John Greathouse http://johngreathouse.com Hands-on startup advice for emerging entrepreneurs Fri, 26 Aug 2016 21:09:46 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.2 Good Gawd: Unconventional Startup Wisdom From The Hardest Working Man In Show Business http://johngreathouse.com/good-gawd-unconventional-startup-wisdom-from-the-hardest-working-man-in-show-business/ http://johngreathouse.com/good-gawd-unconventional-startup-wisdom-from-the-hardest-working-man-in-show-business/#comments Thu, 25 Aug 2016 12:00:36 +0000 http://johngreathouse.com/?p=5967 A version of this article previously appeared in Forbes. Despite his non-existent education and numerous personal demons, James Brown was a gifted entrepreneur who reveled […]

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A version of this article previously appeared in Forbes.

Despite his non-existent education and numerous personal demons, James Brown was a gifted entrepreneur who reveled in proving Conventional Wisdom wrong. In the early 1960’s, it was generally believed that soul music needed to be watered down (think Motown) in order to crossover to white consumers. It was also considered gospel that artists should not produce live albums, as such records would reduce concert attendance.

James proved the record industry experts wrong, on both counts.

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The Godfather Lays Down The Law

James Brown’s Live At The Apollo album is perennially rated one of the Best Live Albums of All Time, yet it was almost never made. Syd Nathan, owner of Brown’s label, refused to finance a live album, as he was concerned it would limit James’ popularity on the road, which in turn, would suppress sales of future singles, which was the label’s primary revenue source. Syd, along with most industry executives, also did not believe there was a market for albums comprised of songs that had already been released.

Conventional Wisdom: James, if you record your live show, people will have no reason to get off the couch and see you at a club. Besides, who’s going to buy an album of songs they already own? Forget it.

James knew better and ignored the industry experts. Using his own money, he leased the necessary recording equipment, hired the sound engineers and rented the Apollo Theater. Once the show was recorded, Syd Nathan refused to release it, relenting only when it became obvious that Brown was going to fund its distribution himself. Greed won out and Mr. Nathan finally released Live At The Apollo in May 1963, seven months after it was recorded.

The album’s success was instantaneous, reaching number 2 on Billboard’s mainstream Pop charts, which measured the record-buying habits of a predominantly white audience. The album’s success outside of the R&B market proved that James’ unvarnished sound had universal appeal, which impacted the way Soul and R&B music was marketed for the next twenty years.

Radio And Baseball

The first radio broadcast of a professional baseball game was on August 15, 1921. However, it wasn’t until 1935 that owner of the Chicago Cubs agreed to allow his team's entire season to be aired on the radio. Why the 15-year delay?

Conventional Wisdom: Owners, why would someone pay to attend a game when they can listen to it for free in the comfort of their home? If you broadcast your games, your stadiums will soon be empty.

America was still battling the Great Depression in the mid-1930s and gate receipts represented the majority of the owners' revenue. Thus, their desire to protect this important cash stream is understandable.

Despite Conventional Wisdom's notion that radio would destroy attendance, it actually drove it higher in every city that rolled out season-wide broadcasts. Yet, despite the empirical evidence of radio’s success, several teams continued to refuse to broadcast their games for another three seasons. Sometimes Conventional Wisdom dies a slow death.

What the owners did not initially realize was that radio provided rural fans an immersive experience that was previously not possible. Instead of simply reading box scores and newspaper accounts of the prior days’ games, radio broadcasts allowed fans to experience their team's dramatic ups and downs in real time.

The visceral nature of radio allowed fans to establish personal attachments to players which motivated them to drive great distances to attend games and experience first-hand what they had previously only imagined through their mind’s eye.

Bootlegs To Bigtime

Record executives were dumbfounded that the Grateful Dead openly encouraged their Deadheads fans to record their shows and share the resulting bootlegs.

Conventional Wisdom: Jerry, if you let fans record your shows, it will supplant the market for concert tickets and commercial recordings.

Even through their ganja haze, the Dead knew better.

By allowing fans to trade and sell recordings of its shows, the Dead's cult status was significantly enhanced. Some fans began to collect show recordings. Others began following the band on tour, proudly boasting the number of Dead shows had attended, which drove up ticket sales. These hardcore fans also devoutly purchased the Dead's commercial releases and other licensed products (T-shirts, bumper stickers to put on their Cadillacs, etc.), proving yet again, the so-called experts were wrong.

You can’t control the vagaries of the startup world, but you’ll have a head start over most people once you understand that Conventional Wisdom is often unwise. When everyone is zigging, go zagging.

You can follow John on Twitter: @johngreathouse.

Image credit: AP Photo/Kevork Djansezian

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Your Customer Success Team Is Focusing On The Wrong Definition Of Success http://johngreathouse.com/your-customer-success-team-is-focusing-on-the-wrong-definition-of-success/ http://johngreathouse.com/your-customer-success-team-is-focusing-on-the-wrong-definition-of-success/#comments Mon, 22 Aug 2016 19:45:44 +0000 http://johngreathouse.com/?p=5961 A version of this article previously appeared in Forbes. L-to-R: John Greathouse, unknown woman about to slap John, Reed Shaffner, Jerry Jao & Ara Mahdessian […]

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A version of this article previously appeared in Forbes.

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L-to-R: John Greathouse, unknown woman about to slap John, Reed Shaffner, Jerry Jao & Ara Mahdessian

My venture firm, Rincon Venture Partners recently teamed with Jason Lemkin, Founder of SaaStr, to host the first SaaStrX event. I had the honor of moderating a panel of three SaaS CEOs who have collectively raised nearly $40 million of venture capital and are on their way to breakout success: Reed Shaffner of Workpop, Jerry Jao of Retention Science and Ara Mahdessian from ServiceTitan.

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The Most Important Metric

We had a spirited discussion regarding a number of issues related to blowing past $10M in annual recurring SaaS revenue, in front of a sold-out crowd of about 400 entrepreneurs. The evening would not have been possible without the generous support of Rainforest QA and Cornerstone onDemand.

Near the conclusion of our discussion, I asked each CEO to name any non-obvious metrics by which they guide their businesses. All of the answers were insightful, but I found Ara’s reply to be especially instructive.

He started by stating, “We track customer success.” My initial reaction was, “Great, but I am not sure that qualifies as non-obvious” but then he quickly knocked it out of the park, adding, “We define ‘customer success’ as enabling our customers to generate more prospects and close more sales. In other words, are we measure whether or not we are truly making our customers more successful.”

Ara went on to note that ServiceTitan has been experiencing negative churn, netting 120% annual revenue growth from existing customers. As Ara’s customers thrive, they deploy even more of ServiceTitan’s solutions, which in turn spurs their growth even further. By properly defining and tracking customer success, Ara’s team has tapped into a powerful virtuous cycle.

When Ara concluded his definition of customer success, it was clear that his approach is anything but obvious.

Sure You Track Satisfaction, But Whose Success Are You Monitoring?

Many companies create customer success teams to onboard and upsell customers. These teams gauge customer satisfaction by tracking net promoter scores, customer churn, renewal rates, etc. However, these metrics measure your company’s success, not that of your customers.

In contrast, entrepreneurs who want to build sustainable businesses which blow past $10M in annual recurring revenue, should track metrics tied directly to their customers’ achievements.

Such metrics will obviously differ. In ServiceTitan’s case, its appointments and service calls. If you sell a cost savings tool, measure the actual costs saved by your customers. If your solution increases efficiency, determine a proxy by which you can estimate the effectiveness of your tools within your customers’ organizations. The key is to focus on your customers’ metrics, not your own.

Irrespective of your products’ value prop, if your customers’ accelerate the achievement of their goals by deploying of your solutions, you can be assured that your own success will follow.

You can follow John on Twitter: @johngreathouse.

Image credit: Drew Haines of Devco

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Selling Online In 2016 For The First Time – What Works When You Have A Blank Slate? http://johngreathouse.com/selling-online-in-2016-for-the-first-time-what-works-when-you-have-a-blank-slate/ http://johngreathouse.com/selling-online-in-2016-for-the-first-time-what-works-when-you-have-a-blank-slate/#comments Mon, 08 Aug 2016 12:00:35 +0000 http://johngreathouse.com/?p=5957 A version of this article previously appeared in Forbes. Kate Hudson, Emma Roberts, Eva Longoria, Jessica Biel and Rihanna began wearing Z Supply's clothing before […]

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A version of this article previously appeared in Forbes.

Kate Hudson, Emma Roberts, Eva Longoria, Jessica Biel and Rihanna began wearing Z Supply's clothing before it could be purchased online. It may seem hard to believe, but even in 2016, there remain a number of successful consumer brands that are not sold online. The reasons companies elect to sell exclusively offline differ, but they often center on managing channel conflict with their retail partners.

I thought it would be interesting to understand the challenges and concerns of entrepreneurs who began selling online for the first time in 2016, so I sat down with Heidi Muther, COO at Z Supply, LLC. This is the first of a two part, extensive interview I recently conducted with Ms. Muther.

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Founded in 2011, Z Supply, LLC has created five women’s fashion brands with a sixth brand and extension into Men’s, launching Spring 2017. In addition to the Z Supply brand, which offers comfortable fashion basics, the company has created Black Swan, Others Follow, Rag Poets and White Crow. According to the company, “Black Swan is targeted towards the refined, romantic city woman, Others Follow to a carefree, coastal lover, Rag Poets to a classic sophisticated woman and White Crow to the vintage loving, edgy woman.”

John Greathouse: Hello Heidi. The fashion industry can be tough to break into. What was your path to your current role? Did you always have the goal to work in the fashion industry?

Heidi Muther: I entered college with the intent of becoming a Mathematics professor, but after taking multiple economics classes, I changed my major to Business Economics. I ended up really relating to the nuance and intricacies of product supply and customer demand. That in parallel with my interest in clothing trends since a young age, it was a natural fit for me to enter the fashion business. I was fortunate to acquire my first job with Robinsons-May in 1989. Their executive training program was unparalleled, providing a sturdy foundation for young and highly motivated buyers. After seven years at May company as a buyer, I spent ten years at Pacific Sunwear as a senior buyer, DMM and VP, where the company experienced tremendous growth, expanding from 114 stores to over 1100.

After Pacific Sunwear, my career covered two new ends of the retail spectrum; off price at Ross and women’s luxury at St. John Knits. Both of these executive positions rounded out my retail/wholesale experience and led me to this new opportunity at Z Supply as the COO. This position embodies everything I love about the fashion industry from merchandising to corporate planning and strategy.

Greathouse: Fashion, much like music and the arts, inspires a large number of young entrepreneurs. As a UC Santa Barbara alum, do you have any advice for my UCSB students who desire to break into the fashion industry?

Muther: I do believe internships, while in college, provide great insights to what a person’s strengths are and where their passions lie. There are so many different routes a person can take to enter the industry, such as design, buying, production, marketing, eCommerce and styling to name a few. I would strongly recommend researching companies in their area and applying directly for a summer internship or use the (campus) career center, to arrange internships and interviews for your first job.

Besides individuals with a merchandising/design degree, many other degrees can be applied to fashion industry jobs. I used to recruit at both May Company and Pacific Sunwear and individuals with communication degrees, business degrees and even psychology degrees did well in the fashion business. It really comes down to a person’s drive and personality… you must be malleable. Some of the more crucial skills in the fashion business include the ability to observe and translate trends, understand your customer and work well with cross-functional teams.

Greathouse: Z Supply has developed a highly successful network of boutique retailers. What factors led you to consider augmenting your retail channel with direct, online sales?

Muther: We were very careful when launching our first eCommerce site. Boutiques are the backbone of our company’s sales and we did not want to negatively impact their business. That being said, we were getting inundated with inquiries regarding where to find our product. Frequent placement of our Z Supply clothing on celebrities piqued interest in the brand even more. So first, it was the need for accessibility to our product and, ultimately, accessibility to the entire line; not just the few styles boutiques were carrying.

Secondly, eCommerce is a powerful marketing platform for us. It allows us to reach tens of thousands of consumers, while simultaneously providing direct access for customers who could not find it in their own town. Lastly, it is healthy source of revenue for our company. We are proud of our first site, which is clean, easy to shop and represents what we are trying to sell - comfortable, chic essentials made of amazing fabrics. Our second site will be launching in August 2016, followed by a third eCommerce site in Spring of 2017.

Greathouse: Channel conflict is an obvious concern when adding new avenues of distribution. What have you done to minimize such conflict and what has the reaction been from your retailers?

Muther: I am happy to say that our sales reps and retail boutiques have not been negatively concerned with our site. They too see it as a marketing tool, where digital outreach brings more brand awareness and as a result, they are experiencing more demand at their store level. They will often repost our Instagram posts and draw local customers to their own stores. Additionally, we never promote (directly) on our site. Our goal is to ensure the value of our brand stays intact and that we do not threaten the small boutique business in any way.

Greathouse: It was smart to begin the process with one of your brands and learn from your mistakes, rather than rushing all of your designs online and making the same mistakes over and over. What caused you to select Z SUPPLY as the first fashion line to take online?

Muther: Z Supply is the widest reaching brand in both age and ease of wearability. We are reaching 18-60 year old’s with the line, which focuses on great fits, fabrics and assortment of colors. You can fall in love with our pocket tee and then buy it in 5 other fabrics or 30 different colors. We have expanded the line with dresses, joggers, shorts and long sleeve items, so now the use of our line is truly for every occasion from day to night. It is just an easy to wear, but fashionable brand for EVERYONE.

Greathouse: What did you learn from Z Supply’s online rollout that you will do differently as you make your other brands available for online purchasing?

Muther: We actually hired a few consultants for the first 90-days, to mitigate any hiccups along the way and ensure we made as few mistakes as possible. They assisted with building the site, building marketing plans and general analytics. This gave our new eCommerce team access to digital professionals they could learn from and a “website-building template” to replicate in-house for our next site. The key takeaways from our initial launch were one, invest a bit more money on marketing up front, because it builds your “shopping” customer base, which pays off in folds down the road. Two, create significant marketing assets, in order to keep your social media posts and emails fresh. Three, do not launch the week of Black Friday!

Greathouse: What have the results been so far?

Muther: To date, it has exceeded all of our expectations. We have tripled our original plan and are running between an 8-10 times return on our marketing spend. I credit that to our very smart, driven and constantly inquisitive eCommerce team, who really enjoy exceeding their numbers each month. Our marketing is becoming more sophisticated and we recently added an affiliate program, which is showing great promise for incremental sales. Due to the site’s success both in sales and the breadth of marketing it provides, we are confident about launching our White Crow site and how it will promote the brand growth nationally.

Follow John’s startup-oriented Twitter feed here: @johngreathouse.

Photo Credit: Z Supply, LLC <zsupplyclothing.com/press>

 

 

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Why Millennial Entrepreneurs Should Never Watch Shark Tank Alone http://johngreathouse.com/why-millennial-entrepreneurs-should-never-watch-shark-tank-alone/ http://johngreathouse.com/why-millennial-entrepreneurs-should-never-watch-shark-tank-alone/#comments Thu, 21 Jul 2016 12:00:43 +0000 http://johngreathouse.com/?p=5952 A version of this article previously appeared in The Wall Street Journal. The reality television show Shark Tank makes for entertaining content but many of […]

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A version of this article previously appeared in The Wall Street Journal.

The reality television show Shark Tank makes for entertaining content but many of its underlying messages are potentially detrimental to tech entrepreneurs. Thus, emerging entrepreneurs should parse fact from fantasy by watching the show with an experienced business pro.

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Relax. I get that Shark Tank is a TV show focused on entertaining its viewers. Having appeared in a reality series, I am well aware of the lack of reality involved in this entertainment genre. Our dialog was scripted, reaction shots were routinely taken out of context and faux conflict was relentlessly encouraged among the cast.

As noted in What’s Real About Shark Tank, the show can give consumer product companies a significant marketing and revenue boost, as it did for one of my former students, Jeff Overall, Founder of PolarPro. It is also an inspirational alter call to entrepreneurship.

Per the show’s Mark Cuban, “Anybody with an idea can see how the business process works, see that these are normal people, and there's nothing magical about coming up with an idea.” I completely agree regarding the lack of “idea magic”, however the show’s time constraints and focus on drama provide viewers with a highly distorted portrayal of “how the business process works.”

I have seen the effects of this distortion first hand. A number of my UC Santa Barbara entrepreneurial students initially model their investment pitches on the show's contrived format. Experienced entrepreneurs have no issues parsing where reality stops and entertainment begins. However, such distinctions are less clear to young entrepreneurs.

I am not alone in my opinion that Shark Tank is not representative of real-world tech investing. According to David S. Rose, author of the New York Times best-selling textbook on the subject, Angel Investing: The Gust Guide to Making Money & Having Fun Investing in Startups:

“I love watching the show, but Shark Tank has about as much to do with angel investing as Indiana Jones has to do with archeology. While the show makes for great drama, it has absolutely nothing to do with reality, nothing to do with angel investing, and very little to do with entrepreneurship. If anything, some of the most valuable lessons one can learn from watching the show are what not to do—both as an investor and as an entrepreneur. The best TV moments come from Mark Cuban and Kevin O’Leary, but they are also the least realistic. I strongly advise aspiring entrepreneurs against trying to learn anything from the show, but instead sit back and watch it for what it is: neat entertainment."

I admittedly am not addicted to the show and thus I don’t have the depth of knowledge of a rabid fan. However, assuming the shows I watched were largely devoid of lessons for real-world entrepreneurs, especially those running tech ventures.

Shark Tank Distortions

Partners, Not Sharks - The show's title communicates a predatory message. Accomplished investors are not seeking to gain an advantage at the entrepreneur's expense. On the contrary, successful investors are typically entrepreneur-friendly, and treat their entrepreneurs as partners, not adversaries 

Pitch Overvalued - Pitches are important, but they are not the focal point of fundraising in real life. Understanding the entrepreneur's motivations, aptitude and attitude are more important than a slick pitch. In the real world, pitches are an important step in establishing a relationship with an investor, not the finale which triggers an investment.

Compressed Timeline - I realize that for purposes of the show's formula, funding decisions must occur immediately after the pitches. However, in real life, investor relationships are typically fostered over weeks, months and in some cases, years, not a few minutes.

Note that the judges' "commitments" are "pending diligence" and thus, they are merely signs of interest to learn more, not commitments, as implied on the show. In addition, actual pitches are much longer than the edited versions that are aired. Per Jeff Overall, “The QA portion is actually very thorough and I imagine these would be the same questions asked in a traditional fundraising setting. They usually only air the entertaining questions, a lot of the dry questions the sharks (use to) make their decisions on are not aired.”

The show would be more educational (and realistic) if it allowed viewers who are looking to be educated and entertained to watch/listen to entire pitches online or via podcasts.

Ideas Overvalued - The show's pitch-centric format places too much emphasis on the appeal of ideas, rather than the entrepreneur's (and his or her team's) ability to create value via effective execution.

In reality, ideas are worthless. Thus the show's emphases of the novelty or cleverness of a particular idea could cause unseasoned entrepreneurs to attempt to raise money too early. In the real world, entrepreneurs should seek capital from sophisticated investors after they have proven their underlying value proposition. Such proof usually comes in the form of strategic partners and paying customers, as described more fully in What The Heck Does Traction Really Mean To A VC?

Lack Of Domain Expertise - Ideal investors are experts in your market and can provide relevant, tactical assistance. The Shark Tank panel often has little industry expertise in the deals they are pitched.

Paltry Valuations - The amounts invested are not representative of the bite sizes generally taken by sophisticated tech investors. Most legitimate Seed Rounds provide entrepreneurs with enough funds to generate meaningful value in advance of a future funding round and seldom result in the entrepreneur giving up more than 20% of their ownership.

Consumer Centric - The show understandably focuses on consumer products that its viewers can relate to. However, in reality, very little venture capital is applied to such startups. Consumer goods are best funded in a crowdsourced manner, through industry partnerships or via conventional loans, which can be secured by the underlying inventory.

If you have a consumer-oriented product, Shark Tank can act as a component of an effective PR campaign, driving by buyers to your site. For instance, startup Plated captured 45,000 email addresses in 120-seconds after appearing on the show. Unfortunately, the company’s ability to directly sell product was limited, as the deluge of traffic made their commerce funnel inoperable.

Thus, companies with physical goods (like Plated and PolarPro) should consider Shark Tank as an option - not to secure money from one of the celebrity panelists, but to jumpstart their sales and gain enough momentum to attract a bona fide investor.

Not So Free Publicity - Although public exposure might be a legitimate motivation for appearing on the show, the resulting notoriety can come at a cost. Publicity cuts both ways. If your product is poorly received by the judges, it could be a major setback, making it more difficult to raise legitimate funding in the future.

Nothing Is Real And Nothing To Get Hung About

If you watch Shark Tank as entertainment and not to obtain a startup education, you will be benignly inspired by fellow entrepreneurs. However, if you attempt to apply this television fantasy as a template for your fundraising efforts, you will learn first-hand what the Producer of the reality show I worked on once told me.

In the scene we were shooting, I was walking from a lake holding fish that I had supposedly caught (in reality, it had been purchased at Whole Foods). The script required me to tell our cook that he needed to incorporate the fish into his meticulously planned meal. The intent was to cause dramatic conflict, as the chef had to completely re-think the meal.

Reality TV, including Shark Tank, involves a heavy dose of contrived controversy. While handing me the store-bought fish, the Producer laughed and said, “There is very little that is real about reality TV.” One might paraphrase this to say that, compared to raising money in the tech world, “There is very little that is real about Shark Tank.” Thus, watching the show with a Mentor who has already gone down the investment road will allow you to enjoy the entertainment and drama, without buying into the bullshit.

Follow my startup-oriented Twitter feed here: @johngreathouse. I'll never tweet about swimming with sharks or that killer burrito I am about to devour - just startup stuff. You can also check out my hands-on startup advice blog HERE.

Image: PHILIPPE LOPEZ/AFP/Getty Images

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VC Confessions: I Don’t Really Care About Your Product Demo http://johngreathouse.com/vc-confessions-i-dont-really-care-about-your-product-demo/ http://johngreathouse.com/vc-confessions-i-dont-really-care-about-your-product-demo/#comments Thu, 07 Jul 2016 12:00:44 +0000 http://johngreathouse.com/?p=5945 A version of this article previously appeared in Forbes. It happens during nearly every fundraising pitch meeting. The entrepreneur cannot wait to show me their […]

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A version of this article previously appeared in Forbes.

It happens during nearly every fundraising pitch meeting. The entrepreneur cannot wait to show me their product via a demo. As politely as I can, I dissuade them and explain that there are other ways I prefer to spend our precious time together.

Most entrepreneurs seem confused by my reaction and often say something like: “VCs love demos. You’re the first one I’ve met who didn’t want to see our product.” I then explain that I evaluate the veracity of a product by seeking guidance from current, past and prospective users, rather than relying on a product demonstration.

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Note: I invest almost exclusively in b-to-b software companies. My “no demo” approach is clearly not appropriate when assessing the veracity of investments with a hardware component or with a consumer facing product.

Don’t Demo Me Bro

Assessing an entrepreneur’s influence and persuasion skills is important, but I can do this by observing their fundraising pitch rather than listening to a well-rehearsed product overview.

There are six reasons I’d rather not spend my limited time with a company’s Founder(s) sitting passively through a demonstration.

1.  Monologue – Although it is possible to interrupt a Founder’s speal with questions, demos tend to be one-way discussions. When investors do interject, demos typically become even more pedantic, as Founders feel compelled to speak expansively about specific features in an attempt address the investor’s concerns.

2. Comfort – Demos allow Founders to slip into a formulated script, which is seldom revealing. My goal isn’t necessarily to make a Founder uncomfortable during a pitch meeting, but the experience is typically more rewarding and informative for all parties when we have a give-and-take conversation.

3. Fool A Fool – I sold surgical robots from PowerPoint slides in the early 1990’s, before the robots existed. We weren’t trying to fool anyone (we disclosed that we needed prepaid orders to build the robots), but we certainly were selling a vision. I also pitched an expert marketplace to some of the world’s largest ISPs as a support tool, nine-months before the product was optimized for that purpose.

As such, I understand the degree to which hand waving and vaporware can influence investors and potential customers. Demos inherently encourage such hand waving, blurring the line between which features are available today and which are still on the product roadmap.

4. GUI Fever – Entrepreneurs are often justifiably proud of their clever, clean user interfaces. However, I am indifferent. 

An interface that is engaging can fool customers into trying a sub-par product. In contrast, an ugly interface may not show well in a demo and could turn off a potential investor. However, if a product with a mediocre GUI is consistently adopted by customers, it may signal a lucrative investment opportunity.

5. Sales Mode – Demos intrinsically cause Founders to launch into sales mode. Rather than be sold, I’d much prefer to understand a product’s value proposition and the extent to which it has achieved fit among the company’s target market customers. Such understanding is more difficult to achieve when you are forced to parse through a scripted monologue.

6. Regular Salesperson – Founders can obviate product weaknesses via their force of will and passion. Thus, in the occasional instances when I do sit through demos, I prefer they be conducted by a rank-and-file salesperson. This approach provides me with a view that is more representative of how a typical customer is introduced to the company’s value proposition.

Customers Are All That Matter

At Rincon Venture Partners, our approach to diligence isn't the old-school methodology of forcing entrepreneurs to deal with an expensive expert who spends weeks performing a largely academic exercise of assessing the company's tech stack and code, all the while asking irrelevant questions intended to assure the investors that she is truly an expert and that they are getting their money's worth.

In contrast, we value entrepreneurs' time and thus our diligence generally includes introducing them to potential customers and partners. Our approach, which is certainly not unique, often results in sales, partnerships and otherwise productive relationships. In turn, we receive unfiltered, frank feedback regarding the company’s product, team and value prop.

Entrepreneurs often suggest customer references that arose from a highly curated introduction or prior relationship. These conversations are helpful, but we attribute more value to discussions with customers who came upon the company’s product on their own. Because of this reality, we also seek references from customers that have an arms-length, dispassionate relationship with the company. Such customers tend to provide more frank and objective feedback that is infinitely more helpful than the slickest product demo.

You can follow John on Twitter: @johngreathouse.

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10 Essential Branding Maxims http://johngreathouse.com/10-essential-branding-maxims/ http://johngreathouse.com/10-essential-branding-maxims/#comments Thu, 30 Jun 2016 12:00:09 +0000 http://johngreathouse.com/?p=5941 A version of this article previously appeared in Forbes. In 1987, when Rick Astley filmed the video for his hit song Never Gonna Give You […]

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A version of this article previously appeared in Forbes.

In 1987, when Rick Astley filmed the video for his hit song Never Gonna Give You Up, he had no idea it would eventually become one of the most viewed videos of all time.

By 2016, the video had been watched over 218 million times. Never Gonna Give You Up’s resurgence began in 2007, when a user on an obscure gaming site posted a link to Rick’s video under the heading for a trailer of the not-yet-released Grand Theft Auto IV video game. One year later, the phenomenon had become commonplace and was dubbed “Rickrolling,” a term that is now ubiquitous with any Internet misdirection technique.

Many companies unknowingly Rickroll their would-be customers by improperly aligning their products’ capabilities with their marketing messages.

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Maxim #1 – It’s About the Promise, Stupid

According to marketing guru Guy Gabriele, brands live in the minds of customers and prospects. Guy believes that your brand is not what you say it is or what you hope it will be. Rather, your brand is a promise which is interpreted by those to whom you message. When your product or service is unable to deliver on this promise, you are effectively Rickrolling everyone who responds to your misaligned messaging.

At Computer Motion (NASDAQ: RBOT, acquired by Intuitive Surgical), our initial brand’s promise was, “Robotics will reduce costs within the operating room.” Although we did not intentionally mislead anyone, the customers and prospects that believed us were Rickrolled.

We assumed that robots would perform tasks that would reduce the required number of surgical staff persons. The reality was that robots added costs to surgical procedures because the size of the surgical team remained unchanged. Once our target market acted upon our call to action and experienced our products, they revised our brand’s promise as follows: “Robotics are cool, hard to use and add costs to surgical procedures.”

It took us a couple of years to realize that our brand’s intended promise was not in sync with reality. We eventually modified our promise to: “Robotics will enable new minimally invasive procedures.” Fortunately, we delivered on this revised promise and ultimately helped create a multibillion dollar industry in which costs increased, but patient outcomes were greatly improved.

We were slow to revise our brand’s promise because we wanted robotics to reduce operating room costs, as we felt that such cost reductions were a requisite for our success. Avoid Rickrolling your customers and prospects by ignoring what you want your brand’s promise to be and understanding the actual promise that resides in the minds of your intended users.

The remaining Brand Maxims are taken from Guy Gabriele’s “Little Red Book” series, which he devised in his role as a Marketing Lecturer within UC Santa Barbara’s Technology Management Program.

Maxim #2 – What You Say It Means Doesn’t Mean Anything

What you believe your brand represents means nothing in reality. What the brand means to your customer means everything. Whatever they say it means, that’s what your brand means. Find out what they think. Remember: it’s all in their heads. – Guy Gabriele

Maxim #3 – Gap, Gap, Everywhere A Gap

There is always a gap between what you intend your brand to be and what the consumer believes it is. Find that gap and take steps to close it. – Guy Gabriele

Maxim #4 – Frankly, They Don’t Give A Damn!

Consumers don’t want to hear about your company Mission and Vision. Those things are about you. They care about their experience with your product and your company. Their experiences create the brand. – Guy Gabriele

Maxim #5 – Consistency Is Not Simply Replication

Remaining consistent to a brand’s visual and verbal guidelines helps breed familiarity, but familiarity can breed contempt. Simple repetition and thoughtless replication fail to take into account the place where the brand lives: in your customers’ minds. To live a full and productive life a brand must be allowed to grow, evolve and reshape itself. Consistent relevancy is your goal. That’s why brands are managed. – Guy Gabriele

Maxim #6 – Sometimes The Baby Does Have To Be Thrown Out

Before you re-brand, re-think. A brand refresh is often considered to be the least painful way to fix a failing brand. Do a relevancy check. Are the basic underpinnings of the brand still meaningful? If so, then a refresh may be in order. If not, you need to have the courage to throw out everything and start over. – Guy Gabriele

Maxim #7 – Viral Marketing Could Make You Sick

A viral initiative should be embarked upon with great caution. The high risk (losing control of your brand expression) may be too great a price for the reward (Millions saw me on YouTube! –Whoo hoo). – Guy Gabriele

The CEO of Morpheus Software created a video that was nominated for a YouTube Video Award. His “Kitty Said What?” video, created using his company’s photo-morphing software, was viewed approximately 4.5 million times. Although it was exciting to be associated with a popular YouTube video, the resulting revenue was modest, approximately one penny for each time the video was viewed.

Maxim #8 – Pennywise Is Unwise

Examine the brand investment. Brands need the proper support and funding. If you haven’t invested in a Brand Audit recently, strongly consider it.

The economy, marketplace and your customers have changed. Your Brand expressions need to be audited on an annual basis. – Guy Gabriele

Maxim #9 – You Are Not Nike Or Apple Or Target

Remarkable marketers each one, but even if you have budgets as large as theirs, don’t do as they do – learn from what they do, and then make it your own. – Guy Gabriele

Maxim #10 – What Is Your Brand Manifesto?

“It’s all in your head.” And in your heart.

That’s where brands live. A brand is not a logo, a package, an identity system, tagline, color palette or marketing campaign. These are merely cues we give our customers to help them know us, understand us, and, yes, like us. Every brand expression is meant to help our customers shape a persona for our company, product or idea. A persona, like a brand, is not a “thing.”

A brand is created in the instantaneous assessment the customer makes upon encountering a cue. They know you in their minds and in their hearts.

“I like this.” “That’s cool.” “They suck.” “I need that.”

We all change our minds and change our feelings. That’s why we stress that branding is a process that results in a brand. And the process has to be actively managed. Win their hearts; the money will follow. – Guy Gabriele

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What Would You Pay To Have Dinner With A Lost Loved One? http://johngreathouse.com/startups-are-tribal-are-you-a-shaman-or-a-hunter-2/ http://johngreathouse.com/startups-are-tribal-are-you-a-shaman-or-a-hunter-2/#comments Thu, 23 Jun 2016 12:00:02 +0000 http://johngreathouse.com/?p=5937 A version of this article previously appeared in Forbes. “How much would you pay to have dinner with a lost loved one?” This was a […]

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A version of this article previously appeared in Forbes.

“How much would you pay to have dinner with a lost loved one?” This was a question that my friend and mentor, Bob Wood and I recently discussed during one of our epic bike rides. We both concluded that we would sacrifice an absurd amount of our wealth to spend a few hours with the dear folks we have lost to old age and illness.

This conversation caused me to ponder the obvious reality that busy people, especially entrepreneurs who are building companies, often optimize their time completing short-term operational tasks and lose sight that tomorrow is promised to no one.

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Going Public And Losing A Father

When I was in my early thirties, I was fully engaged raising my young family and creating Computer Motion (NASDAQ: RBOT, sold to Intuitive Surgical for $150M).

Each Holiday Season, my wife and I made a perfunctory, whirlwind trip home to the East Coast. We raced from house to house, ensuring that we gave each of our parents the same amount of time with their grandchildren, but seldom slowing down long enough to have thoughtful, memorable conversations.

When I was 35, my father was diagnosed with Stage Four cancer and given a couple of months to live. At the time, I was heading up Computer Motion’s efforts to go public, writing the S1, orchestrating the all-hands meetings, etc. I felt an incredible pressure to continue this process, coupled with the guilt of being thousands of miles away from my mom and dad and unable to provide hands-on aid and comfort.

As any decent soul would do, I dropped everything when I heard the news and I headed home. When I walked into my dad’s hospital room he smiled and said, “Wow. I must really be sick.” After a couple of days of hanging around with him in the hospital, I recall him waking and wryly saying, “You sure did fly a long way to watch an old man sleep.” I can only hope that I will be cracking jokes when facing down death.

My father was discharged during my visit. My feelings of hopelessness were beyond words. I took him to a few chemo sessions, but after another week or so, I rationalized that there wasn’t much I could do to help and I returned to California to continued my march toward our all-important IPO. I called my parents often as the weeks rolled on, but it was obvious that the sort of miracle that is commonplace in Hallmark movies wasn’t going to happen.

About six weeks later I received the call that everyone dreads. “John, you better come home if you want to say ‘Goodbye’ to your dad.” I was fortunate to spend the next few days with my father before he painlessly passed away. We had a good relationship, so there was no need for deathbed confessionals or dredging up long suppressed feelings of guilt or resentment.

Later that year, Computer Motion went public, yet I felt a deep emptiness that I had not anticipated. On paper, I was a wealthy young man, but I felt anything but “rich.” I didn’t realize it at the time, but I never gave myself a chance to grieve, because I was felt that my demanding job didn’t allow for such luxuries.

My feelings of loss after our IPO were accentuated by the fact that my father was a successful amateur stock trader, long before eTrade made day-trading a common and convenient occurrence. Nothing would have pleased him more than to have seen his son take a company public. At the time, I didn’t realize that our IPO was the first of many personal and professional accomplishments that I would quietly wish I could share with my dad over the following decades.

If I had a do-over, I would take the time to visit my parents outside of the Holidays, without my lovely family in tow. Going alone would have allowed me to enjoy intimate, non-hectic time with my parents. Absent the chaotic, fun madness that accompanies every family traveling with young children, my parents and I could have nurtured and explored our relationship.

Bad News: It’s Unlikely You’ll Live 10,000 Years

“Do not act as if you were going to live ten thousand years. Death hangs over you. While you live, while it is in your power, be good.”
― Marcus Aurelius, Roman Emperor and amateur Philosopher

My message is not new. I don’t claim to have uncovered an amazing insight overlooked by others. Rather, my intent is to remind young entrepreneurs that someday they will be in their fifties (as I am) and many of the important people in their lives will be gone.

Heed what matters most now, not “someday.” Is it more important to close one more deal or spend the weekend with your aging mom, dad, grandparent, aunt or uncle? Practicing what I preach, my adult daughter and I recently spent a delightful week with my mother. It was a priceless opportunity for the three of us to spend intense, high-quality time reminiscing and sharing family lore.

I can tell you firsthand that it matters little how much money you would spend to recapture an embrace with a lost loved one. Such priceless moments are gone forever, unattainable by even the wealthiest souls on the planet.

Time for you to book a flight home and give someone you love the precious (and deliciously unexpected) gift of your presence. You will never, ever regret it. 

You can follow John on Twitter: @johngreathouse.

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Entrepreneurs Should Create A Degree – Not Buy One Off The Rack http://johngreathouse.com/entrepreneurs-should-create-a-degree-not-buy-one-off-the-rack/ http://johngreathouse.com/entrepreneurs-should-create-a-degree-not-buy-one-off-the-rack/#comments Thu, 16 Jun 2016 12:00:11 +0000 http://johngreathouse.com/?p=5933 A version of this article previously appeared on Forbes. Entrepreneurs create their own jobs, why shouldn’t they also create their own degrees? As described in […]

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A version of this article previously appeared on Forbes.

Entrepreneurs create their own jobs, why shouldn’t they also create their own degrees?

As described in Should Millennial Entrepreneurs Skip College?, most young entrepreneurs benefit greatly from the college experience. However, off-the-shelf majors are typically not suited to the eclectic skills required to succeed in the startup world.

In my role as a Professor of Practice within UC Santa Barbara’s entrepreneurial Technology Management Program (TMP), I have worked with my students, led by Randall Dubois, to craft an Individual Major that accommodates the needs of millennial entrepreneurs. I remind my entrepreneurial students that the TMP was begun by students, who petitioned the Dean to add entrepreneurial subject matter to their engineering coursework.

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Custom Wharton Degree

When I arrived at Wharton many moons ago, I was told that all first-year students take the same set of Core classes. Like a sheepeople, I dutifully signed up for the required classes. Within a week, I was bored out of my mind. The material was essentially a rehash of my four years of undergrad business training. Econ is econ, finance is finance and, quite unfortunately, accounting is accounting.

When my second semester rolled around, I was done with curriculum deja vu. Yet I was told by everyone, Professors, Advisors and students alike, that there was “no way” I could get out of taking my remaining Core classes. I took this as a challenge and approached the Dean with several well-rehearsed arguments, determined to overcome his objections.

To my surprise, when I told the Dean that I was learning nothing from the Core courses, he simply asked me what I wanted to take. I handed him my class enrollment form, which he quickly scanned, murmured something unintelligible and signed. As I turned away, somewhat shocked with the ease with which I had customized my curriculum, he stopped me and asked, “I can understand why you want to take Squash, but can I ask why you are enrolling in Farsi?”

By avoiding an entire semester of Core classes (one fourth of my entire Wharton education), I was able to take every single entrepreneurial course offered by the University, while simultaneously earning a Minor Degree in drinking beer and playing poker. Today’s millennials should similarly avoid one-size-fits all degrees and take proactive control of their curriculums.

Proposed Startup Curriculum

When Randall approached the University to create an Individual Major, he was told that only two students had created their own degree in the past 15-years. Two students out of approximately 75,000 graduates. Clearly the University prefers that students buy their degrees off the shelf, rather than customizing one to fit their individual needs.

When trying to cobble together a startup degree, consider the following categories of classes. It is unlikely each of them will be offered at your school, but this list serves as a general guideline for the types of classes you should seek.

I have included UCSB’s catalog course numbers in the event a student is interested in learning more about a particular class. Note that I have not included the TMP courses, which are analogous to the classes offered by most business programs (e.g., marketing, finance, sales, etc.). This list is intended to cover non-obvious courses relevant to entrepreneurs.

Communication

Pursue courses that encompass group dynamics, presentation skills, leadership and seeking understanding and compromise in contentious situations.

Comm 106      Small Group Communication

Comm 120      Interviewing Theory and Practice

Comm 138      Advertising Literacy

Comm 166      Marketing Communication

Economics / Negotiations / Accounting

Seek practical classes and avoid theoretical economic theory courses. Become fluent in the language of business by taking enough accounting classes such that you can interpret financial statements and create pro forma projections. In addition, a solid understanding of business law and the ability to effectively negotiate on behalf of your startup are fundamental startup skills.

Econ 3A          Financial Accounting

Econ 3B          Financial Accounting

Econ 118         Financial Accounting Analysis and Planning

Econ 171         Introduction to Game Theory

Econ 174         Negotiations

Econ 189         Business Law and Ethics in Accounting

Statistics

Gain enough of an understanding of statistics that you can quantify risks and the probabilities of potential outcomes.

Pstat 173         Risk Theory

Computer Science

Contrary to conventional wisdom, success as a millennial entrepreneur does not require that you become proficient in writing commercial-quality software code. However, understanding the various languages, challenges and approaches to coding will help you communicate with and manage your startup’s technical team.

Cmpsc 8          Introduction to Computer Science

Cmptgcs 1A    Computer Programming and Organization I

Cmptcgs 1B    Computer Programming and Organization II

Psychology / Sociology

Focus on psychology classes that explore influence and persuasion, how the mind works and how people form opinions and learn. Sociology courses that discuss historical and future macro trends, as well as societal and organizational dynamics, are also worthy of exploration.

Psy 128           Human Thinking and Problem Solving

Psy 141           Evaluation, Attitudes, and Persuasion

Psy 148           The Psychology of Self

Psy 156           Multimedia Learning

Psy 140           Social Influence

Soc 134F         The Future of Globalization: Global Change, Futurology & Social Sciences

Soc 167           The Structure and Dynamics of Organizations

Philosophy

Pursue classes that contemplate how logic, rationality, critical thinking and ethics impact decision making. Also consider courses that delve into organizational ethics.

Phil 3   Critical Thinking

Phil 4   Introduction to Ethics

Writing / English / Public Speaking

Effective communication skills, both written and verbal, are essentially to entrepreneurial success. If your school does not offer courses in public speaking, join a local chapter of Toastmasters and volunteer to give presentations when working on group projects.

Writ 105PS     Writing for Public Speaking

Writ 107B       Business and Administrative Writing

Writ 107P       Writing for Public Relations

Writ 157A/B   Seminar in Business Communication

The above courses should be considered a general guide. In many cases, it might make sense to simply audit them, rather than enrolling for a grade. This will allow you to focus on the aspects of the course that are relevant to your interests, without forcing you to study gratuitous facts. Ultimately, don’t be a sheepeople. Perform an honest self-assessment and craft a curriculum that will best serve your unique proclivities and capabilities.

Follow my startup-oriented Twitter feed here: @johngreathouse. I'll never tweet about politics or that killer burrito I am about to devour - just startup stuff.

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Startups Are Tribal – Are You A Shaman Or A Hunter? http://johngreathouse.com/startups-are-tribal-are-you-a-shaman-or-a-hunter/ http://johngreathouse.com/startups-are-tribal-are-you-a-shaman-or-a-hunter/#comments Thu, 09 Jun 2016 12:00:45 +0000 http://johngreathouse.com/?p=5927 A version of this article previously appeared on Forbes. Startups, much like ancient tribes, are comprised of a small number of people who band together […]

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A version of this article previously appeared on Forbes.

Startups, much like ancient tribes, are comprised of a small number of people who band together to battle a cruel, hostile world. Like the tribe, a nascent venture’s survival is precarious and never guaranteed. Success requires everyone applying their specialized skills in concert toward the group’s common good.

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Tribes were effective societal structures, lasting over 2.5 million years. Tribes and startups thrive when labor is efficiently divided. Long before Meyers met Briggs, people in tribal communities migrated to those roles which best suited their personalities, proclivities and skills. The key roles in tribes and startups are: Hunter, Skinner, Shaman, Chief and Tribal Elder.

Understanding a successful tribe’s simple organizational structure provides insights into the personality types that should be present on your team during your startup’s formative years. To this end, in partnership with Intuit, I created a series of startup videos that have generated over 100,000 views, including one in which I discuss the tribal aspects of startups.

Hunter

  • Work hard
  • Driven to do right thing
  • Fast and furious
  • Under communicate - do not like to confer with or answer to the group
  • Excel under pressure
  • Emphasis on achieving goals - second guess their tactics at your peril
  • Deliver quantity over quality - close enough is okay
  • Work well outside the box

The Hunter provides for the tribe and literally brings home the bacon. These individuals are highly autonomous, independent and thrive on frequent recognition. When they have a successful hunt, they want everyone to know about it.

The Hunter is generally not a visionary. However, once they are pointed in the right direction, they are clever enough to improvise a tactical plan to achieve a strategic objective. They do not want to be told how to take the hill, just which hill needs to be taken.

At your venture, the hunter is the rainmaker, in the form of a Business Development Executive, VP of Sales or Corporate Development Officer. Once they are told the type of deal that is needed, they are capable of autonomously devising the appropriate tactics to get the deal done.

Skinner

  • Work correctly
  • Driven to do things the right way
  • Slow and careful
  • Service oriented - want to meet stakeholders’ needs within the organization
  • Over communicate - encourage meetings and agreement regarding goals
  • Quality over quantity - do things “by the book”
  • Work inside the box - excel within predefined guidelines 

The Skinner makes the Hunter look good. When the Hunter brings back the kill, it is the Skinner who dresses the meat, tans the hides and preserves whatever is not initially eaten for the tribe to subsist upon during lean times.

The Skinner at your venture will likely take the form of the VP of Operations, VP of Professional Services or Chief Operating Officer. They ensure that your company delivers on the Hunters’ promises by exceeding your partners’ and customers’ expectations.

Shaman

  • Work differently
  • Creative visionary
  • Communicate differently - requires careful listening
  • Seek a better way
  • Create quickly and freely
  • Tripped up by details
  • Prone to devise complicated solutions
  • Prize a solution’s technical elegance over its functionality
  • Are unaware that a box exists

Shamans invent new tools and processes that improve the overall quality of life within the tribe. For instance, the Shaman will spend his days thinking of a better fishhook, a new tool for cleaning skins or searching for new medicinal plants to cure the tribe’s ailments.

At your venture, the Shaman is often the Founder. They may also take the form of Chief Technical Officer, VP of Engineering or VP of Product. By whatever name, the Shaman is the person who devises and develops the innovations upon which your business is based.

Chief

  • Work together
  • Shepherd the team toward its strategic goals
  • Slow and connected
  • Communicates clearly and supportively
  • Driven to maintain cohesion within the team
  • Indecisive
  • Prone to being railroaded
  • Defines the box

Every tribe needs a Chief, just like every venture needs a CEO. The Chief defines and communicates the tribe’s strategic direction, such as a new valley to forage or a mountain retreat to escape the heat of summer. The Chief listens to the opinions of the other tribal members, makes decisions that impact everyone and ensures an adequate level of acceptance of such decisions to facilitate their ultimate success.

One of the best (and most infuriating) CEO’s I worked with exhibited nearly all of the above characteristics. As a Hunter, I was frequently frustrated, as he was often slow to act. In his effort to keep harmony within the team, he seemingly agreed with everyone, even people who held diametrically opposed opinions.

In retrospect, I now realize that his ability to sincerely empathize with everyone’s respective positions, especially on difficult issues, was imperative in keeping our key executives effectively working in harmony during the tumultuous challenges we frequently encountered on our road to a successful exit.

One of his favorite sayings frustrated me at the time, but I now appreciate its underlying wisdom, “Some of the best decisions I ever made were the decisions I never made.” Despite my Hunter-driven frustration at his hesitancy, more often than not, his resistance to making a snap decision proved to be prudent.

Tribal Elder

  • Hardly works
  • Thoughtful, caring
  • Experienced but not smug
  • Egoless
  • Provocateur - challenges, cajoles, encourages
  • Looks into the box, provides high-level perspective

Tribal Elders spend their time sitting by the fire dozing and recounting the tribe’s history. They cannot be counted on to do any heavy lifting nor are they in a position to execute the day-to-day tasks necessary for the tribe to thrive. However, they occasionally offer bits of sage advice that allow the tribe to avoid hardships and reap windfalls.

At your venture, the Tribal Elders are represented by your Board of Directors and Advisors. Ideally, they have varied and broad business histories upon which to draw. They may be able to provide general guidance at certain pivotal points during your venture’s journey. However, never heed their advice blindly, as it is impossible for them to have your level of insight into the operational details of your venture.

Which Roll Is The Most Important?

All of them and none of them.

Without the Hunter, the Shaman’s ideas would never be put into practice. Likewise, without the Skinner, much of the Hunter’s efforts would be wasted. He might be able to feed himself, but he would not be able to sustain the tribe on his own.

Without the Shaman, neither the Hunter nor the Skinner would have the tools necessary to carry out their respective roles within the tribe. Without the Chief, the tribe would wander aimlessly, fighting among itself until the group eventually dispersed and the individual members were melded with other tribes with healthier cultures and a more focused sense of direction.

Balance is the key to a successful team. Thus, every member of your venture’s core team is the most important member. Respect mankind’s evolution and heed the tribal lessons of old. If you do, you may just end up on top of your industry’s food chain.

You can follow John’s startup-oriented Twitter feed here: @johngreathouse.

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Four Questions Entrepreneurs Should Answer Before Dropping Out Of College http://johngreathouse.com/four-questions-entrepreneurs-should-answer-before-dropping-out-of-college/ http://johngreathouse.com/four-questions-entrepreneurs-should-answer-before-dropping-out-of-college/#comments Thu, 02 Jun 2016 20:15:22 +0000 http://johngreathouse.com/?p=5921 A version of this article previously appeared on Forbes. Are you an entrepreneur that is thinking about dropping out of college? Answer the following four […]

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Are you an entrepreneur that is thinking about dropping out of college? Answer the following four questions first.

The startup careers of Zuckerberg, Ellison, Disney, Gates, Jobs, Branson and Dell make it seem that the path to entrepreneurial success is enhanced by avoiding a college degree. I even played into this mythology with a provocative article I wrote about college dropout successes.

However, as made clear in Should Millennial Entrepreneurs Skip College?, most students benefit greatly from the college experience and are far better off maturing from the age of 18 to 22 in a nurturing environment, rather than attempting to start a business without a college degree.

Yet, for a small number of collegians, leaving school to focus on their ventures full time is the appropriate path. What differentiates this small minority of entrepreneurs who are better off dropping out of school (or never enrolling) and running their startups full time?

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In my role as a Professor of Practice within UC Santa Barbara’s entrepreneurial Technology Management Program, I council several students every quarter who contemplate quitting school to focus exclusively on their ventures.

I advise almost all of these students to remain in school. However, I consistently encounter a handful of young entrepreneurs who are better served by taking a break from school. The trick is to know if you are destined to be LeBron James or Jonathan Bender. Both skipped college to play professional basketball. LeBron was the exception to the rule, immediately dominating the league and enjoying an All Star career. In contrast, Mr. Bender joined the all-too-long list of 18-year old high school graduates who failed to thrive when pitted against professional athletes.

To help my students determine if they are James or Bender, I ask them four questions. If they answer “Yes” to each, I advise them to take a temporary leave of absence from school and pursue their ventures.

Are You LeBron?

  1. Funded – Have you raised adequate money from sophisticated investors that will allow you to operate without additional funding for at least a year?
  1. Team – Have you assembled the foundation of a legitimate team? This could just be a solid Co-Founder or an initial key hire or two. Teams have shelf lives. In most cases, great potential teammates won’t wait around while you earn your degree.
  1. Product / Market Fit – Have you proven that your product’s value proposition and price point resonates with your target market. (i.e., dogs love the dog food)?
  1. Execution – Have you established meaningful sales traction which validates your team’s ability to survive and ultimately be victorious?

In the rare instances when a student drops out of school to pursue their ventures, I strongly encourage them to continue their studies part time. If they weren’t willing or able to do so, I council them to define a milestone-based timeline. If key milestones are not met on the anticipated dates, they should have the discipline to abandon their venture and complete their education.

A High School Graduate Who Hedged His Bets

Although he opted to skip college, LeBron James signed major endorsement deals upon entering the NBA. Even if he had not lived up to the hype that preceded his NBA debut, the money from his endorsements would have sustained him for a lifetime. Financially secure, he could have subsequently attended college and pursued a variety of non-athletic careers.

The “Are You LeBron?” questions encourage students to only drop out of school if the downside of failure is mitigated by four important precursors to success.

b/t/w – Do you think you are LeBron? If so, I’d love to hear from you.

Follow my startup-oriented Twitter feed here: @johngreathouse. I'll never tweet about underwater ballet or that killer burrito I am about to devour - just startup stuff.

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