Startup founder psychology: Between euphoria and terror

Edited except from The Hard Thing About Hard Things by Ben Horowitz:

Marc: Do you know the best thing about startups?

Ben: What?

Marc: You only ever experience two emotions: euphoria and terror. And I find that lack of sleep enhances both of them.

(1) Thank you Guy Cohen for the tip.
(2) Guy: “As founder and CEO of Seeking Alpha, do you feel the same way?” Me: “Yes. But because we’ve reached critical mass, it’s more clawing anxiety (about insufficient growth) than terror (about total failure).”
(3) Cf. (i) The psychology of startup founders and (ii) Finally, someone understands: What it’s like to be a CEO.

The key factor in startup success, and what to do about it

Edited excerpt from notes from Why Startups Like Uber, Airbnb, and SpaceX Succeed, While Others Fail, a talk by Bill Gross:

Bill investigated how 5 key factors affected the success of the 125 companies in his portfolio at Idealab and 125 companies outside of his portfolio. The 5 factors were: (i) idea, (ii) team and execution, (iii) business model, (iv) funding and (v) timing.

The no. 1 thing that mattered was timing. Timing accounted for 42 percent of the successes relative to failures.

Take Airbnb as an example. Everybody thinks Airbnb is an incredible business model. It is a good business model. But “the Airbnb model” had been done multiple times before Airbnb became successful.

One of the things that accounted for Airbnb’s huge success is that it came out right when the huge recession hit around the world. People needed extra money badly. People were willing to rent out their rooms or their homes.

So what can you do about it? First, see if the market is really ready for what you have. Second, adjust your burn rate so you can last long enough to be there when the market is ready for your product.

(1) Thank you Guy Cohen for the tip.
(2) The key take away: don’t scale your costs until you’re sure you have product-market fit.
(3) See: Profitability = control of your own destiny and — more extreme — One way for startups to gain time.

The best question to ask in a job interview: Peter Thiel

Edited excerpt from Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel:

What important truth do very few people agree with you on?

This is a question that sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.

(1) My answer to Peter’s question: “Most entrepreneurs and VCs believe that when you’re not growing fast enough, you should do more. I believe you should do less. By reducing the scope of your activities, you can focus more easily on the core of what will make you great.”
(2) What’s yours?

The relationship between frequency of habit and customer retention

Edited excerpt from Grabbing Attention and Holding Onto It by Ben Yoskowitz:

In the consumer world (although this applies to B2B software too), attention is the currency that matters. If you can get people’s attention you have a chance of winning. Without it, you can pack up and go home.

When talking to entrepreneurs I often ask, “Do you envision this as a daily, weekly, or monthly use case?” If it’s a monthly use case it’s hard for me to get excited because the gaps between when you’ve (hopefully!) captured people’s attention are too big–it’s harder to get people coming back and the cycle times for testing things are too long. You won’t learn and iterate fast enough. A weekly use case is better, but daily is the best. Find a daily use case for something–and prove it–and you’ve got something very interesting.

If you’re building a product that doesn’t have a daily or weekly use case be very, very afraid. Certainly there are products that don’t get used a lot and are very successful (tax software anyone?) but it’s not a direction I’d recommend. And if you’re building a product that you think has a daily or weekly use case you need to prove that quickly.

(1) Service providers for infrequent habits often become dependent for distribution on service providers for frequent habits. Example: Online retailers for occasional purchases (= infrequent habit) are dependent on Google search (= frequent habit). The only solution is to form a strong enough bond with your customers to generate loyalty.
(2) Sometimes a market has low frequency of habit. But a disruptive startup can lower price and friction enough to raise demand to a frequent habit. Think cars vs horse-drawn carriages.
(3) Our experience in Seeking Alpha: Monitoring your portfolio is a daily (weekday) habit. By providing better content on users’ portfolios, we’ve been able to win tremendous “attention”.

Why you should add team features to a SaaS product for individuals

Edited excerpt from Why Tilting Just a Smidge from Self-Service Can Grow Your Revenue 30x by Jason Lemkin:

If your product is 100% individual-focused, and you add just enough features to sell to a Team, to tilt just slightly upmarket — you can grow your revenue, at least a segment of your revenue, by 20-30x.

Why? The key is a combination of (x) churn and (y) value. Virtually every self-service, individual seat web service churns at a relatively high rate — from maybe 2.5% a month at best, to 3.5% or 4.0% a month or more in many cases. So that means maybe your customer lasts 8-10 months, maybe a bit longer but not too much.

Now, come up with a slight extension of that same product, wherein some group, team or segment of an entire enterprise can use it together. Let’s call it just 5 seats to start, instead of 1. Maybe you add management-level analytics. Some sort of collaboration. I’m not sure what it will be for you. But let’s call it the most basic features necessary so a team or a group will buy, instead of an individual user.

And what you’ll find is epic on the churn side. Your churn as the deal gets just a smidge bigger will fall dramatically, toward 1-1.5%. And as you add more seats, the churn will trend toward 0% and eventually become negative. Because your customers will add more seats over time than they cancel.

All of a sudden, in say a $30/month product … you’ve gone from a $240 Customer Lifetime Value for the single seat purchase to $5400 CLTV over 3 years from the same customer, from the same basic core product, just with whatever additional functionality you need for your Team or “Enterprise” edition.

When you’re given advice, here’s how to listen with an open mind

Edited excerpt from Advice or Criticism? by Seth Godin:

Here’s a simple way to process advice: Try it on.

Instead of explaining to yourself and to your advisor why an idea is wrong, impossible or merely difficult, consider acting out what it would mean. Act as if, talk it through, follow the trail. Turn the advice into a new business plan, or a presentation you might give to the board. Turn the advice into three scenarios, try to make the advice even bolder…

(1) Note the similarity with the most effective advice for how to be a better listener — listen with intent to agree.
(2) Other advice from Seth Godin which we’ve implemented in Seeking Alpha: exhaustive lists.

One way for startups to gain time

Edited excerpt from This Entrepreneur Raised $70 Million by Ignoring Some Popular Startup Advice by Ben Baldwin:

In 2006, Allen Lau decided to leave his full-time job and focus on building Wattpad. Lau expected that at the end of 12 months he would be able to raise capital for Wattpad. But a year later, Lau and Yuen could only muster enough revenue to buy a single cup of coffee, and they had only around a few hundred people using Wattpad. With a product that wasn’t gaining traction, they stood no chance of raising money. But both still believed in Wattpad’s potential, and both badly wanted to realize their vision of a global storytelling community.

As they considered what to do, Lau thought about the prevailing wisdom of startup success. Unless you were laser focused on building your product, evolving it, driving users to it, and quickly creating critical mass, the startup would never get off the ground. There was no point limping along.

Or was there? As Lau thought more about Wattpad’s problem, he began to feel that limping along for the time being might just be the road to success for Wattpad. As he saw it, the company was where it was because its timing was off.

So Lau decided he and Yuen would dabble in Wattpad in their spare time. Over the ensuing months and years, people started to sign up. Wattpad’s number of users grew. By 2009, Wattpad had a million monthly users. Lau and Yuen left the new startup they were working on at the time, and jumped back into Wattpad full time. Today, Wattpad is the largest community in the world for reading and sharing stories, with 40 million users each month.

(1) This is an extreme story, but illustrates a key point: you can’t thrive if you don’t survive, and timing is often out of your control.
(2) Cf. Profitability = control of your own destiny.

Six simple questions to test product-market fit and competitive advantage

Questions from Y Combinator’s application form; I’ve re-arranged the order and inserted the headings:

Product-market fit
1. What’s new about what you’re making?
2. How do you know people need what you’re making?
3. What substitutes do people resort to because it doesn’t exist yet (or they don’t know about it)?

Competitive advantage
1. Why did you pick this idea to work on?
2. Do you have domain expertise in this area?
3. What do you understand about your business that other companies in it just don’t get?

(1) Note the similarities to Clarifying your strategy using a simple template.
(2) Re. “Why did you pick this idea to work on?”, see Passionate founders and product-market fit.

Why you should use live chat to sell — even if you think you’re not ready for it

Excerpt from 29 B2B Growth Hacks – The Ultimate List by Iris Shoor:

We postponed adding live chat to our app and website for a long time. My assumption was that in order to benefit from live chat we need to have a 24/7 support group. I was wrong. We started turning on the live chat only for a couple of hours at first. It was enough to talk with some relevant users and schedule some demos.