Steve Jobs was said to have been surrounded by a “reality distortion field,” in that he would believe in possibilities even when others saw them as unthinkable.  Of course, once Steve believed, then others would too – making his vision more likely to come true.

As an investor I want to back the entrepreneurs who are most likely to succeed, and as described above that means optimists. On top of that we also like optimists because they take on bigger challenges. So we back optimists. But we want our own decisions to be the best they can be, and that means seeing reality for what it really is.

Reading Bill Barnett’s article it struck me for the first time that one of the most common sources of post investment tension between investors and entrepreneurs is a tension between optimism and realism. When the relationship between investor and entrepreneur is strong that tension is healthy, but when the relationship breaks down it often leads to each side losing faith in the other’s judgement. Investors’ realism can start to look like (and may become) undue pessimism and scepticism, and entrepreneurs’ optimism can start to look like (and may become) naive optimism and an irrational unwillingness to change course.

I write this in the hope that it will help investors to better understand where entrepreneurs are coming from and vice versa, and thereby help to keep relationships trusting and healthy. There is more than a grain of truth in the old joke that the investor-entrepreneur relationship is like a marriage, but harder to get out of, and just like a marriage the relationship will work best when the differences are both understood and valued. Good investors understand that optimism is a very helpful trait and strong entrepreneurs value the check on their optimism that investors can provide.

The stats are a little woolly, but even if they are out by a factor of 10 this is a pretty remarkable achievement for a single company in a single year. And they were reported in the FT….

If so, this is a big moment in the ongoing shift to over-the-top TV. In the five years or so that Google has been operating its YouTube channel programme which allows content owners to keep 55% of ad revenues from their content the amount of premium content viewed on YouTube has sky-rocketed. YouTube channel network companies that like Machinima, Maker Studios and ChannelFlip that provide distribution and monetisation services to content owners have seen amazing month on month growth in videos viewed and are now enjoy billions of video views per month. Most of these views are from teenagers and young adults who use YouTube as a substitute or even replacement for traditional TV. This growth has come when the only form of monetisation available is an ad share with Google. Now that subscriptions are available expect to see more high quality content come to the platform and as history has shown us over and over high quality content brings viewers.

However, whilst this is an exciting moment for those of us looking forward to ditching our cable and satellite subscriptions I don’t think YouTube channels in their current incarnation will be the end game. Firstly, Google’s 45% take of revenues (they offer the same deal for ads and subscriptions) is too high and in the medium to long term they will face meaningful competition and either lose out or shift to taking a substantially smaller cut. Secondly, as Kevin Kelleher wrote on Pando earlier this week the online TV world is splintering into lots of subscription based walled gardens and the user experience is suffering as a result. At a minimum I expect services to arise which allow users to search and discover across all the services they subscribe to, but I suspect also that ‘pay for what you watch’ revenue models might eventually displace subscriptions. Subscriptions are another form of bundle and with good search and discovery and simple payments I think users will pay more when they are only paying for what they want and not having to pay for things they don’t watch.

Wikipedia has these two definitions of emotional intelligence:

• The ability to perceive emotion, integrate emotion to facilitate thought, understand emotions and to regulate emotions to promote personal growth. – Salovey and Mayer
• Emotional intelligence is concerned with effectively understanding oneself and others, relating well to people, and adapting to and coping with the immediate surroundings to be more successful in dealing with environmental demands.

Emotional intelligence is challenged as a theoretical construct because it is hard to measure, but from a practical perspective it is easy to recognise in people and I think very useful.

I’m writing this today because Bill Gross tweeted an article titled Apply EI to the stages of innovation. This is the first mention of EI I’ve seen for some time. The central point of the article is that people with higher emotional intelligence will generally be better innovators. There are two reasons for this – one they are more self aware and better able to ‘let go’ of problems and get the unconscious mind working on solutions (e.g. by going for a long walk), and two they are more likely to form high EI teams with an atmosphere of trust where people are willing to make themselves vulnerable by coming up with creative ideas.

The area I think about the most that benefits from emotional intelligence is leadership. Looking back to the definitions above it is pretty easy to see how high EI managers will be better at leading and motivating their teams.

He rightly thinks of financial capitalism as a distinct sector of the economy, giving us three segments overall

• The traditional economy – a real economy with many large firms providing real goods and services, but their hierarchical management and focus on shareholder value are preventing them from responding well to the challenges and opportunities of the 21st century. The traditional economy is much larger than the creative economy but it is in decline and faces a grim future. Good examples of firms are GE, Walmart and HP.
• The creative economy – a real economy that generates real products and services. It’s companies are different to traditional economy companies because they are focused on delighting customers and rapid innovation. Creative economy companies typically enjoy fast growth. Good examples of firms are Apple, Amazon, Whole Foods and Costco.
• Financial capitalism – comprised of firms primarily focused on generating profits from trading financial instruments that are often disconnected from the real economy. These firms have had a significant impact on growth over the last 20 years through the bubbles and crashes they create – e.g. the Long-Term Capital Management crash of 1998, the Dot-Com crash of 2000, and the housing meltdown of 2008.

The creative economy has emerged because the increasing pace of change is rendering 20th century management techniques ineffective. The time taken for information to filter through companies to the centre and then for policies and decisions to filter back out to the rank and file limit the speed at which these firms can respond to new opportunities and customer demands, and creative economy companies employing radically decentralised management techniques to react more quickly are having a field day. Moreover, decentralised management is so different from hierarchical management that few traditional companies are able to switch to the new paradigm. It is simply too hard for managers who are used to having detailed workplans and clear schedules that show when everything is supposed to happen to switch to an environment which values flexibility over knowing what will happen when.

As much as I seek to empower our portfolio companies to do what they think is right and to avoid over-planning I sympathise with these ‘traditional managers’ in the sense that when you switch from operating with a detailed operating plan to operating without one it feels like you are flying blind. When our companies started switching from ‘waterfall’ to ‘agile’ development methodologies we went from having detailed pictures of how products were going to evolve (albeit with delivery risk) to little visibility of what new features would emerge and when. Budgeting became more difficult because we could no longer tie marketing and sales efforts to major release dates, assessing dev teams became more difficult because they were no longer accountable for long term deliverables, and, probably most importantly, reporting within DFJ Esprit and to our LPs became harder because there was less we could say to get people excited about the future.

Much of the comfort with plans was, of course, based on the illusion that they wouldn’t slip, and in even if the plans were good the difficulties listed above are more than offset by the improved productivity and flexibility that comes with agile, but they are real difficulties none-the-less. Creative economy companies have, in effect, adopted agile methodologies across all their business areas and it isn’t surprising that most traditional companies find it impossible to copy them.

One very interesting question which I don’t have an answer to yet is ‘how much planning is optimal in a creative economy company’? Different departments need to be co-ordinated and raising money requires projecting success over a timeline so some planning is still necessary. Just less than before.

• Updated the contact entry form so it parsed details entered and automatically identified them as emails, phone numbers etc.
• Made it so pasting email addresses always produced a simple email address ‘john@example.com’ and never “John Smith” <john@example.com>
• Enabled zero configuration sending of emails from within the app that appear to come from your native email client
• Enabled automatic tracking of emails sent from any of your email clients so your CRM records stay up to date with zero hassle

These examples all result in a minor improvement in ease of use for the customer and they are all relatively trivial to build. They are also the sort of thing that people often fail to get round to.

I remember once sending some feedback to Graham Bosher, founder of our portfolio company Graze. It was a comment on a minor piece of functionality and I phrased the email to show understanding that fixing it might not be his top priority. I forget what the piece of functionality was, but I remember the reply very clearly – Graham came back saying ‘thank you, I’m incredibly focused on getting every aspect of the user experience to be as good as it can be’. Since then Graze has gone on to enjoy huge success and now has hundreds of thousands of subscribers.

The lesson from Graze is that attention to the minor details of products is a big driver of success. The close.io guys instinctively get that point too (if you doubt me, read the post explaining why they made the changes). Some founders get this more than others, but as product quality becomes an increasingly important determinant of company success I think we will see more and more people sweating the small stuff.