Destined for (Cold) War? Revisited

I don’t often write about it, but if you’ve ever browsed my books, you know I love reading/thinking about geopolitics.

Back in 2017, I read Destined by War by Graham Allison, former dean at Kennedy School of Government at Harvard and former Assistant Secretary for Defense for Policy and Plans under Bill Clinton. The guy eats, drinks, and breathes geopolitics. The book examines the Thucydides Trap, which is a concept that a rising power and an incumbent power will tend to conflict, resulting in war. The “trap” part of it implies that it’s not entirely inevitable and the powers can avoid war through deft policy and generally not being idiots. Allison first introduces the concept, the history behind it, including many examples where powers fell into the trap and a few examples where they didn’t.

Then he gets to China and the US.

The reason I’m even writing this is I just listened to an episode of the All In podcast (hosted by Jason Calacanis and Chamath Palihapitiya) where they talked about China. (You can check out a clip I bookmarked here or follow me on TLDL for all my clipped bookmarks.) I loved the discussion and that episode prompted me to revisit my notes on Destined for War because, lately, things are getting a little hotter between China and the US.

So, here they are from 2017, with some present-day annotations, in no specific order and with no specific purpose other than to put it all out there.

My notes are structured as:

• notes about Allison’s framework of clues that indicate peace is possible,

• general notes re: Trump + China, and

• my layman’s proposal for US strategy I scribbled down after reading this book in 2017.

2017 vs. 2020

Clues for Peace

1. Higher authorities can help resolve rivalry without war.

   • UN (sovereign discussions) or The Hague (legal issues; human rights, etc.) — each have their own limits

2. States can embed themselves so tightly into larger political, economic, security, and social institutions that help reduce historically “normal” behavior.

   • E.g., Germany in the EU.

3. Make a virtue of necessity and distinguish needs vs. wants.

   • E.g., UK vs. US in the 19th/early 20th centuries.

4. Timing is crucial

   • E.g., UK could’ve supported Confederacy in Civil War that would’ve reduced the US to “manageable proportions.” But, they didn’t.

5. Cultural commonalities can help prevent conflict.

   • E.g., UK & US spreading English-speaking peoples. The British felt that at least an English-speaker power would be in charge.

6. There is nothing new under the sun - except nuclear weapons.

   • Basically, everything has a historical precedent, except for the reality of nuclear weapons. That’s something the world hasn’t ever seen before and materially changes strategic calculations.

   • 2020 NOTE: Although propaganda and misinformation has always existed, technology enables a scale never before seen.

7. MAD (mutually assured destruction) really does make all-out war machines.

   • E.g., US vs. Russia and, now, US vs. China (and Russia). All nuclear-heavy powers are tied at the hip because nuclear war would mean the decimation of those countries (and the potentially the world).

8. Hot war between nuclear superpowers is no longer a justifiable option.

   • Why lose a war when you can just “nuke” the problem? That’s the temptation that precludes a conventional (or even not conventional) war between superpowers. If that’s the case, then, cold wars and diplomacy will be the most effective tools…right?

9. Leaders of nuclear superpowers, however, must still be willing to risk a war they cannot win.

   • I get why the game of “chicken” exists and why brinksmanship can sometimes win the day and the argument, but if the world were to sever itself from this machismo tendency and cultivate brutal honesty and frankness, could that work? Or is that way too naive?

10. Thick economic interdependence increases the risk - and lowers the likelihood - of war.

    • UK and Germany (well that didn’t end well). But, the US and China are so systemically intertwined (think supply chains, componentry, the Chinese need to maintain economic growth at an accelerated rate, Chinese dependency on imported energy). Wait — is China’s push for clean, sustainable energy a long-term tactic to weaning itself off of energy dependence, thus removing one more (but significant) barrier to a war with the US?

    • 2020 NOTE: While I understand the desire to re-shore critical industries like chips, medical equipment, pharmaceuticals, I hope we don’t swing too far and begin extricating ourselves too much to the point that there’s relatively little interdependence. Already, we see that US tech companies aren’t really in China, except Apple (would be the biggest loser).

11. Alliances can be a fatal attraction.

    • Don’t get into alliances that will bind you into actions that you’ll hate. And don’t ever do what Wilhelm II did with Austro-Hungary. No blank checks for defense. Although, see Article 5 of US-Japan Security Treaty, which is a good thing.

12. Domestic performance is decisive.

    • Don’t be a mess internally because that will not engender foreign support and certainly won’t maximize internal support. Perception is everything. There’s a reason that the #1 US export is American culture, which spread across the world like nothing else. It was irresistible. Let’s keep making it irresistible.

    • 2020 NOTE: Well, I believe the last three years show this one is a dumpster fire.

My general reading notes from 2017 are quoted, my responses are below.

On p. 235, Allison says that both Xi and Trump “are dealmakers.” I think effective dealmakers can only be effective if they are informed. From reports, Trump doesn’t appear to be interested in being incredibly informed on intricate matters. Plus, in the next section, Allison asserts that to actually pull off a rebalance of power, the US needs to first clearly define its own vital interests. Does Trump know our vital interests? From the negation of the Paris Agreement, to the abandonment of TPP (was TPP even a potentially good thing?), to the cold-shouldering of Mexico (pre, during, and probably post-NAFTA negotiations), to the lukewarm (at best) relationship he’s engendering with the EU, and to the inconsistent vocal criticism of NATO, he doesn’t. What makes Allison think he’s actually a (good) dealmaker?

If you make a lot of deals, even if they’re not great, does that still make you a dealmaker?

I think it’s sufficiently clear that (1) we — as a polity — don’t have alignment on what our vital interests are, and (2) whatever they are, if they include any I noted above, Trump doesn’t care. I think it’s also fair to say that since I took this note, it’s only become more clear that he doesn’t care about details and doesn’t really read for nuance on inherently intricate, geopolitical matters.

The one thing he has going for him is that he’s chaotic and unpredictable. In that, he’s done a good job of calling out China for some admittedly poor behavior, but isn’t consistent (think: calls out IP theft + trade deficits, but ignores human rights abuses). Intentional strategy or reflection on character? I’m going to go with the latter.

If the Chinese take a long view of history and strategy, how do they view a presidency like Trump’s? Will it appear to be more of a populist, nationalist “flash in the pan” type of administration? I presume they’ll want to see if this is an emerging trend, alternatively.

In recent days, it’s come out that China would prefer if Trump lost his reelection bid. More than anything, they just don't like his unpredictability and chaotic nature. Put beside his performance re: China, I can't tell whether this is a good thing or a bad thing. If you're unpredictable not only to your alleged adversary, but also your own team/allies/advisors/country, is that net neutral or worse?

I think the "China, we need to have some serious talks about trade, business, etc." is out of the box, so kudos to Trump on starting that conversation in a bigger way than prior administrations, but I don't think he's the one to finish the job and actually tilt the table in the US's favor. Here’s a clip of the All In podcast that editorially covers just that.

Can long-term US strategy towards China rally politicians to actually focus on domestic issues in the short- to mid-term to bolster US leverage and focus in the future? Does there seem to be the awareness - and appetite - for that?

We’ll see in 2020.

Proposal

1. Define US vital interests (at least mutually agreed-upon vital interests Rs and Ds can get behind).

2. Assuming securing North America and retaining influence over the Western Hemisphere are two of those vital interests, then:

   1. Get as close as possible to Mexico and Canada

      1. Re-up mutually favorable trade agreements

      2. Identify top issues from Canadian perspective re: US/Canadian relations (and borders) and address

      3. Partner with Canada on Arctic initiatives

      4. Sincerely work to heal US-Mexico relationship and perception

         1. Immigration reform

         2. Create more viably open borders (of course still need security)

         3. Dramatically and swiftly address drug problem in US; realize the drug problem is an American problem and can only be solved by Americans in the US — not in Mexico. If demand dies, supply dies.

         4. Re-up and strengthen existing (and create new?) intelligence/military partnerships

         5. Invest in Mexican industry, infrastructure, and people

            1. Set up more educational sharing programs

            2. Help with disasters more formally and comprehensively

         6. Start huge PR campaign with Americans to de-demonize illegal immigration

3. In tandem with strengthening Canadian/Mexican relations, begin to repair Central/South American relationships. We have a lot of meddling to make up for, while staying firm on certain expectations around quality of life and specific “American/universal” values.

   1. TODO: What is US policy towards Brazil?

4. Re-edify UK/EU support and strengthen relationships.

   1. This could help Canadian/Mexican/South American relationships, too, but implement more liberal study abroad (both academic and vocational) programs. More Americans need to travel to help breed higher levels of global empathy, familiarity, and interest. (Assumption that travel helps.)

   2. Has the added benefit of continuing to act as a bulwark to Russian idiosyncrasies.

5. Re-open Pacific trade talks with Pacific nations, including China.

   1. Implement stronger cultural sharing between Americans and Chinese. Study abroad is one way, but should be more about cultural sharing and integration than merely sharing academia.

   2. Chinese and American culture are widely distant. This exercise could help bridge the gap and identify base commonalities, or at the very least breed familiarity and empathy.

   3. Could also subsidize travel between the countries.

6. Revisit/strengthen Pacific alliances.

   1. Japan

   2. Phillippines

   3. South Korea

   4. Australia

   5. New Zealand

   6. Vietnam (shocked that 84% of Vietnamese surveyed in 2017 view US favorably)

   7. Malaysia (?)

   8. Indonesia (?)

   9. Singapore (?)

   10. Taiwan

7. Be honest with China about US interests and the desire for avoiding escalating tensions; be open to Chinese demands to have a hand in global governance.

8. Invest in cyber defense and offense. Seriously.

9. Invest in satellite defense.

10. Continue to build up navy, especially Arctic force.

11. Focus on healing domestic issues

    1. Immigration will be part of foreign policy, which is a double whammy (awesome)

    2. Drug reform will be part of foreign policy (awesome)

    3. Open borders will require infrastructure investments

    4. More vocational/educational sharing programs will require actually having vocational programs, which lends itself to economic reform and helping to re-shape the population (dampening economic inequality).

    5. A Pacific trade agreement could help with revitalization of American industry.

    6. Uncompromisingly work towards social equality. No use living in the past. Regain moral high ground.

    7. Restart spreading American values through business, government, and academic sharing.

Ideas in the writers' room

I often not only think about ideas, but also think about thinking about ideas, especially in a collaborative setting. A lot of what we do is riff on ideas with potential founders and investors, but how do you make the most of it? How do you draw the best ideas out of people? How do you avoid sucking the creative air out of a room?

I was fortunate to chat with my friend and accomplished screenwriter Karen Struck about these questions. Karen was most recently a writer and co-producer on 50 Cent’s For Life, which just aired its first season on ABC, and has worked with some of the biggest names in television, such as David Shore (House, Law & Order) and David Kelley (Boston Legal, Big Little Lies, Monday Mornings). 

No stranger to thinking creatively, Karen has reinvented her career three times, from being a nurse, to a risk management consultant, to now being an acclaimed screenwriter. And, as a screenwriter, she has collectively spent years in a writers’ room, planning out a show’s story arc, character development, and plot twists. The writers’ room quite literally runs on ideas, so I thought who better to help me out.                                             

When to think quickly and when to incubate

When it comes to how people generate ideas, Karen puts people in two groups: those who think quickly on the fly and those who need to incubate. “I once worked with a woman we used to call Idea Factory. No matter what the topic was, she could come out with ideas so fast and think on her feet. She didn’t need to do what most writers do, which is called incubation, where you step away from the process.” 

She then described what it was like to work with a rockstar incubator. “I worked with another writer who, every day, would go away and come back the next day, saying ‘I thought about what we worked on yesterday and where we got stuck. What if this and this happened…?’ And you’d go, ‘Of course! How could we have spent 6 hours on this idea and never have thought of that?’ That’s what incubation allows.”

In startups and, specifically, in product, I think both modes of thinking are super important. I’ve seen two types of scenarios, often used together, like planning out a new feature, or riffing on improving existing features: 

1. Quick thinkers seed the field, then incubators develop and improve, or

2. Incubators take time to develop an idea (usually in more detail), then quick thinkers offer ideas to fill gaps or improve

Knowing which scenario to shoot for depends on the topic. I think #1 is most often helpful when starting with something big, like a new business or a new marketing strategy. You want to generate as many ideas as possible (quick thinking) to narrow down to what works or refine (incubating). 

I’ve found #2 is most helpful when the bigger idea is settled, but it now needs to be fleshed out and stress-tested. For example, working through the user experience of a specific idea or feature.

Ultimately, though, I think you need both types. A brainstorm of just incubators would be no brainstorm at all and a brainstorm of just quick thinkers may leave ideas on the table by not allowing time and space to ruminate. Fortunately, I think people inherently jump between both modes depending on the topic.

Make it safe to think

Ideas are fragile and a lot of people are pretty vulnerable, too, when throwing out ideas. (This topic is especially, especially near and dear since we started reading this book to our son.) It doesn’t take much to stifle creativity and squash idea generation, which is probably why Karen and Google agree: psychological safety is a big deal.

“For people to really expose themselves and get raw means that it has to be a safe zone,” says Karen. To achieve that safety, there are some ground rules: not (consistently) interrupting, tolerating failure, and being open.

Interrupting is a double-edged sword in that it can stifle sharing and feel disrespectful, but can also build on others’ ideas and lead to better ideas when done well. “If the room functions really well and everybody’s really developed respect, then there is a way you can interrupt because it’s launched somebody into having a good idea. You don’t want them to hold it for fear that they’ll forget it or we’ll spend an hour in the wrong direction without it,” explains Karen. “There’s a proper way to interrupt. Say ‘Wait a minute, we’re kind of just going off that…’ or ‘You said something that was really, really terrific and it propelled me to the next level.’ It makes it very polite.”

But policing interruptions is critical. “It’s really clear when people continuously say, ‘Oh, that just made me think of such and such.’ Someone (typically the executive producers) will take them aside pretty quickly and say, ‘You really need to let people finish and not interrupt.’” We’ve all been in seemingly collaborative settings where you can’t get a complete thought out before someone cuts you off and we’ve all likely been the offender at some point (I know I have). 

Confrontation like that can be awkward, but it helps maintain the culture of the group and ensures psychological safety continues. 

A huge aspect of safety is feeling safe to look or sound dumb, or to fail. “You have to allow everybody to say ideas that might flop because you never know what idea is going to turn into a fantastic idea,” says Karen. “Writers tend to be very insecure and remember the failures with amazing accuracy. You still hear hugely successful writers talk about their insecurities and how they remember every failure. So it helps if there’s a certain amount of commiserating, like ‘It’s okay, you tried, you came up with something that was better than nothing’ or ‘Everybody has a bad day,” Karen continues.

At a macro level, it’s relatively well known that part of Silicon Valley’s magic is its ability to absorb and celebrate failure. But on a micro level, it can be hard to develop a culture where that ability is reinforced on a daily basis. As Annie Duke wrote about in her book, Thinking in Bets, you don’t want to be guilty of resulting: focusing on the outcome and neglecting the process that produced the outcome. 

Riffing, brainstorming, whatever you call it, is the process and it will necessarily involve a lot of failure and a lot of dead end ideas. It’s healthy. If you recognize that, then bouncing back from failure becomes second nature: brush it off — you’re bound to swing and miss every now and then. 

Above all, you want to be open and to not become the place where ideas go to die. “Openness is one of the foundations of creativity. Without being open, the process doesn’t flourish,” states Karen. “In rooms where people don’t encourage energy towards at least test driving an idea, imagination is undermined; a writers’ room needs to be the opposite. That usually has to do with someone shooting ideas down too quickly and saying, ‘I don’t like that idea. Move on,’ instead of exploring it. When somebody who stifles the process isn’t in the room, the room functions and feels better.”

How do you encourage the free flow of ideas? “You can respond with, ‘That idea might not work like that, but does anybody have a take that might work?’ or ‘The idea as a whole doesn’t work, but I like this aspect of it…,’” offers Karen. You can often find kernels of a good idea even in a lackluster idea, which then helps others build on top of it.

Grab the crazy stick 

When ideas just don’t seem to be working, or when you need to prime the room, sometimes you just have to grab the crazy stick. “Sometimes, it’s just not working. So somebody wants to take an idea and flip it completely and say, ‘Okay, look, let me take the crazy stick and just imagine….’ Sometimes, you land on something that really works. It’s just about giving it a completely fresh slant,” explains Karen.

You know The Crazy Stick™. It sometimes comes up as “this is out of left field, but…” or “go with me for a minute.” It’s a prefix that lets everyone know: don’t rush to judgment — sit back and hear this idea out. It’s something Karen is intimately familiar with.

One of Karen’s favorite episodes she wrote was an episode of ABC’s The Good Doctor which centered on an emotionally tortured pedophile who didn’t act on his impulses because he knew they were wrong. He landed in the hospital after attempting a self-castration. Karen asked, “You think of people in medicine generally being compassionate, but what if the doctors hated the patient? And people think of pedophiles as trying to live close to schools and lying in wait all day, but what if he was a nerdy, very Boy Next Door type? And what if there was a way to make him a sympathetic pedophile?”

Karen then did research to better understand, of all things, pedophiles, so she spent some time lurking in the dark corners of the web where these people tend to congregate. “When I did the research, I learned most pedophiles don’t act on it — they just hate themselves, self-isolate, self-mutilate, and all kinds of other things so they won’t act on it. Very few people act on it. So I said, ‘Alright, let’s talk about a sympathetic pedophile’ and that’s just something you don’t normally think about.”

She knew the idea was working because of the response in the writers’ room. “[An idea that works] generates buzz in the room. If you can deliver, you know that enthusiasm will translate to viewers at home. And it did.” Karen’s episode ended up critically acclaimed, while tackling the show’s “thorniest storytelling challenge,” as Indiewire reported. As Karen says, “I think in television...the best thing a writer [can] hear [is]: ‘I didn’t see that coming.’”

Users are more and more demanding delightful software experiences. As entrepreneurs and builders, we have to balance existing experience and design patterns, while also introducing sheer moments of delight and surprise. Sometimes we just have to grab the crazy stick and go for it.

Huge thanks to Karen for being up to talk to me about all things writers’ room. You can check out her latest show, For Life, on ABC. 

Exercising options is investing

I hear a lot of startup folk talk about exercising (privately held) stock options as more of a tax analysis than an investing analysis. I think that’s backwards. While it’s critical to understand tax implications of exercising options (and, indeed, it can impact your ultimate decision to exercise), thinking like an investor and evaluating your own employer is Step #1. After all, if you wouldn’t invest in your employer, taxes are a moot point.

A quick aside: for those looking for more technical write-ups on options, I’d highly recommend Holloway’s Guide to Equity Compensation. It’s comprehensive and covers all the critical terms. This is more an approach to thinking about your options and whether to pull the trigger at all. 

Also, note that luck plays a heavy hand in startup outcomes, so while this might all seem eminently logical, it’s nearly impossible to account for the winds of fate and luck that could still help an otherwise lackluster company exit at profitable terms.

Oh, and don’t exclusively rely on this post. If you’re actually looking at exercising, talk to a lawyer or accountant, in addition to thinking about the business. I’m not a lawyer (didn’t quite get there) and I’m not an accountant. I just repeatedly make fun Google Sheet scenario calculators to make major life decisions, like exercising options or buying a house.

Okay, with my caveats aside….

You know simultaneously more than the typical investor

Regardless of your position and role, it’s helpful to take a step outside of your company and look at it through your own checkbook: would you invest? 

First thing to note is your informational advantage. As an employee for at least a year (which is how long it typically takes to vest any options whatsoever), you casually float around in information the most successful investors in the world have to hustle to get a taste of.

Glenn Kelman, CEO of publicly-listed real estate site Redfin, remembers Fixel showing up in Seattle for the afternoon with a duffel bag stuffed with papers, Fixel’s own research and diligence on Redfin, prior to a first meeting. “He said, I interviewed your customers, your employees, your ex-employees, your competitors. And we want to talk about why margins in San Diego in Q3 of last year were off.”

Forbes article about renown venture investor, Lee Fixel

You’ve likely had your first all hands’ meeting, you’ve hopefully seen your company’s quarterly financial projections and know whether you’re hitting goals or not, you see how well your product and engineering teams execute, and you might even get weekly or monthly company-wide email updates from your marketing team. 

This is all gold. Put it together and you can answer questions like:

• Is my leadership team setting realistic, achievable goals? I.e., are we consistently hitting those goals and do they represent meaningful growth (or see these metrics and benchmarks for SaaS)?
  
  

• Are we building quality product that makes customers happy? I.e., is our NPS,  product-market-fit score, or retention good, great, or increasing?
  
  

• Is our marketing team driving a lot of cost-efficient leads/users/customers?
  
  

• Are my peers happy? Is morale high? Does the sales team feel excited? Are account managers, customer success, or customer support invigorated? Are people quitting at alarming rates? Why?
  
  

• Based on all of the above, and your own experience, do you trust and respect your leadership team?

I personally think the last question is one of the most important, but hardest, to face. It takes effort and time to cut through many of the personas leaders at companies begin to take on before you see the human behind the title. However, this is the human — flaws and all — leading your company, interacting with investors, and directing strategy. You should feel good about them. 

When asking yourself these questions, it’s important to realize that even the best companies can feel chaotic, messy, and dysfunctional when you’re inside looking out. It’s incredibly easy to get caught in a grass-is-always-greener mentality: why does that other startup look so put together?

The truth is: it’s probably just as messy at their company. Startups are hard and inherently chaotic! But, you should be able to peel away some of those gut reactions by answering the above questions with the information you have.

And less than the typical investor

Where an investor absolutely trounces you is when it comes to your company’s cap table and the terms of the deal. Companies are often cagey about telling employees who owns how much of the company. Some companies are even cagey about telling employees how many fully diluted shares there are, which makes it impossible for you to know just how much of the company you own or have the right to own. (Compare to eShares/Carta, which actually gives you the break point — in your offer letter — at which investors would be paid out and you, as a common shareholder, would see money. We can all aspire to be as transparent as Carta.)

You could be in either of two scenarios: 

1. Your company is doing well enough that the terms are kind of irrelevant (e.g., Facebook, Google, Amazon, etc.). (Even for the best, this isn’t always the case, but if you were an employee before the above companies went public, you made money.)

2. Your company raised a lot of capital and/or it’s not abundantly clear how big it’ll go.

Most startup employees find themselves in the second camp. What terms do you need to know? Because this is a detective game and you may not get everything you’d like, I’m going to focus just on the Must Have information.

Must Have Information

• Fully diluted number of shares. This is the number of shares there’d be if all financial instruments, like warrants, convertible notes, etc. converted to equity (i.e., shares) and also includes all shares in an option pool, even if unissued.

Take this number and divide it into your number of vested shares. That’s how much of the company you own on a fully diluted basis.

For example, if I have 10,000 vested shares and there are 1,000,000 fully diluted shares, I have the right to own 1%.

Like I mentioned above, getting this number can sometimes be difficult because companies are cagey. However, you must insist you know this number as, without it, you have no idea how much of the company you own. (You should also ask this question before you’re hired, too, when presented with an offer that includes equity.)

• Total amount of capital raised. This is how much money your company has raised. You can usually find this total by searching Crunchbase. The bigger this number, the higher the exit value needs to be before you see a dime. I’ll explain.

Venture capitalists (usually) invest money into companies in exchange for preferred shares. They’re called preferred shares because they come with preferences that common shareholders, like employees and founders, don’t have. Some of those preferences are things like board membership, liquidation preferences, what to do if the company raises a future round at a lower valuation than the current round, and whether the investor is participating or non-participating when it comes time for an exit. I’ll explain more later, but for now, you care about this amount because if your company is acquired, it’s most likely that investors get this amount back before common shareholders receive any money. So, if your company raises $50 million, but sells for $25 million, it’s highly likely common shareholders won’t get anything.

• Your company’s latest 409A valuation. Startups typically hire valuation consultants to provide a Section 409A valuation (federally mandated) every 12 months or so. Those consultants value the company using some semblance of voodoo and spreadsheet wizardry. The bottom line is that you care about that valuation because it’s the price that determines your tax liability when you exercise (common types of privately held) options.

If you have these three pieces of information, you can at least calculate a rough minimum exit price for you to make any money, and then consider the likelihood of your company reaching that target.

In the example below, the company would have to exit at around $66,500,000 for me, the employee with 10,000 vested shares, to make any money, after considering taxes and how much it cost me to exercise in the first place.

Your question becomes: how likely do you think it is that your company can exit for at least that value? Then, your next question quickly becomes: is that amount of money worth stomaching the anxieties, the ups-and-downs of the company on its journey, not to mention the $15,800 it’ll cost you out-of-pocket to exercise your shares? At what amount of money is it worth the ride? And what do you think is the likelihood of an exit at that value?

Hopefully this all gives you a sense of how to value your options and whether to exercise or not. I found this path personally helpful and would love to hear how you would improve it.

Final note: there’s loads of information that, if you can get it, will refine your calculation and thus your analysis. For example, it’s nice to know whether your company has any debt that would have to be paid before shareholders, or whether any of your VCs are participating (i.e., they get their liquidation preference AND their share of the gains) or non-participating (i.e., they get either their liquidation preference OR their share of the gains, whichever is more). I side step that because this post could get a lot longer, but let me know and I’d be happy to follow up with that stuff in a sequel post.

Music makes art more fun

My wife, Natalie, and I think music makes nearly everything more fun and interesting; it’s a big part of our lives. Annually, Spotify reminds us just how big (though some people listen to a ridiculous amount of music):

My minutes listened (first) vs. Nat’s minutes listened (second) — Spotify Wrapped

We also enjoy going to art museums every now and then for a change of scenery, the often-thought-provoking/imposing architecture, and, of course, to see art. In our first year in Detroit, we made a trip to the DIA — the Detroit Institute of Arts Museum. For the uninitiated, it’s an astoundingly world-class museum just two miles north of downtown Detroit. And it’s completely free for us city residents.

In the last few weeks, we started going more often, which got me thinking: music typically accompanies a lot of daily living (work around the house, work work, getting ready) — what would it be like if it could accompany how we experience art in-person? What would it be like to build a playlist for the art we see, as we see it? 

So, we spent a few hours at the DIA, tried it out, and...wow. The paired music made the experience much more interactive, allowing us to sneak shared smiles and laughs, made the memory of each piece much more vivid, and exposed how differently we approached the same things.

Here’s how we did it:

1. We brought our phones and our AirPods (we’re an iOS household). It’s important you bring headphones and even better if they’re wireless.

2. Like most museums, the DIA is split into rooms that often lead to more rooms. We picked up a map and a pencil so we could jot down our path for future use.

3. We chose our first room. We both brought up Spotify, put our AirPods in, and then spent the next 5 - 10 minutes walking through the room individually. I’d go one direction, she might go in a different direction (but not always), we’d take in the art, think about what song might pair best, and gradually build a playlist for the room. 

   This was totally free form. There was a lot of trial and error, a lot of playing and pausing, queuing and skipping. For some pieces, I’d look and listen to a song for 30 seconds, while for others it’d be several minutes (almost the whole song). We found that we’d choose songs that either accentuated the desired effect of the painting or sculpture, or just made it more intriguing to look at, independent of the artist’s intent. Any genre, any era — it was about the combined listening + viewing experience.

4. Once we both finished our individual first passes, we swapped AirPods (i.e., I’d listen to hers; she’d listen to mine), and then go around the room again. This time, I went the way she wanted me to go, and she went the way I wanted her to go. I’d control her musical experience from my phone, and she’d control my musical experience from her phone. 

   We didn’t anticipate doing this, but this made the experience so much more fun. It became really interactive and insightful. I got to listen to how she interpreted each piece, which song she liked the best, and the mood she injected into each piece of art. Have you ever gazed at a Blue Period Picasso while listening to 2 Chainz “It’s A Vibe?” I didn’t think so.

5. After we finished, we talked through song selections, and decided who nailed the experience the most on a song-by-song, artwork-by-artwork basis. Although we have a decent amount of music genre overlap, we surprised each other by our diverse selections and even once picked the same song for the same series of paintings.

6. We then made a master playlist of the best song selections and noted the duration of each song, by number of paintings or sculptures. For example, listen to Song A for 2 paintings + 1 sculpture.

I’m so glad we tried this out because I think it has permanently altered the way I approach museums. Museums engage visitors through audio guides, immersive exhibits, and even AR experiences (lots of startups playing around here, but AR is just inherently limited by tech at the moment), but for me this experience stood out. I was in full control and could layer on my tastes to what I saw, transforming my interpretation, the mood, and my memory of the work. 

I think this type of (unconventional?) approach has a lot of applicability outside of just museums/art. Nat and I often talk about how to engage our future kids in subjects that many think are boring, uninteresting, or tedious, but are actually fascinating. (History and math, I’m looking at you two.)

If you end up trying this out, I’d love to hear how it goes and what you think. If you live in Detroit, here’s our route through the four rooms (it’s time-consuming to put together, but worth it!), and here’s the Spotify playlist. The beginning of the playlist starts with Room 1 and goes in order from there.

Missing opportunities

I love surfing, though I started relatively late in life. But, from my first session (despite how disgustingly difficult it was), I was hooked. I went every day between classes at UCSD, often for four hour sessions, and sometimes twice a day. I’m not great at it, but that’s not why I do it.

Surfing every day became more difficult when I moved to Seattle. With surf spots at least a couple hours away, law school made even monthly sessions nearly impossible. I stopped surfing regularly and lost my fitness.

Here’s the thing about surfing: it’s nearly all paddling. If you analyze an average session, 98-99% of it is paddling and waiting, while actually riding a wave comprises 1-2%. And, of that 98-99%, most of it is spent jockeying for favorable position, trying for waves that don’t work out, or paddling down the beach as tides, wind, and swell shift. If you can’t paddle strongly, even 30 minutes in the water is exhausting (and disappointing).

Every now and then when we get the chance to head back home to visit family in Southern California, I get the exquisite chance to surf again. These would otherwise be squandered opportunities if not for a memorable day in the fall of 2015. 

On a Friday evening, my wife surprised me with a birthday trip to the coast two and a half hours from Seattle. The next morning, we drove a few miles down the road to a slightly hidden surf spot and it was absolutely firing (translation: the waves were well-shaped, consistent, and sizable — about eight feet on the sets). Better yet, there were only about five people out, which meant it was an all-you-can-surf buffet.

I struggled to paddle out to where the waves broke and, when I eventually made it, my chin was barely off the board, my arms like tight rubber bands and my lower back throbbing. I had to wait through a few sets — about 15 minutes — before I was able to go for a wave. Even then, when I went for my wave, my burst of paddling sapped what little energy I’d recovered, leaving me weak and feeble as I popped to my feet. 

I was lucky to experience the elevator drop before a quick, sloppy bottom turn and then annihilation. After a thorough pummeling, I paddled in, demoralized, defeated, and physically exhausted. I promised myself that day to never feel like that again, and spent the next three years swimming three days a week so I was always in surf shape.

In his lovely memoir, Barbarian Days, author-surfer (or, surfer-author) William Finnegan writes of his away-from-waves regimen of swimming one mile every day to stay in big wave surfing shape. As he focused on his career and moved to ever-inconvenient places like New York, this habit enabled his annual surf adventures around the world.

And guess what? It works for mere mortals like myself, too. I seized every opportunity that came my way in the ensuing years, from a surf trip to France and Spain, a getaway to Canada, and surfing at home in California. I was often able to paddle around people who surfed a whole lot more frequently than I did.

The ability to seize opportunities requires consistent preparation and hard work, especially when a faraway opportunity feels elusive. I think this is poignant when building a company early on because it can feel like laps in a pool: you’re moving a whole lot, your heart’s racing, but you aren’t covering a lot of actual distance. 

Early on, as you struggle to bring something new into the world and build something people want, it can seem like you’re throwing things into the void, watching as they gradually, silently fade from view. But every decision, every action can compound, setting you up for your faraway opportunity. It could be the one meeting in two months that produces your first customer, or that one prospect who answered your cold call, interested enough to ask for a demo, or all that market research that wins over you first investor or hire.

The hard work you put in today is setting you up for those moments so you can make the most of them and, hopefully, use them as a step towards your next series of opportunities. It takes consistent work and preparation to make it happen. 

A few days ago I relearned that lesson the hard way, on a trip back home to California, squandering my first surf in over half a year, and made the same promise to myself that I did in 2015.

This week I’m getting back in the pool.

Fundraising lessons learned

Originally published on Xconomy on May 6, 2019

As the co-founder of Assembler Labs, a Detroit-based startup studio, I breathed a big sigh of relief after we closed our inaugural round of fundraising at the end of March. It took about seven months of investor meetings, sending around documents, and wrangling signatures, but my co-founder and I looked forward to calmer calendars and more focus on building our business. However, in pursuit of building big, venture-scale businesses, we’ll never really leave fundraising behind.

Fundraising, as an action and a skill, is often critical to launching companies, especially for Assembler Labs. Whether you’re a startup attacking a big market and growing quickly, or a startup studio like us, you can expect to be back on the fundraising trail 12-18 months later. This means you have to get mighty good at it.

From building an investor pipeline, to increasing visibility and creating leverage, fundraising is an exercise in relationship-building, persistence, and communication, sprinkled with a healthy dose of good fortune. I tell the story of how we raised our first round in the hopes that it helps you when it’s time to raise your own investment capital, now or in the future, and demystifies a sometimes-opaque process—especially here in Detroit and, more broadly, Michigan.

Being new to town is hard, but not impossible

Ian Sefferman, my co-founder, grew up in metro Detroit and moved back from Seattle about a year before we started the studio, but I was (and still am) new to Detroit. One investor cut to the heart of it when he asked us, “You’re both relatively new to Detroit—what makes you think you’ll be able to build a network to not only recruit founders, but even get this off the ground?”

Great question. Fortunately, we had some advantages: Ian’s dusty, but not completely dormant, Detroit and Michigan relationships; the assistance of Techstars; an attitude of confident naïveté; and a modest, but growing, willingness to get out there and meet people.

Before I even crossed the Michigan state line, Ian had begun poking his head into the Detroit startup scene. He reached out to VCs in the city, had a lot of coffee meetings we’d debrief on afterward, and started meeting founders working on their own companies. Simultaneously, we tapped our Techstars alumni network (Seattle Class of 2012 in the house) and got involved with Techstars Detroit, which exponentially opened up (and continues to expand) our network.

From there, it was all about meetings, asking those people who else we should talk to, and more meetings. We ended up meeting or talking with a little over 400 people, of which 150 were potential investors. Yes, our calendars were fun to look at.

The 150 potential investors were mainly angels, with a handful of VCs mixed in. We found that most VCs had mandates that prohibited investing in LLCs or non-traditional startups (like studios), but former founder/operator angels totally got what we were trying to do and were excited. They didn’t have a limited partner’s structural constraints and wanted to strengthen their connection to the Detroit startup community through our studio.

In the end, we raised money from 21 fantastic investors. We faced plenty of rejection—94 said no—but are happy with our 14 percent close rate and our capital raised.

If we were to do this over again under the same circumstances, I think we’d aim to double the potential investor pipeline, which probably means networking even harder/smarter and meeting with 600-800 people.

Press sells

Barely two weeks after we left our jobs, I remember Ian and I discussing our media strategy. I felt like it was too soon and we were way too unproven, while Ian thought we needed to launch publicly as a way to get some attention. All we had was a website, a Google sheet with some business ideas/problems, and a pitch deck. We didn’t have a spinout business, we hadn’t (in)validated anything just yet, and we weren’t even in the same city: I was still in Seattle and Ian was in Detroit.

Man, was I wrong. What we had was enough for a compelling narrative. I didn’t see that our Detroit focus and me physically moving to Detroit was sufficient to pique some interest. Five weeks after we left our jobs, we were written up in three publications: Geekwire, Crain’s, and Xconomy.

Those three articles led to people reaching out to us and, in a round-about way, to 11 percent of our fundraise (and to meeting a handful of potential founders). I historically discounted the benefits of press, but now I think I’ll lean into it. We’d seen the power of press with our first company, MobileDevHQ, and its impact on signups and revenue, but were surprised by just how much it contributed to fundraising.

(We should probably disclaim that we did not advertise our fundraise, just in case any of you are current or budding SEC regulators.)

Why yes, networking is valuable

Like many people, I find networking uncomfortable. I’ve tried many tactics to make it more palatable, like setting a goal of meeting five new people before allowing yourself to leave, but it’s still unnatural for me. The most comfortable I’ve been was when I found myself at the same conference I’d attended for two years and saw familiar faces.

But, I discovered that it’s essential. Our studio will be successful if we can recruit amazing founder talent. In order to do that, it helps to have a great network. A great network is filled with high-quality people that you know (preferably well). In order to increase the odds of knowing quality people, it helps to have a big network. We based our fundraising strategy on this premise and sought to raise money from as many highly-networked investors as possible. By doing so, we were able to exponentially increase the size of our network.

After whittling down the 150 potential investors we spoke with, and excluding family connections (which could be considered networking), we closed about 41 percent of our total fundraise through sheer force of networking. It’s shocking how much serendipity plays into networking. After meeting with one person—and five successive new introductions later—you can end up with a committed investor. That’s something that can be tough to orchestrate at the outset.

You can make up all kinds of excuses to just sneak out a little early, or linger on the periphery while on your phone, but it will only be to your detriment.

Ask not what you can do for your investors, but what your investors can do for you

We’re in business to produce returns on invested capital. That’s our job. However, that doesn’t mean that our investors can’t be incredibly helpful in that pursuit. (And talk about aligned interests.) One of the most effective ways to meet more potential investors is simple: ask your committed investors for introductions to interesting people who might also be interested in investing.

We weren’t methodical and systematic about this until more than halfway through our fundraise, when two things happened. First, we gave a fundraising update to our already-committed investors at our inaugural quarterly investor meeting. We value transparency, and so showed them our pipeline and our projections. Afterward, three investors told us they wanted to help us with fundraising, but weren’t exactly sure how we wanted the help.

Second, we had fortunately just read this 2016 post by Alex Iskold. Alex’s post not only validated some issues we’d been having with verbal commitments (more on that next), but it also exposed our omission in not leveraging committed investors. In our next investor update, we followed Iskold’s advice and asked for two or three intros to people. That led to 16 highly qualified investor introductions and increased committed capital by about 18 percent.

Now that we’ve done it, it seems incredibly intuitive and, as two people who have fundraised before and spent altogether too much time reading VC Twitter, I’m frankly a little embarrassed we didn’t realize it sooner. Better late than never, I suppose, and our spinout founders will benefit from the experience.

You cannot over-communicate

As I’ve mentioned, Ian and I profoundly value transparency, especially in business, which compels us to communicate openly and frequently with our stakeholders. This includes investors and founders. But, over the course of a nearly seven-month fundraise, we underestimated the sheer amount of communication the process demanded. Yet again, I’ll bring up Alex Iskold’s post, where he writes:

“Promptly follow up every 2 weeks to keep committed investors up to date. Good rounds have momentum, and you want the investors to feel good about investing. The update email should include progress on the company and on the round.”

We thought our detailed monthly investor updates were sufficient, but they weren’t. We did a first close in January, which meant that our fundraise ran through Christmas and we went radio silent a little too long around the holidays. As a result, we lost an investor who felt like we were losing momentum (we weren’t). Investing is highly emotional and in this case, our lack of more frequent communication spoiled the opportunity for that investor.

Macro matters

We had two previously-committed investors drop out and one potential investor come in due to macroeconomic changes. When you’re fundraising from angel investors, it can be easy to forget that your investors are giving you money that’s likely in another form in markets that may be trending up or down at any given time for various reasons. That means that a verbal commitment on Day 37 may not result in a signature on Day 52 if, for example, Bitcoin plummeted in between (that was a fun day), or Facebook’s shares shed 35 percent as privacy concerns mounted (yikes).

Conversely, the butterfly effect can work in your favor, like it did for us related to one potential investor. (Thank you, financial analyst, for publishing a timely buy rating that led to a 30 percent share increase and foreshadowed the next quarter’s positive earnings report that led to another 30 percent share increase). You’re just going to have to take the good with the bad and hope that Father Timing is looking favorably upon you.

I’m not saying there’s anything you can really do about it, because there isn’t. It’s just good to know so you can properly set expectations that you may lose some verbal commitments due to factors outside your control, even if you’re just setting expectations with yourself. Your own psychology can be your worst enemy, especially during fundraising.

In conclusion

Fundraising, while difficult, is learnable and incremental. You have to start with something worth it for investors. However, if you pay attention to how you build and engage with your pipeline, seek out—and genuinely value—networking, display your accolades with the media’s help to manufacture interest and visibility, systematically get intros from your committed investors, and factor in the macro goings-on to lessen turbulent moods, you’ll be fine. ;)

Clearbit and design as a strategic power

I’ve been a big fan of Clearbit since I used their API a couple years ago for a project at my previous company. It was so easy to use, documentation was super clear, errors were useful for debugging, and it gave me exactly what I needed. I’ve also always been impressed by the clean design of their website, brand, and messaging — it’s just…straightforward.

So, I was happy to read their CEO’s blog post about their recent $15M raise (emphasis mine):

When we raised our seed round in 2015, we told ourselves that was the only funding we’d ever need. We focused on staying lean and raced to profitability within our first nine months. For the past three years, Clearbit has been profitable. We are in this for the long term, which chiefly requires building a sustainable business.

…

Our rapidly growing team of 60 people work tirelessly to support the best B2B companies in the world. Companies like Segment, Asana, and AdRoll have built their entire sales and marketing stack on top of the Clearbit data layer.

…

To that end, we’re happy to announce that Clearbit has raised an additional $15M in funding at a $250M valuation.

…

Second, we’re stepping up our game for our existing 1500+ customers…

Daaamn, check out those terms. They raised $15M at a $250M valuation (let’s assume pre-money). That gives investors only 5.4% of the company. How did they get those terms?

1. They obviously didn’t need to raise the money. They’re profitable and have been for 3 years. Understood.

2. They must be growing at a fair clip.

3. They’re attacking a large market (b2b sales/marketing tech).

4. They must be very capital efficient.

But what makes their business defensible? Ian and I got into a debate over this. (I’m going to borrow from 7 Powers (I often take book recommendations from Keith Rabois’s Twitter feed)). We both agreed their dataset is defensible. It’s a (sort of) cornered resource. They scour the internet for data that’s probably not very structured, and piece it together to form an identity, be it person or company. While not impossible, it would be very difficult for another company to acquire that resource.

Then I proposed that design is one of their strategic powers and the debate began. Their API, documentation, marketing — it’s all fairly clear, concise, and good looking. It makes their product a pleasure to use and probably better than competitors’ products (I honestly wouldn’t know as I haven’t used anything other than Clearbit for the same purposes).

If a company highly values design, and orients something like product development around specific design processes/principles, and all that results in a superior product, that’s a process power. And very defensible.

Clearbit seems to value design and there’s probably an organizational ethos, as well as function-specific processes, that results in these awesome APIs and clean marketing assets at capital efficient rates (ahem, 3 profitable years).

Other recent examples support this. Stripe — awesome, simple APIs to help developers build payments into products. Plaid — awesome, clear APIs (with fantastic documentation) to help developers tap into personal finance data. Twilio — awesome, easy-to-use APIs to help developers build calling and texting into products. These companies focused on developer friendliness through the lens of thoughtful, purposeful, clean, and simple design, whether data object design, API design, documentation design, or marketing design.

It isn’t a new concept that design is a competitive edge (hi, Apple), but it’s reinforcing to me that design can serve as a potentially equally strong strategic defense as some of the other well-known powers, like brand or economies of scale.

As a former Clearbit customer, I’m stoked for them and so impressed from a strategic and operational perspective. And I’m so happy that software products across the gamut are emphasizing design more and more and it’s becoming more strategically, and thus financially, justifiable. Now if my health insurance company would just take note….

Invisible products, momentum, and other thoughts on Creative Selection

I finished Creative Selection a couple weeks ago on a flight. When I started it, I was coming off the highs of finishing Who Is Michael Ovitz and Not for the Faint of Heart -- both incredibly personal, profound, and captivating accounts of high-trajectory careers in entertainment and diplomacy.

Those are the types of books you finish quietly, hoping to remember everything you just experienced, but knowing you probably won’t. I’m so grateful for books like that. They deepen my hunger for more tell-alls of gripping negotiations, creative deals, business building, masterful accomplishments, and tragic failures.

Parts of the internet spoke highly of Ken Kocienda’s book, and I figured it was in the same neighborhood, although perhaps on a different street, as the other books. So I jumped in. These are some things that stuck with me.

The best products work so well they just fade into the background

The book started out slow for me. Steve Jobs cameos aside, I dreaded a couple hundred pages about...keyboards. (Others felt similarly, too.) Especially something as ordinary as an iPad and iPhone keyboard. Right? Those are givens. They’ve always been there and, plus, aren’t they just obvious and derivative of the regular keyboard? It’s QWERTY, our old friend.

But I kept going, picked my head up a couple hours later, and realized: it’s not obvious. It’s not a given. How stupid of me — one of the products I use the most had faded so significantly into the background, I never thought of it. It just worked. And the reason it worked is because a human thought enough about how it should work, what the user would expect, what would allow it to really fade to the background. That was always the goal.

Ken even writes that he worried the keyboard would get in the way of the human user focusing on just typing. That’s ultimately what led him and others to simplify the keyboard, even eliminating the auto-suggestions bar on top of the keyboard (it’s now back in iOS).

En-vogue startup/corporate ethos dictates customer — and thus, human — centricity, but this is a good reminder of what it really looks like in practice. Kocienda explains Apple’s practice of “the intersection” of liberal arts and technology by quoting Jobs:

“The reason that Apple is able to create products like the iPad is because we’ve always tried to be at the intersection of technology and liberal arts, to be able to get the best of both, to make extremely advanced products from a technology point of view, but also have them be intuitive, easy to use, fun to use, so that they really fit the users. The users don’t have to come to them, they come to the user.”

This reminds me of David Foster Wallace’s take on liberal arts thinking in This is Water (more on that in a later post), but it really comes down to choosing what is meaningful (users) and how to think about it (demos). For Apple, the devil’s in the details and in the rigor of the process. All the demos that Apple engineers do throughout the development process, with the constant emphasis on usability, are what are meaningful.

The feedback that comes out of those demos was pumped directly back into the product, often excruciatingly so. But it was, because the alternative wasn’t an option. As Kocienda writes: “[g]reat products make people happy almost all the time and do the opposite rarely, if at all.”

Think about that the next time you churn out a text or an email on your iPhone.

It’s all about momentum

Kocienda recalls his (failed) initial efforts to build an Apple web browser and how quickly he and his partner were blown away by a newcomer to the problem. Something he had tried for months to get working took someone with fresh eyes and an unencumbered brain just a couple days. It wasn’t a final product, but it was a big step.

Startups are all about momentum and speed (duh), but this is front and center in Kocienda’s early Apple narrative. Without this newly-created momentum, his first project at Apple might’ve failed, potentially spoiling his future at the company. Similarly, without an extremely rough, but functioning early product, a startup is toast.

What helps build momentum? Constraints. Kocienda explains:

“Look for ways to make quick progress. Watch for project stalls that might indicate a lack of potential. Cut corners to skip unnecessary effort. Remove distractions to focus attention where it needs to be. Start approximating your end goal as soon as possible. Maximize the impact of your most difficult effort. Combine inspiration, decisiveness, and craft to make demos.”

The biggest constraints here were time, available open-source software, and humans. Slightly abstracted, we all have these constraints: time, human resources, and material resources. How you perceive those constraints and use them is up to you, but this was my favorite part: Ken and his team used them to push towards demonstrable progress.

At a previous company, as a product manager, I often thought about how to create momentum, especially on a team of seven engineers who chafed at the idea of seemingly arbitrary deadlines (a whole other topic). We agreed on a system of, wait for it, mutually agreed-upon arbitrary deadlines, with varying levels of probability, toward demonstrable progress.

We used a whiteboard and put up each initiative we were working on, the picture(s) of the engineer(s) working on it (5x7), and the date the engineer(s) thought the initiative (or its sub part) would be complete (i.e., fully tested and deployed to production). We displayed the whiteboard to the rest of the office, where anyone walking by could see it, and incorporated it into our sprint meetings, executive discussions, demos, and retrospectives.

Among other things we did as a team, sprint after sprint, we started nailing our deadlines and shipping more higher-quality, customer-facing product, leading to happier customers.

There’s simply nothing like visible progress to build momentum.

Instinct leads to greater returns over testing

This one makes intuitive sense, but with a lot of the hub-bub around A/B testing, it can get lost in the shuffle. Kocienda uses the famous Google “blue button” A/B test to point out the incrementality in a testing-first approach and lamenting the “opportunity cost of running all the trials…[leading to] less time available for everyone on the development team to dream up a design that people might like two, or three, or ten times more.”

Listen to Keith Rabois and you’ll hear this echoed further. Product instincts have a higher likelihood to lead to 10x+ improvements than testing because instinct isn’t locally constrained like an A/B test inherently is. If there are 41 shades of blue in the test there are only 41 shades of blue to choose from. While instinct can be biased and fickle, for sure, it’s not as artificially constrained.

(This isn’t an argument against product testing as a concept, just A/B testing that avoids a decision that can be made. Product testing can be ridiculously effective.)

Overall, pleasantly surprised with the book. While some business books should be reduced to a blog post, I think the nuance Ken walks the reader through is helpful in understanding (and respecting) the decisions made, trade offs considered, and craftsmanship in building what hundreds of millions of us use every single day.

Hurry Up and Wait

We're a little over three months into working on our startup studio, Assembler Labs. (Detroit's startup studio -- spread the word!) I've been in Detroit for one month and since then, we've been cranking on ideas. As we get our hands dirty, I'm noticing a fun tension we're going to have to get really good at controlling: how to balance the urgency to kill ideas with the need to be patient for results.

One of our theses is that, as a startup studio, we increase the likelihood of our success by shutting down dud ideas as quickly as possible so we can move onto great ideas. This way we're more efficient with our limited time and resources and reduce our opportunity costs.

"You better get really good at sussing out whether an idea can be great or not ASAP," you might think. And you'd almost be right.

An entrepreneur and investor we recently met in Chicago reiterated what Ian and I often discuss: you need to build a business around the problem -- not a solution. This is probably a blog post itself, but when I think of a problem, I think of its components: the customer, the problem, and the customer's willingness to pay for a solution to that problem. 

These components -- and the dynamics between them -- make up your market. Talking to potential customers about a problem we're currently working on reinforced this for me: the willingness to pay is a function of your product, not the other way around. Your goal is to build a product that maximizes that willingness and the amount paid. As such, your product will naturally change, a lot. 

So, ultimately, we need to be exceptional at selecting and prioritizing fantastic markets with valuable problems.

This insight is so key.

👉 The market you choose is often more important than the product you build.https://t.co/N8P2j4l0JS pic.twitter.com/6yT4UBfMr7

— Justin Jackson (@mijustin) August 26, 2018

Focusing on problems can feel bad, though. The trouble (or, at least it can feel like trouble) is that sometimes you need to dig around in a problem for a while before you land on a viable (read: valuable) product/solution. This can feel really bad. It can feel like you're not making any progress and you're going down a rabbit hole. It can make you impatient if you let it.

Sadly, impatience can lead you to prematurely abandon an exceptional market before you gave it the time it needs. Markets -- and of course problems -- vary widely in complexity, but it can be easy to forget.

We need to pay attention to that bad feeling, but curb it. We need to urgently test our hypotheses, but be okay soaking in a problem we think is worthwhile. We're not going to hit the ideal solution on the first shot (but if you have, let's talk). 

As a startup studio and inherently working at the earliest stage possible, we realize that ideas and products will mutate over time as they're bombarded by customer feedback, competitive emergence and disappearance, and behavioral trends. That's fine. But we need to only pick great markets, then repeatedly hurry up and wait.

How lightness leads to resilient product teams

Sixteenth-century English and Spanish colonialism in the Americas has a lot more to teach us about creating high-functioning product teams than it would otherwise seem.

Just as some product teams succeed and others, well, don’t, one colonization approach led to arguably the most powerful and successful nation in human history, while another approach led to 300 - 400 years of volatile revolutions, fractious -- sometimes failed -- states, and political instability.

Why the difference?

Geography aside, John Lewis Gaddis, borrowing from Milan Kundera, writes in On Grand Strategy that he thinks it comes down to lightness. I think the same concept applies to product teams. [1]

Lightness of being

What does “being light” even mean? Gaddis defines it as “the ability, if not to find the good in bad things, then at least to remain afloat among them.” Using Machiavelli, he summarizes it as “learning not to ‘sweat it.’” It’s navigating with prevailing winds instead of trying to fight a headwind.

Queen Elizabeth I

For Elizabeth I in the late 1500s, it was slow-playing decision making and knowing her capabilities. Instead of speeding to catch up with the Spanish and their decades-long head start, she let private corporations establish colonies -- with her permission, of course. She protected state money, ships, and men, let entrepreneurs shoulder the risk, and let them sweat the details as they saw fit according to the conditions they themselves experienced.

This “absence of control,” this “lightness,” allowed those actually running these colonies to evolve their own forms of government bottoms-up, as long as they stayed within their royally-dictated charters. The thirteen colonies had “to respond frequently -- but not too frequently -- to the unforeseen.” Those self-created governments eventually led to the self-sufficiency, maturity, and independence that sparked the American Revolution and the founding of the United States.

From a product leadership perspective, I think there are a few things you can do to help your teams be light:

1. Work with the team to clearly establish their constraints up front. This should be a reflection of the company vision, the product strategy, and the relevant business goals. It should help the product team know what is aligned and what is not aligned. Like the colonies’ royal charters, it should establish expectations between leadership and the teams. 

For example, if I’m a marketing company, my vision could be that we will measure everything for marketers to help them know how effective they are. The product strategy, thus, is to pragmatically and progressively measure critical channels. This quarter’s goal could be to increase measurement adoption of a certain channel that was launched the previous quarter. It’s up to the product team to decide how best to do so.

2. Set expectations on how to communicate progress. Leadership will want to -- and should -- have opportunities to check in with product teams. I personally think these check-ins should be more advisory than not, but orgs will differ. The goal of this is to ensure that whomever needs to know what’s going on does know and different functional teams are kept up-to-speed. This is more a case of don’t do what the British did by having unhealthy cross-oceanic relations and instead have healthy communication.

3. Protect autonomy as much as possible. Product teams will do, hear, measure, and see things that leadership simply won’t. They’re not only on the front lines, but are tasked with hitting business goals by whatever means. So, trust them to get the job done and let them do it. By giving them autonomy to make their own decisions and, thus, mistakes, you foster resiliency, which helps them navigate the unexpected.

The problem of not being light

By the time the English even got around to getting serious about their North American colonies, Spain controlled almost all of South and Central America.

They had ships constantly headed home, straining under the load of goods meant for Spanish coffers and marketplaces. The colonies had “great cities, serviceable roads, and standard practices.” Uniformity was so enforced by the more micromanaging Spanish that a “Mexico City gentleman visiting Lima, 2,600 miles to the south, would have felt entirely at home.”

This sounds like success. It might even look like success. But it didn’t work because it led to “shallow roots” -- it didn’t promote self-sufficiency and didn’t breed persistent success. Spain’s Philip II and his governing machine had to will this kind of consistency into existence, despite each colony’s different geography, culture, economics, and situation. They never learned to not “sweat it.”

When this sheer force of will disappears, what continues the job? In Spain’s case, the answer was nothing. As Spain weakened, its colonies lacked the political maturity to self-organize like the American colonies had. Even Símon Bolívar -- the South American George Washington -- argued that because the Spanish had so tightly controlled the colonies, they were left in a state of “permanent infancy.”

Building product teams is difficult -- really difficult. It requires mutual trust and high standards, without a doubt. I think it can be tempting as a product leader to want to dictate or get in the weeds, but before you do, ask yourself: what type of colony and, eventually, country do you want to build?  

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[1] Geography was definitely a big contributing factor. If you want a deeper lesson on this, I highly recommend reading Tim Marshall’s Prisoners of Geography.

Validating ideas, part 1: does anyone want it?

You have an idea. You’ve been tossing it around in your mind for the past few weeks. Your brain wanders back to it while you’re showering and it hijacks your train of thought while you’re in a meeting at work.

How do you explore whether it’s worthwhile? Whether it’s worth jumping ship to go forth?

If you’ve done some research, you may have stumbled across frameworks that look like these. 

Credit: This presentation

Credit: This blog post

Everyone picks a different shape or arrangement of shapes, but they’re pretty much the same thing.

• Does anyone want it?
• Can it make money?
• Can it be done?

But, this is actually a framework of frameworks of frameworks. 

In this three-part series, we’ll break apart each one in detail, starting with wrestling the question, “does anyone want it?” And, to help keep this conversation focused on application, we’ll work through an idea together. 

Our idea will be: a podcast app. Podcasts are becoming more popular and there are various podcast apps out there, but the listening experience isn’t awesome just yet. Even more, money is flooding into the space with no apparent end in sight. So, we want to dive in, but we have to do some validation first.

Does anyone want it?

Customer desire is the starting place for all this madness because there’s no commercial point in building something that people don’t - or won’t - want. You can absolutely be an innovator and an inventor, but that won’t necessarily make you money. While we’ll get to the economics of the idea in the second post, desire is the first barrier to overcome.

Break apart “does anyone want it?”

Focus on two components of the question: “anyone” and “it.” To move forward confidently, get crystal clear on how to define these.

What is “it”?

“It” is what you will sell customers and what they will be motivated to buy. It’s the position your product or solution will sit in amongst everything else in the market. It’s what your customer will hire to do the job they need done. It’s what you will do versus what you’ll explicitly not do.

I particularly enjoy how Ryan Singer at Basecamp writes about what they want to emphasize vs. de-emphasize in their product.

Credit: Ryan Singer

By defining boundaries and areas of emphasis, you form your product’s outline and its positioning. It not only gives you a position to experiment with and gradually validate or invalidate, but it also gives you a place from which to say “no” to feature requests, internal debates, executive overreach, or reactionary scrambling.

To get a sense of where you should position your product, it’s (obviously) helpful to do some competitive research. We’ll leave that topic for another day, but assuming you’ve done that, plus some customer research (will also leave that topic for another day), you might have some axes upon which to slide your product.

Let’s look at our podcast app example. Based on some customer and competitor research, we could come up with the following axes. These axes can now help us focus and validate.

“Does anyone want it?”: Anyone ≠ anyone

While you could theoretically build and market your product to anyone early on, that’d be foolish because:

• It’s harder to measure product/market fit (if you’re aiming for everyone it’s harder to tell if you’re making progress),
• It’s harder to know who to listen to for feedback (you’re guaranteed to get diverse feedback, anyway, so why make it harder on yourself?),
• It’s harder to market to everyone (the same messaging, positioning, and medium will not resonate with or reach everyone), and
• It’s harder to know what adjacent customer segments to grow into (if your customers aren’t segmented you don’t know what characteristics they share with other, untapped customer segments). 

The gist of how to work through this component is: go as narrow as possible. Or, as this article puts it: “you want to keep going until there is no meaningful distinction to be made.” Attributes to segment a market by can be geographical, behavioral, demographic, socioeconomic, etc. 

As you segment, it’s important to keep track of each slice’s market size so you can keep in mind the magnitude of desirability, which can act as an input to the “can it make money” question.

Let’s work through this for the podcast app. We know we want to target power podcast listeners, so let’s get a better idea of what that really means.

First, since this is a mobile app we’re focused on, let’s be ridiculous and start with all US-based smartphone owners. That comes out to about 204,370,410 people. 1 

Second, we want to focus only on people who listen to podcasts on a regular, say monthly, basis. One source says this is 26% of the total US population as of 2018 (but let’s discount to the US smartphone-owning population, so 53,136,306 people). That’s pretty close to another source of 57,000,000 people, so let’s roll with it.

Third, based on the “it” we’ve whittled down to, we want to get a little more aggressive and focus on people who will really use our product, put it through the wringer, and who we want to build for. They’re the power users -- the daily podcast listeners subscribing to many podcasts. The same source says it’s 17% of the US population, but we’re going to use the same smartphone discount as above, so it comes out to 34,742,969 people.

Fourth, maybe because we want to gain traction as quickly as possible and we may want to launch iOS-first, we want to target customers who are using the default Apple Podcast app. Data from 2017 shows the iOS Podcast app had a 51.1% market share, but we find out Apple released an inferior app update that is seemingly universally despised. Let’s discount that market share by a third, conservatively, to 34%. That comes out to 11,812,609 people. 2

What do we end up with? A target customer segment made up of 11,812,609 people who:

• Live in the US
• Own a smartphone
• Are older than 15 years old
• Listen to podcasts at least weekly, if not daily
• Use the iOS Podcast app
• Don’t use a third-party podcast app (yet :))

We could continue segmenting further by refining demographics like age or ethnicity, or segmenting on other attributes like what other services or podcasts they subscribe to. However, for the purpose of an app for a power podcast listener, the main behavioral trait we’re looking for is the power user attribute. Thus, there are no more meaningful distinctions to be made.

So, does anyone want it?

Once you’ve tailored the question, you’re ready to pose it. For us and our podcast app example, our question is:

Do US-based, iPhone-owning, iOS-Podcast-app-using, daily podcast listeners over 15 years old want a podcast app that prioritizes helping them listen to -- and discuss -- the content they’re already subscribed to, as quickly as possible, with highly relevant ads?

I’ll add yet another topic to the “let’s cover this another day” list, but there are various ways of getting to an answer to this question. 

At this point, though, you’re in a spot where you can ask a concrete question to the right people and begin really assessing -- and measuring -- whether what you’re cooking up is worth serving. 

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1. According to this, there are 326,625,791 Americans, of which 81.26% are older than 15 years old (to be conservative and not count kids). Then, using this data, 77% of Americans own a smartphone.

2. Note the implicit assumption here that users who remain with the despised iOS Podcast app are at least weekly podcast listeners. We can test this later.