# articles

## boards and executives

[Boards are dangerous to founder/CEOs | Hacker News](https://news.ycombinator.com/item?id=29320078)
[Your Board of Directors is Probably Going to Fire You | Reaction Wheel](https://reactionwheel.net/2021/11/your-boards-of-directors-is-probably-going-to-fire-you.html)

[The hardest people for founders to hire are so called C-level executives | Hacker News](https://news.ycombinator.com/item?id=32311904)
[Paul Graham on X: "The hardest people for founders to hire are so called C-level executives, because these people are the best fakers in the world." / X](https://twitter.com/paulg/status/1554205020907720704)

## founder problem

[Isaac Park](https://www.pathosethos.com/2017/09/28/founder-problem-youre-the-reason-your-startup-doesnt-grow/)
(2017) Founder Problem: I’m The Reason My Startup Doesn’t Grow

## fundraising - vc

[A Unified Theory of VC Suckage](https://paulgraham.com/venturecapital.html)

[Don't Take VC Funding - It Will Destroy Your Company | Hacker News](https://news.ycombinator.com/item?id=36654960)
[Don't Take VC Funding - It Will Destroy Your Company | Oliver Eidel](https://www.eidel.io/2023/07/09/vc-funding/)

[Venture Predation | Hacker News](https://news.ycombinator.com/item?id=36003096)
[Venture Predation by Matthew Wansley, Samuel Weinstein :: SSRN](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4437360)

## fundraising stories

[Fans pour funding into 'The Chosen' | Hacker News](https://news.ycombinator.com/item?id=29443558)
[Fans Pour Funding-and Faith-Into a Hit Drama About Jesus - WSJ](https://www.wsj.com/articles/fans-pour-fundingand-faithinto-a-hit-drama-about-jesus-11637989204)

[The tiny corp raised $5.1M | Hacker News](https://news.ycombinator.com/item?id=36065175)
[the tiny corp raised $5.1M | the singularity is nearer](https://geohot.github.io//blog/jekyll/update/2023/05/24/the-tiny-corp-raised-5M.html)

[Tailscale raises $100M | Hacker News](https://news.ycombinator.com/item?id=31259950)
[Tailscale raises $100M… to fix the Internet](https://tailscale.com/blog/series-b)

[Hugging Face raises $235M from investors including Salesforce and Nvidia | Hacker News](https://news.ycombinator.com/item?id=37248895)
[Hugging Face raises $235M from investors, including Salesforce and Nvidia | TechCrunch](https://techcrunch.com/2023/08/24/hugging-face-raises-235m-from-investors-including-salesforce-and-nvidia/)

[Kagi raises $670k | Hacker News](https://news.ycombinator.com/item?id=36517149)
[Kagi raises $670K | Kagi Blog](https://blog.kagi.com/safe-round)

[We raised a bunch of money | Hacker News](https://news.ycombinator.com/item?id=36506865)
[We Raised A Bunch Of Money · The Fly Blog](https://fly.io/blog/we-raised-a-bunch-of-money/)

[My startup banking story | Hacker News](https://news.ycombinator.com/item?id=35157959)
[My Startup Banking Story - Mitchell Hashimoto](https://mitchellh.com/writing/my-startup-banking-story)

[Jetbrains founders turn billionaires without VC help | Hacker News](https://news.ycombinator.com/item?id=25466304)
[Czech Startup Founders Turn Billionaires Without VC Help - Bloomberg](https://www.bloomberg.com/news/articles/2020-12-18/czech-startup-founders-turn-billionaires-without-vc-help)

[John Carmack's new AGI company, Keen Technologies, has raised a $20M round | Hacker News](https://news.ycombinator.com/item?id=32525721)
[John Carmack on X: "I mentioned this in the Lex interview, but it is official now: Keen Technologies, my new AGI company, has raised a $20M round, led by @natfriedman and @danielgross, with @patrickc, @tobi, @sequoia, @CapitalFactory, and Jim Keller participating." / X](https://twitter.com/ID_AA_Carmack/status/1560728042959507457)

## fundraising trends

[Startup Investing Trends](https://paulgraham.com/invtrend.html)

[The Future of Startup Funding](https://paulgraham.com/future.html)

[The Venture Capital Squeeze](https://paulgraham.com/vcsqueeze.html)

## fundraising

[Long Live the 'GPU Poor' - Open-Source AI Grants | Hacker News](https://news.ycombinator.com/item?id=37324683)
[Supporting the Open Source AI Community | Andreessen Horowitz](https://a16z.com/supporting-the-open-source-ai-community/)

[Ask HN: How would you raise $600k for a boring software co? | Hacker News](https://news.ycombinator.com/item?id=37346497)

[Games people play with cash flow | Hacker News](https://news.ycombinator.com/item?id=34190849)
[Games People Play with Cash Flow (2020) | Hacker News](https://news.ycombinator.com/item?id=41263855)
[The Games People Play With Cash Flow - Commoncog](https://commoncog.com/cash-flow-games/)

[Stop selling start helping! The strategy that helped me scale my business](https://old.reddit.com/r/Entrepreneur/comments/14tf6ip/stop_selling_start_helping_the_strategy_that/)

[Andreessen Horowitz and 'zero interest rate phenomena' | Hacker News](https://news.ycombinator.com/item?id=34875816)
[X](https://twitter.com/tylertringas/status/1627449217294958592)

[What have you learned from watching Shark Tank? : Entrepreneur](https://old.reddit.com/r/Entrepreneur/comments/v0bzgp/what_have_you_learned_from_watching_shark_tank)

[We need a middle class for startups | Hacker News](https://news.ycombinator.com/item?id=31327219)
[We Need A Middle Class For Startups - Neil Thanedar](https://neilthanedar.com/we-need-a-middle-class-for-startups/)

## growing responsibilities

[I'm Peter Roberts, immigration attorney who does work for YC and startups. AMA | Hacker News](https://news.ycombinator.com/item?id=40014087)

## growth stories

[How a Czech DJ Built a 3D Printing Empire](https://www.freecodecamp.org/news/how-prusa3d-became-one-of-the-fastest-growing-startups-in-the-world)

## pitching the offer

[Use Pixar's story formula to win over investors | Hacker News](https://news.ycombinator.com/item?id=28181861)
[Nail Your Startup Pitch: Use Pixar's Story Formula to Win Over Investors](https://startuppitch.substack.com/p/nail-your-startup-pitch-use-pixars)

[I've collected over 600 pitch decks | Hacker News](https://news.ycombinator.com/item?id=23305196)
[Start House](https://web.archive.org/web/20200526013014/https://starthouse.xyz/?ref=hn)

[What I Learned Reading 1k Investor Reports | Hacker News](https://news.ycombinator.com/item?id=35015753)
[What I Learned Reading 1,000 Investor Reports · Collab Fund](https://collabfund.com/blog/i-read-1-000-investor-reports-last-year-heres-what-i-learned/)

[Ask HN: How to raise a seed round in a down market? | Hacker News](https://news.ycombinator.com/item?id=31847941)

[Ask HN: Best dev tool pitches of all time? | Hacker News](https://news.ycombinator.com/item?id=31782200)

## pivot

[GitHub - fikrikarim/companies-with-successful-pivot: List of startups/companies that had successful pivots](https://github.com/fikrikarim/companies-with-successful-pivot)

[The rise of the one-person unicorn | Hacker News](https://news.ycombinator.com/item?id=28187204)
[The rise of the one-person unicorn](https://www.nothingventured.com/the-rise-of-the-one-person-unicorn/)

## rate of growth

[Default Alive or Default Dead?](http://www.paulgraham.com/aord.html)

[Superlinear Returns](http://www.paulgraham.com/superlinear.html)

## mgmt shifts & delegation

### broadening scope

[We're the founders of Substack, we just launched an iOS app. AUA | Hacker News](https://news.ycombinator.com/item?id=30632952)
[Introducing the Substack app](https://on.substack.com/p/substackapp)

[Founding Uber SRE | Hacker News](https://news.ycombinator.com/item?id=31199551)
[Founding Uber SRE. | Irrational Exuberance](https://lethain.com/founding-uber-sre/)

### changing the work

[Turning my hobby into a business made me hate it | Hacker News](https://news.ycombinator.com/item?id=36588514)
[Turning my Passion/Hobby into a Business Made Me Hate It - Shantnu's Silent Site](https://shant.nu/turning-my-passion-hobby-into-a-business-made-me-hate-it/)

### money management

[My Stripe Tax Story | Hacker News](https://news.ycombinator.com/item?id=30535572)
[stripe-tax.md](https://gist.github.com/humandoing/5ec7c224691282532db0b9dc37797d7c)

# guides

## fundraising

[How to Raise Money](https://paulgraham.com/fr.html)

[A Fundraising Survival Guide](https://paulgraham.com/fundraising.html)

[Angel investor - Wikipedia](https://en.wikipedia.org/wiki/Angel_investor)

[Venture capital - Wikipedia](https://en.wikipedia.org/wiki/Venture_capital)

[The Future of Fundraising: 3 Key Changes to Make Now](https://www.everyaction.com/the-future-of-fundraising-3-key-changes-to-make-now/)

## guaranteed growth

[Startup = Growth](https://paulgraham.com/growth.html)

## increased fights

[Startup FAQ](https://www.paulgraham.com/startupfaq.html)

## pitching the offer

[How to Convince Investors](https://paulgraham.com/convince.html)

[How to Present to Investors](https://paulgraham.com/investors.html)

[Don't Talk to Corp Dev](http://www.paulgraham.com/corpdev.html)

## startup_hiring

[Startup Hiring 101: A Founder's Guide](https://www.notion.so/Startup-Hiring-101-A-Founder-s-Guide-946dad6dd9fd433abdd12338a83e931f)

## mgmt shifts & delegation

### boards

[Rochdale Principles - Wikipedia](https://en.wikipedia.org/wiki/Rochdale_Principles)

# text

## asking questions

David had identified his leap-of-faith questions explicitly at the outset and, more important, had made quantitative predictions about each of them.

It is only because David focused on actionable metrics for each of his leap-of-faith questions that he was able to accept that his company was failing.

Because David had not wasted energy on premature PR, he was able to make this determination without public embarrassment or distraction.

## board management - Matt Levine

### Moelis, Crown Castle

The basic rule is that the board of directors of a company is in charge of the company, and when they are faced with a decision, the directors are supposed to make the choice that they believe is best for the company and all of its shareholders. The shareholders don't make the decision; the board does. 

Now, the directors are elected by the shareholders, and when the company has a controlling shareholder, the idea that the directors are in charge can feel somewhat absurd. The controlling shareholder - say, a founder and chief executive officer who owns 60% of the stock - can come into the boardroom and say "I want you to sell all of the company's assets to me for $1," and the directors will say "no, in our independent judgment that's a bad idea," and the founder/CEO/shareholder will say "okay you're fired," and she will replace them with more pliable directors. And she can do that, because she has the votes.  But still: The directors are supposed to exercise their independent judgment and do what is in the company's best interests, and if they conclude that the founder/CEO's plan is bad, they have to say no and get fired. They can't just say "well, ultimately she controls the company, so we have to do what she asks." Exercising independent judgment is their job.

I cannot promise that every board of directors of every company sees things this way - I think some directors of private startups see their job as "advise and empower the founder/CEO" rather than "exercise independent judgment" - but the courts in Delaware, where most US public companies are incorporated, definitely see things this way. So we [talked recently](https://www.bloomberg.com/opinion/articles/2024-01-31/elon-musk-is-overpaid) about a Delaware court decision overturning Elon Musk's pay package at Tesla Inc. The basic theory there was that Musk is Tesla's controlling shareholder (even though he owns a minority of the stock), and that the board did not exercise sufficient independent judgment in deciding what to pay him: He asked for a pay package and they deferred to what he wanted. Not okay, said the judge; the board has a duty to make its own independent determination of what he should be paid.

Ken Moelis is the founder, chief executive officer and chairman of the board of directors of Moelis & Co., the investment bank. In 2014, Moelis & Co. went public, and over time Ken Moelis sold some of his stock. He now owns about 6.5% of the stock, but he has some supervoting shares, which give him about 40.4% of the voting power of the stock. That's not a majority, but it's a lot more than Elon Musk owns of Tesla: Ken Moelis is not necessarily the controlling shareholder of Moelis & Co., but he's at least pretty close.

Beyond his voting stake, though, Ken Moelis has some extra control over his company. Specifically there is a [Stockholders Agreement](https://www.sec.gov/Archives/edgar/data/1596967/000110465914029215/a14-10912_1ex10d1.htm) that gives Ken Moelis some rights to control the company:

1. He gets to designate a majority of the board of directors: He can name his candidates, and the company's board is obligated to nominate them, recommend that stockholders vote for them, and try to get them elected. (If the shareholders all vote no, his candidates can lose, but with 40.4% of the vote that's pretty unlikely.)
2. His directors also get to serve on all of the board's committees.
3. Ken Moelis has to give his prior approval for a bunch of specified corporate actions, including incurring debt, issuing stock, paying dividends, entering new lines of business, adopting annual budgets and business plans, bringing lawsuits, signing material contracts, removing or appointing executives and changing the company's name.

A shareholder sued, arguing that this is not allowed: Moelis & Co. is a public company incorporated in Delaware, which means that its _board of directors_ has to be in charge of things like hiring and firing the CEO, entering new lines of business or changing its name. A contract can't give its founder the right to make those decisions instead of the board.

And last week a judge - Vice Chancellor Travis Laster of the Delaware Court of Chancery - agreed. [Here is his opinion](https://courts.delaware.gov/Opinions/Download.aspx?id=360460), which finds that the requirement for Ken Moelis's prior approval of corporate actions is invalid:

> Taken together, the Pre-Approval Requirements  force the Board to obtain Moelis' prior written consent before taking virtually any meaningful action. With the Pre-Approval Requirements in place, the Board is not really a board. The directors only manage the Company to the extent Moelis gives them permission to do so. 

As are most of his rights to name directors: "The Recommendation Requirement improperly compels the Board to recommend Moelis'  
designees for election," even if the board doesn't think those designees are good, and "Determining the composition of committees falls within the Board's authority. A stockholder cannot determine who comprises a committee."

Now, at some level, none of this matters. As a 40% shareholder (by voting rights), and the founder, CEO, chairman of the board and namesake of the firm, Ken Moelis probably _can_ get the board to do most of what he wants, with or without a contract. For one thing, the directors are probably there - on the board of the company he founded and controls - because they think his ideas are mostly good! But also he has a lot of practical control. Moelis & Co. is not going to enter into any new contracts or lines of business without his approval: He's the CEO, he signs the contracts and picks the lines of business. And it's not going to set up any board committees without his approval: He's the chairman of the board, he's in the board meetings, and if the rest of the board votes to set up a committee without him, he does - as the controlling-ish shareholder - probably have the power to vote them out. As long as he gets to nominate directors - even if the board decides not to recommend them - they'll probably get elected, because he has 40% of the vote.

Also, even as a technical matter, there are ways around last week's decision. Vice Chancellor Laster writes:

> Moelis did not have to frame an internal corporate governance arrangement using the Stockholder Agreement. He could have accomplished the vast majority of what he wanted through the Company's certificate of incorporation (the "Charter"). Even now, the Board could implement many of the Challenged Provisions by using its blank check authority to issue Moelis preferred stock carrying a set of voting rights and director appointment rights. A new class of preferred stock need not upset the Company's equity allocation; it could consist of a single golden share. The certificate of designations for the new preferred stock would become part of the Charter as a matter of law. At that point, because the provisions would appear in the Charter, they would comply with Section 141(a). Although some might find it bizarre that the [Delaware General Corporation Law] would prohibit one means of accomplishing a goal while allowing another, that is what the doctrine of independent legal significance contemplates.

A company's charter can give a shareholder a lot of control over its board and business, but an outside agreement can't. 

Still, this decision will have some effects. As Vice Chancellor Laster writes, there are a lot of agreements like this:

> Corporate planners now regularly implement internal governance arrangements through stockholder agreements. The new wave of stockholder agreements does not involve stockholders contracting among themselves to address how they will exercise their stockholder-level rights. The new-wave agreements contain extensive veto rights and other restrictions on corporate action.

And now maybe they are all invalid?

In related news, [Bloomberg's Jef Feeley and Crystal Tse report](https://www.bloomberg.com/news/articles/2024-02-28/crown-castle-directors-sued-by-co-founder-over-elliott-pact):

> Crown Castle Inc. co-founder Ted Miller ratcheted up a proxy fight with the cellular tower company's board, suing directors over a cooperation agreement they struck with Paul Singer's Elliott Investment Management.
> 
> Miller, who helped launch Crown Castle in 1994, says the board is improperly beholden to activist investor Elliott, one of the company's largest shareholders. Elliott signed a cooperation agreement with Crown Castle in December and got two board seats.
> 
> The agreement amounts to an "unreasonable and disproportionate defensive measure," Miller argues in the suit, filed Tuesday in Delaware Chancery Court. He is asking the court to invalidate the pact, which he says harms Crown Castle shareholders by subjecting them to "the whims of Elliott and the artificial constraints imposed" by the pact on decisions such as finding a new chief executive officer.
> 
> "The affairs of Delaware corporations, however, must be managed by boards of directors, not backroom deals," Miller said in the complaint.

Here is [the complaint](https://assets.bwbx.io/documents/users/iqjWHBFdfxIU/rPcwyCbohXPs/v0). What happened here is that Crown Castle is a public company that has had a rough run in recent years, and it attracted _two_ activists: Elliott, a classic activist hedge fund that bought about $2 billion worth of Crown Castle stock, and Miller, the company's founder, who was CEO from 1994 until 2002 and who still owns about $86 million worth of stock. Elliott threatened a proxy contest to get its own nominees on the board of directors, and Crown Castle [quickly settled last December](https://www.sec.gov/ixviewer/ix.html?doc=/Archives/edgar/data/1051470/000119312523299402/d761825d8k.htm), agreeing to appoint two Elliott nominees to its board of directors. Elliott and Crown Castle [signed a cooperation agreement](https://www.sec.gov/Archives/edgar/data/1051470/000119312523299402/d761825dex101.htm) in which they agreed on some plans, including forming a "fiber review committee" to think about what to do with its fiber business, forming a CEO search committee to find a new CEO, and agreeing to support each other's board nominees. In particular, Crown Castle agreed that, at its 2024 annual meeting, "the Company will recommend that the Company's shareholders vote in favor of the election of each of the Board's nominees," including the two Elliott representatives.

But Miller wants his say too, and he sued, claiming that this agreement gives Elliott power improperly:

> In sum, the Board had struck a grand bargain with Elliott: Elliott would get significant influence over the Company's future direction and strategy - including seats at the table in selecting the next CEO and charting the Company's course on Fiber strategy; in turn, Elliott would lay down its arms, and the incumbent directors would keep their jobs.
> 
> Neither the Company nor Elliott explained why ceding control over key governance decisions to Elliott, a single minority stockholder, while effectively entrenching the incumbent Board, would benefit stockholders.

And in particular, the agreement requires Crown Castle to recommend the Elliott nominees to the board, _even if it gets other, better nominees:_

> In their haste to lock in a deal and establish a frozen board, the Board agreed to the Cooperation Agreement a month before the nomination window for the 2024 Annual Meeting opened and before it had an opportunity to hear timely alternative proposals from any other stockholders. The Director Defendants had a duty to consider stockholder proposals made during the nomination window, which ran from January 18 to February 17, 2024, and to consider each proposal on its merits. The Defendant Directors breached their contractual obligations to stockholders by entering into the preclusive Cooperation Agreement foreclosing such consideration a month before the window opened.

At some level it seems obvious that the board of directors of a company facing a proxy fight might settle with the activist by signing a contract saying "we'll recommend two of your nominees to the board if you support the rest of ours." But is the board _allowed_ to do that? Is it allowed to commit to making a governance decision like that, without considering other possible nominees? Or does that violate the board's obligation to run the company using its own best judgment?

## budgeting

You can improve cash flow by observing the following suggestions in a start-up's early days:
- Keep payroll down to an absolute minimum. Overhead walks on two legs.
- Never sign long-term rent agreements or take upmarket office space.
- Never buy a business meal if the other side offers to.
- Pay yourself just enough to eat.
- Issuing staff credit cards, company cell phones, or cars is the road to ruin.
- Play one supplier against another, ruthlessly. They want your business.
- Only enter a factoring deal in absolute extremity. Exit it fast.

## business development program

Identify the following: 

1. Primary Aim
  - Begin living your life as if it were important. Take it seriously. Create it intentionally.
  - What do I value most?
  - What kind of life do I want?
  - What do I want my life to look like, to feel like?
  - How do I wish my day-to-day to be?
  - What would I like to be able to say I truly know in my life, about my life?
  - Who do I wish to be?
  - How would I like to be with other people in my life : my family, friends, business associates, customers, employees?
  - How would I like people to think about me?
  - 2 years from now? 10? 20? End of life?
  - What specifically would I like to learn during my life : spiritually, physically, financially, technically, intellectually, about relationships?

2. Strategic Objective
  - Your strategic objective is a very clear statement of what your business has to ultimately do for you to achieve your primary aim.
  - The first standard is gross revenues. How big will your company be when it's finally done? Know your gross profits, pretax profits, after-tax profits.
  - You can't know all this, but any standards are better than no standards.
  - Does the business I have in mind alleviate a frustration experienced by a large enough group of consumers to make it worth my while?
  - Central demographic model : a most probable customer.

3. Organizational Strategy
  - The organizational development reflected in the Organizational Chart can have a more profound impact on a small company than any other single business development step.
  - More companies organize around personalities rather than around functions. (& the result is chaos)
  - Make a chart of positions : COO, VP Marketing, VP Operations, VP Finance, Sales manager, Advertising/Research manager, Production manager, Service manager, Facilities manager, Accounts receivable manager, Accounts payable manager. (clear tree of who reports to who)
  - A position contract : a summary of the results to be achieved by each position in the company, the work that position is accountable for, a list of standards by which results are to be evaluated. Sign off on it. Not a job description, it is a contract between the company, employee, and a summary of the rules of the game. It provides each person with a sense of commitment and accountability.
  - Look at each position as a franchise prototype of its own.
    - When one goes to work in a position, one goes to work ON a position, implementing the business development process of innovation, quantification, orchestration.
  - Don't hire someone with experience. Not a master technician. A novice, a beginner, an apprentice. Someone eager to learn how to do it right. Willing to learn what you've spent so much time and energy discovering. Someone who is open to the possibility of learning skills not developed yet, skills he/she wants to learn.
  - If you don't obey the rules, honor them, extol them, why should you expect anyone else to take your game seriously?

4. Management Strategy
  - You may think your plan depends on highly skilled people. It doesn't. You don't need such people. You can't afford them. They will become the bane of your existence.
    - What you need is a mangement system.
    - The system will become your management strategy, and produces the results you want.
    - The system will become your solution to the problems of unpredictable people, by orchestrating the process by which management decisions are made, while eliminating the need for such decisions whenever possible.
  - A management system is a system designed into your prototype to produce a marketing result.
    - The more automatic that system is, the more effective your franchise prototype will be.
    - Management development - the process through which you create your management system, and teach up-and-upcoming managers to use it, isn't a management tool - it's a marketing tool.
    - Its purpose is not just to create an efficient prototype but an effective one : one that finds and keeps customers, profitably, better than any other.

5. People Strategy
  - "How do I get my people to do what I want?"
  - You can't get your people to do anything.
  - If you want it done, create an environment where "doing it" is more important to them than not doing it. Where "doing it" well becomes a way of life.
  - The work we do is a reflection of who we are. If we're sloppy at it, it's because we're sloppy inside. If we're late, it's because we're late inside. If we're bored, we're bored inside.
  - The most menial work can be a piece of art when done by an artist.
  - So the job here is not outside of ourselves, but inside of ourselves.
  - Make sure they understand the idea behind the work they're being asked to do. An idea more important than the work itself.
  - Everyone who works here is expected to work towards being the best he can possibly be at the tasks he's accountable for. When he can't do that, he should act like he is. If unwilling to act, leave.
  - A business is like a martial arts practice hall - a dojo - a place you go to practice being the best you can be.
  - A game to be played in which the rules symbolize the idea you, the owner, have about the world.
  - The degree to which they buy into your game doesn't depend on them but on how well you communicate the game to them - at the outset of the relationship - not after it's begun.
  - Your People Strategy is the way you communicate your idea.
    1. Never try to make a game out of what you want your people to do. The game has to come first, what your people do comes second. (?)
    2. Never create a game you're unwilling to play yourself.
    3. Make sure there are ways of winning the game without ending it. (never actually end it, but give occasional victories)
    4. Change the game from time to time : the tactics, not the strategy. (any game can become boring, no matter how extraordinary it was. anticipate the end before anyone else does, and change it by executive action)
    5. Remind people of the game, constantly. Once a week, have a meeting about the game. Once a day, make some kind of issue about an exception to the way the game has been played, and make certain everyone knows about it.
    6. The game has to make sense.
    7. The game needs to be fun from time to time. (not all the time)
    8. If you can't think of a good game, steal one.
  - Hierarchy of systems: (where the "it" is the stated purpose of your business.)
    1 : how we do it here
    2 : how we recruit, hire, and train people to do it here
    3 : how we manage it here
    4 : how we change it here

6. Marketing Strategy
  - When it comes to marketing, what you want is unimportant. It's what your customer wants that matters.
  - What your customer wants is probably different that what he thinks he wants.
  - Make a promise the customer wants to hear, then deliver on that promise better than anyone else on the block.
  - The COO is the driver of all of this. The COO connects each part of the business process. The COO maintains the integrity of the whole.

7. Systems Strategy
  - A system is a set of things, actions, ideas, and information that interact with each other, and in so doing, alter other systems. (?)
  - Information is the glue that holds your system strategy together. It tells you when and why you need to change.

## financing and fundraising

Capital - Money that business owners invest to acquire assets and start operating, also known as Start-Up Costs

Take the cash and momentum you get from being at the Local Max (big fish small pond), and invest a fraction of it into a new smaller team without traditional constraints that will launch something new and disruptive. Even something that competes.
Local Max companies make 2 big mistakes:
1 - believing they can get to the next Max in a linear, pain-free way
2 - believing the best way to get there is with brute force (more products, salespeople, ads, buildings, staff)
The opposite is true. The more you coddle your new team, the harder it will be for them to find the new Max.

"Seed money" also encourages people to give more to charities.
Seed money refers to the practice of lining up major grants in advance,
before announcing a "capital campaign" to raise a certain sum of money,
often as high as $100 million or more.
The seed money shows that prestigious and wealthy donors are already
committed to the cause.
When the initial seed money is high, the subsequent fund-raising tends
to go very well.
One of List's experiments found that raising seed money from 10 to 67
percent leads to a nearly sixfold increase in subsequent contributions.
Like a matching grant, seed money signals that the charity is part of a
powerful and noble endeavor; the charity is the winning team, so to speak.

Ask funders for money, and they'll give you advice; but ask for advice and they'll give you money.

Money is overrated. Truly new things rarely need an abundance of money. If that was so, billionaires would have a monopoly on inventing new things, and they don't. Instead almost all breakthroughs are made by those who lack money, because they are forced to rely on their passion, persistence and ingenuity to figure out new ways. Being poor is an advantage in innovation.

People with an idea ask me, "Should I raise VC money yet?" NO, of course
not! First you have to hustle.

It is often easier to raise money or acquire other resources when you have zero revenue, zero customers, and zero traction than when you have a small amount. Zero invites imagination, but small numbers invite questions about whether large numbers will ever materialize. Everyone knows (or thinks he or she knows) stories of products that achieved breakthrough success overnight. As long as nothing has been released and no data have been collected, it is still possible to imagine overnight success in the future. Small numbers pour cold water on that hope.

## finding opportunities to grow

Never stop asking what you can do that other organizations _can't_ compete on.
- Almost every perceived weakness you have represents a hidden strength:
    - Small means you can change faster.
    - Low-knowledge means you'll have unconventional solutions
    - Unable to scale means VERY specific people are devoted to you

Don't lose sight of the big question: Are there barriers to entry that allow us to do things that other firms cannot?

[Vespa.ai is spinning out of Yahoo as a separate company | Hacker News](https://news.ycombinator.com/item?id=37769962)
[Vespa is becoming a company | Vespa Blog](https://blog.vespa.ai/vespa-is-becoming-its-own-company/)
- Sometimes, a group INSIDE an entity can all leave collectively and start something new

Great business design is a combination of superb knowledge about customers and profit ("You can't intuit the facts"), together with great strategic imagination.
The reinventors' unique skill is strategic creativity: constantly reversing traditional assumptions, developing new options, and making more inspired choices.

Must be reinvented as customers' needs and priorities change and as value migrates away from the industry's traditional business designs.
Just as products become technologically obsolete, business designs become economically obsolete.
Over time, because of the competitive nature of business, most business designs are no longer allowed to make a profit.

Lew Platt, CEO of Hewlett-Packard, has an invaluable perspective on reinventing: "The single biggest problem in business is staying with your previously successful business model one year too long."

When companies succeed, a company's center of gravity moves.

If a skill is relevant to the customer and is not currently offered, the company must develop it, or hire it, or acquire it, or license it, or find a business partner who will provide it.

1. Who are the most profitable customers?
2. Within that group, which customers have the highest profit growth potential?
3. What mix and level of investments are needed to meet those customers' needs efficiently and enable profit growth to occur?
In many companies, this profitability analysis has revealed that 10 to 15 percent of the customer base is unprofitable, consisting of buyers who absorb the company's resources and do not provide a return.

Move your company into the profit zone. The process involves addressing a sequence of twelve questions:
1. Who are my customers?
  - Identifying customers really means being able to categorize them into distinct groups whose behavior can be analyzed accurately.
  - try to segment your customers into different groups - for instance, by behavior or by priority.
  - Coke's Major Customer Groups 1. Consumers 2. Fountain and Vending Customers 3. Anchor Bottlers 4. National Chains
  - Understand their priorities.
  - Deciphering the priorities that are guiding your customers' behavior.
  - Name three products or services in your industry that have become popular over the past 2 years.
    - Why did customers like them?
    - What were the underlying reasons for the products' value?
    - Did they save money?
    - Reduce hassle?
    - Offer security?
  - Repeat the above exercise but substitute an unrelated market or industry where your customers are actively engaged.
    - What preferences do they express in that market?
  - To discover what your customers' silent or unspoken priorities are is to consider the entire economic system in which your customers operate.
  - Imagine yourself as the CEO of each of your five most important customers (or as a head of household in your five most important demographic groups).
    - What would your overall objectives be?
    - What major concerns would you have?
    - How could a supplier help you toward your goals?
    - How is the supplier currently hindering you?
2. How are their priorities changing?
  - Changing customer priorities in the coffee industry (a priority shift away from price to quality, leading to a shift from grocery retail brands to specialty coffee stores) allowed Starbuck's to prosper.
  - Look at the other industries where your customers operate.
    - Do you see any trends that may soon appear in your market?
    - If customers are trying to save time in one of those areas, aren't they likely to value saved time in yours?
    - What advantages can you introduce now, or in the near future, to anticipate your customers' preferences or needs?
3. Who should be my customer?
  - Are there new groups who would value what you do?
    - Can you jump a step along the value chain and serve your customers' customers?
    - Can you step in the other direction and become a supplier to other companies like your own?
  - Innovative customer selection was critical to value creation for each of the reinventors.
  - Roberto Goizueta realized that Coca-Cola had always thought of consumers as its target customers, when, in fact, bottlers were the buyers of Coca-Cola's syrup and controlled the commercial availability of Coke beverages. He reoriented the company to see bottlers as the key customers in the system and began organizational reform that led to Coca-Cola's low-cost distribution system.
4. How can I add value to the customer?
  - A business earns no profit when customers are willing to pay only the total cost of a product.
  - Each company must ask itself: "What special benef it of our product will compel customers to pay us a premium?"
  - The answer will always say, in some form: "Customers will pay us a premium if we meet their priorities, which are X, Y, and Z."
    - Which priorities are your competitors satisfying?
    - Which priorities might you be able to serve better than your competitors can?
    - Which priorities might you satisfy at a lower cost than your competitorsare charging?
    - How large a premium will your customers pay to have each of their priorities met?
    - Which set of priorities can you serve simultaneously in order to provide the most value for your customers?
5. How can I become the customer's first choice?
  - Who is your most important customer?
  - What are that customer's top three priorities?
  - How do you score?
  - How does your best competitor score?
6. What is my profit model?
  - A business design that adds value to the customer but is not designed to create high profitability is an incomplete - and in many cases, a fatally defective - business design.
    - Do any of these models apply to your business?
    - Does more than one apply?
    - Which ones?
  - How does high profit happen in my business?
    - Who is the most profitable company in my business, and why?
  - Is there a picture that captures how profitability works in your business?
    - Can you sketch it?
    - What is on the X-axis? Time? Scale?
    - How do the different pieces of your business relate to one another?
  - Does everybody in my organization understand our profit model?
    - Does the organization align its actions to create the conditions that will achieve high profitability?
    - Do we make decisions and allocate resources based on this understanding?
7. What is my current business design?
  - A company's business design is composed of four strategic elements:
    (1) customer selection
    (2) value capture
    (3) strategic control
    (4) scope
  - Examples of business design options:
    - Customer Selection All segments Segment 1 Segment 2 Downstream customers
    - Value capture Revenue per unit Licensing fees Service revenue Solutions revenue
    - Strategic Control Brand Low Cost 2-year lead Customer relationship
    - Scope Broad line Narrow line Fully integrated Virtual
8. Who are my real competitors?
  - your true competitors are any companies that share your customers and/or your scope. Your competitors may be in industries that are different from yours. They may provide a completely different set of products and services.
  - What companies are not competitors yet, but could be in the next year or two?
9. What is my toughest competitors' business design?
10. What is my next business design?
  - A business design that is well aligned with customers' priorities will be in a state of value inflow
11. What is my strategic control point?
  - Strategic control points:
    - brand
    - patent
    - copyright
    - 2-year product development lead
    - 20 percent cost advantage
    - control of distribution
    - control of supply
    - owning customer information flow
    - a unique organizational culture
    - value chain control
    - and others.
  - Each one is designed to keep a company in the profit zone and to prevent others from stealing away the profitability.
  - Where would your company be situated on a strategic control point index?
  - Where would your competitors be placed?
  - What can you do to increase your company's strategic control index?
  - How would your profitability increase if you increased your degree of strategic control?
12. What is my company worth?
  - What is my profit model?
  - What is my strategic control point or points?
  - These are two of the most important questions in business today.
  - They determine how profitable we will be, and how long that profitability might last.

## focusing too much inwardly

A company focused on itself - its internal budgets, internal resource concerns, and internal politics - will have a great deal of difficulty with customer-centric thinking.

Spend most of your time outside with customers. Don't spend your time with customers who like you.
Seek out the customers who are the most demanding, the angriest, and the most insightful about tomorrow.
Don't go into these customer dialogues asking yourself, "What do I need to know?"
Ask the right questions, such as: "What am I afraid to find out?"

Customer priorities are the things that are so important to customers that they will pay a premium for them or, when they can't get them, they will switch suppliers.

Decipher what customer priorities are being ignored (a clear link to the words in the left-hand column in Exhibit 2.4).
• Invent a new business design that responds to those priorities.
• Create a new profit zone with extraordinarily high profitability.

IT IS IMPORTANT TO REVISIT THE VOIDS THAT EXIST, INCLUDING WHAT YOUR OWN ORGANIZATION CREATES AS A VOID IN THE PROCESS OF DOING THINGS

## fundraising - Matt Levine

### AI disruption

I think there is something charming about Sam Altman's [frequent public insistence](https://www.wsj.com/tech/ai/sam-altman-seeks-trillions-of-dollars-to-reshape-business-of-chips-and-ai-89ab3db0) that building good artificial intelligence models will cost more than, like, everything else in the history of human civilization combined. "Oh, just out doing a roadshow to raise a few trillion dollars for chips," Altman shrugs. It feels like a clever strategy? Like:

1. If you get everyone thinking that it will cost trillions of dollars to build AI, then a lot of potential competitors won't even bother; there's no way they could raise that kind of money.
2. If you go to the UAE or Masayoshi Son or whomever and are like "I'm looking for $7 trillion," maybe that will anchor their expectations high enough that they're like "well we can't do that, but we're in for a more modest ticket, would $7 billion help," and then you've got $7 billion, which is actually a lot.
3. It fits nicely with Altman's [other strategy](https://www.bloomberg.com/opinion/articles/2024-01-18/coinbase-trades-beanie-babies) of suggesting that AI, if mishandled, could destroy humanity: That self-aggrandizing claim is more plausible if it also comes with an enormous price tag.
4. It's gotta help with recruiting, throwing around numbers like that.

OpenAI is a relatively young company (and [a nonprofit](https://www.bloomberg.com/opinion/articles/2023-11-27/openai-is-still-an-86-billion-nonprofit)!), and while by many measures (valuation, money raised so far, revenue) it is quite large, it also does a good job of giving the _impression_ of hugeness, and part of that comes from Altman going around always saying the biggest possible number.

But I suppose that does create an opportunity for [someone with a contrarian view](https://www.wsj.com/tech/ai/the-9-month-old-ai-startup-challenging-silicon-valleys-giants-ee2e4c48):

> [Arthur] Mensch's startup, called Mistral AI, is challenging the conventional wisdom that the winners of the AI race will emerge from among the tech industry's U.S. giants. Mensch, who founded the company with two engineering-school friends, doesn't think enormous scale is essential - or that the U.S. will necessarily dominate. …
> 
> Mensch's company, which has raised just over $500 million from investors including Andreessen Horowitz, remains tiny compared with the Goliaths of the industry. Microsoft-backed OpenAI and Alphabet's Google are pouring billions of dollars into training the latest AI systems, leveraging their access to the specialized computer chips needed to build such systems and the fat balance sheets needed to pay for the electricity those chips consume. 
> 
> Mistral, named for a strong wind that blows from France, is founded in part on the idea that a lot of that money is being wasted. …
> 
> "We want to be the most capital-efficient company in the world of AI," Mensch said. "That's the reason we exist." …
> 
> Mensch said his new model cost less than €20 million, the equivalent of roughly $22 million, to train. By contrast OpenAI Chief Executive Sam Altman said last year after the release of GPT-4 that training his company's biggest models cost "much more than" $50 million to $100 million.

In general, we are coming out of many years of venture capital exuberance in which saying "we are competing to build a world-changing technology, and we're going to win by spending slightly less money than our competitors" was _not_ a particularly appealing pitch: The [whole](https://www.bloomberg.com/opinion/articles/2020-01-31/don-t-blitzscale-against-yourself) [game](https://www.bloomberg.com/opinion/articles/2022-11-07/moviepass-was-not-a-good-business) was to spend freely now to win market dominance later. But now interest rates are higher, and also surely there is _some_ cap on that? "We will build world-changing technology for less than $7 trillion" _is_ kind of a good pitch.

### Reddit IPO

Reddit Inc. is planning an initial public offering of its stock. In a typical IPO, a company and its early investors sell stock to institutional investors at the IPO price, and then the next day the stock opens for trading and regular investors can buy it (from those institutions). Usually - not always - the stock goes up on that first day of trading, as everyone who wants to own the stock, but could not get any in the IPO, buys it. This is called the "IPO pop," and institutional investors try to get into the good graces of IPO issuers (and their banks) so they can get good allocations in hot IPOs and benefit from the pop.

Reddit will mostly sell stock to institutional investors, but it plans to [sell some of the shares](https://www.sec.gov/Archives/edgar/data/1713445/000162828024006294/reddits-1q423.htm#i1b9a579e78a34dfa99f7f26daeec195b_112) to "eligible Reddit users and moderators." I suppose this is a sort of a loyalty program, letting Reddit's most active users buy stock at the IPO price and participate in some of the upside. I [wrote a bit](https://www.bloomberg.com/opinion/articles/2024-02-21/reddit-s-ipo-is-for-redditors) about this plan last week. Here's how Reddit [describes it](https://www.sec.gov/Archives/edgar/data/1713445/000162828024006294/reddits-1q423.htm#i1b9a579e78a34dfa99f7f26daeec195b_112):

> Users and moderators who created an account on or before January 1, 2024 are potentially eligible for the directed share program. Eligible participants must reside in the United States and be at least 18 years of age. Further, eligible users and moderators must be in good standing on our platform and cannot be a current or former Reddit employee.
> 
> We will invite users and moderators to participate in the directed share program in six phased priority tiers. We will assign each eligible participant to a tier based on that participant's contributions to Reddit. User contributions will be measured in karma (a user's reputation score that reflects their community contributions). Moderator contributions will be measured by membership and moderator actions on our platform. Tier 1 will include certain users and moderators identified by us who have meaningfully contributed to Reddit community programs. Tier 2 will include users who hold at least 200,000 karma and moderators who have performed at least 5,000 moderator actions.

And so on down to Tier 6. "An invitation to participate in the directed share program does not guarantee that the participant will receive an allocation of shares," and there's not a lot of description about how the allocations will work. But I suppose if you have a lot of Reddit karma then there's at least a decent chance you can buy some shares at the IPO price.

Also, separately, Reddit plans to sell some of the IPO shares "to retail investors through Fidelity Brokerage Services LLC, SoFi Securities, Inc., and Robinhood Financial LLC, as selling group members for this offering, through their respective brokerage platforms." So even non-redditor retail investors can probably buy stock at the IPO price. As I wrote last time, you might expect this sort of thing to reduce the IPO pop: If enthusiastic retail investors can buy at the IPO price, they won't have to buy in the open market the next day, reducing demand for the shares. But I suppose it depends on how much they get in the IPO.

One question is: If you are a retail investor and a redditor, and you have at least 200,000 karma and 5,000 moderator actions on Reddit, how much is that _worth_? You have, not a golden ticket or anything, but at least an inside track to buy an uncertain number of shares of a high-profile IPO at the IPO price. That … probably  has some slight positive expectation, right? You'd rather have that than not? It is … transferable-ish? A reader emailed:

> Today I was given the opportunity to participate in the Reddit IPO as someone who has wasted far too much time on the site. Unfortunately, I am a Canadian and thus forbidden from participating. But Reddit doesn't know that, which is why they offered me the option. So I could sell my account, one of 75,000, to someone who meets the criteria - a purely hypothetical scenario, of course.

Obviously this is not allowed by Reddit's [terms of service](https://www.redditinc.com/policies/user-agreement), but on the other hand Reddit accounts really are pretty anonymous, so maybe it would work. How much would you charge? How much would you pay? My reader adds:

> What if they change my password and start posting terrible takes all over the site? Will the money be worth losing internet points?

My sense is that, if you are a redditor with lots of karma, the value of this directed share program is probably in the … tens of dollars? Whereas the value of your Reddit reputation is … priceless? Like, you have worked hard to build up all that karma, and you're not going to sacrifice it by transferring your account to someone who just wants a slight advantage in stock trading. 

Also it is not clear how much value _actual Reddit users_ place on the right to buy the stock. Elizabeth Lopatto [reports at the Verge](https://www.theverge.com/2024/2/24/24081441/reddit-shares-redditor-ipo-user-risk):

> Here's the thing: Redditors aren't enthused about it.
> 
> "Short … it," wrote one r/Wall StreetBets user. "They have not proven that this user base or data set can be monetized." 
> 
> And there was this person: "Loads puts into the put-cannon with malicious intent."

If Reddit power users can sell their rights to buy in the IPO, there might be a lot of supply.

## hiring

Entrepreneurs are hopeless romantics. Which makes us terrible hiring managers. Get help!

HIRING MISTAKE: Someone shows belief in our grand plan, we want to believe in them. We are major suckers for someone, anyone, who shows enthusiasm for our cause. Entrepreneurs see the potential in everything and everyone, and we are happy to hire on hope alone.

You can't hire enthusiasm. You need to hire evidence. Recruit people who already have, by evidence. This means being extremely rational and pragmatic. Hire evidence, not hope.

The average "good" employee simply isn't all that productive. The average cost of a bad hire is about 6 to 15 times the person's annual salary.

Great employees can set you free. Free from the things you aren't good at. Free from the things you hate. Free from the daily "emergencies" and decisions that shouldn't consume your days, but always seem to.

Great employees truly are incredible, and they make your life easier and your business better in every way.

A-players want to work with other A-players! You might be thinking you can't afford to hire A-Players. Good news: they're free! Because A-Players pay for themselves.

The single most important thing you need to do is pick the right people and keep them. There is NOTHING more important than this.

Know what you want.

Always be the dumbest one in the room.

"if I have a better idea than my Marketing Director, we are in trouble. If I solve a problem my CFO has been stumped with for a week, we are doomed."

Don't train your people to be successful. Hire successful people.

Warren Buffett looks for: integrity, intelligence, and energy. And he warns that if they don't have that first quality, the others will work against you.

What attributes do you want?

Never even list the compensation plan. I always just say, "much better than market standard."

What makes work fun is doing meaningful work.

Hire ahead of your growth. Hire to conquer new frontiers. Hire to launch new initiatives. But don't hire to put out a fire.

We are a team, not a family. Hire, develop, and cut smartly so we have stars in every position.

Watch out for enthusiasts without experience; they are often better customers than workers.

If a job similar to the one you are filling isn't listed on an applicant's resume, tread carefully. People who haven't held similar positions in the past might not know enough about themselves to realize they won't be happy.

Use education in reverse: hire, conditional on an equal set of skills, the person with the least label-oriented education. It means that the person had to succeed in spite of the credentialization of his competitors and overcome more serious hurdles. In addition, people who didn't go to Harvard are easier to deal with in real life.

## IPO

make a reference to SPACs and how they work
- it's technically easier to do that than a a straight IPO

## old tPA scaling

### Scale the company as the work increases

Re-invest every dollar possible
- The more money you put back into the business, the more it can grow

Avoid overpaying taxes
- Track every receipt and have a reputable accountant review your information

Ignore competitors' financial statements
- Try to use your resources better instead of how much money others invested

Slowly scale the company
- Adding markets too quickly leaves the company unprepared to take on new challenges
- Expanding too rapidly stretches resources too thin to recover from an unexpected event
- Slowly scaling takes both patience and flexibility
- Practices gradually harden into company policy as it grows and requires micromanagement to avoid bureaucracy

Outsource work when it becomes cost-effective
- A full-time worker is unprofitable at first, so hire consultants and part-time workers
- Research automated solutions with tools like [Cloudwards](https://www.cloudwards.net/) and [PC Magazine](https://www.pcmag.com) reviews

Never split large-scale goals
- Pursue one venture at a time and build the business up, then transition to another as you free up responsibilities

Stay focused on the big picture as you perform each task
- Some of the most important tasks don't scale with a company
- Each worker, especially the owner, will progressively work more at niche-focused core abilities

Your growing business will allow you to do more of what you excel at and less of everything else
- A company reaches its limit when the owner is overworked in tasks outside their expertise

A company's ability to adapt and change will slow down as it grows

- More people create more thoughts, which complicate projects
- Try restructuring the business or making it small again
- If the company grows past a certain size or trajectory, sell the company if you feel like it
    - Many entrepreneurs love the thrill of creating a business from nothing so much they make a living selling companies they built

Most entrepreneurial skills don't change as the organization scales, so always act like a startup
Leadership skills are the only limit to the size of a business

If you're self-employed or run a business, it's vital to separate your professional and personal lives

## rapid-fire management

Most tools from general management are not designed to flourish in the harsh soil of extreme uncertainty in which startups thrive. The future is unpredictable, customers face a growing array of alternatives, and the pace of change is ever increasing. Yet most startups - in garages and enterprises alike - still are managed by using standard forecasts, product milestones, and detailed business plans.

Innovation is a bottoms-up, decentralized, and unpredictable thing, but that doesn't mean it cannot be managed. It can, but to do so requires a new management discipline, one that needs to be mastered not just by practicing entrepreneurs seeking to build the next big thing but also by the people who support them, nurture them, and hold them accountable. In other words, cultivating entrepreneurship is the responsibility of senior management.

Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startup's present and future business prospects. It is more concrete, more accurate, and faster than market forecasting or classical business planning.

## researching large changes - business development process

People constantly asking, "What is the best way to do this?" - knowing we'll never discover the best way, but by asking we discover a better way.
Innovation is the "best way" skill. It produces a high level of energy in every company.

Quantification : numbers related to the impact an innovation makes.
Quantify EVERYTHING related to how you do business.
Eventually, you and your people will think of your entire business in terms of the numbers.
Read your business' health chart by the flow of the numbers.
Know which numbers are critical and which aren't.
Become as familiar with your business' numbers as a doctor is with blood pressure / pulse rates.
Without the numbers, you don't know where you are or where you're going.
With the numbers, your business will take on a totally new meaning.

Orchestration is the elimination of discretion or choice at the operating level of your business.
Without orchestration, nothing could be planned or anticipated by you or your customer.
If you're doing everything differently every time you do it, if everyone is doing it at their own discretion, you're creating chaos, not order.
If you haven't orchestrated it, you don't own it.
If you don't own it, you can't depend on it.
Unless your unique way of doing business can be replicated every single time, you don't own it.
Unless your customer gets everything he wants every time, he'll go someplace else to get it.
The business development process is not static - it's not something you do and then are done with - it's something you do all the time.

Innovation, Quantification, Orchestration are the backbone of a business - the Business Development Process.

## researching large changes

Learn to see every startup in any industry as a grand experiment. The question is not "Can this product be built?" In the modern economy, almost any product that can be imagined can be built. The more pertinent questions are "Should this product be built?" and "Can we build a sustainable business around this set of products and services?" To answer those questions, we need a method for systematically breaking down a business plan into its component parts and testing each part empirically.

One of the most important lessons of the scientific method: if you cannot fail, you cannot learn.

A true experiment follows the scientific method. It begins with a clear hypothesis that makes predictions about what is supposed to happen. It then tests those predictions empirically. Just as scientific experimentation is informed by theory, startup experimentation is guided by the startup's vision. The goal of every startup experiment is to discover how to build a sustainable business around that vision.

To sell the shoes, Zappos had to interact with customers: taking payment, handling returns, and dealing with customer support. This is decidedly different from market research. If Zappos had relied on existing market research or conducted a survey, it could have asked what customers thought they wanted. By building a product instead, albeit a simple one, the company learned much more:
1. It had more accurate data about customer demand because it was observing real customer behavior, not asking hypothetical questions.
2. It put itself in a position to interact with real customers and learn about their needs.
3. It allowed itself to be surprised when customers behaved in unexpected ways, revealing information Zappos might not have known to ask about. For example, what if customers returned the shoes?

Break It Down
The first step would be to break down the grand vision into its component parts. The two most important assumptions entrepreneurs make are what I call the value hypothesis and the growth hypothesis. The value hypothesis tests whether a product or service really delivers value to customers once they are using it.

The growth hypothesis tests how new customers will discover a product or service.

The very actions that made us successful with early adopters were diametrically opposed to the actions we'd have to master to be successful with mainstream customers.

## revisiting customer desires

Invite one of your friends to chat." And she says, "No way!" We say, "Why not?" And she says, "Well, I don't know if this thing is cool yet. You want me to risk inviting one of my friends? What are they going to think of me? If it sucks, they're going to think I suck, right?"

We had a mental model for how people used software that was years out of date.

Bit by bit, customers tore apart our seemingly brilliant initial strategy.

I had committed the biggest waste of all: building a product that our customers refused to use.

One last refuge for people aching to justify their own failure. I consoled myself that if we hadn't built this first product - mistakes and all - we never would have learned these important insights about customers. We never would have learned that our strategy was flawed. There is truth in this excuse: what we learned during those critical early months set IMVU on a path that would lead to our eventual breakout success. For a time, this "learning" consolation made me feel better, but my relief was short-lived. Here's the question that bothered me most of all: if the goal of those months was to learn these important insights about customers, why did it take so long? How much of our effort contributed to the essential lessons we needed to learn? Could we have learned those lessons earlier if I hadn't been so focused on making the product "better" by adding features and fixing bugs? VALUE VS. WASTE In other words, which of our efforts are value-creating and which are wasteful?

Lean thinking defines value as providing benefit to the customer; anything else is waste.

But in a startup, who the customer is and what the customer might find valuable are unknown.

What we had learned over those first months about what creates value for customers. Anything we had done during those months that did not contribute to our learning was a form of waste.

Would it have been possible to learn the same things with less effort?

Think of all the debate and prioritization of effort that went into features that customers would never discover. If we had shipped sooner, we could have avoided that waste. Also consider all the waste caused by our incorrect strategic assumptions. I had built interoperability for more than a dozen different IM clients and networks. Was this really necessary to test our assumptions? Could we have gotten the same feedback from our customers with half as many networks? With only three? With only one? Since the customers of all IM networks found our product equally unattractive, the level of learning would have been the same, but our effort would have been dramatically less.

Did we have to support any networks at all? Is it possible that we could have discovered how flawed our assumptions were without building anything? For example, what if we simply had offered customers the opportunity to download the product from us solely on the basis of its proposed features before building anything?

(Note that this is different from asking customers what they want. Most of the time customers don't know what they want in advance.)

Learning is the essential unit of progress for startups. The effort that is not absolutely necessary for learning what customers want can be eliminated. I call this validated learning because it is always demonstrated by positive improvements in the startup's core metrics. As we've seen, it's easy to kid yourself about what you think customers want. It's also easy to learn things that are completely irrelevant. Thus, validated learning is backed up by empirical data collected from real customers.

Certainly our stories of failure were entertaining, and we had fascinating theories about what we had done wrong and what we needed to do to create a more successful product. However, the proof did not come until we put those theories into practice and built subsequent versions of the product that showed superior results with actual customers.

The hard work of discovering what customers really wanted and adjusting our product and strategy to meet those desires.

Traditionally, the product manager says, 'I just want this.' In response, the engineer says, 'I'm going to build it.'
Instead, I try to push my team to first answer four questions:
1. Do consumers recognize that they have the problem you are trying to solve?
2. If there was a solution, would they buy it?
3. Would they buy it from us?
4. Can we build a solution for that problem?"
The common tendency of product development is to skip straight to the fourth question and build a solution before confirming that customers have the problem.

"Until we could figure out how to sell and make the product, it wasn't worth spending any engineering time on."

Returning to India, Akshay joined the Village Laundry Services (VLS), created by Innosight Ventures. VLS began a series of experiments to test its business assumptions. For their first experiment, VLS mounted a consumer-grade laundry machine on the back of a pickup truck parked on a street corner in Bangalore. The experiment cost less than $8,000 and had the simple goal of proving that people would hand over their laundry and pay to have it cleaned. The entrepreneurs did not clean the laundry on the truck, which was more for marketing and show, but took it off-site to be cleaned and brought it back to their customers by the end of the day. The VLS team continued the experiment for a week, parking the truck on different street corners, digging deeper to discover all they could about their potential customers. They wanted to know how they could encourage people to come to the truck. Did cleaning speed matter? Was cleanliness a concern? What were people asking for when they left their laundry with them? They discovered that customers were happy to give them their laundry to clean. However, those customers were suspicious of the washing machine mounted on the back of the truck, concerned that VLS would take their laundry and run. To address that concern, VLS created a slightly more substantial mobile cart that looked more like a kiosk. VLS also experimented with parking the carts in front of a local minimarket chain. Further iterations helped VLS figure out which services people were most interested in and what price they were willing to pay. They discovered that customers often wanted their clothes ironed and were willing to pay double the price to get their laundry back in four hours rather than twenty-four hours. As a result of those early experiments, VLS created an end product that was a three-foot by four-foot mobile kiosk that included an energy-efficient, consumer-grade washing machine, a dryer, and an extra-long extension cord. The kiosk used Western detergents and was supplied daily with fresh clean water delivered by VLS. Since then, the Village Laundry Service has grown substantially, with fourteen locations operational in Bangalore, Mysore, and Mumbai. As CEO Akshay Mehra shared with me, "We have serviced 116,000 kgs. in 2010 (vs. 30,600 kg. in 2009). And almost 60 percent of the business is coming from repeat customers. We have serviced more than 10,000 customers in the past year alone across all the outlets."5
VLS story was recounted by Elnor Rozenrot, formerly of Innosight Ventures. Additional detail was provided by Akshay Mehra. For more on the VLS, see the article in Harvard Business Review

Their challenge is to overcome the prevailing management thinking that puts its faith in well-researched plans. Remember, planning is a tool that only works in the presence of a long and stable operating history.

To apply the scientific method to a startup, we need to identify which hypotheses to test. I call the riskiest elements of a startup's plan, the parts on which everything depends, leap-of-faith assumptions. The two most important assumptions are the value hypothesis and the growth hypothesis. These give rise to tuning variables that control a startup's engine of growth. Each iteration of a startup is an attempt to rev this engine to see if it will turn. Once it is running, the process repeats, shifting into higher and higher gears. Once clear on these leap-of-faith assumptions, the first step is to enter the Build phase as quickly as possible with a minimum viable product (MVP). The MVP is that version of the product that enables a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time.

Creating a MVP requires extra work: we must be able to measure its impact. For example, it is inadequate to build a prototype that is evaluated solely for internal quality by engineers and designers. We also need to get it in front of potential customers to gauge their reactions.

When we enter the Measure phase, the biggest challenge will be determining whether the product development efforts are leading to real progress.

The method I recommend is called innovation accounting, a quantitative approach that allows us to see whether our engine-tuning efforts are bearing fruit. It also allows us to create learning milestones,

A startup's job is to
(1) rigorously measure where it is right now, confronting the hard truths that assessment reveals, and then
(2) devise experiments to learn how to move the real numbers closer to the ideal reflected in the business plan.

Test the riskiest assumptions first.

For example, a company might spend time improving the design of its product to make it easier for new customers to use. This presupposes that the activation rate of new customers is a driver of growth and that its baseline is lower than the company would like. To demonstrate validated learning, the design changes must improve the activation rate of new customers. If they do not, the new design should be judged a failure. This is an important rule: a good design is one that changes customer behavior for the better.

Five dollars bought us a hundred clicks - every day. From a marketing point of view this was not very significant, but for learning it was priceless. Every single day we were able to measure our product's performance with a brand new set of customers. Also, each time we revised the product, we got a brand new report card on how we were doing the very next day.

Cohort analysis. This is one of the most important tools of startup analytics. Although it sounds complex, it is based on a simple premise. Instead of looking at cumulative totals or gross numbers such as total revenue and total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently. Each group is called a cohort.

Every company depends for its survival on sequences of customer behavior called flows. Customer flows govern the interaction of customers with a company's products. They allow us to understand a business quantitatively and have much more predictive power than do traditional gross metrics.

This is the pattern: poor quantitative results force us to declare failure and create the motivation, context, and space for more qualitative research. These investigations produce new ideas - new hypotheses - to be tested, leading to a possible pivot. Each pivot unlocks new opportunities for further experimentation, and the cycle repeats. Each time we repeat this simple rhythm: establish the baseline, tune the engine, and make a decision to pivot or persevere.

Tools for product improvement do not work the same way for startups. If you are building the wrong thing, optimizing the product or its marketing will not yield significant results. A startup has to measure progress against a high bar: evidence that a sustainable business can be built around its products or services. That's a standard that can be assessed only if a startup has made clear, tangible predictions ahead of time. In the absence of those predictions, product and strategy decisions are far more difficult and time-consuming.

Because Grockit was using the wrong kinds of metrics, the startup was not genuinely improving. Farb was frustrated in his efforts to learn from customer feedback. In every cycle, the type of metrics his team was focused on would change: one month they would look at gross usage numbers, another month registration numbers, and so on. Those metrics would go up and down seemingly on their own. He couldn't draw clear cause-and-effect inferences. Prioritizing work correctly in such an environment is extremely challenging. Farb could have asked his data analyst to investigate a particular question. For example, when we shipped feature X, did it affect customer behavior? But that would have required tremendous time and effort. When, exactly, did feature X ship? Which customers were exposed to it? Was anything else launched around that same time? Were there seasonal factors that might be skewing the data? Finding these answers would have required parsing reams and reams of data. The answer often would come weeks after the question had been asked. In the meantime, the team would have moved on to new priorities and new questions that needed urgent attention.

Grockit changed the metrics they used to evaluate success in two ways. Instead of looking at gross metrics, Grockit switched to cohort-based metrics, and instead of looking for cause-and-effect relationships after the fact, Grockit would launch each new feature as a true split-test experiment. A split-test experiment is one in which different versions of a product are offered to customers at the same time. By observing the changes in behavior between the two groups, one can make inferences about the impact of the different variations.

Although working with split tests seems to be more difficult because it requires extra accounting and metrics to keep track of each variation, it almost always saves tremendous amounts of time.

I have implemented this system with several teams, and the initial result is always frustrating: each bucket fills up, starting with the "validated" bucket and moving on to the "done" bucket, until it's not possible to start any more work.

The only way to start work on new features is to investigate some of the stories that are done but haven't been validated.

If they include the validation exercise from the beginning, the whole team can be more productive. For example, why build a new feature that is not part of a split-test experiment? It may save you time in the short run, but it will take more time later to test, during the validation phase.

Gain insights into why customers are behaving the way the data indicate.

Which activities create value and which are a form of waste? Once you understand this distinction, you can begin using lean techniques to drive out waste and increase the efficiency of the value-creating activities.

What products do customers really want? How will our business grow? Who is our customer? Which customers should we listen to and which should we ignore? These are the questions that need answering as quickly as possible

Customers often don't know what they want. Our goal in building products is to be able to run experiments that will help us learn how to build a sustainable business. Thus, the right way to think about the product development process in a Lean Startup is that it is responding to pull requests in the form of experiments that need to be run.

As soon as we formulate a hypothesis that we want to test, the product development team should be engineered to design and run this experiment as quickly as possible, using the smallest batch size that will get the job done. Remember that although we write the feedback loop as Build-Measure-Learn because the activities happen in that order, our planning really works in the reverse order: we figure out what we need to learn and then work backwards to see what product will work as an experiment to get that learning. Thus, it is not the customer, but rather our hypothesis about the customer, that pulls work from product development and other functions. Any other work is waste.

Toyota has built the most advanced learning organization in history. It has demonstrated an ability to unleash the creativity of its employees, achieve consistent growth, and produce innovative new products relentlessly over the course of nearly a century.11 This is the kind of long-term success to which entrepreneurs should aspire. Although lean production techniques are powerful, they are only a manifestation of a high-functioning organization that is committed to achieving maximum performance by employing the right measures of progress over the long term. Process is only the foundation upon which a great company culture can develop. But without this foundation, efforts to encourage learning, creativity, and innovation will fall flat - as

Sustainable growth is characterized by one simple rule: New customers come from the actions of past customers. There are four primary ways past customers drive sustainable growth:
1. Word of mouth. Embedded in most products is a natural level of growth that is caused by satisfied customers' enthusiasm for the product.
2. As a side effect of product usage. Fashion or status, such as luxury goods products, drive awareness of themselves whenever they are used.
3. Through funded advertising. For this to be a source of sustainable growth, the advertising must be paid for out of revenue, not one-time sources such as investment capital. As long as the cost of acquiring a new customer (the so-called marginal cost) is less than the revenue that customer generates (the marginal revenue), the excess (the marginal profit) can be used to acquire more customers. The more marginal profit, the faster the growth.
4. Through repeat purchase or use. Some products are designed to be purchased repeatedly either through a subscription plan (a cable company) or through voluntary repurchases (groceries or lightbulbs). By contrast, many products and services are intentionally designed as one-time events, such as wedding planning.

These sources of sustainable growth power feedback loops that I have termed engines of growth. Each is like a combustion engine, turning over and over. The faster the loop turns, the faster the company will grow. Each engine has an intrinsic set of metrics that determine how fast a company can grow when using it.

Startups have to focus on the big experiments that lead to validated learning. The engines of growth framework helps them stay focused on the metrics that matter.

Companies using the sticky engine of growth track their attrition rate or churn rate very carefully. The churn rate is defined as the fraction of customers in any period who fail to remain engaged with the company's product. The rules that govern the sticky engine of growth are pretty simple: if the rate of new customer acquisition exceeds the churn rate, the product will grow. The speed of growth is determined by what I call the rate of compounding, which is simply the natural growth rate minus the churn rate.

Focus needs to be on improving customer retention. This goes against the standard intuition in that if a company lacks growth, it should invest more in sales and marketing. This counterintuitive result is hard to infer from standard vanity metrics.

## revisiting customer desires - acting on the information

Finally, and most important, there's the pivot.

If we've discovered that one of our hypotheses is false, it is time to make a major change to a new strategic hypothesis.

How Facebook was able to raise so much money when its actual usage was so small: By all accounts, what impressed investors the most were two facts about Facebook's early growth. The first fact was the raw amount of time Facebook's active users spent on the site. More than half of the users came back to the site every single day. This is an example of how a company can validate its value hypothesis - that customers find the product valuable. The second impressive thing about Facebook's early traction was the rate at which it had taken over its first few college campuses.
Facebook also had validated its growth hypothesis. These two hypotheses represent two of the most important leap-of-faith questions any new startup faces.

Is the lesson of Facebook that startups should not charge customers money in the early days? Or is it that startups should never spend money on marketing? These questions cannot be answered in the abstract;
Instead, as we saw in Part One, startups need to conduct experiments that help determine what techniques will work in their unique circumstances. For startups, the role of strategy is to help figure out the right questions to ask.

Every business plan begins with a set of assumptions. It lays out a strategy that takes those assumptions as a given and proceeds to show how to achieve the company's vision. Because the assumptions haven't been proved to be true (they are assumptions, after all) and in fact are often erroneous, the goal of a startup's early efforts should be to test them as quickly as possible.

Assumptions that require more courage to state - in the present tense - with a straight face: we assume that customers have a significant desire to use a product like ours, or we assume that supermarkets will carry our product. Acting as if these assumptions are true is a classic entrepreneur superpower. They are called leaps of faith precisely because the success of the entire venture rests on them. If they are true, tremendous opportunity awaits. If they are false, the startup risks total failure.

A simple question that I make a habit of asking startups whenever we meet:
Are you making your product better?
They always say yes.
Then I ask: how do you know?
I invariably get this answer: well, we are in engineering and we made a number of changes last month, and our customers seem to like them, and our overall numbers are higher this month. We must be on the right track.
This is the kind of storytelling that takes place at most startup board meetings. Most milestones are built the same way: hit a certain product milestone, maybe talk to a few customers, and see if the numbers go up. Unfortunately, this is not a good indicator of whether a startup is making progress. How do we know that the changes we've made are related to the results we're seeing? More important, how do we know that we are drawing the right lessons from those changes? To answer these kinds of questions, startups have a strong need for a new kind of accounting geared specifically to disruptive innovation.

The sign of a successful pivot: the new experiments you run are overall more productive than the experiments you were running before.

User stories were not considered complete until they led to validated learning. Thus, stories could be cataloged as being in one of four states of development: in the product backlog, actively being built, done (feature complete from a technical point of view), or in the process of being validated. Validated was defined as "knowing whether the story was a good idea to have been done in the first place." This validation usually would come in the form of a split test showing a change in customer behavior but also might include customer interviews or surveys. The kanban rule permitted only so many stories in each of the four states. As stories flow from one state to the other, the buckets fill up. Once a bucket becomes full, it cannot accept more stories. Only when a story has been validated can it be removed from the kanban board. If the validation fails and it turns out the story is a bad idea, the relevant feature is removed from the product.

There is no bigger destroyer of creative potential than the misguided decision to persevere.

Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead, neither growing enough nor dying, consuming resources and commitment from employees.

A pivot requires that we keep one foot rooted in what we've learned so far, while making a fundamental change in strategy in order to seek even greater validated learning.

A STARTUP'S RUNWAY IS THE NUMBER OF PIVOTS IT CAN STILL MAKE

I recommend that every startup have a regular "pivot or persevere" meeting.

Startups don't starve; they drown.

## revisiting customer desires - making a decision

The failure of the "launch it and see what happens" approach should now be evident: you will always succeed - in seeing what happens. Except in rare cases, the early results will be ambiguous, and you won't know whether to pivot or persevere, whether to change direction or stay the course.

## revisiting customer desires - pivoting fast

An extremely fast cycle time, a focus on what customers want (without asking them), and a scientific approach to making decisions.

Startups exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments.

The fundamental activity of a startup is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere. All successful startup processes should be geared to accelerate that feedback loop.

Focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting.

Planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither.

Progress in manufacturing is measured by the production of high-quality physical goods. The Lean Startup uses a different unit of progress, called validated learning. With scientific learning as our yardstick, we can discover and eliminate the sources of waste that are plaguing entrepreneurship.

A method for measuring progress in the context of extreme uncertainty.

Clear guidance on how to make the many trade-off decisions they face: whether and when to invest in process; formulating, planning, and creating infrastructure; when to go it alone and when to partner; when to respond to feedback and when to stick with vision; and how and when to invest in scaling the business. Most of all, it must allow entrepreneurs to make testable predictions.

The Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight.

The strategy may have to change (called a pivot). However, the overarching vision rarely changes. Entrepreneurs are committed to seeing the startup through to that destination. Every setback is an opportunity for learning how to get where they want to go.

Get to each pivot faster. In other words, the startup has to find ways to achieve the same amount of validated learning at lower cost or in a shorter time. All the techniques in the Lean Startup model that have been discussed so far have this as their overarching goal.

On the page, these processes may seem clinical, slow, and simple. In the real world, something different is needed. We have learned to steer when moving slowly. Now we must learn to race. Laying a solid foundation is only the first step toward our real destination: acceleration.

## risks from going out of scope

More entrepreneurs get themselves into trobule by overreaching than exercising discipline.

Don't make another major investment until you have satisfied yourself that the company knows exactly how it will make money and what tactical actions will be required to do so consistently.

## staying mindful of customers

I was out to understand what made these stubborn small-town entrepreneurs tick.

when a customer says he returned a movie but the store's computer can't find it. The employee was trained to say, "No problem, our mistake," and to note the discrepancy on the customer's file. We had a three-strikes-and-you're-out policy.

30+ years of business wisdom into a single lesson: get to know your customers.

## the growth of a business

INFANCY

Unfortunately most business do what the owner wants as opposed to what the business needs.
It's easy to spot a business in infancy : the owner and business are one and the same.
Infancy ends when the owner realizes the business cannot continue to run the way it has been, that to survive it will have to change. This is where most business failures occur.

If your business depends on you, you don't own a business - you have a job. (and you're working for a lunatic)
The purpose of going into business is to get free of a job so you can create jobs for other people.

ADOLESCENCE

Error: Management by abdication ("To relinquish formally a high office or responsibility.") rather than delegation.
The process of deterioration where the number of the balls in the air is not only too much for you, but too much for your people as well.

BEYOND THE COMFORT ZONE

True trust comes from knowing, not from blind faith.
To know, one must understand.
To understand, one must have an intimate awareness of what conditions are truly present. What people know, do, want, are - and what they don't/aren't.
A business that "gets small again" is a business reduced to the level of its owner's personal resistance to change - its owner's comfort zone. (works and waits for something positive to happen)
Businesses that "get small again" die, implode.
Your job is to prepare yourself and your business for growth.
To educate yourself so that, as your business grows, the foundation and structure can carry the additional weight.
** It's up to you to dictate your business's rate of growth by understanding the key processes that need to be performed, the key objectives that need to be achieved, the key position you're aiming for in the marketplace.
Write it down, clearly, so others can understand it. (If you can't, you don't own it!)

MATURITY

Maturity is not an inevitable result of the first two phases. It is not the end of a serial process. Great companies didn't end up as mature companies - they started out that way.
Mature company must also go through infancy and adolescence, but go through them in a different way. It's the perspective that makes the difference.
Very clear picture of what the company would look like when it was done. How it would act.
Unless you act that way from the beginning, you'll never get there. In order to become a great company, act like a great company long before it ever becomes one.
Every day at IBM was a day devoted to business development, not doing business. We didn't do business at IBM, we built one.
The very best businesses are fashioned after a model of a business that works.

How must the business work?
Business as a system for producing outside results - for the customer - resulting in profits.
Picture of a well-defined future, then comes back to the present with the intention of changing it to match the vision.

Survey the world and ask, "Where is the opportunity?"
Identify it, then go back to the drawing board and construct a solution to the frustration found in a group of customers.
Acts the way the customer needs it to act, not the Entrepreneur.
"How will my business look to the customer?" "How will my business stand out from all the rest?"
Within the customer is a continuing parade of changing wants, begging to be satisfied. Find out what those wants are, and what they will be in the future.

## trends

[Removal of Heroku free product plans | Hacker News](https://news.ycombinator.com/item?id=32594533)
[Removal of Heroku Free Product Plans FAQ - Heroku Help](https://help.heroku.com/RSBRUH58/removal-of-heroku-free-product-plans-faq)
- be careful scaling and removing the "free" tier, since it can be construed as selfish
- ESPECIALLY true if it's FLOSS

## types of pivots

"Pivot" sometimes is used incorrectly as a synonym for change. A pivot is a special kind of change designed to test a new fundamental hypothesis about the product, business model, and engine of growth.

A CATALOG OF PIVOTS

A platform pivot. Instead of selling an application to one customer at a time, David envisioned a new growth model inspired by Google's AdWords platform. He built a self-serve sales platform where anyone could become a customer with just a credit card.

Zoom-in Pivot In this case, what previously was considered a single feature in a product becomes the whole product. A zoom-in pivot, refocusing the product on what previously had been considered just one feature of a larger whole.

Zoom-out Pivot In the reverse situation, sometimes a single feature is insufficient to support a whole product. In this type of pivot, what was considered the whole product becomes a single feature of a much larger product.

Customer Segment Pivot In this pivot, the company realizes that the product it is building solves a real problem for real customers but that they are not the type of customers it originally planned to serve. In other words, the product hypothesis is partially confirmed, solving the right problem, but for a different customer than originally anticipated. A customer segment pivot, keeping the functionality of the product the same but changing the audience focus. In other words, David went from being a business-to-consumer (B2C) company to being a business-to-business (B2B) company.

Customer Need Pivot: The problem we're trying to solve for them is not very important. However, because of this customer intimacy, we often discover other related problems that are important and can be solved by our team. The target customer has a problem worth solving, just not the one that was originally anticipated.

Platform Pivot A platform pivot refers to a change from an application to a platform or vice versa. Most commonly, startups that aspire to create a new platform begin life by selling a single application, the so-called killer app, for their platform. Only later does the platform emerge as a vehicle for third parties to leverage as a way to create their own related products.

Business Architecture Pivot: a startup switches architectures. Some companies change from high margin, low volume by going mass market (e.g., Google's search "appliance"); others, originally designed for the mass market, turned out to require long and expensive sales cycles.

Value Capture Pivot: capturing value is an intrinsic part of the product - and changes to the way a company captures value can have far-reaching consequences for the rest of the business, product, and marketing strategies.

Engine of Growth Pivot: three primary engines of growth that power startups: the viral, sticky, and paid growth models. In this type of pivot, a company changes its growth strategy to seek faster or more profitable growth. Commonly but not always, the engine of growth also requires a change in the way value is captured.

Channel Pivot: the sales channel or distribution channel. For example, consumer packaged goods are sold in a grocery store, cars are sold in dealerships, and much enterprise software is sold (with extensive customization) by consulting and professional services firms. Often, the requirements of the channel determine the price, features, and competitive landscape of a product. A channel pivot is a recognition that the same basic solution could be delivered through a different channel with greater effectiveness.

It is precisely because of its destructive effect on sales channels that the Internet has had such a disruptive influence in industries that previously required complex sales and distribution channels, such as newspaper, magazine, and book publishing.

Technology Pivot: Occasionally, a company discovers a way to achieve the same solution by using a completely different technology. Technology pivots are much more common in established businesses.

Technology life cycle ideas of theorists such as Geoffrey Moore know certain later-stage pivots by the names he has given them: the Chasm, the Tornado, the Bowling Alley.

Modern managers cannot have escaped the deluge of recent books calling on them to adapt, change, reinvent, or upend their existing businesses. Many of the works in this category are long on exhortations and short on specifics.

## working with others

OLD tPA: Working With Others
- Never enter a partnership without a buy/sell agreement - no matter how well you know someone, you don't know when he/she will want to retire or leave
- People don't leave companies, they leave management - employees leave if they think they're not being valued or listened to, customers leave if they are dissatisfied with products and services, both reflect on management
- Persuade without power - you can get what you want with force, but instead learn to be kind, passionate, supportive and grateful
- Embrace your fears, and be courageous anyway - you're a bigger man for admitting what scares you, and a great man for following through despite those fears
- Get everyone involved - Incorporate everyone in goal-setting and strategic planning

## you might be lucky

I was smart enough to realize I was getting lucky.

The number-one killer of start-ups is when entrepreneurs confuse "being lucky" with "being smart."
You must possess the humility to distinguish one from the other.

There is a pseudo-scientific formula for creating business luck. And the key element is this:
Lucky things happen to entrepreneurs who start fundamentally innovative, morally compelling, and philosophically positive companies.
Why?
Because lots of smart people will gather around companies with these qualities.
As it turns out, precious few of them exist.
And the vast majority of human beings, and certainly most of the smart ones, are constitutionally caring creatures who would, if given the chance, prefer to spend their valuable time in a positive setting contributing to the betterment of society rather than in a negative setting contributing to its detriment.
Shocking, I know, but true.
And when smart, inspired people gather around a fundamentally innovative, morally compelling, and philosophically positive company, they work very hard.
And when smart, inspired people work very hard, serendipity ensues.
Serendipity-the faculty of making fortuitous discoveries by chance-causes lots of unexpected things to happen to a company.
Some of these unexpected things are good. Some are bad.
But because no one planned for the good things to happen, they appear as luck.
In other words, the best way to ensure that lucky things happen is to make sure that a lot of things happen.
It's really that simple.

My formula for getting lucky in business is reasonably simple:
Start a company that is fundamentally innovative, morally compelling, and philosophically positive.
Create an aura of authenticity around your start-up by carefully crafting your mission and communicating it with charisma and passion.
Your company will quickly attract smart, inspired people who will work very hard.
Treat all these people fairly.
Provide them with a clear action plan and give them the latitude to exercise their creativity.

In applying this formula, the entrepreneur has two tasks:
1. Create an environment where smart people will gather
2. Be smart enough to stay out of the way and let luck happen.

Much of what makes a company fundamentally innovative, morally compelling, and philosophically positive is not what the company's business model actually is, but how the entrepreneur communicates the mission of the company.

The ability to focus and be patient is typically associated not with entrepreneurs but with managers.
Entrepreneurs want results immediately, while managers are happy to wait.

Start-ups are like extreme-skiing runs. The person who wins is the one who screws up the least and doesn't die.

90 percent of Tripod's value was in the amount of press we received in such a concentrated period of time.

The quickest way to completely tank your company is to wholeheartedly believe what you read in the press, especially if it happens to be about you. The vast majority of the press is not interested in covering what is actually happening. They are interested in covering what they think people want to think is actually happening.