Tag: startups

As someone who teaches in an entrepreneurship program, I spend lots of time talking with my students about how to come up with ideas for products and companies.

Personally, when assessing the potential of a company, I don’t prioritize ideas or products. I believe the most important indicator of success is a company’s approach to customer acquisition. But that’s because I’m old and practical.

My students, however, are young and idealistic and they want their ideas to “change the world” so they like to spend their time dreaming up world-changing ideas.

I think this is fantastic and I encourage it. Young entrepreneurs are exactly the kinds of entrepreneurs who shouldn’t be thinking about practicality and should be trying to change the world. Aside from having more risk-tolerance than people like me (e.g. no kids, no mortgages, etc.), their beliefs about the world aren’t as calcified by the way things currently work. As a result, they have a much better chance of seeing new opportunities for innovation and affecting genuine and lasting change.

Unfortunately, teaching people to identify world-changing ideas isn’t easy. Heck, I’m not sure it’s possible. But that doesn’t stop me from trying to teach it! Luckily, even if my approach is wrong, changing the world isn’t something that happens quickly, so it’ll take at least twenty years before there’s enough useful data to disprove my strategy.

Here’s a look at the framework I give my students for envisioning world-changing ideas. It’s difficult to execute, but it’s conceptually simple. I tell them they need to “see the future.”

How can someone “see the future”?

Yes, I realize nobody knows exactly what’s going to happen in the future. However, not being able to exactly predict the future isn’t the same as being able to roughly outline a general sense of the future based on current trajectories.

For an example, go read E. M. Forster’s “The Machine Stops.” It’s a short story written in 1909 that predicts technologies like the Internet and instant messaging. He doesn’t describe the technologies perfectly, but he comes pretty damn close. That’s because the technologies he’s describing didn’t have to exist in 1909 for Forster to know they were coming. All he had to do was look closely at the technological trends of his day, and, by doing so, he was able to predict the kinds of things that would appear a century later.

My job is to show my students how they can do the same exact thing. Here’s an example of seeing the future that, at least to me, seems like an obvious opportunity for innovation.

Self Driving Cars

Self driving cars are coming. Period. End of debate. There’s no doubt about it. They might take another decade or two to become common, but they’re coming and they’re going to have a major impact on the world.

If I were a young entrepreneur who had the flexibility to operate in an uncertain time horizon, I’d see the inevitable arrival of self-driving cars as a massive opportunity for innovation and monetization.

Just off the top of my head, here are a few examples of potential opportunities:

1. The decay of driving infrastructure – In a world with self driving cars, less people will own cars, so less people will need driving infrastructure. One example of this would be decreased demand for parking. Parking facilities — especially in urban areas — will be available for redevelopment. Surely some world changing (and not-so-world-changing) opportunities exist in the inevitable collapse of the urban parking industry.
2. Car-renting – If your car drives itself, why not rent it out when you’re not using it so it can be making you money? For people to rent their self driving cars, they’ll need some sort of rental infrastructure: apps, insurance policies, in-car vending machines, etc. Is there some niche company you can start now that will allow you to grow into a bigger market when it becomes available? For example, maybe you start an Uber vending machine company that, 15 years from now, becomes the world’s leader in car-based food storage systems.
3. Automated Errands – The day my car drives itself is the day I’m putting my car to work for me. I’m never going to make another trip to the dry cleaners or pick up a prescription at the pharmacy. Instead, I’ll send my car. Of course, picking up my dry cleaning won’t happen by magic. The dry cleaner is going to need some sort of app that identifies my car, and I’m going to need some way of paying for my clothes. Someone is going to have to build those tools, which means some entrepreneur is going to be able to create a business around them.

Are any of the above ideas good ideas? Are any of them world changing? I have no idea. I just know that self-driving cars are going to create opportunities for new businesses, and, if I were taking entrepreneurship classes in college instead of teaching them, I’d be trying to figure out how to start pushing my way into that market now before everyone else does.

Some Other Examples

Self driving cars aren’t the only example of a predictable future. Here are some other industries I’d be looking at if I were a young entrepreneur:

• 3D Printing – At some point in the not-too-distant future, 3D printers will be as common as regular printers.
• Blockchain – As a protocol, blockchain is currently where the World Wide Web was 20 years ago. Get ready for massive adoption.
• Renewable Energy – Whether you’re an environmentalist or not, there’s no denying that unlimited energy sources are good business.
• Genetics – Pretty soon, everyone is going to know what they’re pre-disposed to dying from. That’s going to create some strange, yet lucrative opportunities.
• Wearables – So far, most wearables have either been clunky or can sometimes tell you your pulse. That will change eventually.

This list isn’t meant to be exhaustive. It’s just an example of some of the obvious predictions we can make about future technological trends. Right now, the only opportunity in those trends are the direct industry opportunities of building the core technologies themselves. However, in the not-too-distant future, as those industries mature, they’re going to create an enormous amounts of ancillary and tangential opportunities.

You can either wait for those industries to mature and then join the gold rush alongside better funded and more experienced entrepreneurs. Or, if you’re young and ambitious and flexible with your time horizon, you can think carefully about where the industries are headed right now and go stake your claim while the land is cheap.

As a young entrepreneur, I remember calculating the market opportunity for multiple startup ideas using some formulation of the following “back-of-the-envelope” math:

The market has X-many-millions of people. So, if I only capture Y-tiny-percent of that market, I’m going to have Z-ridiculous-amount of money.

Luckily, I advanced beyond that kind of flawed thinking fairly quickly. However, one element of it persists in my work and the work of some of the most sophisticated and successful entrepreneurs I know. It’s a phenomenon I like to call the “if-conditional.”

Here are some versions of the “if-conditional” I guarantee you’ve heard. More than likely, you’ve personally used them:

• “If we can close X% of the leads we’ve got coming into the pipeline…”
• “If only X% of our website visitors click our ads…”
• “If we can just get picked up by a couple of media outlets…”
• “If just one of our videos goes viral…”
• “If we get just one investor to commit…”

Do you see the pattern? It’s a pattern entrepreneurs deploy when strategizing or planning future steps. We’re often forced to make decisions without having all the data we need, so we make assumptions about some of the data, and those assumptions take the form of the above conditionals.

The challenge of the “if-conditional” is that it usually oversimplifies an incredibly complex task. Let me parse the examples above to show what I mean:

Example 1: “If we can close X% of the leads we’ve got coming into the pipeline…”

The act of “closing leads” in a sales pipeline isn’t something that magically happens. Depending on the product, a typical sales process can take anywhere from two to twenty meetings including qualifications, demos, proposals, negotiations, trainings, trials, contracts, and any number of other process-specific requirements.

In other words, “closing” even a single lead requires multiple people and dozens of hours of work. Doing that hundreds of times costs… well… a lot more.

Example 2: “If only X% of our website visitors click our ads…”

People don’t randomly click things on websites. Even your 90-year-old grandma who you think randomly clicks things on websites isn’t actually randomly clicking. Visitors to websites click things because UX developers, web designers, and optimization experts spend their careers studying website usage and creating designs that complement and control our actions

If you’re getting enough traffic to your website where some small percentage of clicks will result in significant ad revenue, I guarantee someone on your team is knowledgeable enough about user interfaces to be angry at you for thinking that getting clicks is easy.

Example 3: “If we can just get picked up by a couple of media outlets…”

Anyone who thinks getting press coverage is easy has never actually tried getting press coverage in their life. It’s a herculean undertaking with no guarantee of success.

Example 4: “If just one of our videos goes viral…”

HAHAHAHAHAHAHAHAHAHAHAHAHAHA

Example 5: “If we get just one of investor to commit…”

You might have better luck getting something to “go viral.”

The point is, when making assumptions about the progress of your company, the word “if” is unassuming but extremely dangerous. Yes, it’s only two letters, but those two letters often obfuscate tasks that are enormously complex, difficult, time consuming, expensive, and perhaps impossible.

Since entrepreneurs tend to be optimistic (in the sense that they’re good at imagining scenarios leading to positive outcomes), their optimism allows them to overlook the complexity of the tasks neatly summarized by their “if conditionals.” Unfortunately, those conditionals represent the overwhelming bulk of the work. When you minimize that work, you don’t allocate enough time and resources to get everything done, and the result is usually failure.

If you want to avoid the trap of the “if conditional,” here’s my simple trick. Anytime I make a statement using some form of the phrase, “If we do X, then Y will happen,” I immediately stop and force myself to re-say the same exact statement while replacing my original “if conditional” with the following phrase:

“If we can do something that takes 12 months and costs us a million dollars.”

By properly accounting for an additional 12 month, million dollar process when devising a strategy, I guarantee you’ll have a much better chance of success. Best of all, if the process doesn’t take you 12 months and one million dollars, you’ll have lots of extra resources to devote to the next project that starts with an “if.”

Last weekend, I chopped down a tree. I was too cheap to pay an extra $200 to have it cut down by the construction crew building a fence in my backyard, so I did it myself. Although I’d never cut down a tree before, it wasn’t a particularly large tree, so I figured I’d make quick work of it.

As I walked outside to unearth the offending oak, I told my wife I’d be done within an hour. Five hours later, I was exhausted and sore and had one less tree in my yard.

Since this isn’t a timbersports blog, I won’t describe any of the actual lumberjacking. Instead, I want to reflect on my naive “done within an hour” prediction because my miscalculations about cutting down a tree are the same kinds of mistakes I often warn my students about when advising them on their startups.

Mistake #1: Having the right tool doesn’t mean you won’t spend time configuring it

Though I don’t foresee myself felling many tress in the future, I took the time to get a chainsaw (in this case, a chainsaw borrowed from my in-laws). Why? Because cutting down a tree with a chainsaw is simple. Even as someone who’d never held a chainsaw, the time between blade-touching-bark to tree-on-the-ground was less than a minute. The relevant lesson here is that having the right tool for a job is usually well worth the cost.

What I didn’t account for was the time I’d spend getting the chainsaw working. It needed oil. It needed gas. It still wouldn’t start even with fresh oil and gas. The starter chord was sticking. It needed some extremely-hard pulling before it was finally loose enough to crank the motor.

All together, getting the chainsaw to actually saw things took an hour.

The same phenomenon often appears in startups. When you integrate a new tool or service into your workflow, the value-add can be enormous. But don’t assume the tool will magically start doing its job. You’ll spend a lot of time learning it, configuring it, and troubleshooting it. Be sure to account for that time in your planning.

Mistake #2: Trees that look small are much larger once you chop them down

Sure, the little hardwood I hacked was tiny compared to the massive pine tree next to it, but once it was lying horizontal, what I thought was barely more than a bush was actually five times my height. I’d originally planned on carrying it to the street for the garbageman to deal with, but I quickly discovered I couldn’t even drag it.

The corollary in startups usually appears when choosing a problem to solve. Young startup founders are often oblivious to how complex a problem and/or market is. Instead, they only see what they believe is the simplicity of their solution. Once they start working on the problem — once they chop down the proverbial tree — they discover it’s much bigger than they initially thought. At that point, they’re too far in to stop. Instead, they’re stuck with a fallen tree in the middle of their yard, and they have to find some way to move it.

Mistake #3: You’ll spend relatively little time on “fun” things like your product

Since my goal was to cut down a tree, I figured most of my time would be spent gloriously wielding a chainsaw and forcing mother nature to crumble before me. However, as mentioned previously, the tree cutting took maybe 60 seconds. The next four hours were spent cleaning up a tree. That task involved only a tiny bit more chainsaw-wielding fun, but lots more bending, bagging, and hauling of heavy things.

Doing a startup is the same. You begin the journey expecting to do glamorous product-related work like development, pitching VCs, disrupting industries, and selling millions of dollars worth of stuff. However, no matter how successful your company becomes, the overwhelming majority of your time gets spent doing things like building lead lists, writing emails, creating reports, fixing bugs, sitting in meetings that go nowhere, and providing customer support.

Mistake #4: Sometimes it’s better to just pay someone else

While revolutionary startups do exist occasionally, they’re rare. Instead, most startups solve problems other companies are already solving. Their solutions might be expensive, but they probably exist.

If you’re creating a company to solve a problem that’s already being solved because the current solution is too expensive, you should take time to understand the real reason it costs as much as it does. Is the current solution expensive because the company that makes it is greedy? Maybe. Or the problem might require a more expensive solution than you recognize based on your limited knowledge of the space.

That was the case with the tree I chopped down. Based on my limited experience, the problem seemed solvable with an hour of chainsawing-fun. Instead, it was five hours of lugging, hauling, sweating, backbreaking exhaustion. Now that I’ve cut down a tree — now that I have more knowledge about a particular type of problem — I would absolutely pay $200 to have someone else solve the problem for me.