Article first published as Eleven Startup Tips From Mark Cuban on Technorati.

Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs and Richard Branson.

Mark Cuban is a lifelong serial entrepreneur, launching his startup career with a variety of teenage schemes, including buying and selling collectable stamps to pay for college.

In 1983 he founded MicroSolutions, a personal computer software reseller and system integrator, headquartered in Dallas, Texas. He steadily grew MicroSolutions over the next seven years and eventually sold it to CompuServe in 1990.

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Five years later he co-founded Audio.net, which was initially focused on creating a portable device for receiving satellite broadcasts of sporting events. As noted in Optimistic Pessimism, most business models are non-linear and Audio.net’s was no exception. Its value proposition and market positioning morphed over several years, eventually coalescing around Internet broadcasting.

In 1998, the newly christened Broadcast.com went public and set the record (since broken) for the largest single-day price appreciation, rising nearly 250%. As is true in comedy, timing is everything in business. Mark and his team sold Broadcast.com, to Yahoo! in 1999 in a $5.7 billion stock transaction. Even after Yahoo’s stock tanked following the dot bomb crash, Mark and his senior team still walked away with a whole lot of Chicklets.

Mark has spent the past decade diversifying his wealth, while having a hell of a lot of fun. In addition to owning the Dallas Mavericks professional basketball team, he has been involved in a variety of television and theatrical projects. He is also a provocative and skilled writer, sharing his thoughts at BlogMaverick.

Mark’s Startup Tips

The most difficult aspect of compiling this article was narrowing down Mark’s comments to ten quotes. I easily could have included 50-comments that provide insight and inspiration to entrepreneurs.

1. Risk? What Risk?

"Because if you're prepared and you know what it takes, it's not a risk. You just have to figure out how to get there. There is always a way to get there." [Tweet this quote]

Mark’s view of risk is common to most successful entrepreneurs. Where the majority of rational people see danger, entrepreneurs see opportunity. Through diligent preparation and dogged perseverance, entrepreneurs avoid foolhardy risks. They know that once they commit to a particular endeavor they will make it succeed.

2. Business Is A Game – Money’s Just The Score

"Being rich is a good thing. Not just in the obvious sense of benefitting you and your family, but in the broader sense. Profits are not a zero sum game. The more you make, the more of a financial impact you can have."
[Tweet this quote]

Although cash is a convenient measure of success, most entrepreneurs do not consider money to be success, unto itself. As Mark notes, "Success is being able to wake up every day with a smile on my face, looking forward to the day. Which is exactly how I described it when I was broke, sleeping on the floor."
[Tweet this quote]

In many ways, true success is a state of mind, as the never-ending litany of affluent, high-profile, unhappy celebrities in rehab can attest. However, as noted in Why You (And Your Employees) Work, an adequate amount of money fosters a positive outlook on life. It is the definition of adequate that is tricky. Entrepreneurs should never forget that wealth is not an end unto itself. Rather, "Money is a scoreboard where you can rank how you're doing against other people." [Tweet this quote]

3. Hard Sell

"I still work hard to know my business. I'm continuously looking for ways to improve all my companies, and I'm always selling. Always." [Tweet this quote]

Entrepreneurs are constantly selling. Such selling goes beyond promoting a company’s products and services. Entrepreneurs must sell in order to raise money, recruit employees and establish partnerships. They must keep on selling in order to maintain high employee morale. Selling at a startup is not an event, it is a process. As such, it must be a core competency.

In addition to selling, hard work is a recurring theme of entrepreneurial success, as underscored in my interview with Guy Kawasaki. "Sweat equity is the most valuable equity there is. Know your business and industry better than anyone else in the world. Love what you do or don't do it."
[Tweet this quote]

Wily entrepreneurs constantly seek ways to improve their value proposition because the more value they can deliver to their end-users, the more their sweat equity will be worth.

4. Speaking Of Luck

"All that matters in business is that you get it right once. Then everyone can tell you how lucky you are." [Tweet this quote]

Mark has his share of detractors, many of whom claim his success involved a healthy dose of luck. To this criticism, Mark would likely reply, "There are no shortcuts. You have to work hard, and try to put yourself in a position where if luck strikes, you can see the opportunity and take advantage of it… but few do the work to get there. Do the work."

The timing of the sale of Broadcast.com was impeccable. However, it is unfair to dismiss timely execution as simply "luck." Yahoo could have purchased a variety of Internet based video companies when they acquired Mark’s venture. According to Mark, "It doesn’t matter how many times you almost get it right. No one is going to know or care about your failures and neither should you. All you have to do is learn from them and those around you."

5. Bro It Up

"It is so much easier to be nice, to be respectful, to put yourself in your customers' shoes… than it is to try to mend a broken customer relationship."

As noted in Time Wounds All Heels, honesty and empathy are common traits among serially successful entrepreneurs. In fact, dishonesty is a handicap. It may result in short-term gains, but it reduces the population of credible people willing to work with you in the long-term. Eventually, disrespectable people are forced to work with other people of ill-repute.

6. Don’t Fail To Fear

"I'm always afraid of failing. It's great motivation to work harder." [Tweet this quote]

Kevin O’Connor, Co-Founder of DoubleClick and current Co-Founder and CEO of FindTheBest recruits employees who have a deep-seated fear of failure. In THIS recent infoChachkie interview, Kevin noted that, "It’s not that people want to win so much, it’s that they don’t want to lose. Winning is very fleeting and winning is an instant. Losing is with you forever. We find people who want to be Navy Seals, that one percent." Mark would no doubt agree, as he once admitted, "I had more than a healthy dose of fear, and an unlimited amount of hope, and more importantly, no limit on time and effort."

7. Game On

"The key is having great players. But there are a lot of teams that have All Stars and haven't been able to put it together."

All Stars have a variety of temperaments. Some are counter-productive douche bags, as made clear in Some People Are Indispensible, But No One Is Irreplaceable. When recruiting your team, star capabilities are not sufficient. Startup employees should be evaluated based on their productivity, coupled with the relative amount of maintenance they will require. Avoid high-maintenance All Stars who do not foster an A+ Game in their teammates.
 

8. Don’t Just Be Better, Be Different

"When you've got 10,000 people trying to do the same thing, why would you want to be number 10,001?" [Tweet this quote]

Harvard Professor Michael Porter encourages startups to attempt to "do different things" rather than "do the same things better" than their competitors. Mark agrees with Mr. Porter, "Wherever I see people doing something the way it's always been done, the way it's 'supposed' to be done, following the same old trends, well, that's just a big red flag to me to go look somewhere else."

9. Avoiding An Ass Kicking Is A Good Thing

"Do your homework and know your business better than anyone. Otherwise, someone who knows more and works harder will kick your ass."

Failure is one thing. Getting your ass kicked is something else altogether. Hire people with Humble Pride who take an ass kicking by a competitor personally. Such employees’ humbleness ensures that they will never put their well-being before that of the company. However, their pride causes them to rebuke failure and consider it to be a personal affront.

"What does it take to be a successful entrepreneur? It takes willingness to learn, to be able to focus, to absorb information, and to always realize that business is a 24/7 job where someone is always out there to kick your ass." In your company’s early days, surround yourself with employees who kick ass rather than people willing to accept an ass kicking.

10. Remix Redux

"I don't really have new ideas, but I manage to combine information in ways most people hadn't considered." [Tweet this quote]

As Kirby Ferguson has pointed out in his brilliant video series, Everything (including startups) Are A Remix. Ideas are worthless, unless they are coupled with effective execution. Mark echoes this sentiment, "Most people think it's all about the idea. It's not. EVERYONE has ideas. The hard part is doing the…preparation… to execute on the idea."

Combining existing ideas in novel ways is the key to successful innovation. Once you achieve a deep understanding of a particular industry’s ecosystem, underlying technologies and competitive landscape, you may be able to leverage Mark’s insight that, "there is usually a place to sneak in and do something a little different."

"Do your homework and know your business better than anyone. Otherwise, someone who knows more and works harder will kick your ass."

11. Reject Rejection

"Every ‘No’ gets me closer to a ‘Yes’" [Tweet this quote]

As an operational entrepreneur, I generally translated the word "No" to "Not Now." I (almost) never took rejection personally, nor did I expend an inordinate amount of my precious time trying to overturn a steadfast objection. I usually opted to circumvent an objection, rather than struggle to convert a naysayer to a believer. In general, an entrepreneur’s time is better spent cultivating like-minded customers, employees, partners and other stakeholders, rather than converting non-believers. Thus, I agree wholeheartedly with Mark’s assertion that, "Rejection has only been a distraction, not a roadblock." [Tweet this quote]

Note: This is an installment in the Iconic Advice series. Other installments include: Jeff Bezos, Steve Jobs and Richard Branson.

In part I of this series, I discussed how you can teach your children to make something from nothing by sharing with them Marcia Brown’s Stone Soup. There are a number of other children’s books that also serve as good platforms from which you can impart entrepreneurial values and lessons.

One such book comes from a surprising source, the notoriously left-leaning Theodor Geisel, better known as Dr. Seuss. He inadvertently drafted the salesman’s manifesto in the form of Green Eggs and Ham, utilizing 50-different words, 48-of which are one syllable. Not only will your children understand it, it is even accessible by the average salesperson.

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The Plot
Our protagonist, Sam, is an androgynous creature, which fits well with his / her asexual name. This depiction will make Sam’s appeal universal to either your son or daughter. Man or woman, the tactics deployed by Sam are applicable to any sales situation and can be put to use by any salesperson, irrespective of their gender. For sake of grammatical convenience, I will refer to Sam as a male in the remainder of this entry. However, if you are reading this to your daughter, explain to her that Sam is short for Samantha.

The story begins with the unwitting, future customer relaxing and reading the paper. Sam-I-Am enters stage right, riding a Seussian creature and holding a sign which reads, “Sam-I-Am”.

This is Sam’s cold call. The last thing on the Prospect’s mind is buying something from Sam or anyone else. Sam is undaunted. He introduces himself to his Prospect wearing a large, sincere smile.

Sam is smiling because he knows that he has something the Prospect will love and eventually thank him for bringing to his attention. He is so confident in his green eggs and ham product that he cannot help but smile.

The Prospect’s initial reaction is rather predictable. He is irritated at being interrupted by an unsolicited salesperson, just like you would be if you received a telemarketing call during dinner. Thus, without knowing who Sam is or what he is selling, the Prospect lashes out and tells Sam that he, “does not like him”. Right from the start, Sam must endure the most painful of all forms of sales rejection, the personal attack.

However, Sam remains undeterred. He continues smiling and deploys a rudimentary sales technique. Instead of acknowledging the personal repudiation, he poses a simple question in a form which cannot be answered with a negative response. He asks the Prospect if he would like the product “here or there”, pointing to two spots on the ground while displaying his winning smile.

Despite being a children’s book, Green Eggs and Ham, makes for painful reading, as Sam is repeatedly rejected, at times in a vicious manner. However (Spoiler Alert) Sam’s persistence pays off. In exchange for sitting through a demonstration of the product, he asks that Sam to agree to leave him alone thereafter. Sam happily agrees, as he knows he will not have to continue selling, once the demo is completed. After trying the product, the Prospect grins broadly, puts his arm around Sam and tells him, “Thank you. Thank you. Sam-I-Am.”

Sam-I-Am Lessons Learned

There are a number of practical sales lessons you can impart on your children from this opus, including:

Persistence – Every sales handbook emphasizes that there is no substitute for persistence. Sam exemplifies this truism. Until the moment the Prospect finally experiences the product, it appears to everyone but Sam that he has no chance of success. However, typical of an Optimistically Pessimistic entrepreneur, Sam never loses hope, and does not give up.

Research – Sam’s persistence is not born of ignorance.  He is highly confident that his product will provide value to the Prospect and thus it is his duty to ensure that the Prospect experiences the product’s value first-hand. This resolute attitude is crucial to a salesperson’s ultimate success. You must have enough confidence in your product to push through baseless objections and ensure that your Prospect utilizes your product, and thereby evaluates it on its merits, not solely on unfounded preconceptions.

An effective way to bolster your confidence is to pre-qualify and fully understand the congruence between your product’s capabilities and the Prospect’s needs. In Sam’s case, he knows that the product will deliver real value to the Prospect and that the Prospect will ultimately “thank him” for introducing him to the product. This knowledge fortifies Sam against the litany of rejections he must face before closing the sale.

No Drama – Sam also realizes that the Prospect’s reaction is not personal. Rather, the Prospect’s kneejerk rejection of Sam is a coping mechanism that many people utilize to deal with the competing demands on their time.

Thus, Sam is undeterred by the Prospect’s emotional responses. Instead, he remains focused on encouraging the Prospect to experience his product without internalizing the rejection on a personal level.

Affability – Sam remains affable throughout the entire sales process. Even when the prospect personally attacks him, and is downright rude, Sam realizes that the ultimate payoff (i.e., his commission, the Prospect’s satisfaction and his company’s revenue) more than compensates him for the short-term discomfort associated with a rejection born of ignorance.

Listen and Adapt – Sam listens to his Prospect’s objections and adjusts his tactics to best suit the evolving conversation. He probes to better understand his Prospect’s needs with questions like, “would you like the product, in a box, with a fox, on a train, in the rain, with a mouse, etc”. In each instance, Sam actively listens to his Prospect’s responses, and attempts to satisfy all of his needs by creating third-party bundles that offer his Prospect holistic solutions. Effective salespeople strive to satisfy all their prospects’ needs, even those needs which extend beyond what their product can fulfill on its own. Such value-added selling elevates the salesperson’s role to that of a consultative partner.

Manage Expectations – Sam does not tout his product’s features, nor does he oversell his product. Instead, he focuses on the immediate objective – to get his Prospect to demo the product. By avoiding puffery and overselling, Sam is able to reach his goal of performing a demonstration while following the precepts outlined in Great Expectations. Proper expectation management significantly contributes to the Prospect’s eventual positive user experience.

Inexperienced salespeople frequently oversell. Thus, by the time their prospect finally tries their product, they are often disappointed. Conversely, by remaining positive and passionate about his product, without overly embellishing its capabilities, Sam’s delights his Prospect, once he partakes in the product.

Humility – Sam exhibits a Humble Pride and remains committed to his Prospect’s satisfaction throughout the sales cycle, even after the Prospect becomes a customer and admits that he loves the product.

Once the sale is completed, it would be tempting for Sam to say, “I told you so”. However, he realizes that he is forming a long-term relationship with his customer, which must be based on mutual respect. Any insinuation of, “I told you so” could engender animosity that would undercut the positive rapport that Sam has worked so hard to establish.

Teach Your Children That “Sell” Is Not A Four Letter Word

Silicon Valley is filled with entrepreneurs who, as children purchased candy in bulk and sold it piecemeal to their classmates at school. I was no exception. The math was too simple for me. When I was in Junior High, I purchased packages of Bubblicious gum at the 7-11 next to my bus stop for 25-cents each. Each package contained five pieces. I then opened the packages and sold each piece for 25-cents. I returned my entire investment on the first sale and the remainder was pure profit, which I used to purchase more gum. I quickly learned the value propositions of convenience and instant gratification, as my Junior High target market happlily paid my 5x markup.

By eighth grade, kids were routinely lined up at my locker before I arrived at school. Finally The Man, in the form of the school Principal, shut me down. He was relieved to learn that I was not selling drugs, but still unhappy that I was selling candy (by then I had extended my product line to include a variety of sugary treats).

My very conservative mother was called into the Principal’s Office, along with me, to hear about my shenanigans. She patiently sat through the Principal’s lame tirade and thanked him when he was finished, assuring him that her son would no longer sell candy at school.

As we left the Principal’s office and walked to our car, I was convinced I was going to be punished. After all, I had embarrassed my law-abiding mother. Before we got to our car, looking straight ahead and fighting to keep a smile off her face, my mother said, “I don’t think it’s a big deal, but stop selling candy at school.”

Despite the fact that my mother was a life-long government worker, with no proclivities to take risks or sell anything, she saw that I was driven to do such things. Rather than attempt to squelch such proclivities, she simply asked me to do them outside of school. I have always loved my mom, but I especially loved her at that moment.

Lessons Learned

Green Eggs and Ham is an excellent primer for teaching children the basic precepts of effective selling. It also allows you to reinforce to your children that effective salespeople are problem solvers and that problem solvers are always in demand.

Point out that Sam does not attempt to trick his prospect. Rather, he is persistent and honest. Like most real-world salespeople, he does not fit Hollywood’s hackneyed stereotype of the shifty, malevolent huckster. In addition, help your children internalize the fact that salespeople are an important element in our society and that selling is a worthwhile, fun and honorable profession.

Many tedious books have been written about sales, some technical, some strategic and some tactical. However, Green Eggs and Ham is only the only book you need to read on the subject. Move over Zigler, Carnegie and Gitomer and make room for Dr. Seuss.

For more suggestions regarding parenting an entrepreneur, check out parts I, III, IV and V of this series.

Clark Benson is the Founder and CEO of Ranker.com. Prior to Ranker, Clark founded four other successful companies, including eCrush, which he sold to the Hearst Corporation in 2007.

Ranker helps Internet users find the most appropriate answers to questions that benefit from the wisdom of crowds. It does this by providing simple tools which facilitate crowed sourced lists. Such lists are constantly evaluated and refined by the millions of users who visit Ranker.com each month, resulting in a repository of objective, unbiased consumer rankings.

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You can watch Part I below or on YouTube here: http://www.youtube.com/watch?v=V9tKy-tEOKc 

You can watch Part II below or on YouTube here: http://www.youtube.com/watch?v=2D_-29H-s-c

What follows is a summary which paraphrases Clark’s responses. For exact quotes, watch the videos.

7)  Clark, why does the world need Ranker? 

“The core value proposition is that Ranker ranks results to important questions and topics.”

6) On the surface, Ranker’s operations appear simple. People create lists and other people rank them. However, from my understanding you might actually be the largest consumer website using "semantic web" technology – can you explain how that works?

“In a basic sense, semantic technology is data that is linked so you can derive more meaning and you can slice and dice the data without losing the connections between items. Our technology adds user-opinion layer to facts so that we are structuring unstructured data with peoples’ opinions.

Semantic technology is important… we can aggregate individual lists into the wisdom of crowd aggregations which are more statistically meaningful than one person’s opinion about a topic.”

5) Google does a great job with indexed search. However, many relevant topics do not lend themselves this straightforward approach. I recently interviewed Kevin O’Connor, Founder and CEO of FindTheBest and former Founder and CEO of DoubleClick. FTB is taking a somewhat different approach to curated search. Do you see crowd-ranked lists as ultimately competitive or complimentary to traditional and curated search?

“I’ve checked out FindTheBest and I think it is a pretty incredible site, given how early stage they are. I see where they are going and I am excited by it.

Google can definitely work complimentary to what we are doing. If someone is searching ‘best coupon website deals’, they really do not necessarily (want) one answer to their question, (rather) they want to get a ranked list (based on) hundreds of peoples’ opinions.

Over time, solutions like ours rank higher and will lead to more meaningful, quick answers to questions.”

4) One of the reasons we invested in Ranker is because one of the current investors, who also invested in one of your prior ventures, told us, “Clark will go above and beyond to get you a return on your money.” I have written about people who live by strong social contracts in Humble Pride. How would you describe your relationship with your investors and what can young entrepreneurs learn from your philosophy?

“I am a completist and I can’t stand unfinished business. I do everything I do all in or nothing. If someone is investing in me and my idea, I simply don’t want to let them down.

It is always great to quickly raise money with your idea, but far more often than not, it’s a long haul (of) relationship building with investors. Show people what you are doing at an early stage and then show them the results that you said you were going to do, down the line.”

3) Dude, I think I should remind you that we are still in a recession. Your traffic growth is tracking over 40% month-over-month – on a fairly big base – despite spending zero dollars on marketing. What are your primary sources of traffic and how do you anticipate you will expand your reach going forward?

“We get traffic from three sources. We get direct traffic and that has grown a lot this year. We get referring site traffic.

The single largest source of growth is organic search. We’ve got a very search-friendly site; we are starting to see what Google calls ‘authority’ for terms like ‘list’ and ‘top’ and ‘best’. We haven’t had a down week for organic search traffic all year.”

2) Your “Top 500 Musical Groups/Artists Of All Time” list is one of my favorites (yes, I voted the Beatles up!). Such lists are great fun, but what are some Ranker lists that you think provide the greatest utility, beyond the pure entertainment factor? What are some good business oriented use-cases of Ranker, in its current form?

“We have a lot of entertaining content… but that tends to be the stuff that takes off at the earlier stages. We also get a lot of traffic for (things like) best coupon website. Users vote up and down the hundreds of coupon sites… knowing which (site) to hit from a user point of view is certainly a very valuable, timesaving, practical tool.

Ranker right now is mainly a destination website. Right now you can embed a Ranker list on a third-party site with a few clicks. Soon you will be able to add an aggregated crowd ranking or vote-ranked list to your site and let your community (share) this sticky content.”

1) If you could hypnotize anyone listening to this interview, who would work your magic on and what would convince them to do?

“Ranker has ten people. We are still at that size that everybody on the team can know everything that’s going on, to some degree. Three or four people on any given project have huge input into things that go live on a pretty big content site within a week or two.

My startup is at the perfect learning curve stage for somebody who wants to be part of a startup. I am looking for Java developers and database experts. I am also looking for some bus dev and marketing help. So if you are looking to join an inflection-point startup where you can still make a huge difference, I would love to get your resume at jobs(AT)ranker(DOT)com. Looking for people who can wear a few different hats.”

“Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.” George S. Patton, US Army General

Part I of this series describes the 360-review that I conducted at a growing, dynamic SaaS business which has recently graduated from the startup stage and entered the early-growth phase. One of the most compelling conclusions I drew from the reviews is that both Founders need to delegate more of their day-to-day tasks.

The Founders are in the midst of a classic shift from a bottle-washer mentality in which they oversee every initiative, to one in which they only focus their efforts on tasks that have the biggest impact, while delegating urgent but less important duties.

Fortunately, the Founders are comfortable delegating tasks to their highly talented Core Team. The challenge was to identify which tasks to retain and which were best suited for delegation.

Following the 360-review, we devised an effective way to help the Founders expand their strategic effectiveness while ensuring that all of their prior responsibilities are appropriately fulfilled.  

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Finding Founder Time

In this particular 360-review, the subordinates’ feedback indicated that the Founders needed to adjust their tasks to be less tactical and more strategic. In order to help the Founders in this process, I asked them to identify the Dirty Dozen tasks to which they consistently allotted most of their time. I then requested that they chart these duties, based on their relative desire to perform each task, along with their competency to do so, as shown below:

I subsequently asked the Founders to evaluate the same twelve tasks based on their urgency and near-term impact, as follows:

I then quantified each task based on each of the above criteria. For instance, in the above charts, task F represents “Manage Backend Finance System.” I quantified the relative priority of this responsibility as follows:

Desire              12 least desirable for CTO to perform
Competency     12 least capable of performing this task
Urgency             7 moderately urgent
Impact              12 lowest near-term impact of all the tasks

Average            10.8

A list of the CTO’s dozen most time-consumptive tasks is shown below. The lower the average score, the greater the importance attributed to it by the Founder.

Note: the task descriptions have been modified for confidentiality purposes

I next sorted the tasks by their average score, which proved very enlightening. The blended scores served as an effective way to rank each task and highlighted the implicit priorities which the Founders attributed to each of their most time-consuming tasks.  

As a final step, I layered in the subordinates’ thoughts by reviewing the tasks with the Core Team and asking them to place the duties into three categories: Tier I – highest priority, must be done by the Founder; Tier II – lower priority, but still important enough to be done by the Founder; and Outsource – someone else (inside or outside of the organization) should perform the tasks, noted by “O/S” in the above table. The Founders were present during this discussion, but they did not influence the prioritization process.

For instance, in the above chart, sitting in on “Technical Customer Calls,” was highly rated by the Founder, but deemed by the Core Team to be a duty that the CTO could effectively delegate. Everyone agreed that some time spent on such calls was worthwhile, but that it did not merit a top priority ranking, when compared to the CTO’s other duties.

Reviewing the Founders’ Dirty Dozen responsibilities in a group setting afforded the Core Team with insight into the Founders’ time management priorities and provided actionable feedback which significantly helped the Founders reallocate their workload. 

Do Over

The 360-review process was imperfect. I could have executed it far more efficiently. Below are a few mistakes I will not replicate when I conduct this process for a future portfolio company.

Fewer Questions – I sought feedback on a total of twenty nine questions. I should have consolidated some of the questions and eliminated others outright.

Fewer Reviewers – I interviewed six members of the company’s Core Team, which tied up a lot of valuable time that could have been spent in other potentially more productive ways. 

Less Feedback – it may sound counter-intuitive, but I probably compiled too much data. The scope of my review encompassed a total of 174 responses, as a number of questions involved multiple replies (e.g., “List the three most positive aspects of the company’s culture”). I found it challenging to objectively summarize the voluminous information I had gathered.

Fewer Reviews – I reviewed two Founders at the same time, which resulted in some confusion and redundancy in the responses. For instance, some questions on the CTO’s review were answered by citing some of the CEO’s actions and vice versa.

A Good Plan

“A good plan violently executed now is better than a perfect plan executed next week.”
George S. Patton, US Army General

As made clear by the number of my Do Over citations, this 360-review was imperfect. However, the plan which we derived was “good” and will make a real impact on the Founders’ effectiveness.

The (Non)sense Of Entitlement describes the temperament required for successful entrepreneurs to leverage performance feedback. General Patton may have been an effective military leader, but he clearly lacked the Humble Pride that is necessary for entrepreneurs to objectively evaluate constructive criticism and improve their performance. Mr. Patton would have undoubtedly benefitted from an effective 360-review.

Despite his status as an all-star shortstop, Bert proved himself to be a selfless utility player. Over his career, he played all three outfield positions, as well as second and third base. His willingness to add value wherever his coach needed him most, not only helped his teams win three consecutive World Championships, but it also allowed Bert to extend his career by making himself Indispensible.

Entrepreneurs should likewise endeavor to maximize their utility by playing as many positions on their startup team as they can effectively master.

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As discussed in Beach Volleyball, entrepreneurs generally enjoy simultaneously filling multiple roles during a startup’s early days. Thus, it is not uncommon for someone to be responsible for tasks that would be addressed by several people at a Big Dumb Company. By subsuming multiple responsibilities under one individual, a startup can invest more of its cash into furthering its mission. In addition, greater efficiency can arise from the relatively flat organizational structure, which results from such job consolidation.

At both Computer Motion (pioneered medical robotics, NASDAQ ROBOT, acquired by Intuitive Surgical) and Expertcity (creator of GoToMyPC and GoToMeeting, acquired by Citrix), every member of the Core Team was responsible for multiple jobs. At both companies, I was the head of Finance, Human Resources, and I managed all of our legal needs (as described in Roping In The Legal Eagles). In addition to these utility roles, I also lead revenue generation: managing direct sales, business development and online sales. If either company had been forced to hire a CFO, it would have had a significant negative impact on cash.

This arrangement proved very efficient, as I did not have to negotiate with a CFO when cutting sales deals nor did I have to rely on a lawyer to craft and approve contract language. In addition, it was handy to have a CFO who knew how to sell, as it is such an integral part of the fundraising process.

Undoubtedly, this unholy consolidation of sales and finance responsibilities could have been detrimental if I had allowed either role to dominate the other. However, I was careful to balance both responsibilities and not undermine the internal controls that organically arise when two executives occupy these positions. We eventually hired a CFO in both instances: at Computer Motion subsequent to our IPO and at Expertcity after our sale to Citrix. My core and utility roles are depicted in the following chart.

Admittedly, I was not an all-star CFO. However, I was fortunate to recruit a fantastic finance team, which included people I worked with for over 10-years at multiple companies. With strong support, I was good enough to do the job. Fortunately I excelled in other areas, which augmented my overall contributions to my companies. Great utility players do not simply play multiple positions; they play one extremely well and several others more than adequately.

Bert Campinaros knew that he was not as proficient in the outfield or at second or third base, but he willingly took up such positions as warranted by his team’s needs. Just as my exposure to the legal and financial constraints of running a startup made me a more conscientious and profit-driven sales leader, playing multiple infield positions made Bert a more proficient competitor. One gains increased appreciation of the proper throw to second base during a double play after being on the receiving end of a poor throw that causes a collision with a 220-pound base runner. 

Maximize Your Utility By Understanding Your Ability

There are a number of advantages, both to you individually and to your company, which arise from acting as a utility player.

Appreciation – By working in a number of different departments, you better understand the roles of your co-workers, thereby minimizing the risk of an “us vs. them” mentality arising. Performing a variety of roles helps you appreciate the challenges and frustrations faced by others in your organization, which, in turn, makes you a more considerate, empathetic and effective team-player.

Self-Awareness – Greater understanding of one’s strengths and weaknesses lends one to form complimentary teams that allow you to fill in as a utility player in a particular role, in the manner that I shored up my CFO weaknesses.

Team Unity – Playing multiple positions reinforces your Humble Pride, as it requires you to perform duties that you cannot execute at an all-star level. Great utility players do this without hesitation, as they put the team’s performance above their own and thus are comfortable doing whatever it takes, irrespective of their ability to excel at a particular task.

Availability

Entrepreneurs and startup teams work more hours than nearly any other profession. Availability can mean significant travel, attending early or late meetings, as well as working remotely on the weekends and most holidays. Such availability gives entrepreneurs hours of hands-on practice, which ultimately augments their ability.

If the coach / CEO wants to put you in the game and you are not on the bench, ready to play, it does not matter how great you may be. As noted in the Whole Package, a superstar with an inability to show up on game day (mentally, attitudinally or physically) cannot contribute to their team’s success.

Available To All Who Matter

While enhancing your ability via your availability, make sure you also make yourself available to your loved ones. Budgeting discretionary time for yourself and your family should always balance your desire to be available to your startup. This is not simply altruistic advice, as being available to your company means that you can focus on getting results without being distracted by a problematic personal life.

Utility All Star

During three seasons, Bert Campaneris led the American League in sacrifice hits, in which a player forgoes his chance to reach base in order to advance the position of a teammate. The six-time All-star may never make Baseball’s Hall of Fame, but his selflessness, versatility and willingness to play any position asked of him greatly enhanced his “utility” to his teams over his long career. You can likewise augment the strength of your startup team by supplementing your core strengths with multiple utility positions.

______________________
John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
______________________

Copyright © 2007-11 by J. Meredith Publishing. All rights reserved.

Messenger: Thorsten von Eicken, RightScale’s Co-Founder and CTO, Chief Architect at Citrix Online (formerly Expertcity) and Professor of Computer Science at Cornell University and UC Santa Barbara

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10) Thorsten, why does the world need RightScale? 

“Oh, you got me there right in the first question! Does the world really need more servers in more datacenters gobbling up more power to send more tweets and Facebook pages around the world? Or would you like me to sell you a story on how cloud computing is green because these large datacenters are more energy efficient than the same number of computers run in ad-hoc ways?

Let me answer ‘why computing needs RightScale.’ Computing is going the way of the electric grid. I thought the analogy was preposterous back in 2006-2007 but it has become obvious. For this to happen the use of compute servers needs to become much more automated and agile than it is today. All businesses need to have access to the scale, cost structure, and flexibility that the Amazons, Googles, and Facebooks of the world have built internally. That’s what we’ve started to tackle and the mission RightScale is on. Despite all the hype out there, this is still day one of this revolution.”

9) The story of how you started RightScale is classic. In the summer of 2006 over a cup of Peet’s Coffee, you told me about this new thing called “cloud computing” and that you were trying to come up with a creative way to incorporate it into the curriculum of your upcoming UCSB Computer Science class. For those who don’t know the rest of the story, please tell us what happened and how you eventually found yourself on stage at Amazon’s Cloud Computing Expo as a keynote speaker.

“By the way, back then it was just Amazon’s Elastic Compute Cloud [EC2] and both ‘Elastic’ and ‘Cloud’ were candidate key terms. The term ‘cloud computing’ only caught on much later. I taught a somewhat crazy course about writing and deploying a scalable website in Ruby on Rails and deploying it in EC2. I was learning Ruby on Rails just ahead of the students and wrote the tools to help them manage the servers in EC2. Towards the end of 2006 I realized that EC2 was transformative and that people needed help understanding it as well as tools to work it. That’s when I decided to put what I built out there and see how to make it stick.

Along the way many things came together: being able to find the right people, getting great customers, having lots of luck, being in the right place at the right time. One key decision early on was that RightScale needed to become big fast. We were in the center of the activity and thus would soon race against everyone else, many with much deeper pockets. That led us to venture capital as opposed to trying to bootstrap ourselves. We always focused on making the story bigger.”

8 ) You walked away from a tenured professorship at Cornell to join Citrix Online, which I always felt was a very gutsy move. When you began your teaching career, did you plan on eventually being an entrepreneur? What guidance can you give to anyone in a financially safe career who longs for the exciting life of an entrepreneur?

“Academia turns out to be a great place to start from because the system allows you to take a 1-2 year leave of absence relatively easily. Many people go back with lots of new ideas, experience, and energy. I ended up staying at Citrix Online for a variety of reasons, not the least being that it was an incredible mission to be a part of. But throughout the transition I had my safety net. The transition [from Citrix Online] to RightScale was similar. I realized I had to move on, my wife and I looked at the bank account, and gave ourselves a time budget. RightScale came about way fast and before I felt ready.

In terms of guidance the question I’d ask is what makes you happy day in day out? Stock, even converted to $$ isn’t going to do that. Pure excitement isn’t either. If I believe the research and what I experience, most people are happy when they achieve a state of flow where they naturally focus on their activity, are reasonably comfortable that they can make it through, yet are just a bit challenged. This state can be achieved playing games (think of the many levels in online games!), doing sports, and many other activities. But for many people it happens at work–whether they acknowledge or recognize it or not–and I suspect that to be successful at a startup you have to buy into this, perhaps not necessarily fully consciously, and you have to be able to get into a state of flow when the challenge is high.

For another perspective which I certainly agree with, check out Kevin Drum’s blog post on The Power of Single-Mindedness at http://motherjones.com/kevin-drum/2011/02/power-single-mindedness but keep in mind that anything taken to the extreme probably isn’t a good idea…”

7) I loved the AOL disk “sculpture” you kept in your office at Citrix Online. I always thought it was a great symbol of Big Dumb Company ignorance: carpet bombing the world with unwanted and unneeded disks. Most big companies initially rejected use of the cloud, just as they rejected SaaS solutions when we launched GoToMyPC in 2001. What specific steps did RightScale take to contribute to making it “obvious” to everyone that cloud computing is here to stay?

“From day one we focused on customers. When Michael Crandell [RightScale’s CEO] started to get interested in what I was doing, we didn’t spend a lot of time fantasizing about the future. He grabbed all the user email addresses I had collected and started talking to potential customers to find out what they wanted to do. Since then we’ve iterated on trying to provide our customers what they wanted next. That has allowed us to talk about what companies do in the cloud, why they do it, how they do it, what we’ve seen work and not work. In the end the skeptics get convinced because they see others reap the benefits.”

 6) You epitomize what I always tell my students – “A Humble Pride based on ethics and honesty is an entrepreneur’s strategic advantage, not a handicap.” Coming from the world of academia, did you feel you had to overtly fight the Hollywood stereotype that business leaders have to be greedy and vindictive to win?  

“In terms of honesty and ethics, I’ve found over and over that at the leading edge of technology it’s as much about setting and meeting expectations as about raw functionality. Especially with all the hype around cloud, it’s often a challenge but if we don’t communicate clearly what can be done vs. what is still a dream, we get burned in the end. It helps to think positive and focus on the awesome things that are indeed possible. Or to softly educate the customer using phrases like ‘I’m not sure this is a good idea, the way we’ve seen others solve the problem successfully is …’

In terms of the stereotype of vindictive and greedy [businesspeople], it’s something I just don’t want to believe in. Throw in some fear and it’s easy for anyone to land there. What helps me is to always remember the phrase about growing the pie as opposed to trying to get a larger slice. Apply it to all your interactions, whether with VCs, employees, partners, and even potential competitors. It’s contagious!”

5) It is 2015. How will RightScale’s value proposition differ from today and what will the overall cloud computing landscape look like?

“I’ve refused to paint a big vision or to predict long term. Some of that is very personal fear of failure or something like that–if you don’t put a stake in the ground you can’t fail to arrive there 8). Over the coming years computing will continue to evolve towards becoming a grid utility. We intend to continue placing ourselves as much in the midst of that as we possibly can.

One of the interesting questions I’m keeping an eye on is at what level users will consume compute resources, in particular, where in the spectrum between infrastructure as a service and platform as a service. The former gives users more flexibility using lower-level abstractions but perpetrates a lot of the complexity that makes many IT shops slow and expensive. The latter is a bit of a straightjacket that applications have to fit into, but there’s more automation, ultimately leading to lower costs and more agility.”

4) You have a seemingly quiet demeanor, yet you are quite the prankster – your Citrix Online April Fool’s email prank still ranks as one of my favorites. What is your personal practical joke favorite?

“If I told you, it would impact my future prankster opportunities ”

3) RightScale’s Culture of Celebrationis an ideal mix of fun and fanaticism. Is it hard to balance your work hard / play hard culture, especially in beautiful Santa Barbara? Have you attempted any employee morale initiatives that worked either especially well or surprisingly poorly?

“I often have a hard time to ‘let go.’ Fortunately Michael has a great sense of celebrating and having fun. Because we have employees around the world, we have all-employee meetings three times a year. Just getting everyone together for a week and having a healthy mix of work meetings and fun is incredibly empowering. We actually dialed back the time spent in ‘fun’ activities a tad to leave more room for brainstorming and other work activities. My favorite is the afternoon where we have a couple of customer or partner presentations followed by almost 20 lightning talks given by employees. These are 5-minute presentations on any topic related to RightScale and range from new technology demos to HR news and of course satire, making the entire audience howl. But the key is that from start to finish there is no top-down presentation by management.”

2) RightScale crossed the chasm pretty quickly from early adopters (Animoto and Zynga) to mainstream customers (The Associated Press and A&E Television Networks). What did you guys consciously do to manage this transition and how much of it was organic?

“To a large degree we rode Amazon’s coattails. But a lot of credit also goes to Chris Fowler, who built our services organization and was able to provide the kind of customer attention and support that the larger customers needed. New technology tends to have a lot of dark areas that the experienced users know to avoid but newbies step right into, so if you have a chance to guide them, the success rate is much higher. We’ve been very deliberate making services a cost center that focuses on referenceable customers. When push comes to shove, they do whatever it takes to make the customer happy. Obviously this has its own set of pitfalls, like papering over product defects, and needs continuous adjusting, but this basic orientation is so important and energizing across the entire company.”

1) Although it is not true, Santa Barbara is often knocked by the insular Silicon Valley crowd as a place where you can’t recruit top tech talent. You attracted one of the strongest executive teams I have ever seen, especially during your startup’s early days. What recruiting tips can you provide others who are building a world-class tech company outside of Silicon Valley?

“Luck has got to play a big role here! RightScale has been very frugal from the very early days when we were considering bootstrapping. We realized we had to keep this up and asked everyone to make significant financial and time sacrifices to join. I’m sure we missed out on a number of great people, but the net effect is that everyone in the team is focused on the same mission.

The ‘Santa Barbara effect’ has been interesting–we all have cute VC stories around that. Hiring is difficult no matter where you are. If you think everyone here is distracted by the beaches, I think everyone in the valley is distracted by the startup that just got funded next door. There are some people here you’ll find at the beach, some you’ll find at corporate 9-5 jobs, and some you’ll find on an exciting mission. Same everywhere. We also have a significant number of ‘cloudies’ [remote employees around the world] and we’re very active in using technology and travel to keep everyone together.

One thing you might notice is that everyone on the management team has been through a startup experience at least once before. We all had some vague idea of what to expect and some idea about what to do. Some of us have been living here for years and some just moved here. None of us were recruited to Santa Barbara by RightScale. ”

Liftoff: Rapid fire answers to various irrelevant questions:

Reading or watching a movie? “I like to read the end first”
Cats or dogs? “Freedom: neither”
Winter or Summer Olympics? “I used to ski a lot but now that I’m swimming regularly my answer has changed”
Chrome or Firefox? “Gotta stop the Google monopoly somewhere (I’m an Android fan, so they already know way too much about me)”
Risk or Monopoly? “Never played Risk”

He was also often referred to as a “hotdog” for his self-promotional antics and lackadaisical on-field play. When teammate Darold Knowles was asked about Reggie’s hotdog status, he replied, "There isn’t enough mustard in the world to cover Reggie Jackson.”

In addition to his reputation as a showoff, Reggie was renowned for deriding his teammates in the press and initiating clubhouse fights. While it is not uncommon for losing teams to squabble, Mr. Jackson fought his teammates in good times as well as bad.

Rick Cerone, the New York Yankees’ catcher during the early 1980s recalled a fight between Mr. Jackson and teammate Graig Nettles, which occurred at a celebratory dinner following the Yankees’ American League pennant victory.   

“We are going to the World Series and we’re celebrating. But Reggie and Nettles are fighting. Nettles punches Reggie in the face and Steinbrenner is rolling in the middle of the floor trying to break up the fight. And I’m saying to myself, ‘Didn’t we just win the ACLS? We’re going to the World Series right?’”

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Matching Maintenance With Productivity

Although Mr. Jackson was assuredly a superstar baseball player, he failed to realize that even though he was indispensable, he was not irreplaceable. As such, he played for five different teams during his career.

Cal Ripkin, Jr. was also a baseball superstar. However, unlike Mr. Jackson, Cal was a selfless, self-effacing player who routinely played with injuries and placed his team’s victories ahead of his personal statistics. During a 17-year period, he played in 2,362 consecutive games, earning him the nickname “Iron Man”. In doing so, Mr. Ripkin broke the prior consecutive game record, which had stood for 56 years, by 500 games.

No one ever called him a hotdog. Rather than bounce from team-to-team, as is common in major league sports, Cal repeatedly turned down more money and greater media exposure to play his entire 21-year career with the same team, the Baltimore Orioles.

Although Mr. Jackson and Mr. Ripkin represent extreme examples of high and low maintenance sports superstars, the analogy is valid in the business world. Numerous executives have the ability to deliver value to your adVenture. Some will do so in a quiet, unselfish fashion based on Humble Pride, while others will act as A- Players, delivering results while generating negative, unintended consequences.

Consider the following chart, which compares an employee’s productivity with their maintenance. In this context, maintenance is defined as the amount of management time and energy required to sustain the employee’s productivity.


Core Team – These trusted employees act with great autonomy and consistently deliver results with very little coddling

Temperamental Superstars – These individuals perform at a high level, so long as they receive the high level of care and feeding required to assuage their oversized egos.

Farm Team – These individuals are entrepreneurial lieutenants who have the raw talent to become part of the Core Team, but lack the necessary maturity and experience. Hands-on management of these teammates is a worthwhile investment, as they have the ability to eventually enhance their productivity to a high-performing level. However, if their productivity does not increase over time, consider counseling them out of your startup.

Trade To A Competing Team – These individuals represent the worst type of startup employee. Not only do they consume a significant amount of management resources, their output is lackluster, even when they are performing at maximum capacity. Cut your losses and find an alternative home for such employees, ideally at one of your competitors.

The Straw That Stirs Up Trouble

After initially denying an infamous quote in which he was alleged to have said that he was the “straw that stirs the (Yankees’) drink”, Reggie Jackson subsequently told a New York Times reporter, "I’m still the straw that stirs the drink… not nobody (sic) else on this club." Reggie just did not know when to stop swinging his lips and simply swing his bat. Learn from Reggie’s transgressions: you can be simultaneously indispensable and imminently replaceable.

As noted in A+ Players, you should consider an individual’s impact on your adVenture’s Core Values as much as their ability to contribute to achieving your company’s overall strategic goals. Although Temperamental Superstars will help your company achieve short-term victories, most startups do not have the time or energy necessary to keep them happy over the long run. Such mercurial superstars generally do not maintain their high level of productivity while they are sulking over their perceived lack of attention. As such, you are likely better off allowing your competition to hire the Reggie Jacksons of the startup world and focus your efforts on recruiting high performing, low maintenance teammates, like Cal Ripkin.

______________________
John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
______________________

<

Copyright © 2007-10 by J. Meredith Publishing. All rights reserved.

Each time the men crossed the hill and descended out of view, they changed clothing, mounted different horses and then paraded again before the pirates. This ruse caused the pirates to assume that each corps of horsemen was a different contingent of soldiers streaming into the Presidio. Believing he was outnumbered, Hippolyte aborted his plan to sack Santa Barbara and proceeded south where he subsequently pillaged San Juan Capistrano.

Entrepreneurs can emulate de la Guerra’s strategy and make their adVenture appear far larger than reality and thus increasing its influence and market reach while discouraging competitive threats by creating an industry alliance.

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Friends On The Playground

As a child, I moved frequently. At each new school, I had to quickly assess the playground politics and determine with whom to form alliances. I knew that having friends and allies on the playground that would back up “the new kid” was of paramount importance. The same phenomenon is true for startups. As noted in Corporate Venturing, startups should pursue allies who have a vested interest in their success. Such playground friends serve to ensure the startup’s ongoing viability by providing resources, access to customers and technology and market validation.

At Computer Motion, we created two alliances, comprised of a dozen companies with an aggregate market capitalization in excess of $28B.

At the time we established these Alliances, our annual sales were less than $20 million and our market value was approximately $60 million or one-fifth of one percent of total capitalization of our Alliance members.

Audacious? Exactly.

Creating an effective alliance requires a delicate balance between humbleness and hubris, as described more fully in Humble Pride. You must be highly presumptive when approaching potential members of your alliance. Big Dumb Companies (BDCs) are surprisingly compliant when they are presented with a “Program”. BDC employees are used to playing by the rules, so give them a rulebook. To this end, we created an Alliance Program which generated few objections from our alliance members.

By centering our alliances around our products and not our company, each group was comprised of complimentary partners. This enhanced the relevance and cohesion of the alliances. Members were also more comfortable aligning their brands with an emerging technology, as opposed to a fledgling company.

Our Hermes Alliance was based on the first voice recognition technology approved by the FDA for use in an operating room. A variety of medical device companies joined this alliance, in order to voice control their beds, electrocautery cutters, surgical lights and endoscopic equipment.

Our Zeus Alliance was based on our surgical robot which enabled a number of complex medical procedures to be performed minimally invasively, including cardiac surgery.

The Zeus Alliance members sold visualization equipment, surgical instruments and special sutures, all of which were incorporated into our robotic system.

Without these partners, neither Zeus nor Hermes would have been commercially viable. In addition to commercializing our technologies, our alliances afforded us a number of other competitive advantages, including:

Rule Maker – Creating an alliance is akin to defining what is cool when you are in High School and self-servingly including yourself in the definition. Our alliances helped establish Computer Motion as a thought leader within the emerging digital operating room.

Exclusivity – As noted in Excludesivity, startups should avoid entering into exclusive arrangements. Our alliances included arch rivals, each of which preferred to be the exclusive provider of their products within each alliance. Despite tremendous pressure, we avoided exclusive relationships, with one troublesome exception. We knew that if we had created alliances which included only one manufacturer for each type of medical device, we would have alienated potential partners and ultimately encouraged the creation of competitive alliances.

Ironically, our non-exclusive approach created a sense of exclusivity within each alliance. We certified each member’s devices as compliant with our standards and allowed each member to market their products using the Hermes and Zeus Alliance logos. Such certifications and  associated PR opportunities were highly valued by our members. The proliferation of the alliance logos, across a variety of leading products, also reinforced our Hermes and Zeus brands.

Validation – The reflected glory of our high-profile associations gave us significant visibility in the medical device community, which enhanced our sales, business development and fundraising efforts. Like de la Guerra’s small garrison, our creation of the Hermes and Zeus Alliances caused us to appear much larger, and thus more influential, than otherwise would have been possible.

Allies – On and off the playground, friends are preferable to enemies. By delivering value to our alliance members, each had a vested interest in our continued success. This manifested itself in a number of ways, including prospect lead sharing, joint marketing, sharing space at tradeshows and warm referrals to alliance members’ customers.

Revenue – We generated significant fees, over and above our product sales, from our members. Such revenue included membership fees, certification fees, non-recurring engineering charges (to integrate our technology with each member’s products) and User Conference fees. This last category proved to be especially lucrative.

We hosted an annual user conference in Santa Barbara, attended by a couple hundred of the world’s top surgeons. It was readily apparent that large medical device companies were willing to pay significant sums to gain access to these leading surgeons, especially in the intimate setting we provided. We naturally exploited this market reality by allowing alliance members to set up small booths at our conferences. Even though we charged substantial fees for this privilege, our rates were far below those of traditional tradeshows and thus the BDCs generally participated without complaint. As a result, we transformed our conferences from expense line items to profit centers.  

The conferences also served to enhance our stature and influence within the medical device industry, which drove sales and business development partnerships. By design, they were Computer Motion lovefests in which alliance members sang our praises to the world’s leading surgeons, many of whom were prospective customers. Our alliance compatriots were not acting altruistically. It was in their interest to promote the alliance, in order to sell their products as part of an integrated solution.

When Does An Alliance Make Sense?

Clearly, creating a formal alliance is not appropriate for all startups. They require significant energy and focus to ensure each member gains an adequate return on their out-of-pocket expenditures and implicit opportunity costs. At a minimum, your technology should meet the following criteria:

• Key component of larger system which delivers significant value to end users

• True differentiator to each member’s products

• Difficult for alliance members to replicate

• Sexy enough to garner public relations coverage and breathe new life into otherwise staid product categories

Road Rules

Given that some members of your alliance will likely be sworn enemies, you must actively maintain the peace. Although the analogy is distasteful, when you organize an alliance of rivals, you are akin to an arms dealer who sells weapons to all sides of a conflict.

Some methods to minimize discord and drama within your alliance include:

No Favorites – Just like rival siblings, alliance members are resentful of real and imagined preferential treatment of alliance peers. Thus, take care to be consistent and transparent in all your member interactions. This can be facilitated via formal communications sent to all members simultaneously, such as newsletters, podcasts, webinars or conference calls.

Share No Sensitive Information – You will gain tremendous industry insights by listening and learning from your members. However, never cross pollinate anything that could remotely be construed as confidential. If you share sensitive information learned from an alliance member, you risk losing your position as a trusted arms dealer, which could jeopardize the very existence of your alliance.

Safe Environment – Encourage members of your alliance to meet in person and interact on periodic webinars. Do not force them to communicate with each other, but provide them a safe and comfortable venue for them to do so. Positive personal interactions, especially those built around social events, will strengthen your alliance’s effectiveness and longevity.

Pirates Be Gone

As evidence by our experience at Computer Motion, creating one or more industry alliances can be an economical (and profitable) way for your startup to gain mindshare and visibility that would otherwise be impossible. Much like de la Guerra, we appeared far larger than our actual size which enabled us to exert an outsize level of influence within our industry.  

______________________
John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
______________________

<

Copyright © 2007-10 by J. Meredith Publishing. All rights reserved.

If this gentleman was such a pivotal player in the early days of the PC revolution, why is he essentially unknown to most entrepreneurs under forty years old?

The short answer is that he failed to conform to his Stakeholders’ realities. Few mistakes would have such wide-ranging implications in the business world over the next two decades.

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Gary Kildall’s contribution to the evolution of the PC industry is legendary. Some of the additional “firsts” attributed to Kildall include:

• Wrote first PC operating system

• Architected menu driven systems, windows capabilities & preemptive multitasking

• Developed first floppy disk operating system

• Designed CD-ROM filing system and created Universal Software Bus

• Established basis for PC local-area networks

• Pioneered nonlinear playback and search capabilities, commonly used in DVD technology

Due to the number of contributors to the PC’s evolution, some of the above “firsts” could be reasonably argued. Yet, no one disputes Mr. Kildall’s leadership role during the emergent days of the PC industry. So why is he virtually unknown? The glib answer is that he had the misfortune of competing with Bill Gates.

However, there is more to Mr. Kildall’s story than whether or not Microsoft competed fairly against his CP/M PC operating system, which by 1980, was overwhelmingly the market leader. Much has been written about how Microsoft entered the operating system market and a number of ethical lessons can be drawn from the manner in which Microsoft handled its relationship with Intergalactic Digital Research, Mr. Kildall’s company. However, this essay does not focus on Microsoft’s actions. Few young entrepreneurs know about Mr. Kildall’s contributions because of his behavior, not Mr. Gates’.

Reality Conformance

“History is written by the victors” Winston Churchill, 20th century British Statesman

The myth that arose to explain why IBM selected Microsoft’s Operating System over Digital Research’s market leading software is that Mr. Kildall opted for a joy ride in his private plane the day the IBM executives visited his offices. This apocryphal story was repeated so often, many people accepted it as fact.

In reality, Gary Kildall was present when IBM came knocking during July of 1980. Author Harold Evans in his seminal work, They Made America, draws from Mr. Kidall’s unpublished biography three reasons why Digital Research did not establish a partnership with IBM, which are paraphrased below:

• No large company had previously been successful in the PC market

• Kildall did not want IBM employees stationed in his offices

• Kildall did not want to betray Digital Research’s original equipment manufacturing (OEM) partners

Mr. Kildall claims that his loyalty to his OEM distribution partners was the primary source of his reluctance to partner with IBM. However, his actions indicate that the cultural clash between the two companies was the real reason a deal was never consummated.

Instead of utilizing Digital Research’s stable, industry leading operating system, IBM licensed Microsoft’s software. What IBM did not realize was that Microsoft’s code was hastily written by a single programmer who relied upon Digital Research’s CP/M architecture. The original name of the software Microsoft licensed to IBM was Quick and Dirty Operating System (QDOS), which Gates artfully renamed it MSDOS. As Harold Evans points out, “By adopting Microsoft Disk Operating System (MS-DOS), IBM and Microsoft forced users to endure years of crashes with incalculable economic cost in lost data and lost opportunities.”

Flower Power

Kildall, a former college professor, was proud of Digital Research’s academic culture. Beer and pizza were served on Friday afternoons and anyone who dressed in a suit was easily identified as a visitor. In many ways, the culture Kildall established was a precursor to the egalitarian, laid-back environments made more famous by Apple, Yahoo and Google before they became Big Dumb Companies. Such cultures place seeking the truth above blind allegiance to hierarchy or rank.

In addition to his sanctimonious view of his corporate culture, Mr. Kildall was also a victim of his company’s success. At the time IBM sought out Digital Research’s operating system, it was widely understood that nearly every PC was running an operating system that was either directly or indirectly based upon Digital Research’s CP/M’s code. Widely understood, as Harold Evans points out, by nearly everyone except IBM.

IBM’s staid culture and utter lack of understanding of the PC market caused Kildall to underestimate the value of the potential partnership. He felt they needed him more than he needed them. In this regard, Mr. Kildall’s lacked self-awareness. Small companies cannot afford to be self-unaware.

Kildall should have realized that the IBM executives viewed him and his team as naïve, slightly arrogant hippies. By adopting an attitude based on Humble Pride, Digital Research could have taken advantage of IBM’s ignorance. In 1980, IBM was the prototypical Big Dumb Company (BDC). They knew what they wanted but had no idea how to achieve their goals. Rather than seizing this extraordinary opportunity to infiltrate IBM and educate them as to CP/M’s benefits, Digital Research considered IBM’s lack of knowledge of the PC market as further evidence that IBM’s PC would fail and thus the partnership was not worthy of its time or attention. Educating BDCs is an opportunity to be embraced, not a challenge to be avoided. When a BDC lacks information, a small company can add tremendous value to the relationship and thus exercise significant influence over the terms of the partnership.

Mr. Kildall was comfortable scorning IBM because he felt that the PC market would be different and the rules established in the “old world” of the mainframe and minicomputer industries were not applicable. He was wrong. (see the upcoming It Ain’t Gonna Be Different)

Raising Money And Selling Robots

Computer Motion, a medical robotics startup which we took public in 1997 and was later sold to Intuitive Surgical, developed a collegial corporate culture in its early days, similar to Digital Research. In the early 1990’s, when few companies introduced the radical concept of “casual Friday”, we routinely worked in shorts, T-shirts and flip-flops. However, whenever we hosted visitors, the company’s executives dressed in attire consistent with that of our guests. If the visitors were Bay Area venture capitalists, Dockers and a collared shirt were in order. If they were Hospital Administrators from the Midwest, we would don the full monty (i.e., a coat, tie and socks).

In this way, we conformed to our guests’ version of reality. We did not ask them to accept our Santa Barbara, casual startup view of the world. Attire may seem like a small point, especially since dress codes subsequently became universally relaxed by the late 1990’s (even at Midwest hospitals!). However, conforming to our guests’ realities did not stop with our clothing. We also placed ourselves in our potential Stakeholders’ shoes when crafting the nature and scope of our relationships and we never assumed that our Stakeholders needed us more than we needed them.

Gates And The Department Store Tie

During the flight to meet IBM for the first time at their Boca Raton headquarters, Bill Gates realized that he had not packed a tie. Rather than saunter into IBM’s offices wearing West Coast casual attire, Bill went directly from the airport to a department store, where he purchased a tie. He understood the importance of conforming to the reality of his Stakeholders, especially those who had the ability to place his adVenture on an entirely new growth trajectory.

There is no need to assume that your individuality will be lost in a never ending quest to conform to the reality of others. Such conformance is a temporal phenomenon. As your adVenture succeeds, you can be less concerned with conforming to others’ reality and start creating a reality of your own. However, on your road to success, do not repeat Mr. Killdal’s mistake and assume that modest success during the early days of an emerging industry gives you license to reject your Stakeholders’ perception of reality. When it comes to Stakeholders, their perception is your reality.

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John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
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Copyright © 2007-10 by J. Meredith Publishing. All rights reserved.

Lou Pearlman, owner of Trans Continental Airlines, watched five teenagers crowd into one of his private planes. He asked himself, “How the hell can these kids afford to charter a private plane?” The answer surprised him.

The “kids” were the pop singing group “New Kids on the Block” (New Kids or NKOTB), which at the time was one of the most successful musical acts in the world.

Pearlman was unimpressed with the group, but his chance meeting with them sparked an entrepreneurial adVenture. He wondered, “How hard can it be? Get some cute kids who can sing, teach them to dance and unleash them on the public.”

With no experience in the music industry, no musical talent and no fear, he developed musical groups and solo artists that collectively sold over 160 million records, twice as many as NKOTB. Pearlman’s most successful artists include The Backstreet Boys, ‘NSync, Aaron Carter and Jordan Knight.

Whether or not you like or even respect the music created by Pearlman’s performers, the manner in which he conquered the music industry offers relevant lessons for any entrepreneur attempting a fast-follower market-entry strategy.

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Fast followers learn from the costly investments made by the company (or companies) which first enter a market. As described in Fast Follower III, a savvy fast follower can overtake first movers by leveraging the foundation laid by the early market entrants, including the education of consumers regarding the benefits of the new offer, the development of new distribution channels, and the validation of the new product’s features and benefits. However, as noted in Fast Follower II, simply copying what has come before is seldom an effective follower strategy, even when the copy is significantly less expensive than the original.

Bratty Barbie

Not exactly a “fast follower,” Bratz dolls were introduced in 2001 as a sexy, edgy alternative to the Barbie doll, which had been a perennial best-seller for the previous 40 years. The dolls were similar in many respects. Both were approximately the same size, targeted to the same demographic, and offered consumers a shopping mall’s worth of associated merchandise.

However, there were also significant differences. For instance, the Bratz dolls wore heavy makeup and their garments were sexually suggestive, as depicted in the photo at left. Parents’ reactions to Bratz were generally negative. Ironically, by 2001, Barbie had been on the market so long, few people recalled that she was inspired by a German sex doll named Lilli. After decades of being derided as harmful to young girls’ self-images, many Americans viewed Barbie as a wholesome alternative to its coquettish Bratz counterpart. In contrast to the threatening Bratz dolls, Barbie’s ample chest and impossibly long legs seemed tame.

Not surprisingly, the more parents were offended by the sexy Bratz dolls, the more their children craved them. Over the next eight years, the Bratz brand grew to over $2 billion in annual sales and became the second-biggest-selling fashion doll behind Barbie, with a 40% market share.

Whenever creating an imitation of a successful leader, great care must be taken to avoid outright intellectual property infringement; the closer the duplication, the greater the care which must be exercised. MGA Entertainment (MGA), which produced the Bratz dolls, learned this the hard way. Late in 2008, U.S. Courts forced MGA to cease and desist in the manufacture of the dolls. A jury deemed that the creator of Bratz, Carter Bryant, devised the idea while he was an employee at Mattel. In the Spring of 2009, a U.S. Court of Appeals upheld the jury decision, mandating that the intellectual property associated with Bratz dolls was the sole property of Mattel.

At the time Mr. Bryant created the doll, Mattel rejected the idea, as it was reticent to risk a new offering which might “sully” the reputation of its cash cow. Like many Big Dumb Companies, Mattel did not realize that if a company is not willing to turn its cash cow into a sacrificial cow, someone else will do the honors. An example of how DC Comics was able to continue milking its cash cow while creating a new one is detailed in Fast Follower II.

Newer Kids

“Nostalgia isn’t what it used to be.”
Peter De Vries, American Editor and Novelist

Like the Bratz dolls, Pearlman’s groups were not mere duplicates of what had come before. Rather, he leveraged the most salient aspects of the NKOTB’s “boy band” formula, while making subtle changes that sufficiently differentiated his acts from the numerous boy band clones which arose in the wake of the New Kids’ success.

Some of the specific tactics deployed by Pearlman in the development and launch of his artists include:

Make Meaningful Investments – Pearlman reportedly spent three million dollars selecting the members of his first group, The Backstreet Boys. Significant investments were also made with respect to marketing, public relations, touring and hiring a strong supporting cast (as noted below), before any revenue was generated. The necessity of such investments often makes it challenging for fast followers to bootstrap their operations. For a list of the other characteristics that dictate whether an adVenture should be a first mover or a fast follower, see Fast Follower III.

Hire A+ Players – In addition to hiring talented performers, Pearlman recruited the former New Kids’ manager. In addition, he added to his team the song-writing and production talents of Max Martin, who eventually crafted hits for a number of Pearlman’s artists, as well as Britney Spears, Pink and other notable performers. For more on the characteristics which distinguish top-notch team contributors, see A+ Players.

Test in Safe Markets – Pearlman’s groups initially released their songs in secondary European markets, such as Germany and England. The songs which were well-received were then Americanized with a funkier, hip-hop sound before their launches in the U.S. This judicious approach to product validation allowed Pearlman to make mistakes in smaller, less significant, markets and reduce the risk of marketing a dud song in a large, expensive market.

Focus On Initial Win – Pearlman refined the formula with the Backstreet Boys before he focused his energy on developing additional artists. Once he codified his “formula” for pop star success, he then made slight modifications to differentiate each subsequent performer.

By creating multiple artists, he undoubtedly cannibalized the Backstreet Boys’ sales. However, he ultimately generated more revenue by crowding the market with similar products, thus making it more difficult for non-Pearlman pop groups to compete. This “product line” method of artist development also made it possible for Pearlman to allocate his fixed costs over multiple revenue streams. Unlike Mattel, Pearlman was willing to risk adversely impacting his primary brand in order to enhance his overall competitiveness.   

Define Your Elephant’s Pink Sunglasses – When entering a market as a fast follower, you cannot simply sell a “me too” product. Your offering must have a highly visible and memorable trait which immediately differentiates it from the competition. For instance, an elephant wearing pink sunglasses is far more memorable and impactful than an elephant devoid of striking eyewear. A similar sentiment regarding the importance of differentiation is expressed by Seth Godin in his book Purple Cow.

In the cases of the Backstreet Boys and his subsequent artists, Pearlman’s approach was similar to that taken by the creators of Bratz. In contrast to the New Kids’ clean-cut image, Pearlman gave his other acts a rougher, more mature look, even though he was appealing to the same young female demographic. For instance, many of his artists had prominent facial hair and utilized choreography taken directly from male burlesque acts, such as the Chippendales. Even the name “Backstreet Boys” was selected for the bad-boy, dark images it connotes.

Pearlman’s artists, like the Bratz dolls, offended parents, who longed for more “wholesome” acts, such as the New Kids. Despite parents’ misgivings, Pearlman’s acts proved immensely popular with prepubescent girls. 

Another Heel Wounded By Time

Lou Pearlman may have been a clever, fast follower, but he did not suffer from Humble Pride. As noted in Time Wounds All Heels, dishonesty is a significant handicap to anyone who aspires to be a successful serial entrepreneur.

Mr. Pearlman’s penchant for cutting one-sided deals and cheating his business associates, including his performers, out of their rightful earnings finally caught up to him in 2007. After his arrest on a variety felony charges, he was eventually convicted and sentenced to 25 years in federal prison. I wonder, as the new kid on the cell block, if he was given the prison moniker, “Backstreet Boy.” Hmmm….

This is Part I of the three part series on Fast Followers. The second part is here and third part will be posted next week.

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John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.
John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses. He is also the author of an award-winning entrepreneurial blog infoChachkie.com. You can learn more about his experiences at johngreathouse.com
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Copyright © 2007-9 by J. Meredith Publishing. All rights reserved.