Fast Follower III – First Mover Disadvantage

This is part III of a three part series. Click here for Part I and Part II

John FitchJohn Fitch was first. He spent the majority of his adult life fruitlessly attempting to capitalize on the novelty and uniqueness of his invention. Unable to raise funds from wealthy individuals, he solicited $300 from a hodgepodge of small businessmen, including tavern owners, grocers and physicians.

In a matter of months, he developed technology that was superior to that created by the world’s leading scientist over the prior 15-years, despite his lack of a formal education.

He debuted his technology in Philadelphia at the 1787 Constitutional Convention. It exceeded his expectations and thrilled those who witnessed it, including a number of prominent Founding Fathers. However, he was still unable to secure adequate funding to commercialize his technology.

Fitch spent the next three years traveling the country repairing clocks as a means of surviving, all the while saving money for the eventual launch his venture. In 1790, he began offering a service that eventually transformed world commerce and generated trillions of dollars of wealth. Unfortunately for Fitch, his adVenture folded 18-months after it began. 

In 1798, at the age of 55, a frustrated, destitute Fitch scrimped together enough money to purchase a handful of opium pills, which he used to end his life. His suicide note was prophetic:

“The day will come when some more powerful man will get fame and riches from my invention, but no one will believe that poor John Fitch can do anything worthy of attention.”

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Free Advice, Worth Half The Price – Properly Compensating Entrepreneurial AddVisors

CiceroAdvice is judged by results, not by intentions.”
Marcus Tullius Cicero, Roman Lawyer and Statesman, 106 BC43 BC

With slight modification, Cicero’s astute quote aptly applies to the entrepreneurial world:
Startup advice should be judged by results, not by intentions.”

One way to accomplish this goal is to compensate your addVisors with equity and clearly specify the tasks that they must perform in order to earn their remuneration. If their advice proves sage and the company’s value increases, then they will be duly rewarded. If the company fails, their advice is free, as it should be.

The key covenants to consider when crafting your addVisory agreements include:

  • Equity Only – ensures the addVisor’s and Company’s interests are aligned
  • Specificity – clearly state the tasks to be performed and the minimum time requirement
  • Restricted Stock – ideal form of equity, with no detrimental impact on your adVenture
  • Cashless Loan – allows the addVisor to have beneficial ownership of stock, with no cash outlay
  • Vesting – reduces your risk of parting with equity and not receiving requisite value
  • Out Clause – motivates both parties to keep each other happy and allows either party to quickly terminate an ill-fated relationship
  • Short Term – reflects the relatively brief duration of most addVisor relationships

Each of these issues is discussed in greater depth in the following section.

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Innoventors – How Entrepreneurs Change The Rules Of The Game

FosburyNot all flops are failures. Take Dick Fosbury’s for instance. He began experimenting with alternative, unconventional methods of high jumping as a high school sophomore. Rejecting the straddling approach, which had been the standard for the prior forty years, Dick tweaked the old-fashioned scissor kick, eventually morphing it into a new and unique approach, which was eventually dubbed the “Fosbury Flop.”

The track and field community initially scorned Fosbury’s approach, labeling it “unsafe” and “too unorthodox” for the average jumper to master. However, nothing sells an innovative idea like winning. After Fosbury set an Olympic record at the 1968 Mexico City games, jumping 7 feet 4.25 inches, track coaches all over the world took notice.

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Reinvent The Wheel – A Nonstandard Look at Standards

Sometimes an entrepreneur should reinvent the wheel, as Revolution Motors has done with its Dagne electric vehicle, which utilizes a joystick to steer and brake the vehicle. The key to the success of wheel reinvention is knowing when and where to implement such dramatic shifts from past precedent.

CarThe car brake pedal originated with stagecoaches, which required the use of the driver’s leg muscle to stop the stage, due to the horses’ “horsepower” and the coach’s weight. Use of the driver’s foot also freed their hands to hold the reigns. The foot brake made sense on stagecoaches, but it is less than optimal on computer-controlled, modern vehicles*.

Like the brake, early cars’ steering mechanisms were drawn from legacy modes of transportation.  Cars were initially steered via a tiller device, similar to that used to control a boat’s rudder. Ironically, such tillers were rudimentary approximations of a modern joystick.

Steering wheels were co-opted from sailing ships. One of the first uses of an automobile steering wheel was in Alfred Vacheron’s 1893 race car. After winning several high-profile races, Vacheron’s design became widely adopted. In 1898, C.S. Rolls introduced a commercial vehicle which incorporated wheeled steering and by the end of the following decade, tiller steering was a thing of the past.

Use of a steering wheel was logical, especially before the advent of power steering, as a large wheel required fewer revolutions to mechanically translate movement to the car’s front axle, whereas a tiller had a limited range of motion. However, the introduction of power-assisted steering eliminated the steering wheels inherent advantage.

Studies by DaimlerChrysler have shown that the reaction time between the hand and the foot varies significantly. The hand is approximately twice as responsive, due to the relatively small and nimble wrist muscles which react more quickly than the larger, less agile leg muscles. This difference in reaction rates is minute, but significant. A half-second of enhanced response decreases rear-end collision deaths by 90%, whereas the application of the brake a full second earlier reduces such deaths by 95%.

The major cause of front-end collision deaths is the combination of the driver’s compromised response rate and the subsequent impact of the steering wheel. Even with airbags and collapsible steering columns, the International Road Traffic and Accident Database notes that a significant percentage of the 50,000 drivers killed each year on US highways are crushed by the steering wheel. In fact, emergency responders are instructed to inspect the steering wheel at crash sites as a means of estimating the extent of the driver’s internal injuries.

If it is safer to eliminate the steering wheel and allow drivers to control the brakes with their hands, why do all mass-produced cars still utilize technologies which arose from stagecoaches and sailing ships?

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Inventors vs. Innovators

PhiloPhilo Farnsworth created a technology which underlies one of the 20th Century’s most ubiquitous products, yet he died a man of modest means and he is relatively unknown today.

Philo was an inventor, not an innovator. He was primarily motivated by the educational potential of his invention, not the wealth it might generate.

He freely shared is ideas and technology with others in the hopes that such openness would advance the science that he loved. No one, except for Philo, was surprised when the innovators with whom he had shared his invention capitalized upon it and created dozens of multi-billion-dollar, self-sustaining enterprises.

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Driving The Mouse

John and Kyle During the spring of 1999, John Lusk and Kyle Harrison turned their backs on the traditional path taken by most Wharton MBAs. Instead of accepting high-paying positions with an investment bank, consulting firm or Dumb Dot Com, John and Kyle decided to launch a startup based upon a simple, pedestrian product.

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Nair – Remove The Hair From Your AdVenture Before Seeking Funding

NairNair was developed during the 1970s as a hair-removal product for the emerging population of busy, professional women. Despite potential side effects such as itching, burning and scarring, Nair continues to help women effectively remove unwanted hair and leave their skin “smooth and shiny, with no nicks or cuts.”

Ask any venture investor. They would love to slather their startup investments with Nair. Why? Because every deal has unwanted hair – one or more significant flaws which make the deal imperfect. Savvy entrepreneurs also understand this reality. As a result, they do everything within reason to reduce the hair on their adVenture before they seek investment capital.

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Pressure – The Mother Of An Entrepreneur’s Motivation

Mystery Singer One evening, early in 1972, a young itinerant truck driver living in a small Pennsylvania farmhouse was told by his wife that she was pregnant.

That evening, in a fit of desperation, he wrote one of the best selling songs of the 1970s. By the end of the week, he had written several new songs, which were included on the two Top Ten albums he released the following year.

Pressure is good. Every system needs it to properly perform; airplanes, bloodstreams and the earth’s atmosphere. Just as it spurred the young musician, it is also a vital ingredient in a startup’s success.

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Max Brand – Entrepreneurs’ Branding Maxims

1Frederick Schiller Faust is a nobody. His face evokes no recognition; his name conjures no associations, nor do eighteen of his nineteen pseudonyms. However, one of his aliases elicits widespread recognition.

Nearly 65 years after Frederick’s death on the front lines during World War II, his celebrated penname remains an enduring brand that invokes a spirit of adventure and escape.

Frederick and his publishers fostered his renowned nom de plume into a vibrant and meaningful brand. Many of the maxims utilized to create that lasting brand can be applied to your startup.

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Corporate Creed – Values, Desires, Purpose and Talents Are the Basis of a Startup’s Corporate Culture

Michael DouglasNo doubt about it, most Hollywood screenwriters disdain entrepreneurs. The negative depiction of entrepreneurs arguably reached its nadir in the film Wall Street. In one scene, Michael Douglas’s character proclaims, “Greed is good. Greed is right. Greed works.” He goes on to rationalize why it is OK to screw everyone on your way to the top.

The Hollywood screenwriters were close. The words they should have put in Michael Douglas’s mouth are, “Creed is good. Creed is right. Creed works.” The best antidote to greed is a strong Corporate Creed. Your adVenture’s Corporate Creed should be established early and be well understood by all of your employees, as it is the foundation of your corporate culture and ultimately your success.

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