Dave Concannon

Nassim Nicholas Taleb’s (@nntaleb) 2007 bestseller details how popular statistical and economic theories expose us to large amounts of risk while never even acknowledging that they exist. Taleb argues that a combination of evolutionary human nature, academic theory that should not be applied in ‘the real world’, and post-event storytelling deludes us into believing that we have predictive ability over ‘black swan’ events.

Mediocristan

The author asserts that certain qualities of the world we live in exist in a domain that can be mostly measured by the standard bell curve of Gaussian statistics, a domain he calls Mediocristan. A quality such as the height or weight of people exists in Mediocristan, and is represented well on the bell-curve (You’re not likely to see someone 15ft tall, or 2 inches tall for example). In Mediocristan, you can observe things for a while and then make generalizations about how the system works, and the more data you receive the more accurate your predictions will become.

Extremistan

Extremistan is another matter entirely. In Extremistan, things are dominated by one or two very large outliers – take the example of the number of books sold by an author; One JK Rowling or Dan Brown completely overshadows the sales of just about every other author producing literature. Bill Gates’ fortune can barely be compared to the earnings of most entrepreneurs. Where problems arise is that conventional experts attempt to apply Mediocristan’s models to an area where it is not only completely unsuitable, but actively dangerous as it leads to a false sense of security. In Mediocristan, the systems are so complex, intertwined, and dependent on pure chance that predictions are impossible.

The Nature of Humans

While I can’t even touch on all of the great ideas in this book, the sociological implications of his theories are very interesting. While it might be obvious to some that we lie to ourselves in some way or another throughout our lives, the author categorizes the mechanisms we use in interesting ways:

• Narrative Fallacy – Explaining an extreme event after it’s happened in a way that makes it appear obvious. “Of course the Irish housing bubble was going to crash, here are all the reasons…“. This rationalization after the fact hides the obvious truth that at the time, nobody believed that anything extreme was happening.
• Luddic Fallacy – Academic theories of economics, game theory, and general psychology are often based on the premise of the “rational actor” or “market forces” – that somehow people or systems will come to a balanced path based on perfect information. The author argues that these theoretical models are entirely useless in the uncertainty of the real world.
• Confirmation Bias – It is human nature to try to find evidence that confirms our stories, to take past instances that corroborate our theories and treat them as evidence. The problem is, it’s pretty easy to find evidence that will confirm just about any theory. The author suggests that ‘negative empiricism’ – looking for conflicting evidence that disproves a theory is more useful. I found this particularly useful in the context of Customer Development and Lean Startups – Don’t just go out looking to prove your assumptions, look for the instances where your assumption fails and rethink it.

I’m sure I’ve been guilty of these logical traps in the past, and it’s interesting to try and catch yourself in the act.

Benefiting from Black Swans

Taleb gives an insight into his investment style which he believes will give positive exposure to Black Swans – Keeping a high percentage of ones wealth in safe investments such as Treasury Bonds, and a small (10 – 15%) percentage in risky investments such as venture capital and equity investments in startups. A portion of startups will fail, a portion will break even, but there may be that one eBay or Google in the mix that results in a huge multiplicative return on your money. A very interesting theory and one I’m already practicing. I love when someone far smarter than I tells me I’m doing something right almost as often as when they tell me I’m wrong.

Writing Style

Taleb’s argument style is highly confrontational – he has no problems calling Nobel prize winners or captains of industry morons. This makes for a really enjoyable read! He believes what he’s writing is true, and holds little respect for people clinging unwaveringly to their sacred cows. His assertion that in certain fields (economics, politics, psychology) there are no experts, only opinions rang very true for me.  His ideas resonate with my own beliefs that for all the learning and theory and rationalization, a lot of the time success is going to come via keeping yourself open to the chance encounters of pure dumb luck. This was probably one of my favorite books I’ve read this year, and I think I’m going to give it another read in a few months.

After seeing Randy’s excellent conversation with Eric Ries (@ericries) at the Startup Lessons Learned Conference, I felt compelled to pick up Randy Komisar and John Mullins’ “Getting to Plan B“. Randy delivered a very succinct and informal series of advice based around why the initial assumptions about a business model will oftentimes not be the path that leads a company to success. Fitting in very nicely with the Lean Startup philosophy he went on to describe his methods to enable a company to test and measure these assumptions and pivot to a new model if necessary. ‘Getting to Plan B‘ is the basis for his chat with Eric, and the expanded thesis on these ideas.

Analogs, Antilogs, and Leaps of Faith

The authors set the stage by describing a few companies that found success after discarding their initial model (yes, the ubiquitous PayPal example is used…). The authors describe taking inspiration from analog companies or models that you want to learn from, avoiding antilog companies that you want to avoid mimicking, and clearly stating the leaps of faith that you need in your business model – e.g. Sony’s leap of faith for the Walkman was that people wouldn’t think that walking around a crowded street with headphones in was antisocial.

Dashboarding

The guideline for success they define is the dashboard – A series of measurements that test the leaps of faith the model is based on. Whether it’s the amount of revenue coming in, the number of users signing up for your software, or some other metric specific to your business it’s imperative to understand when success is happening – or more importantly, when it’s not happening. Poor dashboard results may indicate a need for the plan B.

Business Models Examined

The next few chapters in the book have a lot in common with Ram Charan’s ‘What the CEO wants you to know‘. The authors define the essential building blocks of a business model, and offer case studies of how companies have used these elements to drive success. Specifically:

• Revenue Model - Who is going to buy from you and what will they buy? What pain points are you resolving for the customer or what delights are you providing? How frequently will they buy from you? What price are they prepared to pay and how much effort will it take to win them?
• Gross Margin Model - At it’s simplest, how much more will the customer pay you than what the service or goods cost to provide?
• Operating Model - What costs will you incur, and how can you tweak the cost base and margin to give you a competitive advantage?
• Working Capital Model - How can you tweak your revenue and cost base to insure that you always have enough cash on hand to invest in company growth? Can you get better terms from suppliers, or get customers to pay up front?
• Investment Model - How much money do you need to start? Can you grow organically by bootstrapping or do you need a large capital investment up front? If you need to switch to a plan B (or C,D,E) will there be enough money to fund the change in direction?

Summary

Some of the theory in ‘Getting to Plan B‘ can be a little dry, but the case studies really brings it to life. It’s unfortunate that Randy’s session from the Startup Lessons Learned conference is not available in video (as far as I can find) as it offered a great run through of the concepts. Overall, I’d recommended it as a good fundamental breakdown of business models elements,  tips on tweaking, and excellent case studies. This book and Alexander Osterwalder’s ‘Business Model Generation‘ complement each other well.

The Four Steps to the Epiphany was a real eye opener for me. I’d worked in a succession of companies that had worked hard to produce vast amounts of code before realizing that there was no market for what they’d made. If there had been more validation on what their users actually wanted and more thought put into what market they were really aiming for they would have saved a hell of a lot of time, money, and heartbreak. At the core of the Four Steps was the message that “Engineers build the product right, but what you need to do is build the right product”.

So then what? Steve Blank’s Four steps explained the landscape of what needs to be done, but questions remain – where do I start and what do I do first?

A ‘Cheat-Sheet’ for Customer Development

I first heard of Brant Cooper (@brantcooper) and Patrick Vlaskovits’ (@vlaskovits) project on the Lean Startup Circle google group where they were looking for volunteers to “custdev” their Customer development book.  They gave me a few sample chapters that they were working on to get a feel for the direction they were headed in, and I was honestly blown away. Where the Four Steps builds up the general concepts of customer development, this book is the step-by-step instruction manual.

What’s in it?

The ebook gives you a brief recap on Customer Development – What it is and why you should care. Then it takes you through a practical series of steps to try to refine exactly what your market and business model will be, and how to get the ball rolling. There are:

• Exercises to help you decide what part of a market you should aim for
• Practical suggestions on where to find the sort of prospective customers that might buy your product
• Email and phone call scripts so you can get in touch with them
• Guides to setting your hypotheses, and concrete ways to test that you’re heading in the right direction to validate them

There’s a huge amount of very practical, actionable information in this book, it’s essential reading for anyone starting a business.  This book will prevent you from wasting time and money on things that nobody wants to buy.

Behind the Cloud is the tale of how Marc Benioff’s Salesforce introduced the Software-as-a-service model after the dot com crash. Part story and part playbook, he recounts the basic ideas and strategies that enabled him to create and legitimize and entirely new market for software applications.

Starting from his initial ideas behind a multi-tenant Software-as-a-Service Customer Relationship Management software, he talks through how he vetted the idea with friends, got customer feedback, and began promoting the company.

Chapters

The book is divided into specific sections, with specific sub-topics of interest in each.

1. Startup: Taking an idea from initial inspiration through to take-off
2. Marketing: Creating a clear voice and personality for the company and positioning against competitors
3. Events: Benioff used a series of spectacular events and renegade tactics to hijack his competitor’s events
4. Sales: A breakdown of various sales channels and tactics, and how to keep existing customers buying more product.
5. Technology: How to create things that your customers really love
6. Corporate Philanthropy: Maybe not for everyone, but Salesforce has a charitable mission at it’s core where it donates a percentage of profits and employee time to philanthropic organizations.
7. Global Markets: How to scale a great business idea beyond your locality
8. Finance: Raising capital and making sure everyone gets a return without compromising integrity
9. Leadership: A management playbook for a successful company – How to create processes to manage and monitor a scaled, post product/market fit company.

Overall it was enjoyable, it reads like Salesforce happened to be in the right place at the right time with the right people, but it’s interesting to see a company that started from an idea, found their product-market fit, and then scaled successfully without losing the founder at the helm.

Inside the Tornado is a follow up to Geoffrey Moore’s best seller “Crossing the Chasm“. Where Crossing the Chasm described the general layout of market adoption and looked at a few case studies of companies that had successfully gained mainstream acceptance, Inside the Tornado lays out a very specific set of concepts to help a company get there and further describes what generally happens once a market becomes validated.  The advice seems mainly focused at Enterprise level software, but it’s also at least partly applicable to the consumer web.

Innovative Markets

The problem with breakthrough technological innovations that create a new market is that the market doesn’t really exist if you’re the only one in there. Without competitors you’re just a weird little company doing something a little crazy. Then you have the problem of what happens when competitors enter the space and validate that the market actually exists – The market begins to enter a hypergrowth stage and the focus of your business becomes a land grab for market share.

Bowling Alley

Moore describes the initial strategy for creating a market such as this as the “bowling alley”. A company needs to focus on attracting and dominating several specific niches in order to get their technology adopted as the market standard. Once enough of these ‘bowling pins’ are collected, the goal is to fuse these niches together so that suddenly your disjointed little product is a ‘whole product’ solution that can satisfy really big clients.

The Tornado

Once the market has been validated and success stories start to trickle out of the early adopters, you garner the attention of the pragmatist buyer. The thing about pragmatists is that they only want a new solution if everyone else is going to buy it, which leads to a sort of stampede of pragmatist buyers trying to get their hands on this great new technology. This is where the land grab kicks in and companies can spend a significant amount of money trying to get the lion’s share of the market. Once this land grab finishes, the market will stabilize leaving:

• The Gorilla – Market leader. They get to set the bar and the market ‘reference price’.
• The Chimps – Companies that at one point could have been the Gorilla, but lost out.
• The Monkeys – A selection of companies catering to the edge cases that aren’t covered by the market leaders. This can be a specific smaller set of features that the gorilla can’t get a good return on investment on, a lower price point that services a smaller sub-market, or a niche that the gorilla can’t profit from.

These market definitions can change if a new disruptive technology makes it possible to resegment the market, and former gorillas can suddenly become antiquated if they don’t keep an eye on things.

Main street

Main street occurs when the tornado’s land grab dies down. Suddenly the sales funnel is a little emptier and the companies are finding more resistance on price points because simply put, the technology has become a commodity. At this stage, operational excellence drives the ability of a company to profit – process and cost cutting ensure the success.

Summary

Very interesting theories on highly competitive markets, and some interesting inside stories from the pre-dot com days. I enjoyed it.

Tribal Leadership is a guide to using natural groups within an organization to create more effective leadership. This concept in this book is slightly different to that of Seth Godin’s “Tribes”, but is an effective complement with a similar core message – an effective organization needs happy people all working towards a focused goal. Seth  mentioned Tribal Leadership in Tribes, and I happened to stumble upon it in a discount book store.

The authors gauge organizations into five tribal stages, starting from misanthropic groups of “Stage One” tribes, through to the sort of altruistic “Stage Five” tribes which the authors describe as “pure leadership, vision, and inspiration”. Interestingly, this isn’t some sort of self-help checklist you’re supposed to follow to reach enlightenment but a way to recognize the motivations and concerns of the tribes at various levels of a company.

The book emphasizes that for an organization’s workers to be truly motivated, the organization has to be driven by a noble cause. “Core Values” is not just some Dilbert-esque item to be checked off for a company to be complete – There has to be an actual reason for the people you work with to want to continue doing what they do. As the organization grows and creates tribal leaders at the stage four and five levels, they create what the authors describe as “triads”.

Triads

The concept of the ‘Triad’ will be familiar to anyone who’s read Keith Ferrazzi’s ‘Never Eat Alone’. The Triad is an influential person creating a relationship between two people they know, and then politely moving on. The distinction is that this creation holds no immediate benefit for the person making the introduction and indicates that tribes within the company are moving beyond the individualistic culture of “I’m great” of stage three type tribes towards the “we’re great” atmosphere of stage four and five.

Summary

I’d recommend this book as a separate viewpoint from Seth Godin’s work on the power of tribes. The motivation is more of an internal analysis of an organization than a rabble-rousing call to escape corporate life. The book has several interesting case studies of people and organizations at various developmental stages, and insightful commentary on how to influence tribal direction. Particularly amusing is an interview with Gary Cole, the actor who plays boss-from-hell Bill Lumbergh in the movie “Office Space”. If you were going to pick between this and “Tribes”, I’d say I enjoyed ‘Tribes” more – but got a lot out of both.

I’ve been eagerly awaiting the arrival of “Rework” since I preordered it back in January. I’m a big fan of 37signal’s work, their blog, and loved David Heinemeier Hansson’s talk at FOWA Dublin in ‘09. I’m not a huge fan of “Rework”.

Testimonials

Before getting to the actual content of the book, the reader will be confronted by some of the most overly-enthusiastic praise from recognized industry figures that I can ever recall seeing in a publication. This almost stopped me from buying the book in the first place. Mark Cuban is someone I’d gladly sacrifice a major appendage to work for, but check out this effusive gibberish:

If given a choice between investing in someone who has read Rework or has an MBA, I’m investing in Rework every time… a must-read.

Or this mental breakdown from Tom Peters:

The clarity, even genius, of this book actually brought me to near tears on several occasions. Just bloody brilliant, that’s what.

Content

37signals typically write in a blunt, straight-shooting style, and they pull no punches in “Rework”. Don’t get me wrong – there are a few gems, but also several essays which really don’t make any logical sense. One or two of the essays remind me of “The Sphinx” from the movie “Mystery Men” – amusing upon first read, but logically empty. In particular, the introduction sets up some weak straw-man arguments about what ‘conventional critics’ say is not possible that comes across sounding like teenage rebellion.

“Getting Real” was a breath of fresh air in an industry that seemed to have learned little from the Dot Com crash. It was absolutely original and controversial when released, and inspired people around the world. At least part of the reason for the success of “Getting Real” was it’s contrarian stance on what was then normal industry practice – their advice to do less, avoid feature bloat, have passion for what you do, and their simple functional design theories were revolutionary.

The problems with success

It may be that they’ve actually been too successful at promoting their philosophy because for the most part “rework” doesn’t feel like it’s saying anything very unconventional. Here’s an (admittedly out of context) quote from the book that I found ironic:

When you’re a success, the pressure to maintain predictability and consistency builds. You get more conservative. It’s harder to take risks. That’s when things start to fossilize and change becomes difficult.

If you’ve been following resources like Andrew Warner’s interviews with entrepreneurs, or the surge of interest in concepts like the Lean Startups philosophy, a lot of the advice in this book just feels like common sense. Maybe I’m just not in the target demographic? It is to 37signals’ credit that they have inspired so many with their work and there is a lot of good advice for those who are not familiar with what they’ve already done, but some of “Rework” just doesn’t hold up to the light. It’s Seth Godin’s easy conversational writing style but missing some essential nugget of truth.

To make sure I’m not just whinging in this post I’ll clarify that there are the occasional diamonds in the rough. I particularly enjoyed:

• Meetings are toxic – Good advice on how to run a meeting if it’s really necessary
• Let your customer outgrow you - Don’t pander to every change request
• Scratch your own itch – Solve one of your own problems and you’ll find a market
• The myth of the overnight sensation – The only path to success is hard work
• Marketing is not a department - Everyone is responsible for the public face of your company

Buy it?

My critical process for reading any article, blog post, or book is to ignore who the author is and concentrate on the actual content. In this instance I wasn’t overly impressed.  Let’s be honest though – this book is going to be a resounding success whether I praise it or slate it. 37signals have a very large audience among whom they’ve reached a certain level of rockstar infamy. If I can riff on this tenuous rockstar analogy – “Getting Real” is to the Red Hot Chili Peppers’ “Blood Sugar Sex Magik” as “Rework” is to whatever that last album was called.

With all the points above in mind, there is still enough good advice in this book that I would recommend getting a copy if you haven’t already read “Getting Real”, and don’t subscribe to their blog.  There are four of the better essays from the book on Tim Ferriss’s blog if you want a sampler to make up your mind.

Skipping the content for one moment, I’ll first say that this book is absolutely beautifully designed. The basic look has the sort of unique artistry of Dustin Curtis’ website, from the spacious layouts and excellent accompanying graphics to the lightly embossed cover. This wouldn’t look out of place on a business geek’s coffee table. Kudos to Alan Smith from The Movement.

On to the actual content. Alexander Osterwalder and Yves Pigneur (along with 470 or so co-creators) have put together a fantastic manual on how to map, analyze, and strip-down your business’s model and re-assemble it into something that really creates real value.  The starting point of the exercise is the Business Model Template which allows you to break your business down into:

• Key Activities – What you do every day to make the model work
• Key Partners – Your suppliers and partners that help you make the model work
• Key Resources – The most important assets you used to create value
• Cost Structure – All the costs involved in running the business
• Customer Relationships – The types of relationships you have with your customer segments
• Customer Segments  – The different groups of people you’re trying to reach and serve
• Channels – How you reach your customer segments
• Revenue Streams – Where you make cash from your customer segments
• Value Proposition – The key ideas that create value for your customer segments

Model Analysis

Once you map these elements, you can do an analysis on the strengths, weaknesses, opportunities and threats in the model. What happens if one of your partners disappears? Could a competitor destroy your business by creating better customer relationships than you have?

The outputs of this analysis can allow you question your fundamental assumptions, and to pivot to a stronger model that provides an amazing product or service to your clients. As well as this, the book provides a reference selection of well company and industry models mapped to the template (e.g. Freemium, Google’s model, Traditional Publishing). There’s also a detailed five-stage process on how to run a successful business model design project within your own company. They even include the process they used themselves to produce and market the book! It’s awesome!

Online Resources

Outside of the book itself, they’ve created an entire ecosystem to help guide you:

• http://bmdesigner.com – An online tool to map your business to the business model template
• http://www.businessmodelhub.com – A community to discuss and learn about the process

I’ve shown this book to no less than three people who have immediately gone out and ordered it. This book is a very practical and accessible tool to analyze and improve your business.

You should follow me on twitter here.

Avinash Dixit and Barry Nalebuff have written a very engaging and accessible work on Game Theory which they purport is a “Guide to success in business and life“. Game Theory (not to be confused with Game Mechanics) is the mathematics and psychology of social interactions in strategic situations, and while I’m not sure it’s going to make you successful on it’s own it’s a good place to start at least.

Starting off with examples of games that are easily solvable by starting with the desired goal and working backwards, the authors delve deeper into more complicated issues such as how to strategize when both players can move simultaneously, when there are penalties for certain choices, or how to optimize the situation so that both players get the best possible outcome via cooperation.

This book had me gripped. I happily spent time chilling out reading this book instead of trying to catch some decent waves while on vacation in Hawaii. They authors build on simple cases and then dig into a more complex real-world scenarios involving Nash Equillibrium, Minimax, and decisions where the other players can manipulate information or introduce incentives and penalties. The chapter on strategies for participating in auctions is very interesting.

Included throughout the book are questions designed to test your understanding of the material, and good suggestions for further reading. The writing style is light, despite the material getting into some relatively complicated stuff, and the explanations are more than enough to allow you to understand each concept without having to look elsewhere.  A recommended read, there are some really great ideas in there.

After reading the hugely inspirational “Tribes” I’ve been on something of a Seth Godin binge.  Purple Cow is a how-to guide to revolutionize a  comatose company into something truly remarkable. The idea of this “Purple Cow” is to make a product that is so remarkable, so antithetical to the status quo that it immediately strikes a chord with your target market.

Purple Cow is a book about how taking the ’safe’ course of action is riskier than making the ballsy decisions that defy convention and make a really remarkable product.  Seth describes the ‘TV-industrial complex’ which used television and print mass-media to advertise and create mindless demand in niche markets that did not yet have a clear leader. The profits from these ventures resulted in a continuous cycle – more money spent on advertisements means more profit means more money spent on advertising.

The end result of this cycle is that consumers become more and more inoculated against your advertising and eventually every product in a given sector is an indistinguishable clone of it’s competitors. In markets saturated with similar products that make similar claims the best course of action is the controversial one – stand out. Remarkable products pick a specific customer and solve their problem really well. They solve this problem in a way that turns ordinary customers into fans, and makes fans want to tell everyone else they know.

Most importantly is the premise that remarkable doesn’t happen via design-by-committee, watered-down compromise, or blindly imitating your competitors. It’s by being what your competitors aren’t prepared to; the nicest,  the fastest,  the newest, even the most hated as long as you follow the golden rule:  The surest way to make a terrible product is to try to please everyone at the same time.