Bad Advice on Data Decisions

Oh dear, there it is again: somebody else pushing data over common sense. Paul B. Brown, on Forbes.com, writes:

data vs. intuition

data from your customers is always better than your best intuition.

Wait, what? Did he really say that?

Not that Steve Jobs was right on everything, but I can’t resist my favorite Jobs quote here:

It’s not the customers’ job to know what they want.

Paul Brown tells a story of a mouse pad combined with paper that he thought was a great idea, he bought, he used, and he didn’t like. He suggests that asking customers would have been better than guessing.

Talking to customers, sure; great. Data from customers? Not so much.

My problem is that so-called “data from customers” is rarely truth. Data gathering is plagued with problems of research design, random lists, skewed questions, half truth and innuendo disguised as data. If it were really good data, the real result of actually talking to customers, that would be pretty good. But seriously, how often are customer polls and primary research really valid? Seldom.

And ironically, his story argues for using the darn thing, not polling potential customers. He says he liked the idea until he actually used it. I think that’s a clue. No?

My career has been software, and I can tell you this: The best software comes from people who use what they create. Not from customer data.

The problem with thinking like this is that then data ends discussion and trumps common sense. Which would be okay, most of the time, if so-called data were truth. But it rarely is.

Good Advice, Bad Advice

Good advice? In the first few weeks of my first real job, I was heading out to cover a student demonstration in Mexico City when my then boss, the bureau manager of UPI in Mexico City, told me: “Come back with the story, or not at all. If you don’t get the story, don’t tell me the reason why not.”

Bad advice? That’s harder, isn’t it? Don’t you have to be somewhat vindictive to remember bad advice?

More good advice (this one is a quote): “I don’t know the secret to success, but the secret to failure is trying to please everybody.”

And this one, from David Kreps, who taught decision science at the time: “you have to know what knobs you have to turn.”

And Hector Saldana, my favorite client during my middle career in consulting: “90 percent of success is just showing up.” That wasn’t his originally, but he used it often. He also told me once “good management is nothing more or less than knowing when and how to say no.”

Fortune has a feature called The best advice I ever got. Twenty-five well-known people with a picture and a paragraph each. Chairmen and CEOs and celebrities and politicians. There’s a comment area for the rest of us. Here are some quotes from some of them, (unattached from the people, by the way; that seems like a less distracting way to compile advice):

  • I’ve observed many CEOs, heads of state, and others in positions of great authority. I’ve noticed that some of the most effective leaders don’t make themselves the center of attention. They are respectful. They listen. This is an appealing personal quality, but it’s also an effective leadership attribute. Their selflessness makes the people around them comfortable. People open up, speak up, contribute. They give those leaders their very best.
  • Here is something to remember for the rest of your life: Don’t spend your time on things you can’t control. Instead, spend your time thinking about what you can.
  • Always assume positive intent. Whatever anybody says or does, assume positive intent. You will be amazed at how your whole approach to a person or problem becomes very different. When you assume negative intent, you’re angry. If you take away that anger and assume positive intent, you will be amazed. Your emotional quotient goes up because you are no longer almost random in your response. You don’t get defensive. You don’t scream. You are trying to understand and listen because at your basic core you are saying, “Maybe they are saying something to me that I’m not hearing.” So “assume positive intent” has been a huge piece of advice for me.
  • If you have something good to say, say it in writing. If you have something bad to say, you should tell the person to his or her face.

As soon as I saw it I started musing about bad advice. What was the worst advice you ever got? That would also seem interesting to me. And then, lo and behold, one woman included did in fact go for the worst advice instead of the best advice. Here’s what she said:

The worst advice I ever got was, “Don’t work with your husband [Pan Shiyi]. Marriage and business don’t mix.” You can’t imagine how many people told me this. But it’s such a narrow view of relationships. In our case I think our [real estate] business success springs from our friendship.

When you have two people trying to figure out problems together, one brings out new things in the other and vice versa. Aren’t human beings meant to be inspired in this way? With us, Pan works in a very intuitive way–even though he’s the man. I believe in women’s intuition, but I am also a product of my Western training [Cambridge, Goldman Sachs]. And so we approach decisions in very different ways and play different roles. He tends to come up with big ideas–then I’m the one who goes around trying to test them. He’s brilliant at sales. I worry about construction.

If the business fails, well, that puts a strain on the marriage. But what if it succeeds? That can enhance the marriage. When it comes to business and relationships, I don’t buy this idea of diversification. It neglects comparative advantage. The best way to lower risk is to specialize: Put the things that you love into one portfolio.

What about you? Could you name the best advice you ever got? How about the best you ever listened to? The worst advice?

Do those summaries, sure. Use those frameworks. But don’t think they replace business planning.

There is some bad advice floating around in the startup world. Useful as the Lean Canvas is, and despite some well-intentioned suggestions of summaries, those are not business plans. They don’t deal with the drivers and components of cash flow. They don’t set milestones, metrics, and tracking. You can’t run a business with them. And you won’t get through investors’ due diligence with them.

Do those summaries, sure. Use those frameworks. But don’t think they replace business planning.

Beware of the straw-man logic that first defines a business plan as a huge ponderous document that takes months to prepare, and then advises against it. That’s very much like defining exercising as running 50 miles in a single day, then advising against it.

Real business plans are not long, not traditional, and definitely not a waste of time. Business owners need them. Startups need them. Angel investors want to see them during due diligence.

They set strategy and tactics concisely, they set milestones and performance metrics for tracking, they set priorities, and lay out the relationships between sales, costs, expenses, balance sheet and cash flow as essential projections. And they stay lean and they get reviewed and revised often, at least once a month.

The worst thing about supposed experts advising against business planning is that it does such a disservice to real people trying to figure out how to run their business better. The components of cash flow (sales, costs, expenses, assets, liabilities, capital, profits) are way easier to understand and manage when laid out in an organized way than when just kept in somebody’s head. And milestones, tracking, and metrics, the components of accountability, take writing down, reviewing and revising as necessary. That’s all called management.

The myth about people – investors especially – not reading business plans is just a myth. It’s a word game. Some investors and a lot of supposed experts feel cool saying they don’t read business plans, but ask them whether there should be well-defined strategy, tactics, milestones, metrics, and projected numbers. Ask them whether they want milestones met and priorities established. They’ll all say yes. But the myth makers have first misdefined business plans as long, traditional, and so forth.

I’m was in an angel investment group for several years. We wanted summaries first, then pitches. We didn’t read business plans until after we were really interested, and even then, we didn’t want those long traditional business plans. But we do want to see that core information, including financials, as part of due diligence. We’ve never read a business plan until after liking the summary and the pitch and meeting the founders; but we’ve never invested in a startup that didn’t have a business plan.

So how can you do a good business plan in a week? Do a lean plan.

  1. Set your strategy as a focus on how you’re different, what you’re offering, and who’s your market. Use bullet points. Use the lean canvas if you like, as Luca suggests, or those other summaries. Just write it down.
  2. Set tactics to execute strategy. Think of them as the key decisions that make up a marketing plan, product plan, and financial plan, but linked to your strategy, to make your strategy happen. Keep it to bullet points, as lean as possible.
  3. Set monthly review schedule, milestones, performance metrics, and other concrete specifics to track. List assumptions. Make sure task assignments are clear.
  4. Develop projected sales and direct costs monthly for 12 months, and annually for the following two years. Then do the same for spending and cash flow.
Lean Business Plan

And then do it again and again. Review and revise monthly.

plan-run-review-revise

So do a business plan. Do a lean plan. Not just a summary.

 

You Have to Know When to Quit

I recommend you read Nat Eliason‘s piece No More Struggle Porn. He’s attacking one of the more pervasive startup myths around, the idea that the struggle itself, the overwhelming and overpowering struggle that pushes everything else out of your life, is a good thing. He defines struggle porn as:

I call this “struggle porn”: a masochistic obsession with pushing yourself harder, listening to people tell you to work harder, and broadcasting how hard you’re working.

And his take on it, in a nutshell, is this:

Working hard is great, but struggle porn has a dangerous side effect: not quitting. When you believe the normal state of affairs is to feel like you’re struggling to make progress, you’ll be less likely to quit something that isn’t going anywhere.

The Myth of Persistence

I agree with him. Emphatically. I’ve posted here before on The Myth of Persistence:

Why: persistence is only relevant if the rest of it is right. There’s no virtue to persistence when it means running your head into walls forever. Before you worry about persistence, that startup has to have some real value to offer, something that people want to buy, something they want or need. And it has to get the offer to enough people. It has to survive competition. It has to know when to stick to consistency, and when to pivot.

So persistence is simply what’s left over when all the other reasons for failure have been ruled out.

Knowing When to Quit

And, with that in mind, I like Seth Godin’s take on quitting, which is the main point from his book The Dip (quoting here from Wikipedia🙂

Godin introduces the book with a quote from Vince Lombardi: “Quitters never win and winners never quit.” He follows this with “Bad advice. Winners quit all the time. They just quit the right stuff at the right time.

Godin first makes the assertion that “being the best in the world is seriously underrated,” although he defines the term ‘best’ as “best for them based on what they believe and what they know,” and ‘world’ as “the world they have access to.” He supports this by illustrating that vanilla ice cream is almost four times as popular as the next-most popular ice cream, further stating that this is seen in Zipf’s Law. Godin’s central thesis is that in order to be the best in the world, one must quit the wrong stuff and stick with the right stuff. In illustrating this, Godin introduces several curves: ‘the dip,’ ‘the cul-de-sac,’ and ‘the cliff.’ Godin gives examples of the dip, ways to recognize when an apparent dip is really a cul-de-sac, and presents strategies of when to quit, amongst other things.

Don’t let the struggle porn startup myths get you down. I’ve been through startups. I’ve been vendor and consultant to startups for four decades, and I started my own and built it past $9 million annual sales, profitability, and cash flow positive, without outside investors. And I’ve never believed that anybody is supposed to give up life, family, relationships, and the future to build that startup with 100-hour weeks and forget-everything-else obsession. Here’s what I say:

Don’t give up your life to make your business better. Build your business to make your life better.

 

 

 

Angel Investment Red Flags

Last week at an angel investment meeting one of our group members asked whether anybody had a list of red flag problems that would immediately eliminate a startup from consideration by angel investors. That seemed like a good idea to me then. And over the weekend somebody asked a similar question in Quora: what are some red flags for people new to angel investment when evaluating companies

This blog post is a compilation of my own items and a lot of others contributed to the Quora question. 

My big two: 

  • Issues around trust or integrity. Alternative truths don’t fly. Lies, gross exaggerations, hiding significant information. Fudging past financial data. Not mentioning about or grossly exaggerating their previous business history. Omitting significant facts. the pitch brags about a founder’s previous successful exits that turn out, later, to have been either grossly exaggerated. Founders holding back critical information for problems of perceived confidentiality or trust. Lawsuits that weren’t mentioned. Cap tables that hide things. Gaps in the history.
  • Issues around Leadership. For example, the scientist alone, instead of the scientist in a team with experience in the industry and business sense and experience. Or the team that lacks the CEO and is promising to get one after funding. Or the team of very young people that assigns all C-level positions to team members without realizing they need somebody else.

Four other good ones from Heather Wilde

  • Lack of domain expertise – Anyone can have an idea, but if the person you’re considering has no clue about what’s possible, what’s been done before, or even a tangentially related background – that’s a huge red flag.
  • Lack of Coachability – there’s a certain amount of arrogance expected in an entrepreneur (they need to beat down their competition), but if they aren’t willing to consider outside advice or suggestions, stay away.
  • Terrible Idea – I shouldn’t need to say this, but the majority of ideas are actually just bad, really, really bad. Yes, you are investing in the human, but that doesn’t mean you should throw money at a bad idea in the hopes that something they come up with later might be good.
  • “No Competition” – This is like one of those logic puzzles. Every time I hear someone say “we have no competition” it immediately is a red flag, for two reasons. One, it’s a sign they haven’t done their research, because there’s always competition, or at least something comparable. Two, it’s a sign they might be naive enough to actually think it’s true. Either way it’s a sign to stay away.

Four more from Greg Brown:

  • Awesome team in a small market can figure out how to expand the market opportunity. Mediocre team in a brilliant market will produce mediocrity. Bet on the team.
  • Legal and financing structures that violate the norms are non-starters for me. No need to reinvent the wheel.
  • If a company is pushing too hard to get your investment that’s a bad sign. If it doesn’t yet feel right hold off. It’s OK to miss out on something. There will be other opportunities. You cannot ride every unicorn.
  • Bad co-investors suck. Bad means fundamentally bad people or people who will provide bad advice or influence. Most founders will to some degree bend to the will of their board/investors. Make sure they will be getting good advice.

And a bunch from Terrence Wang

  •  No Deck/No Financial Model. Sending decks are standard unless you are a Siri co-founder working on Viv. VCs want financial models. If you are investing later seed then the startup should send you a financial model where you can see the assumptions and play around with the variables to test different scenarios and outcomes. If founders won’t send you both, red flag.
  • Finders/Brokers/Enthusiasts. At present the vast majority of finders, brokers and enthusiasts who connect founders and investors are working with non-great founders. Red flag.
  • Super Angel or VC Advising, Not Investing. Peter Thiel is advising a PayPay mafia cofounder-CEO. The CEO pitches fellow angel investors and me. We ask if Peter is investing. The CEO says he wants to be careful about asking Peter to invest. So why are you pitching us then? Red flag.
  • Product Not Needed. If someone loves a startup’s product and service, that could be because the product is free and a good time filler. Doesn’t mean they will spend money on the product or service. Maybe they don’t need the product. Red flag.
  • Not Great Sales. A great product with bad sales is often a bad sign. For example, a startup might have a great e-commerce product but Amazon is going to out-sell them about a billion to one. If the product is easily monetizable and they haven’t even tested monetization, that is a red flag.
  • Incompatible Goals. Some angel investors don’t want VCs involved later. This includes at least a couple Harvard Business School Angels who invest in startups that should not need VC funding because the startup is in a smaller market and should get to break-even pretty quickly. But does the founder agree? If you and the founder don’t agree on the financing goals, that is a red flag.
  • No Grit. If the CEO does not have grit, the startup likely won’t work. Red flag.
  • Uncompelling Pitch. CEOs need to be persuasive, regardless of context. They don’t have to be high energy. Elon is more reserved but still charismatic and persuasive. Uncompelling pitches are a red flag.
  • Differing Visions Intra-Team. Talk to the CEO and other core team members individually. Are they on the same page as the CEO? If not, red flag.
  • Can’t Lead. Has the CEO built and led a team successfully before in anything? Sports, clubs, etc.? Her siblings? Anything? If not, red flag.
  • Unanswered Questions. If you have unanswered questions that are important to you about anything related to the startup, the team, the legal documents, etc., make sure the CEO or someone from her team who’s authorized (e.g., her law firm) answers your questions to your satisfaction. If you feel pressure to not ask too many questions, just ask this one
  • Legal and Ethical Issues. Does the CEO do things that are highly unethical or technically crimes? If so, you may have a Theranos or Zenefits on your hands. Red flag.

Rant: Entrepreneurship, Dropouts, and Bad PR

book coverI was writing an email to these folks and I just stopped and deleted the draft. Why waste the time raising entrepreneurs I don’t even know.

My complaint? I got to my office this morning after a few weeks elsewhere and found the results of a concentrated campaign for me to write about a certain entrepreneur and his startup. He’s all about how he’s so successful as a college dropout. I have one package containing a coffee mug with chocolate drops, and another with a copy of his book. Both contain a personalized letter from him, with what looks like a signature. Both contain business cards that are ‘sort of’ from him, but not exactly. And the only contact info I get is an impersonal email address info@[company omitted].

So, let’s get this straight: You want me to write about you, but you don’t even give me your email address? Is that just me, or is it insulting?

I connected this to multiple emails from somebody in his company, pitching me talking to him or interviewing him, also without including his email address. I’d say WTF, but I’m more mild mannered than that, so only WTH.

Besides, the college dropout theme ticks me off. The illustration here is taken from the cover of his self-published book. And the email campaign spins off the college dropout thing. I think that’s building your image around what’s essentially bad advice.

One thing is all the reasons like you or the next person or anybody else had to drop out of college — too bad, but common enough, and nothing for me to judge — but quite another is purposely building your entrepreneurship pitch around you having dropped out of college. Yeah, sure, Bill Gates, Steve Jobs, and Mark Zuckerberg, I know. But none of them ever made that his secret sauce; the college dropout thing just happened. Bill Gates regrets dropping out of college. Steve Jobs hung around Reed College for the education, even after he dropped out. And Zuckerberg? OK he had a tiger by the tail, who can blame him?  But does he go around bragging about it?

Sadly, formal education becomes a luxury for some. I wish it were available for all. But I’m sure anybody who can get an education is better off with it than without it. And that goes for entrepreneurs too. No, you don’t learn to be an entrepreneur in courses. But what you do learn doesn’t hurt. And there’s a whole life outside of business.

3 Things Never to Tell an Entrepreneur About her/his Spouse

I just read 7 Things Never to Tell Your Spouse About Business Finances, posted by Barry Molz on Amex OPEN forum. I like Barry and I like his work.  I’ve been on his podcast before and it was great. But his tone of voice in this post makes me uncomfortable. Dont tell your spouse

If you’re curious, compare Barry’s tone in that post to mine in some of my (somewhat confessional) posts on me and my wife and entrepreneurship: My biggest startup boost, for example; or this true story on relationships vs. new business. And yes, my wife and I have been married 44 years, in a relationship that has survived years of scraping to support a startup, and sending five kids through college; so maybe I maybe I know something about this.

It’s not that Barry doesn’t offer some good advice within his post. He does. For example, if you’re dealing with cash flow problems, Barry advises:

Don’t give your spouse a daily cash report, since it’s always changing. Instead say, “Money will be tight for the rest of the year.” You will be right most of the time.

But there is no excuse for the multiple references to the spouse as “she” in that post. I know Barry and he knows better. This is nasty stereotyping. The whole “don’t worry your pretty head” motif is 1.) offensive and 2.) obsolete. Ironically, all of Barry’s advice here has nothing to do with gender so there is no reason whatsoever to make the spouse female. Making the advice gender specific dilutes it.

And secondly, regardless of gender, keeping a spouse in the dark about serious business issues is a really bad idea. Specifically, Barry’s suggestion about what to tell a spouse when a major investor pulls out …

Don’t say anything, and work privately to learn to project your cash flow better so you can survive the bumps in the road.

… is really bad advice. What a terrible thing to suggest. First of all, that idea makes for an incredibly lonely entrepreneur. Nobody normal can help fretting over that kind of situation. Not to share it with the most important person in your life, who is by definition a person who is going to share the consequences if you go under is horrendously bad advice.

And here’s another piece of really bad (well, maybe just insulting) advice on what to say when you have a buyer for the company:

If you do tell her about any pending deals, make sure she understands that nothing is set in stone until the money is in the bank. Also, don’t give her the dollar details; when the deal closes and the money is in the bank you can say: “Honey, what can we do with an extra $100 million?

The first part of that advice is not bad, but condescending, and unfortunately also gender specific. The second part is insulting.

My apologies to Barry for a bit of a rant, but I’m the father of four daughters and this stuff really gets my goat.

I’ve discussed this topic in other posts and in my opinion it’s best to be open and honest with your partner. In fact, being candid has immense benefits. Here’s an extract from one of my previous posts that illustrates how essential my partner has been in helping me to succeed:

[This was the] biggest boost to starting a business: My wife said “go for it; you can do it.” And she meant it. At several key points along the way, she made it clear that we would take the risk together. There was never the threat of “I told you so, why did you leave a good job, you idiot!” What she said was “if you fail, we’ll fail together, and then we’ll figure it out. We’ll be okay.”

Some Recent Blog Posts Elsewhere

Because you might be interested in these …

I posted How to project expenses for a new business overnight on the SBA (small business administration) Industry Word blog. It’s a step-by-step how-to piece on exactly what it says in the title.

Yesterday and today I posted two different posts on James Altucher’s Ultimate Cheat Sheet on Starting a Business, posted on TechCrunch over the weekend. The first was good advice, bad advice, land mines on the path to heaven, on gust.com, yesterday. The second was James Altucher On How and How Not to Look Professional Raising Investment Money on Up and Running.

Obviously I liked his “cheat sheet” post.

 

 

Don’t Drown in That Wave of Bad Startup Advice

“The availability and ubiquity of bad advice has exploded over the past few years,” writes Dave Lerner in How To Avoid Bad Startup Advice. Amen to that. He explains it very well:

Dave Lerner Amex OPEN bad startup advice

This is due to many factors, the primary one being the tidal wave of entrepreneurship washing across the country, which has brought to shore not only many great things, but also a great deal of flotsam and jetsam.
The tremendous personal broadcasting medium of Twitter, as well as blogs, have allowed for an extreme amount of entrepreneurship discussion and advice—so the bad and the good are now delivered via the same firehose and with the same breathless intensity. Who can you trust?

It’s easy to note that wave, and I’ve posted here on bad advice; but Dave, to his credit, offers a specific list of “red flags” to avoid. My favorite is this one:

You go in to talk about your consumer Internet startup and the first person you get paired-up with as a “mentor” is an IP attorney who encourages you to file some patents and “protect your idea.” (Translation: No one knows what they’re doing here—consumer Internet is not patentable, and you better start running away fast.)

That’s just one of several. His list is definitely worth a read.

Obvious Trite Advice is Just More Clutter

I just read Five Pieces of Blogging Advice I Wish You’d Stop Giving on problogservice. How about this one? Post author Erik Deckers writes, as his number one piece of bad advice:

Write good content: Blah, blah, blah! People say this like it’s The Most Important Advice Ever. It’s stupid, vile, and utterly useless, because everyone a) knows it, and b) thinks they do it.

The comments there are Erik’s not mine, but I agree completely.

Obvious advice is just clutter. And it interferes with useful advice.

Here’s another one:

Grow your social network: Really? I thought having my brother and a couple friends from work following me on a Twitter account I rarely use was a guaranteed step toward social media rock stardom.

Yep. More obvious and trite advice. Point taken. And this one:

Find your niche/passion: Okay, this one might not be such a Duh! piece of advice, but I’m tired of it. Anyone who has a barely detectable pulse has heard this one before, so it’s nothing new. Combine this with item #1 — write passionately about your content — and Tony Robbins will personally punch you in the nose.

Erik goes on and the post stays good. I agree.

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