation for a B2B startup to be in: knowing the customer’s business better than they do.

Achieving this means having a good conceptual model of what the future holds for that industry.  These types of situations really get me excited.  Investors talk about looking for durable competitive advantage in their portfolio company prospects. This type of thought leadership paired with helping customers anticipate changes in their industry is probably one of the best durable competitive advantages there is.

[Photo: flickr/pedrosimoes7]

Fear of failure is a recurring theme in most people’s lives and careers.  Why? In general, fear of failure is a result of putting too much stock in what others think of you.  Most people put too much stock in what other’s think of them, because they lack a certain confidence in themselves – paradoxically, a confidence which many of them could attain by facing their fears.  The truth is, everyone fails, and some of the most iconic and successful people of all time have admitted that their success was directly tied to the number of times they attempted to succeed (the majority of their attempts were failures).  As Henry Ford said “Failure is but an opportunity to start again more intelligently.”

A mentor once told me, fear can be an indicator that something is dangerous, and you should be cautious or move away from it.  But, more often, he said, fear is a signal that you should move directly toward what you’re afraid of.  Think about it- what things in your personal life, career, or business are you most afraid of doing?  Most likely, what you are most afraid of are the same things that everyone else is most afraid of.  But if you can move beyond the fear and face them, you’ll be in the minority that do.

That’s why it’s lonely at the top- there are very few people who have the courage and discipline to consistently move toward their fears.

When I was sixteen and running my first business, I came to this realization.  I started as a kid with social anxiety disorder who was afraid to pick up the phone and talk with people – not the best situation for an aspiring entrepreneur to be in.  But then I resolved to break out of my comfort zone at least once a week.  I believe that this was probably the largest contributing factor to the success of that business.  But it wasn’t easy.  Slowly my confidence built and I realized that there were fewer things I needed to be afraid of, and more things that I could face head on.

After taking a six year hiatus from being disciplined about this practice, I reimplemented my once-a-week fear busting policy last year.  It’s been working wonderfully, and as of this writing, I’m now trying to push myself out of my comfort zone at least three times a week.  Really, there’s no downside, and an interesting benefit is that once you move beyond a fear, you leave that fear and fears of a similar magnitude behind you.  You end up with a dramatically improved perspective about what matters and what doesn’t.

More recently, I read the commencement speech that Steve Jobs, CEO of Apple, delivered to Stanford students several years ago:

“All external expectations, all pride, all fear of embarrassment or failure—these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.”

I challenge you to ask yourself weekly, “What is the one thing I should do, but am most afraid of doing?”  And do it.  One month from now you’ll feel amazing.

[Photo: Flickr/IronRodArt]

I was out for a walk the other night on a bustling avenue of restaurants and shops, when it hit me:  99.9% of the population doesn’t remove the hood ornament or automaker badge on their cars.  But who would?  Would we really expect the guy who paid an extra $10k for a Lexus ES over a Toyota Camry (the ES is built on the Camry), or the woman who paid $300k for a Bentley (which looks an awful lot like certain $20k Hyundais), or even the loyal Suburu or VW owners, to take the badging off of their vehicles?  No, absolutely not.  We’ve reached the point where cars are a form of ‘self-expression’ (as the automakers love to phrase it), or more bluntly:

Cars = Status Symbols

They are one of the few possessions that you take with you to work, or out on the town.  This is why I think automakers are spoiled – they have it easier than almost any other industry that I can think of – they’ve boiled the auto sales and marketing processes down to an emotion-evoking science. All they have to do is pick an emotion and stick with it:

-Your ego (mostly all)

-Fear for your safety (Mercedes, Volvo) (Self-preservation)

-Your intelligence (All the Japanese, and now the Koreans – make the smart choice!)

-Your individualism (Scion, others)

-Your greed/sense of urgency/social proof (All the Americans)(Extensive use of rebates, limited time offers, and claims of ‘best selling’)

As you can see, they all play the game – though the American automakers seem to have had an identity crisis, and I recommend that they move into one of the others slots – either pure ego, safety, or intelligence. Rebates, limited time offers, and social proof (‘best selling’) are indirect motivators and lack the longevity of a strictly ego-based motivator, a much better place to be positioned for the long term. (Also, you’re not constantly damaging your price integrity every season).

Maybe all of this explains why car ownership is so high – total overconsumption to fulfill our emotional needs. When you step back and think about it, it’s insane how many cars are sold every year – it’s in complete disparity with true needs. With that said, who knows?  Maybe it’s time for a market “correction” in car ownership.

[Photo: Flickr/Rasidel Slika ]

As a collector of business books both new and rare, I love reading biographies of entrepreneurs- and am fortunate to have in my collection some which I bet you’ve never heard of.  While many business books aren’t worth the paper they’re written on, the ones listed below have had a significant impact on my thinking:

1) The Making of a Blockbuster: How Wayne Huizenga Built a Sports and Entertainment Empire from Trash, Grit, and Videotape by Gail DeGeorge
In my opinion, Wayne Huizenga is one of the best entrepreneurs of all time. He’s started several multi-billion dollar companies, including Waste Management Inc, Blockbuster Video, Republic Services, Autonation, Extended Stay America, the Florida Marlins, the Florida Panthers, and owned the Miami Dolphins. Nobody in history has started more $1B+ companies, or taken more companies public. Get it, and read it today.

2) Poor Charlie’s Almanack by Peter Kaufman
You might not recognize the name Charlie Munger – but you probably recognize the name of his partner, Warren Buffett. Munger, a billionaire in his own right, has been partners with Buffett from very early on, and as Buffett says, no one has shaped his thinking more than Munger. This book has some really interesting stories about Buffett and essentially explores the evolution of the mental models of Munger and Buffett.

3) Golden Boy: The Harold Simmons Story by John Nance
You probably haven’t heard of Harold Simmons – but he’s long been a hero of mine. The father of the LBO (Leveraged Buy-out), this books explores how he started with a small drug store, turned it into a chain, sold to Jack Eckerd, and went on to build a huge portfolio of publicly traded companies.

4) Sam Walton: Made In America by Sam Walton
Sam Walton, the pickup truck driving founder of Walmart, in his own words. Not so little known, but fantastic.

5) Richard Branson: Losing My Virginity by Richard Branson
No one says it more simply than Richard Branson, founder of Virgin Group (airlines, trains, music, mobile phones, financial, etc) The story of his life is inspirational, fun, and really unorthodox. Even if you dislike reading business books, you’ll lose track of time reading this one.

Honorable Mentions

Titan: The Life of John D Rockefeller, Sr by Ron Chernow
A very long book, but I think Chernow is one of the best biographers out there. Especially found fascinating the ways in which events from Rockefeller’s childhood and teenage years shaped him, and his early business successes. He was probably one of the most disciplined people who ever lived – and the richest – $350 Billion+ in 2010 dollars.

The First American: The Life and Times of Benjamin Franklinby H.W. Brands
Brands does a better job than any previous biographer, but I still hope the best Franklin biography has yet to be written. Franklin is in my view one of the best entrepreneurs of all time.

Any that you would add?

[photos:  nndb.com, underground value, flickr/modern luxury media,  flickr/marco senche ]

First Movie To Gross $3 Billion?

Like many of you, I went to see Avatar during its opening weekend. I thought it was fantastic, and I predict it could be the first movie to ever gross $3 billion worldwide – surpassing the previous record holder, Titanic, by over $1 billion. But beyond box office receipts, Avatar represents the culmination of a 30+ year vision of director James Cameron.

Being The Best And Being Obsessed

Love him or hate him, Cameron is probably one of the best in the world at what he does – making engaging blockbusters that entertain the masses. And undoubtedly, Avatar is Cameron at his best.  Why?

Cameron didn’t have to compromise on anything. He made the exact movie he wanted to make. When the studio pushed back because of cost or logistics, Cameron wouldn’t compromise. He was obsessed with making the movie exactly how he envisioned it.  This resulted in the most expensive non-series movie of all time, but also the most commercially successful movie of all time.  Cameron earned it.  He was finally able to put onto film the dream he had since the 1970′s. But it took him 30+ years to achieve it – not just because the technology had yet to be invented, but also because he needed to build the right kind of credibility (commercial success) with the right people (studios, investors).

Even though Avatar is just a movie, the world is a better place when people can do what they do best, in an environment with people who support their vision. What Cameron was able to create was beautiful, and will not only be the biggest commercial movie success, but from a film making perspective, will stand as one of the best films ever made.  But it probably couldn’t have happened any other way – the Terminator series grossing $1.4 billion, Titanic grossing $1.6 billion, 3-d movies becoming successful enough for theaters to install 3-d projectors (Cameron co-invented the technology and gave it away to other directors to help proliferate it) – all of these were the fruits of Cameron’s hard work, and got him to the position where he could make Avatar exactly how he wanted it.

Make Your Avatar

The world will be a better place when you make your Avatar. Start dreaming. And consider, how will you build the right kind of credibility (with the right people) to create an environment that supports your vision?

“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.” -George Bernard Shaw

Repost from old blog, written @ age 22

The aspect I love most about working with many new ventures is the emergence of patterns—some patterns signal opportunities, while others signal threats.

Working on your Business

Near the top of the threats list is the failure to find a balance between dealing with the day-to-day operational issues and the higher level leadership issues of a business. When problems inevitably occur, entrepreneurs rush to put out the fires. As soon as they do, other fires start, requiring the same level of attention. That’s a losing proposition for an entrepreneur.

When I work with entrepreneurs I help them understand the value of dedicating time to work “on the business”. “On the business” activities include initiatives that could lead to improving the business’s strategy, processes, and relationships. But dedicating time to “On the business” activities is tough and takes discipline, especially because “In the business” activities always have a sense of urgency. Nonetheless, a smart entrepreneur will make the time to invest in these activities.

Working on your Career

As I’ve spoken with college students preparing to enter the “real world”, I’ve recognized an interesting “On vs. In” parallel between launching and managing a business, and launching and managing a career.

Similar to the underlying pattern of success of an entrepreneur who understands the balance, I’ve also noticed that people who have great careers understand the importance of taking time to work “on their careers”. What do I mean by “on their careers”? Simple things such as:

• Building transferable skill sets
• Ensuring you maintain relationships with people outside your current company
• Seeking mentors
• Studying industry trends
• Discovering your preferred learning styles
• Emotional discipline & emotional intelligence
• Self-honesty
• Decision making & decision making refinement

This is a summary of what I present to business students when I speak at classes.

Think of the entrepreneurs who you know who practice working “on” their businesses. Do they have more successful businesses?

Think of the people who you know who practice working “on” their careers. Do they have more successful careers?