Let's get the self-aggrandizing plea for attention out of the way: Please vote for my SxSW panel entitled "A Bootstrapped Geek Sifts Through the Bullshit." It answers questions like "How do I get the courage to just start when I know so little about what it's really like at a startup?" and "How do I balance the utility of learning from others with wanting to go my own, unique way?" Plus it's ironic; I'm giving advice about how to take advice. You know, like finding a black fly in your Chardonnay. (White flies are harder to see and therefore not ironic, you see.) OK, now on to the good stuff... Champion of the dipshits Michael Arrington wrote an interesting piece today at TechCrunch about how VCs are pissed that great entrepreneurs are taking under $500k of angel money instead of $2m their money. The real reason they're pissed is that VCs are increasingly unnecessary to get companies started, both because of inexpensive technology and marketing channels and because there are enough angel investors that founders don't have to sell the entire farm for ridiculous amounts of cash they don't really need. And then, for the few companies that really do need VC-sized investments to take them from product/market fit to explosive growth, by the time they start touring Sand Hill Road their valuations are sky-high; they've already got all the trappings of a successful company, the major risks having been removed during the angel round.

All this is explained in clear detail in Paul Graham's his piece on the future of tech investing — a must-read for anyone interested in financing. He's is biased, of course, because he leads the 200+ company Y-Combinator incubator, but his predictions have already come true for many founders I know personally. Of course the VCs aren't happy about this. This excerpt from the TechCrunch article made me livid: The VCs, for their part, fight back more quietly. They point out that very few angel funded startups end up very big or interesting. “An entire generation of entrepreneurs are building dipshit companies and hoping that they sell to Google for $25 million,” lamented a venture capitalist to me recently. He believes that angel investors are pushing entrepreneurs to think small, and avoid the home run swings. And you don’t get a home run unless you swing hard, he says. When you play it safe you nearly always lose. Rather than provide a cogent argument for why founders ought to take VC money anyway, the response is to call the company a "dipshit" and reveal the astounding arrogance that a few founders selling their company for $25m is somehow a failure. To understand what's really being said here, you have to replace the word "you" with the actual antecedents.  So: "When you play it safe you nearly always lose" should read: "When founders play it safe VCs nearly always lose." But founders often win. That's what gets me about this entire attitude — it's about returns for their fund, not success for the founders. Which is how it should be, understand, because they have a fiduciary duty to their investors, not to the founders of the companies they invest in. It's OK for them — it's their job — but it's not OK for you. "You" being "you, entrepreneur, reading this, the one who matters." At last year's Capital Factory Demo Day, Mike Maples Jr. gave the keynote address. He gave the statistic that only 9% of the companies they invest in succeeded. And his venture firm is considered one of the more successful ones. (By the way, Maples is now doing super-angel deals. Interesting.) The math is simple: Only one in ten companies need to hit, but it needs to hit big, like 100x the original investment. Of course no one wants the rest to fail, but every one will be pushed into explosive growth, which means strapping a rocket to the back of each one, even if that means the vast majority will just blow apart. Great for them, bad for the founders. The last thing they want is for founders to wake up and realize that this isn't necessarily a good way to build a company. They don't want you to realize that if you shoot for reasonable, profitable growth, it's far more likely to work, far more likely to produce a company that not only pays the bills but is a valuable asset, one that you might sell someday for millions of dollars, like I did. For them, a little, solid company for $25m to Google is dipshit material. For you and me, it's a life-altering home run. Until I hear a rational argument for why super-angels, angels, or friends-and-family rounds are worse for founders than a standard A-round from a VC, I'm just going to ignore these emotional, self-serving statements. And I suggest you do too. Focus on building a company you're proud of, not how big and disruptive you can be. Focus on getting to profitability as the greatest measure of success. Focus on selling customers, not selling investors. And vote for that SxSW panel so I can spread the Good Word to others.  :-) Is my argument healthy or too far the other way? When is it right to take VC money right off the bat? Let's continue the discussion in the comments.

This is Part 3 of the series: 5 lessons from 150 startup pitches.

Of hundreds of startup pitches at Capital Factory, almost none had unearthed 10 people willing to say, "If you build this product, I'll give you $X." Meditate on this: Hundreds of people ready to quit their day jobs, burn up savings, risk personal reputation, toil 70 hours per week, absorb as much stress as having a baby (believe me, I've done both)....  all without identifying even ten measly people actually willing to pay for what they're peddling. Short-sighted, no? If you can't find ten people who say they'll buy it, your company is bullshit. Aren't you sick of every startup blogger on Earth badgering you about this? Steve Blank says "get outside the building," Eric Ries says "seek validated learning," Sean Ellis says "seek product/market fit," Drew Houston says "the only way to learn on a $0 budget is to talk to people." I say "find ten people who say they'll buy." I say "get off your ass and produce hard evidence that customers are in your future light cone." But you're still not listening. You repeat these mantras at Lean Startup Meetings but you're not doing it. You're understandably scared of been proved wrong, especially now that you're all worked up about the new business idea, and extra especially after you've already told friends and family you're doing this and they're expecting you to complete your quest. But jeez people, you're not even trying. And worse, you're inventing lame excuses for why you're not trying. Full power to forward shields y'all, I'm coming for you. "I'm scratching my own itch. Since I'm my own target customer, I already know what to build." Oh! I didn't realize your typical customer is observant enough to recognize monetizable pain, creative enough to invent products, able to convince others to work for free and invest money and time with you, and passionate enough to quit her job to pursue unproven ideas. Fooey! By definition, if you're a startup founder you're explicitly not your customer. "Scratching your own itch" is how all three of my companies started, but it's only that — the start. It's the spark of inspiration, not the strategy. It's the grain of sand tickling the oyster, not the pearl. Look! Smart people agree: "Be a user of your own product. Make it better based on your own desires. But don't trick yourself into thinking you are your user."  —Evan Williams, founder Blogger & Twitter "If the VP of Engineering thinks the target customer is just like him/her, you're doomed.  If the VP of Marketing thinks the target customer is just like him/her, you're doomed."  —Cranky Product Manager "Our customers did a lot of stuff that I would never do. We think differently. We solve our problems differently. We have different needs and wants. Repeat after me: You are not your customer."  —Eric Ries, Lean Startup leader (repeating a conversation with a startup founder) In fact I challenge you to find one founder of a real business who thinks "I'm the customer" is the only market validation you need. "There are millions of potential customers, so it doesn't matter what only ten of them think. I need to just start; later I can survey and learn something statistically significant." If there are millions, it's trivial to find ten. If you can't find even ten, then either there's not millions or those millions aren't interested in you. Businesses don't start with millions of customers, they start with one, then ten, then a hundred, and then a thousand. But most don't get past ten. If you haven't gotten ten to at least say they'll buy, where do you get your hubris to proclaim that thousands actually will buy? "My customers can't understand mock-ups. I have to build it first." You shouldn't need screenshots or PowerPoints to convince someone in your target market that what you're doing is compelling. If your concept is so esoteric that you can't describe it in 30 seconds at a cocktail party, it's either too complex or you don't understand it yourself. Even if I concede that some folks can't grok mock-ups, remember that your first customers will by definition be early-adopters who are OK with alpha software. If you can't find a few of those and get them excited about your product, maybe your product isn't exciting. "I suck at sales/marketing; I need to build a product so compelling it sells itself." The world is filled with decent products that make no money. You know this! Oh fine, you want empirical evidence? Here's a list of the top 100 Twitter clients, and here's some more. Now:

How many do you suppose are decent pieces of software that basically work?  (My guess: 80%) How many do you suppose produce any revenue?  (My guess: 5%) How many do you suppose produce enough revenue that, after hosting and marketing expenses, they result in a profitable company where the owner doesn't need a day job?  (My guess: <1%)

Conclusion: If your goal is a business (not a hobby), building charming, novel software isn't enough. You and I know you have the ability to build cool new software. We agree that will be fun and exciting. But that's not going to create a business. Writing code is what you love, so you myopically decide that's what you'll do. But what you should do is just the opposite: Attack the part of the business you're least sure of, you're least qualified for. If you're still not convinced, think of it as project risk management. In a big software project do you tackle the high-risk, ill-defined stuff first, or do you postpone that to the end? Obviously you address the unpredictable stuff first — most of the project risk is due to the unknown, so the earlier you can sort out uncertainty the more time you have to deal with the consequences. I'm making the same argument, except the "high-risk unknown" is "everything that's not code." Your code will be good enough; it's the other stuff that will probably sink your ship — unable to find customers or unable to convince the target audience they should open their wallets. No sense in postponing it. "My friend/brother/co-worker/dentist thinks it's a great idea." Your mother thinks you're smart and good-looking, but that doesn't mean I do. It doesn't matter what non-entrepreneurs think because they're not versed product/market fit, squeezing blood from evanescent budgets, and using Facebook for advertising instead of sharing the latest FailBlog movie. In fact it only barely matters what real entrepreneurs think, because they're not expert in your problem domain, they might have outdated notions, they might be biased against certain ideas and technology, and they carry baggage from good and bad experiences (due as much to timing and luck as anything else). The only thing that matters is that people are willing to give you money! Business "experts" can argue all day long that it makes no sense to buy shoes over the Internet, but as long as people give Zappos $1 billion per year, it doesn't matter what experts say. When ten people say they'll give you money if you build this thing, that's the only validation that counts. What else? What other excuses have you heard? Which excuses are you using now? Leave a comment and continue the conversation.

This is part 1 of the series: 5 Lessons from 150 startup pitches. Listening to first-time entrepreneurs talk about their competitive advantages is as predictably invalid as the local weatherman's 10-day forecast.

Between this blog and reviewing applications to Capital Factory I see hundreds of pitches a year. Every pitch has a section on competitive advantages, and quite literally 95% of the time the claimed competitive advantages are pathetic, unoriginal, and not really advantages at all. The first clue that your competitive advantages aren't actual advantages is that everyone else on Earth claims those advantages too! P.S. Next week I'll talk about what are real competitive advantages. The following are not competitive advantages: We have feature X. This is an advantage only until others copy it, so it's not long-term protection against competition. Indeed, the next company can observe what works well and what doesn't, and than improve on your innovation. End users don't care who thought it up, they just care how it works today. We have the most features. It's common for older products to compete on the fact that they have more features than the competition. Trouble is, customers don't want more features, they want the right features. As the competition also adds features, they reach a critical mass where they have all the features 80% of your customers want, and then just having "more" is no longer an interesting selling point. We're patenting our features. "No one can compete with my blog because it's copyrighted." Silly, right? That's what you sound like when you claim that getting a software patent will protect you from competition. Except in certain industries (e.g. food, drug, medical), I'm unaware of companies who stave off quality competitors through patent holdings. Software patents are especially useless for small, bootstrapped startups. It's even true in hardware: Every mp3 player uses zillions of patents, but that didn't stop Apple from winning. We're better at SEO and social media. 80% of Americans believe they are better-than-average drivers. Can't be true, right? Well 80% of the folks I meet tell me they're way better than average at SEO, Twitter, and "building communities" whateverthehell that means. Social media and SEO is ever-changing quicksand. You're on top of Google today, gone tomorrow. Other companies being good — or better — is completely outside your control, so claiming that you have a sustainable advantage is poppycock. We're passionate. Everyone has passion. What, you think everyone else quits their job, starts mowing through savings, works long hours, and yet has no passion? Passion is necessary but far from sufficient. This is like saying, "My children are going to be more successful because I love them more than you love yours." This makes investors roll their eyes and show you the door. We have three PhDs / MBAs. The landscape of successful startups is littered with people lacking post-graduate education. If you've lived in the software world for a few years you know the stuff they teach you in school is irrelevant, so who cares what degree you have? In all the interviews you've read about founders' success, how many credit their MBA program? How many even have MBAs? It's not bad to have a degree, but neither is it a significant advantage. We work hard. You hear about the 37signals guys working 30 hours per week and Tim Ferris just four hours (bullshit!), so you figure if you work a "healthy" 70 hours per week, you'll win! But working harder is not, in fact, smarter. And even you could work 70 on-task hours per week, that's still blown away by 10 developers at a funded company or even 10 passionate open source developers working part-time. We're cheaper. It's not bad to be cheaper. Indeed, at ITWatchDogs, the company I did before Smart Bear, being inexpensive was critical to our strategy. The key is that you cannot compete only on price, because then all a competitor has to do is lower their price. Established companies can destroy you with the "lost leader" strategy (e.g. when Microsoft put 1,000 developers on IE and gave it away for free, destroying the market for web browsers), newly funded companies can spend ludicrous amounts of money to get market share (even if it means taking you down with them), and anyone can implement a "freemium" model. In the case of ITWatchDogs, the reasons we were cheaper were that (a) we sold direct instead through a channel, so our product wasn't marked up 6x before it got to the customer, and (b) we used the newest, cheapest parts whereas our established competitors had stopped innovating and were using expensive 5-year-old parts. So where does that leave us? Haven't I just claimed that the fruits of intense effort and innovation and one-upmanship isn't enough? Yes. Innovative design and intellectual property are no longer long-term competitive advantages. You live in the era of the flat world where millions of people have access to technology, education, and a powerful sales, marketing, and communication platform (the Internet). You live in the era where the most powerful programming frameworks and tools are free, local broadband and high-availability servers are cheap, and world-class people are willing to work 60 hours/week in exchange for Ramen noodles and the chance to be a part of a cool new startup. There's too much energy, availability, intelligence and opportunity in the world to hide behind outdated notions of intellectual property. Almost anything can be copied. In fact, I'd claim that anything of any value will be copied. It should be part of your business plan that other people will copy you. Fortunately there's plenty of ways to have true advantages that competition cannot readily overcome. Unfortunately, they're difficult and rare. Of course they are! What, you thought creating and running a successful, untouchable startup was easy and commonplace? Next week I'll go into depth on some true unfair competitive advantages — ones that cannot be overcome even by a giant company, a funded company, a bootstrapped company, or an open-source movement. Are these assertions unfair? Do you have more false-advantages to add? Leave a comment and join the conversation.

What do these have in common?

"This pitcher has retired 5 of the last 7 batters." "We tried 10 AdWord variants and combination D is the clear winner." "The Bible Code predicted the Sept 11 attacks 5,000 years ago." "We sliced our Google Analytics data every which way, and these 4 patterns emerged."

All are examples of a common fallacy that I'm dubbing the "Pattern-Seeker." You probably laugh at Nostradamus, yet it's likely you're committing the same error with you own data.

Patterns in Chaos It's commonly said that basketball players are "streaky" — they get on a roll hitting 3-pointers (have a "hot hand") or develop a funk where they can't seem to land a shot ("gone cold"). These observations are made by fans, announcers, pundits, and the players themselves. In 1985 Thomas Gilovich (featured in the entertaining book Innumeracy) tested whether players really did exhibit streaky behavior. It's simple — just record hits and misses in strings like: HMHHMMMMHMMHH, then use standard statistical tests (specifically autocorrelation) to measure whether those strings are typical of a random process, or whether there was something more systematic going on. Turns out players are not streaky; simply flipping a coin produces the same sort of runs of H's and M's. The scientists gleefully explained this result to basketball pundits; the pundits remained non-plussed and unconvinced. (Surprised?) So they tried the same experiment backward: They created their own strings of H's and M's with varying degrees of true streakiness and showed those to pundits and fans, asking them to classify which were streaky. Again they failed spectacularly. We perceive patterns in randomness, and it extends beyond casual situations like basketball punditry, plaguing us even when we're consciously trying to be analytical. Take the "interesting statistic" given by the baseball announcers in the first example above. Sure the last 5 of 7 batters were retired, but the act of picking the number "7" implies that number 8 got on base. Maybe number 9 did too. Of course saying he "retired out 5 of 9 batters" doesn't sound as impressive even though it's the same data! But unlike the basketball example, the baseball announcer's error runs deeper, and following that thread will bring us to marketing data and the heart of the fallacy. Seeking combinations Baseball records a dizzying array of statistics which announcers — or more correctly, staff statisticians — eagerly regurgitate. Maybe it's because baseballers are a little OCD (just look at pre-bat and pre-pitch rituals) or maybe it's because they need something to soak up the time between pitches, but in any case the result is a mountain of data. Announcers exploit that data for the most esoteric of observations: "You know, Rodriguez is 7 for 8 against left-handed pitchers in asymmetric ballparks when the tide is going out during El Niño." This is the epitome of Pattern-Seeking — combing through a mountain of data until you find a pattern. Some statistician combed through millions of combinations of player data and external factors until he happened across a combination which included a "7 of the last 8," which sure sounds impressive. Then he proudly delivered the result as if it were insight. So what's wrong with stumbling across curious observations? Isn't that exactly how you make unexpected discoveries? No, it's how to convince yourself you've made a discovery when in fact you're looking at pure randomness. Let's see why. Even a fair coin appears unfair if you're Pattern-Seeking The fallacy is clearer when you look at an extreme yet accurate analogy. I'm running an experiment to test whether a certain coin is biased. During one "trial" I'll flip the coin 10 times and count how often it comes up heads. 5 heads out of 10 would suggest a fair coin; so would 6 or even 7, due to the usual random variations. What if I get 10 heads in a row? Well a fair coin could exhibit that behavior, but it would be rare — a 1 in 1024 event. So if my experiment consists of just one trial and I get 10 heads, the coin is suspect. But suppose I did a lot of trials, like 1000. A fair coin should still come up heads 3-7 times per trial, but every once in a while it will come up 9 or 10 times. Those events are rare, but I'm flipping so much that rare events will naturally occur. In fact, in 1000 trials there's a 62% chance that I'll see 10 heads at least once. This is the crux of the fallacy. When an experiment produces a result that is highly unlikely to be due to chance alone, you conclude that something systematic is at work. But when you're "seeking interesting results" instead of performing an experiment, highly unlikely events will necessarily happen, yet still you conclude something systematic is at work. Bringing it home to marketing and sales data Let's apply the general lesson of the coin-flipping experiment to Google Analytics. Take Google Analytics. There's a hundred ways to slice and dice data, so that's what you do. If you compare enough variables enough ways, you'll find some correlations: "Oh look, when we use landing page variation C along with AdWord text F, our conversion rate is really high on Monday mornings." Except you sound just like the baseball announcer, tumbling combinations of factors until something "significant" falls out. Except you're running 1000 coin-flip trials, looking only at the trial where it came up all heads and declaring the coin "biased." Except you're seeing streaks, hoping that this extra-high conversion rate is evidence of a systematic, controllable force. So what's the answer? The fallacy is that you're searching for a theory in a pile of data, rather than forming a theory and running an experiment to support or disprove it. So:

Instead of running multiple AdWords variants each against multiple landing page variants each feeding a different website funnel, run just one experiment at a time, one variable at a time. Instead of using a thesaurus to generate 10 ad variants, decide what pain-points or language you think will grab potential customers and test that theory specifically. Instead of rooting around Google Analytics hoping to find a combination of factors with a good conversion rate, decide beforehand which conversion rates are important for which cohorts, then measure and track those only.

More! Do you have more examples of what to do or what not to do? Leave a comment and join the conversation.

You probably think of "tech support" as the bottom of the food chain. "Shit flows downhill" and all that. After all:

Tech support deals with insane customers. Tech support answers the phone; a job even salesmen don't want. Tech support keeps angry customers at bay while having no power to effect change.

Yep, that sounds lowly. Dismal too — how would you like to deal with an irate voice screaming at you when you know how to fix the problem but lack the authority to do it? This is a masochistic job for a poor slob with no other job prospects, right? If this is your attitude, your conception of tech support is completely backwards and you're missing out on important channels for marketing, product development, and sales. The unexpected face of your company We've all been jarred by someone's voice not matching their picture. Take English footballer David Beckham, the quintessential picture of manly sportif — washboard abs, ex-captain of the English national team, and married to Posh Spice. But then he opens his mouth. It's like Kermit the Frog got kicked in the balls. (Oh, sorry UK folk, I mean kicked in the bollocks.) It's so unexpected it's the only thing you remember. Of the 3,204,523 pub conversations where someone said "Have you heard him speak?" maybe only 17 could tell you what he actually said. You assume your home page is the public face of your company, but what happens when you open your mouth? What happens when your bullet points collide with your behavior? For most of your customers, tech support is the only human interaction they'll have with you. Are you really going to leave that up to your worst-treated, least-paid, least-qualified employees? Tech support is sales At Smart Bear we made millions of dollars in both individual and enterprise sales without "sales." Well, at least without the usual definition of "sales" — a collection of processes, personalities, and management single-mindedly focussed on hauling in revenue on a quarterly schedule. How did we get six-figure deals without playing golf or using Salesforce? Simple: Our tech support was sales. You could say the purpose of tech support is to answer questions or to unstick people who are confused, but I say the purpose of tech support is to make your customers fantastic at their jobs, which happen to involve your product. (Yes, I'm flagrantly paraphrasing the legendary Kathy Sierra, but the idea applies as much to tech support as to product development.) So this means you don't just help them locate a command in the menubar, you find out what they're trying to accomplish and help them do that. You don't just explain a feature but help them use the result to impress their boss. You don't just apologize because you don't have the feature they want, you help them work around it and be successful anyway. You know your product and problem-space better than your customers, so it's not that hard to make them far more successful than they would be stumbling around without calling tech support. Enabling your customers isn't just about your product, but rather your entire company. Make your customer awesome and she'll give you money so she can keep being awesome. That's sales. A pleasant surprise Everyone's stereotype of tech support is negative. Oh the tales:

Ask tech support how to change the font and they'll tell you to reboot your laptop. Ask tech support to change your billing address and they up-sell you on three things you don't want. Calling tech support requires a GPS to navigate the labyrinth of menu options (which may have changed), wait-queues, and typing in your account number 3 times "for security purposes," as if someone who stole your account number is incapable of typing it more than once.

When your customers expect a turd sandwich and you deliver a turkey club with chipotle mayonnaise, you earn major bonus points, like users twittering about your service, people switching to your service because of tech support, or customers not only following your Tweets but instructing their followers to do the same. Oh look! Apparently tech support is a better "social media outreach" program than hiring interns to spray comments on random blogs. Are you surprised? They say "under-promise, over-deliver," and tech support has "under-promise" built in! Sure super-fantastic tech support is best, but even if you merely act like a human being you're already ahead. If you just answer email with a non-automated response you're killing it. Why pass up such an easy opportunity to thrill a customer? Isn't "a pleasant surprise" too rare in business, and don't you want to be known as the company where it happens every day? The closest thing to getting "outside the building" while staying inside the building The Internet is abuzz with Steve Blank's phrase that everything you need to know about your customers is "outside the building," meaning that real customer development means talking to folks face to face, seeing their problems in the wild, and watching their faces react to your pitch, not brainstorming around a whiteboard and twiddling the font size in your PowerPoints. And I agree! Still, for the Work-a-preneur or the bootstrapper with no travel budget it's hard to get outside the building. Yes you should try as much as you can — it's worth it — but what about the other 94% of the time that you're at your desk, by which I mean the coffeeshop table closest to the power outlet that isn't loose? Tech support is the next-best thing. Tech support is where people complain about what's not working, what's missing, and what's confusing. But it's not enough to just catalog problems! The insights lurk in the meta-questions. If someone's confused, for example, the immediate task is to set them straight, but there's valuable product development to be had:

What caused the confusion in the first place? Is my customer's world-view different from mine? Is our terminology wrong? Are we using the wrong metaphors? Do I need to optimize the new-user experience instead of the expert-user experience?

Those are tactical questions stemming from the immediate problem, but then there's even more interesting strategic questions:

Does this hiccup belie a customer pain-point I didn't know existed but I can solve? Is there enough evidence of a conceptual mis-match that I should pivot? Is there a new product idea here? If they're abusing my product to get what they really want, can I provide what they really want from the start?

This last line of questioning is exactly how Smart Bear came to be a company about peer code review and not "version control data mining." If I hadn't paid attention attention to these meta-questions, you wouldn't be reading this right now. Yes, it's that critical. To answer these you have to go back and forth with customers to hack into the root cause. You have to see hundreds of emails so you get a gut-feel for what customers are experiencing — something you can't get from a Incident Summary Report or somesuch automation. Tech support is the closest, most honest chance for product development — certainly more straightforward than squeezing it through traditional "sales." Here's where real users discover and report on your product. Are you listening, or just throwing it away? What else? What else can tech support do if you're willing to give it the attention and power it deserves? Or do you think I'm wrong and it really is better to have $1/hour people protect you from those inane customers? Leave a comment and join the conversation.

It's time to retire the following phrases. They should no longer be used, ever, in any context except derisive mocking:

Fast and easy Putting customers first The Holy Grail of The leading provider of Legendary customer support

Also eschew these words, as devoid of meaning as a yogi's mantra and as useless as a simile that doesn't contribute new information:

Authentic Solution Genuine Powerful Secure Simple Innovative Insight Disruptive

These words have been corrupted by those who claim to honor their meaning but do not act accordingly. When a company claims to "put customers first" but then uses "Level 1 support" as a shield to prevent customers from intruding on profits, we realize talk is cheap. When a company claims to have "secure" payments but then 100,000 credit card numbers are stolen, we realize you don't need a permit to claim security. When a company claims to be "innovative and disruptive" but then pitches an idea you've heard ten times in the past month, it reminds us that if you have to say it, it's probably untrue. When 78% of "About Us" web pages claim "the leading provider" of something, we are no longer impressed. Like a song over-played on the radio, like a restaurant over-hyped in the magazines, repetition of even powerful, wonderful phrases can kill them. Oh I know 21% of you stopped reading as soon as you saw that "authentic" made the list, and shot down to the comments section to unleash a scathing missive explaining how "authenticity" is the prime mover of modern marketing, honorable salesmanship, and meaningful relationships. I agree! In fact all these words and phrases should theoretically carry meaning, but theory is for people who don't need to sell $2,600 more software by next Friday so they can make rent. If I had enough hubris to run around christening years, I would declare 2009 The Year of "Authentic." Enough! We get it! I respect the work of all those bloggers and Twitter-ers and lecturers and consultants who drove this word deep into our psyches. Indeed it's a tremendous gift: bringing concepts like authenticity, genuineness, and give-first-sell-later to the traditionally aggressive, non-engaging, selfish world of marketing. The more people honor this new code, the better for us all. Nevertheless, it's time to retire words like "authentic." The misuse is to too widespread, the abuse too deep. So what should you do instead? Be specific. Many of the dead words weren't especially illustrative to begin with. As far as I know, a "solution" just means product and/or service, so the word doesn't add information anyway. Instead, be specific and inspire me.

Instead of "easy" say "so straightforward, you won't need a manual." Instead of "inexpensive" say "just a dollar a day." Instead of "powerful" say "processes 6,253,427 requests daily." Instead of "disruptive" say "72% of our customers say they'll never go back to a normal email client."

Show, don't tell. Some dead words are descriptive, but they don't paint a picture. "Powerful" sounds nice I suppose, but how does that change my life? Showing something in action is more evocative than describing it.

Instead of saying it's fast, show a speed test (especially against competitors). Instead of saying it's easy, have a video demonstrating your tool solving someone's problem in 60 seconds flat. Instead of saying you have eager, responsive, intelligent tech support, put a "chat now" bar on every page of your website. Instead of a bullet-list of benefits, quote actual customers describing your impact on their lives.

Face it. My favorite way to start a sales pitch is to make fun of typical sales pitches. For example: I know you were hoping for a 22-slide PowerPoint deck with our mission statement and company history. I'm really sorry to disappoint! 'Cause I'm just going to start the demo and let you interrupt me with questions. Or: People claim that peer code review tools will do magic things like make your developers smarter or fix existing social problems with the team. Actually, if anything code review can magnify social issues! However, I do believe our tool will save you time and aggravation in these 4 specific ways .... so as we go through the demo, see if you agree. Because you're willing to say what others won't, especially when we all know it's the truth, you've earned credibility. Now folks are more open to your claims — even those that are well-worn. Own it. You can still use an abused word if you totally, 100% own the concept. You can claim "legendary customer service" if you back that with first-ring, human phone service, online chat from your home page, quick-response Twitter monitoring, and 15-minute turn-around time on tech support emails even at 3am on a Sunday. Be sure to communicate all that too, because if you lead with the dead phrase I'll leave before you get the chance to prove it. Be the change you wish to see in the world.   —Gandhi When old ideas become cliché, that's an implicit call for new ideas. This time around, can you lead instead of follow? Of course this is a bit unfair. Quick: Come up with a compelling new philosophy for human interaction and global communication, marketing, sales, and relationships! Yeah it's an unreasonable expectation, and not certainly required, but remember the best ideas often aren't (excuse the clichés) ground-breaking, innovative, out-of-the-box, Earth-shattering epiphanies. Often great ideas are a synthesis of other ideas with just a smidge of novel insight, or just putting into words what others sense but cannot articulate. This is the hardest and most time-consuming way to break out of the mundane, but also the most rewarding. And if you do come up with something, there's a lot of people who will love to help you spread the word. What else? What other phrases should be avoided? What are good alternatives? Leave a comment and join the conversation!

I remember "disruptive" when it was called "paradigm shift." That phrase died during the tech-bubble along with "portal" and "think outside the box," yet the concept has returned. Don't follow along.

When I get pitched — usually by someone raising money — that they "have something disruptive," a little part of me dies. You should be worrying about making something useful, not how disruptive you can be. "Disruptive" is the in-vogue word for the opposite of "incremental improvement." A disruptive product causes such a large market shift that entire companies collapse (the ones who don't "get it") and new markets appear. Disruptive is fascinating, disruptive changes the world, disruptive makes us think. Disruptive also sometimes generates billions of dollars, which is why venture capitalists have always loved it and always will. But disruptive is rare and usually expensive. It's hard to think of disruptive technologies or products that didn't take many millions of dollars to implement. Most of us don't have access to those resources, and many of us don't care, because we'd rather work on an idea we actually understand and can build ourselves, an idea that might make us a living and be useful to people. There's nothing wrong with incremental improvement. What's wrong with doing something interesting, useful, new, but not transcendental? What's wrong with taking a known problem with a known market and just doing it better or with a fresh perspective or with a modern approach? Do you have you create a new market and turn everyone's assumptions upside down to be successful? Should you? I'm not so sure. Here's my argument: 1.  It's hard to explain the benefits of disruption. Have you tried to explain Twitter someone? Not the "140 characters" part — the part about why it's a fundamental shift in how you meet and interact with people? Hasn't the listener always responded by saying, "I don't need to know what everyone had for lunch. Who cares? What's next, 'I'm taking a dump?'" They don't get it, right? But it's hard to explain. There are ways to elucidate the utility of Twitter, but even the good ones are lengthy and require listeners with patience and open minds — two attributes in short supply. "It's hard to explain" should not be a standard part of your sales pitch. "You just need to try it" and "trust me" don't cut it. That may be OK for Twitter — today — but what about the 100 other social-networking-slash-link-sharing networks that didn't survive? Ask them about selling intangible benefits. 2.  It's hard to sell disruption, because people don't want to be disrupted. If you're reading this you're probably more open to new ideas and new products than most, because you're inventing a new product, starting a company, or you're just ruffled because I'm pissing on "disruptive" and you're looking for nit-picky things to argue with me about. But most people are creatures of habit. They don't want their lives turned upside down. They launch into a tirade of obscenities if you just rearrange their toolbar. When they hear about a new social media craze they cringe in agony, desperately hoping it's a passing fad and not another new goddamn thing they'll be aimlessly paddling around in for the next decade. Change is hard, so a person has to be experiencing real pain to want change. Selling a point-solution for a point-problem is easier than getting people to change how they live their lives. Identifying specific pain points and explaining how your software addresses those is easier than trying to tap into a general malaise and promising a better world. 3.  Most technology we now consider "disruptive" wasn't conceived that way. Google was the 11th major search engine, not the first. Their technology proved superior, but "a better search engine" was hardly a new idea. In retrospect we say that Google transformed how people find information, and further, how advertising works on the Internet. Disruptive in hindsight, sure, but the genesis was just "incrementally better" than the 10 search engines that came before.  (Or 18.) Scott Berkun gives several other examples in a recent BusinessWeek article. He highlights the iPod — an awesome device, but not the first of its kind. Rather, there were a bunch of crappy devices that sold well enough to prove there was a market, but no clear winners. Here an innovation in design alone was enough to win the market. Not inventing new markets, not innovative features, not even improving on existing features like sound quality or battery life — just a better design, unconcerned about "disrupting" anything else. Setting your sights on being disruptive isn't how quality, sustainable companies are built. Disruption, like expertise, is a side-effect of great success, not a goal unto itself. 4.  The disruptors often don't make the money. The construction of high-speed Internet fiber backbones and extravagant data centers fundamentally changed how business is conducted world-wide both between businesses and consumers, but many of the companies who built that system went bankrupt during the 2000 tech bubble, and those who managed to survive have still not recovered the cost of that infrastructure. They were the disruptors, but they didn't profit from the disruption. Disruptive technology often comes from research groups commissioned to produce innovative ideas but unable to capitalize on them. Xerox PARC invented the fax machine, the mouse, Ethernet, laser printers, and the concept of a "windowing" user interface, but made no money on the inventions. AT&T Bell Labs invented Unix, the C programming language, wireless Ethernet, and the laser, but made no money on the inventions. Is it because disruptors are "before their time," able to create but not able to hold out long enough for others to appreciate the innovation? Is it because innovation and business sense are decoupled? Is it because "version 1" of anything is inferior to "version 3," and by the time the innovator makes it to version 2 there are new competitors — competitors who don't bare the expense of having invented version 1, who have silently observed the failures of version 1, and can now jump right to version 3? "Why" is an interesting question, but the bottom line is clear: Disruption is rarely profitable. 5.  Simple, modest goals are most likely to succeed, and most likely to make us happy. It's not "aiming low" to attempt modest success. It's not failure if you "just" make a nice living for yourself. Changing the world is noble, but you're more likely to change it if you don't try to change everything at once. I made millions of dollars at Smart Bear with a product that took an existing practice (peer code review) and solved five specific pain points (annoyances and time-wasters). Sure it wasn't worth a hundred million dollars, and it didn't turn anyone's world inside-out, but it enjoys a nice place in the world and it is incredibly fulfilling to see people happier to do their jobs with our product than without it. Had I tried to fundamentally change how everyone writes software, I'm sure I would have failed. I made less money personally at ITWatchDogs, but the company was profitable and sold for millions of dollars. We took a simple problem (when server rooms get hot, the gear fails) and provided a simple solution (thermometer with a web page that emails/pages you if it's too hot). There were many competitors, both huge (APC with $1.5 billion market cap), mid-sized (NetBotz with millions in revenue and funding), and small (sub-$1m operations like us). We had something unique — an inexpensive product that still had 80% of the features of the big boys — but nothing disruptive. Had we tried to fundamentally change how IT departments monitor server rooms, I'm sure we would have failed. There's nothing wrong with modesty. Modest in what you consider "success," and modest in what you're trying to achieve every day: My daughter convinced me that insisting something be Deeply Meaningful With Purpose can sometimes suck the joy from it.  --Kathy Sierra Of course it's wonderful that disruptive products exist, improving life in quantum leaps. And it's not wrong to pursue such things! But neither is it wrong to have more modest goals, and modest goals are much more likely to be achieved. You must have your own thoughts on this subject! Leave a comment and let's continue the conversation.

They say "statistics lie," but they don't. People do. Well, that's a little harsh. Sure some people intentionally skew numbers and selectively pull data, but most folks misinterpret data by accident. Why do you care if you're not a scientist?  Because you collect data about your business all the time — web traffic, revenue sources, expenses, customer behavior — and make decisions based on your (mis)understanding of that data. Here's a few basic mistakes I encounter constantly. Statistics don't tell the whole story It's easy to boil a data set down to a single number, like an average. Easy — and often shortsighted. Single numbers feel powerful; you feel able to wrap your mind around a lot of data. Sometimes that is indeed useful, but it can also obscure the truth. Consider Anscombe's Quartet, four graphs that have identical statistical properties, yet clearly represent four distinct processes:

Since the statistics are identical in each case, it's clear that statistics alone don't describe what's actually happening with the data. The true story of each graph:

The process is mostly linear. The best-fit line is handy in describing the relationship, but there are other possibly-random factors at work as well. The data are perfectly related, but not linear. Applying typical linear statistics is just wrong. The data are perfectly linear, with one outlier. Probably the outlier should be ignored, and the best-fit line should reflect the other points. The data don't vary at all in the x direction, except for an outlier which probably should be ignored. All the standard statistical numbers are useless.

Lessons:

Processes can't be boiled down to a single number. Blindly applying statistics doesn't explain what's happening. Charts can help.

"Average" is often useless You can't open an analytics tool without being attacked by averages: Average hits/day, average conversion ratios, average transaction size, average time on site. Trouble is, the average is often not only useless, but misleading. Take "average time-on-site," a typical web analytics metric. It's important enough in Google Analytics that it appears on the top-level site information dashboard, as shown in this real example from my blog:

Of course it's better if a visitor spends longer on a site because it means they're engaged. Is 1:33 good? Actually that's the wrong question. The true story becomes clear when you break this single number into pieces:

The "average" time-on-site of 93 seconds is useless when trying to explain user behavior. The correct way to think about time-on-site is:

Most visitors "bounce" off the site without really looking at it. About a third of the visitors stayed long enough to read some articles.

Furthermore, the way you optimize #1 and #2 are completely different:

Bouncing can indicate that the traffic source is poor (i.e. we attracted eyeballs, but they weren't the right eyeballs) or the landing page was poor (i.e. we attracted the right eyeballs, but we failed to lure them into reading further). Getting a few minutes of time on a blog is already "success." Trying to get someone to stay even longer (e.g. 10 minutes instead of 5) probably isn't useful. So the better question is: How do we get more people into this category, rather than trying to "increase the average" in this category?

So not only is the average value 1:33 useless in describing reality, it's useless in deciding what to do next. Lessons:

The simple "average" is often meaningless. Using a single number to describe a process obscures the truth. Using a single number to describe a process prevents you from learning how to improve and optimize.

The dangers of "Top 10" and "Others" Whether it's a cover article in Cosmo or a web analytics report, people love to read "Top 10" lists. Top lists can be useful. For example, here are the origins of search engine traffic to my blog:

There are several "other" search engines (e.g. Ask and AOL), but the traffic doesn't amount to a hill of beans (as we say in Texas). It's useful to cut those out of the chart because they're just noise. The trouble starts when "Other" isn't so trivial. The following chart is a real report from a board meeting I was in years ago (only the names and layout have been altered):

Looks fine. But later I was poking around the data myself and decided to add a category for "Others":

Some people call this the Long Tail — a pattern wherein a few big players are far larger than any other single player, but when you add up all the little players they collectively match or — as in this case — tower over the big players. If you discover a Long Tail in your data, there's several ways to react. Consider the case of having a Long Tail in sales of your product line, as with iTunes and Amazon who have a few blockbuster hits plus a long tail containing millions of products that sell infrequently. Here are four opposing viewpoints of how you could approach the situation:

The Long Tail is too expensive to sell into because it requires reaching a lot of people, each of whom don't give us much money, so it won't be cost-effective. The Long Tail is the least expensive way to sell because it means reaching under-served markets, which means cheap ads and hungry customers. Addressing the Long Tail means we have to be all things to all people, and that means we're unfocused. Instead, let's try to be #1 at one thing. Trying to be #1 at anything is hard, and often the spoils go to those with the most money, not to the smartest or most passionate. Rather than fight the 800-pound gorilla, let's address the rest of the market that gorillas ignore, but which contains a ton of potential business.

No one of these views is automatically correct. For example, iTunes gets most of their revenue from the big players (contrary to "common" knowledge), but other companies like Beatport make millions of dollars off the Long Tail of niche music markets (electronic music, in their case). The only wrong thing is to ignore your "Others" column. Lessons:

"Top 10" lists can hide important data. Any time you truncate data you must first be certain you're not throwing away important information. Data patterns like the "Long Tail" aren't "good" or "bad" per se. There are usually many equally-viable ways for you to react.

Metrics and statistics "rules" cannot be applied blindly Consider the following (intentionally unlabelled) chart:

It's tempting to start making observations:

The average value is 57. (But you already know this is crap, right?) The value is generally increasing as we move to the right. Some data is missing. Maybe they should be discarded.

Unfortunately, even these basic observations are assumptions, and could be wrong depending on context. Consider these scenarios:

These are a student's test scores over time. The student was failing and not turning in assignments. However, in the middle of the period the student hired a tutor. Results improved, and by the end of the class the student had mastered the material.This student should probably be awarded an A or B because of the clear improvement and steady results at the end of the year when tests are hardest. The student should not receive a grade of 57 — the average. Each result represents a survey of one person on the effectiveness of a certain advertisement.The "zero" rating from subjects #2 and #4 is real data, and it's a bad sign. This could indicate something drastically wrong with the ad, for example being offensive. We need to dig in with those participants and learn more about this failure.In general the average value — including the zeros — is probably a useful indication of the ad's overall effectiveness. It's curious that the results "improved" so much in later trials since the participants were supposed to be randomized.  This may indicate a bias in the test itself.

An interesting result of #1 is that in order to obtain a useful "average" value we ought to throw away almost all our data points! The opposite is true with #2. The point is that the context for the data determines how the data is interpreted. You can't blindly apply a "rule," such as which data points can be ignored. Lessons:

You have to interpret results in context, not blindly apply formulas. Form a theory first, then see whether the data supports or invalidates your theory.

Formulas are not a substitute for thinking. Like any tool, statistics is useful when used properly and dangerous otherwise. Like any algorithm, garbage in yields garbage out. Yes this means "metrics analysis" is harder than it looks. Yes this means you have to take time with your data and verify your thought process with others. But what's the alternative? Thinking about your processes incorrectly and then wasting time on senseless "solutions?" Final lesson: Since metrics are hard and take time and effort to get correct, don't attempt to measure and act on 100 variables. Pick just a few you really understand and can act on, and optimize with those alone. You're more likely to make a genuine, positive change in your business. What tips do you have? Leave a comment and join the conversation.

This is a guest post by Mike Schoeffler, founder of iPhone running application Roadbud. He writes a refreshingly approachable fitness blog.

I hesitate to take issue with Jason’s Sacrifice your health for your startup — particularly after his wife gave her up-close-and-personal. His main point is dead on — we need to unhealthily obsess over our creations. But take this too far and your productivity drops off the cliff. As founder of a run/bike app startup, I can write off my workouts. I have a ready excuse for squeezing in a little “sweat equity” — I need to get in shape to know my customers’ issues. However, I also know firsthand that exercise increases total productivity. I avoid colds and I have more mental staying power. Plus, I have a better attitude when I don’t resemble shtik fleysh mit oygen (Yiddish for a piece of dead meat with eyes). Technology startups can be horrible for your body. Not mangle-your-arm-in-a-press horrible. But we have all sat in front of a computer for hours on end, tapping on the keyboard and lost in thought. Your only movement is reaching for the can of Mountain Dew or grabbing the bag of chips. Maybe you tear yourself away long enough to call for pizza delivery. Perfect for veal, not so much for humans. It wasn’t always this way. Joel Spolsky notes that in times long gone, programmers got washboard abs while waiting for the compiler. Think about exercise in light of a situation we’ve all faced: all-night coding sessions. Remember the all-nighters you pulled, heroically pumping out code until dawn to make a big deadline? Seemed like you were getting lots done while you took a bullet for the team. The truth is your programming was probably awful. Even a few hours’ sleep would have prevented your spaghetti mind from dumping spaghetti code. The worst part: as you got more sleep-deprived, the better the whole idea looked. Workouts are the same -- as you drop further into sloth, inactivity seems smart. Only the uncommitted have time for exercise, right? Exercise is pretty useful for anyone in a startup even without the health and stamina benefits. Just as your best ideas appear while you’re soaping up in the shower, elegant solutions spring up when you’re out running. Your mind is searching for something to think about besides your body’s pain. And while you don’t have a pen in the shower, you can always use your cellphone if a brainstorm strikes during a run. ... Let’s say you’re ready to start an exercise regimen. What next? Some of us already know how to work out – we’ve just given ourselves license to be lazy in this one area. If you’ve never been in shape, start gradually. Choose an activity you already enjoy (biking is my favorite). Regular exercise is far more important than going Charles Atlas overnight. Couch To 5K is a great place to start. A little goes a long way. You already knew you don’t have time to train for a marathon. Maybe get in a quick run before work – you’ll feel great all day. Or inch up to a hundred pushups while prepping for a sales call. Zen Habits has a detailed list of exercise hacks to help ease you into the habit. The critical thing is to just get started. Close your door, wipe the crumbs off your pants, and give me ten pushups now! What are your fitness tips? Leave a comment and join the conversation.

Related posts:Sacrifice your health for your startupResponse: Sacrifice your health for your startupUnderbelly: What haughty startup bloggers don't tell youBehind the scenes of a viral post: Why your startup shouldn't copy 37signals or FogCreekPainful, Surreal, and Surprisingly Effective: The Personal Checklist

Many of my mistakes can be traced back to a failure to recognize and appreciate "sunk cost."

The term comes from economics: "Sunk Cost" is money you've already spent and cannot get back no matter what. A "rational actor," as economists say, will completely ignore sunk costs when making decisions because the money is gone no matter what action is taken next. Of course we carbon-based life forms can rarely be described as "rational," especially when it comes to ignoring sunk costs. It's hard to abandon projects in which you've poured time and money, especially when you've also attached your ego and reputation. Sometimes it's easy to do the right thing. For example, let's say you designed a banner ad for a certain website (cost: $1000) and paid to run the ad for three months (cost: $2000). At the end of the three months, you look at the results and they're horrible — barely anyone clicked the ad and none of those people made a purchase. Clearly you won't spend any more time or money on that ad. Yes you spent $3000, but that's a "sunk cost" — you cannot get that money back. Whether you had spent $30 or $30,000, it still wouldn't be worth continuing this project. Obvious! And yet, throwing good money after bad is exactly what we do in many other situations. Here's a typical business example. A company is building a new $20 million manufacturing plant. They burn through the $20m, but it now it's clear that it will take another $10m to complete the project. In the meantime, an opportunity has appeared where they could take over and retrofit a different manufacturing plant for only $2m. From a completely rational perspective, they should abandon the original project. The $20m they've spent can't be recovered (let's say), so it's now just a choice between spending $2m or $10m. Duh. Of course the correct decision probably won't be made. You can imagine the internal politics of someone standing up and staying "I'm responsible for this hugely wasteful endeavor, and now I want you to trust my judgment as I pull the plug and do something completely different." Here's where you expect me to say how stupid big-business is and how little startups are smart and agile and never make mistakes like that, but that's crap. It's not just politics, it's human nature. Depending on which way you approach it, the term is "Loss Aversion" or the "Endowment Effect," subtly different but close enough for our purposes. In short: We place excessive value on that which we own, or which we perceive we own. There's all sorts of fun experiments demonstrating this:

At Duke University there are far more students wanting to attend games than there are tickets, so a complex lottery system determines who gets the precious few. Experimenters posing as scalpers determined that those who lost the lottery would on average pay $170 for a ticket. When they approached students who won the lottery, they were willing to part with the ticket for an average $2,400. Both students went through the same effort to get tickets, but those who own these (randomly-assigned) tickets ascribed a much larger value to them. Horse bettors who have already placed their bets (a sunk cost, "owning" a particular outcome) are more optimistic about their chances of winning then those who are still in line to place bets. Most people will not walk out of a movie they hate, because that would "waste money," even though the money cannot be recovered and they could be doing something more enjoyable. Just touching an item in a store makes you more likely to purchase it.

It's one of those things so deeply ingrained that it's hard to change your gut reaction even when you're aware of the problem. But that's exactly why you have to be especially vigilant. So where in my life of startups has this crept up and bit me? And possibly you too?

You've created an awesome feature. It was hard to implement and you're proud of it. Problem is, it turns out your customers don't care about it, and it's starting to create confusion and cause bugs. It's hard to kill your pet feature, especially after all this effort, and after all customer XYZ agrees that it's super neat-o. But that effort is sunk whether or not it's the right fit for your product; kill the feature. After hours of brainstorming, arguing, and banana daiquiris, you've finally come up with a clever, fun, catchy marketing slogan. Problem is, it doesn't quite fit the business. You don't want to "waste" this great concept; surely you can use it somehow, somewhere? No. As with all writing, you have to learn how to throw things out. Your newest hire isn't working out. You did everything you could during the interview; he passed all the tests. Still, he's not a culture fit, he's not picking things up as fast as you'd like, and everyone else is having to pick up the slack, which they resent. But, you think, it was so much work finding him and we've put all this effort into training him; maybe he'll change? But he won't, and deep down you know that. You can't get that time back, and yes this is one of the most expensive mistakes you can make, but even worse is prolonging the inevitable. (It's bad for the employee too — he deserves a chance to find a job where he can be successful.) You try a marketing effort and it doesn't work. That's OK, that's what A/B tests are for! So you test a pair, and the second one is a little better but not much. And then you iterate again, and again, and .... again .... When will you stop and realize that sometimes incremental iteration isn't enough? You're trying to land a 500-seat sale with a big-name company. The trial has gone on for 9 months. They keep finding reasons they can't buy — "deal-breaker" features they need, "critical" bugs they can't work around, budget allocations that never materialize. But that sale would mean so much, and besides you've already spent hundreds of hours with them and added all these special features so surely they'll buy from you eventually! But in my experience they often won't, or they'll buy just 10 seats so you can't claim they're "still trialing." All this is just an indicator that you don't have a good fit; this time-suck isn't going to vanish once they buy. Let it go. You need profitable customers, not just customers. You went to school for Biology, so clearly you have to have a career in Biology! Nevermind that you made that career choice when you were a teenager and hadn't really discovered who you were, what makes you happy, or where your talents lie. Your friends and family expect you to get a job as a lab rat and regale them with stories about diseased bovine spleens while everyone's eating meatloaf. Should you really throw away all that work and all those expectations to follow your true dream of becoming a caterer?

It's perfectly natural to feel attached to your sunk costs. It sucks to acknowledge that you've wasted time, money, energy, and reputation. But it's even worse to irrationally prolong the waste. Do you have stories or advice about sunk costs? Leave a comment and join the conversation!

Related posts:How much of success is luck?Rude Q&AStartup Therapy: Ten questions to ask yourself every monthDistinguishing constructive criticism from bad business adviceIgnoring the Wisdom of Crowds

Nothing clarifies things quite like a hyperactive, all-knowing, all-seeing, real asshole of a devil's advocate beating the living crap out of you. (Cartoon by Andertoons)

Baseball players swing heavy bats before going up to the plate; acclimating to difficult working conditions makes it easier to hit the ball out of the park. What's the equivalent of the heavy bat for honing your skills at pitching your product and raising money for your company? For years I've been a fan of Scott Berkun's concept of Rude Q&A: What would the meanest, nastiest, but smartest people in the world grill you on when you show your work? A Rude Q&A is a list of questions [about your work that] you don't want to hear. When you're contemplating an exciting new idea, you don't want to hear questions that might contradict your concept. And of course, that's exactly when you need the biggest, baddest, smartest, devil's advocate to challenge all your assumptions. It's not just about testing the mettle of your ideas, it also forces you to refine and clarify your marketing messages, your target customer profile, and your feature set. When you're being grilled there's no room for being generic about how you're different from the competition, no leniency for not knowing exactly what customer pain you solve, and no clemency for wavering on your company values and what compromises you're willing to make. Scott goes on to explain just how unfair the questions need to be: Make sure to include questions that are unfair or based on erroneous information. Reporters, clients, and the public all have their share of unfair questions and erroneous information, and you want to be ready for them. These answers take more time as the responses need to be more polite and mature than the questions. They also need to carefully refute assumptions in the questions without being dismissive. I love it; now we're deep into "heavy bat" territory. So how do you go about writing your Rude Q&A? Oddly, the hardest part can be coming up with the questions. To get you started, I've assembled a laundry list of questions common to many startups:

Your biggest competitor just dropped their price to $0. How do you continue to justify your price point? If your idea is any good, you'll have competition from multiple players, both funded and bootstrapped, both smart and stupid, both large and small. How will you persevere? If the economy stays bad for two more years, how will you survive? The last thing anyone needs is another damn tool. What's the overwhelming reason I should even bother looking at you? Technorati reports one million new blog posts appear every day. Why should I read yours? What are the top three features your competitor has that you lack? How do you address that today, and what are you doing about it in the next six months? How can you call yourself an expert when you've only been at this for a year? What are three tangible, undeniable ways in which your product/company saves more money than you cost and saves more time than you consume? Truly great products and companies are rare, even when smart people are at the helm. What makes you think you have what it takes? There are thousands of consultants who make the same basic claims you make: high-quality, on-time, on-budget, good service, happy customers. What makes you any different?

These are generic; you'll need to come up with more specific attacks. For example, if I were defending this blog and answering the question about why anyone should read it, I would make the question more specific: There are already too many blogs about startups, especially high-tech startups. Those blogs are far more popular than yours, their authors far more famous, and their advice is excellent. Smart Bear is a success but it's nothing like the success earned by someone like Steve Blank. Why should anyone listen to you? And here's my answer: I read those blogs; they're great! But the world needs more perspectives, not fewer. For every Jason Fried who says "simple design is better than complex features," someone else needs to point out that they've (I've!) made millions with poor graphic design and too many features. For every Seth Godin who says a tribe of 1,000 followers is all you need, someone else needs to point out that it's not true in practice. The biggest reason to read is that my advice and perspective, while not a massive thought-revolution in the universe, is "unique enough" that I constantly meet intelligent, capable, thoughtful entrepreneurs who haven't heard it before, haven't thought of it themselves, and whose lives and companies are improved after they've heard it, even when they disagree with my point of view. I know this because of the comments and wonderful emails I receive. As long as people keep saying that I've lifted a burden off their chest or produced invaluable customer feedback or prevented them from wasting time and money, or even if they just get a laugh, that's my answer to why anyone should listen. Don't get discouraged if you're not happy with all your answers. That's a good sign — it means you're being honest about the exercise and you're not yet satisfied. Keep it in the back of your mind and look for answers while you forge ahead. Discuss the hard ones with other people to get more ideas. This is all just another way of being introspective, but it's a technique I've found to be particular useful. Do you have more Q&A to contribute? Leave a comment!

Related posts:Distinguishing constructive criticism from bad business adviceGiving it awayYour idea sucks, now go do it anywayStartup Therapy: Ten questions to ask yourself every monthUncommon Interview: Bob Walsh, Digital Entrepreneur

"You need a business plan" is the mantra of MBA types. As they say, businesses don't plan to fail, they fail to plan! Who could argue with such a clever turn of phrase?

Let's do some quotes:

"Without a business plan, how will you know whether you can make a profit?" (source) "A complete business plan should include five-year financial projections. These projections will assist investors with making decisions about your business and help you to know how much funding you will need to get things rolling." (source) "Many businesses fail due to poor planning. It is important for every business owner to understand the entire depth, flexibility, strength and weakness of their business plan." (source) "Adjust your business plan as needed, but be sure to not stray too far off of your original idea." (source)

Surely those Harvard MBA grads are correct! After all they don't give out those MBAs for nothing — you have to at least start a business yourself! Oh wait, you don't have to do that? Oh. Trouble is, this advice is inconsistent with how real (small) businesses operate, as you can often see for yourself in the same articles that promote the use of the business plan. For example, Kenrya Naasel writing for Latina.com starts by saying "A business plan is the most important document you'll ever create." (And you thought your website's home page was important? Ha.) But later she quotes a successful entrepreneur who admits "We operated with no real plan for years" and "Things don't generally go as planned." That's one thing everyone can agree with: Things don't go as planned. Yeah, so how are you supposed to write a three-year projection with a straight face? Or take Sean Davis of Success on my Mind who tells us "Writing a business plan is your most important step," but then admits that his past two (successful!) projects were "simply an idea I ran with." The telling part comes in the comment section where Sean adds: Now that I think back on it, I've done plenty of marketing that led sites to success... but it was all from trial and error. Had I known BEFORE what I know now, I could have had a plan and reached my goals much earlier." Here inlies the fallacy. You never "know before what you know now." If success is "all from trial and error," how exactly do you write a plan? Marketing is trial and error! Features, messaging, the path to customers, your competitive edge, your pricing model — all this gets figured out as you go. You can't know what's going to work ahead of time, so why is Sean concluding that he should have wrote a business plan? Business plans are just guesses, and they're almost always wrong. The very idea of "planning" is ridiculous:

If you had written a business plan in 2007, what would your assumptions have been? Investors love "Web 2.0," MySpace is how to reach young people, the economy is growing without limit, and products with demonstrable ROIs will get healthy slices of corporate budgets. Of course every assumption in your plan was reversed in 2008. The world economy exploded. Getting money from budgets is like squeezing water from rock. MySpace is dead, long live Facebook. The term "Web 2.0" is passé. Twitter went mainstream and might be more important for "word of mouth" than blogging. Good thing you spent all that time planning. At the beginning you don't know anything about what your business will look like. Your product will evolve to fit the market. You'll test marketing messages on AdWords and make unexpected discoveries about what works. Good and bad luck shape your company. You have no answers, no predictive power. Nor should you artificially pin yourself down! Even a "plan" buried in a drawer makes you less likely to consider the radical new idea that changes everything and makes you successful. Have you tried actually writing a plan? Go ahead, try it! Be sure to include your mission statement, your vision, your five-year profit-and-loss statement, decide who will be your key personnel, define your pricing strategy, explain the risks, position yourself against competitors. Now be honest, where did this data come from? I'm guessing you reached right up your ass and pulled it out. For the five-year plan you were so deep you tickled your spleen. You know this is crap; why are you doing this when you could, oh I don't know, just talk to potential customers?

But enough from me. What do VCs have to say about this? What if you're trying to raise money, don't you need a business plan? What do other entrepreneurs say?

From Venture Hacks, a great blog written by entrepreneurs-turned-VCs: "Don't send a business plan to investors. Nobody reads them and nobody executes them. ... Document your detailed plans on a napkin." From David Cowham, Bessemer Venture Partners: "Nothing slows down a VC as much as a comprehensive business plan." From Mike Moritz, Sequoia Capital in a Guy Kawasaki fireside chat, "Five-year plans aren't worth the ink cartridge they're printed with." I could fill three pages with links to 37signals railing against business plans (did you like that pun y'all?). From When was the last time you looked at your business plan: "[All three businesses] are still alive but have also completely rethought their original plans. They’ve changed focus, services, salaries, partnership arrangements, etc. ... If these companies' one year projections were so far off, imagine how worthless those year three (or five) projections turned out to be." Or, from The only plan is to learn as you go: "Stop presuming you can be right in a world of massive uncertainty. The only plan you should make is to plan on improvising." A study found that "quality of business plans had zero impact on the amount of VC funding being raised." From VentureBlog, VC David Hornik derides an article on Wired and TechCrunch about how to raise money: "VCs tend not to read business plans because a) they are too long and b) your business will likely have changed by the time anyone gets around to reading your business plan." From Business Insider, Kevin Ryan, founder of six companies, says "I don't do a detailed plan. If a VC focuses a lot on the details on the financial model, I won't work with them." From Steve Blank, "In the real world, most business plans don't survive the first few months of customer contact. And even if they did — customers don't ask to see your business plan." And then from an article called Startups are Inherently Chaos: "As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant."

Do I really need to go on, or are you sufficiently bludgeoned into not writing that business plan? In fact, stop reading this article and do something useful like A/B test a landing page. P.S. Next week I'll provide some tips on what you should do instead of writing a plan. What do you think?  Is there value in writing a plan?  Leave a comment.

Related posts:Starting a business isn't as crazy and risky as they sayJoy of Honesty in Business: A 5-part SeriesBusiness Advice Plagued by Survivor BiasUsing fear to discover what's importantDistinguishing constructive criticism from bad business advice

I sold my company, Smart Bear, in December of 2007. I haven't talked about it at all on this blog, and it's time I spill my guts about the whole affair. You'd think selling a company would be a glamorous, exuberant experience, but I was surprised at the reactions I got. These are actual quotes:

"How could you sell your baby? I'm shocked." "I thought you said things were going well. Hmm." "You're such a sell-out! You used to be one of the few cool people I knew."

Interestingly, 100% of the negative reactions were from people who had never started their own company. But that doesn't make them wrong, and it doesn't make their words sting less, especially when they're your friends. Now that almost two years have passed, I can relate exactly why "selling my baby" was right for me. Hopefully this thought process is interesting to you and possibly useful in the happy event that you're faced with the same choice, but the truth is I just need to get this off my chest. I need to explain to those who still consider me a sell-out. You've probably heard about Noam Wasserman's "Rich or King" choice: Company founders are either in it for the money ("Rich") or in it to build a lifestyle and personal identity ("King"). FogCreek and 37signals are built to be "King;" all venture-funded companies are built to be "Rich." Noam says that successful founders make the "Rich or King" decision up front, and that though it doesn't matter which path you take, you must be consistent in your actions. You can't mix "be king" tactics with "get rich" end goals. Except I did mix "Rich" and "King," and it worked. See, it's good to be "King," but what do you do when you're at Trudy's "North Star" Tex-Mex Restaurant tucking into a chile relleno (with salsa verde, black beans, and the ground beef filling), and the guy across the table looks you in the eye and offers you enough money that you never have to work again? I was always in it for the money, especially in the form of acquisition. Everyone who came to work at Smart Bear was indoctrinated with this attitude in no uncertain terms; on more than one occasion I had put it: "We're simple country whores — we'll do anything for money." Profit was the rule behind every choice we made. Although the end goal was always acquisition, my attitude was (and still is) that the best way to get yourself acquired is to be profitable. Profits prove the business is operating well. Profits validate the market. Profits make minimum valuation easy. Profits mean the buyer converts balance-sheet money into bottom-line profit-and-loss money — a trade every large company wants to make. Most of all, profits mean you don't need to sell, which gives you the ability to walk away from a deal. You have little negotiating power in any deal unless you can happily walk away. On the other hand, I knew I would only be happy building a genuine, great company, where the product solves a real pain, where customers are given white-glove service, where "tech support" is the only sales force, where we leave the world a little better than we found it, and where every employee is smart and gets things done and is trusted with any decision. And I wanted the ego-inflating trappings of running a company. It's cool at parties to say "I run my own company." I wrote a book that got so popular (in my little corner of the world) that people would bring it up to me to sign. (We gave the books away for free so the joke was that by signing I doubled its value.) When I walked onto a tradeshow floor it was like Norm on Cheers — I knew everyone and they knew me. I got to present at cool venues like Joel and Neil's Business of Software Conference. And I write this blog, shamelessly exploiting the fact that Smart Bear (and two other companies) were successful to convince you that I'm worth reading. In short, although the goal was "Rich," I achieved it by behaving like the goal was "King." I don't know why people find this contradictory; after all, acting like "King" means building a long-term, sustainable business, and that's exactly the kind of business that gets acquired. Still, because "King" was enjoyable and Smart Bear was profitable, I still need to explain why becoming a "sell-out" was the right choice. The first thing to understand is the non-linear relationship between "cash in personal savings" and "financial freedom":

There's a line you cross where your savings alone will fund a reasonably lavish lifestyle. At the risk of sounding like George Bush, this is a Freedom Line — freedom from restrictions about what you can do with your life, family, and career. My observations:

A movement from left of the line to right of the line changes your life fundamentally, giving you the freedom to do whatever makes you happy, forever. If you're crossing from left to right, it doesn't matter how far to the right you go. (Sure, $100m is a different lifestyle than $10m, but it's not as critical to lifestyle or happiness as just crossing the line.)

1 is what was offered to me at Trudy's Tex-Mex. #2 means it almost didn't matter what the offer was, so long as it was big enough.

Some people gave me a hard time about #2. The typical argument was: Your company is growing 100% year over year. It's profitable and throwing off cash. Why not wait another year and let revenues double again, which will make the company six times more valuable (assuming 3x revenue valuation, a reasonable ballpark for a growing software company). Here's the best analogy I've come up with to describe why this is flawed logic. It's called the Box Game: Imagine I have two opaque boxes. Box A contains $10. Box B has a 50% chance of containing $20, and a 50% chance of containing nothing at all. You pick either box and take whatever's inside. Which box do you pick? Of course statistically there's no difference, so this isn't a question of math or economics or intelligence; it's a measure of your attitude towards risk. Most people pick box B. After all, the difference between $10 and $20 is trivial and it's more fun and exciting to pick B. But what if the numbers were different? Now box A holds $5,000,000. Box B either holds $10,000,000 or nothing, 50/50 chance. Which do you pick? You pick box A. Of course! Because it moves you from the left of the line to the right. And because a "chance of moving even further" isn't worth giving up the certainy of that life-altering event. This is my argument in favor of #2 and against "wait and see." This is why I sold. In my case, the correctness of my choice was made painfully clear by the economic crash in 2008. Had I held out for "another year and far more money" — box B — I would have found an empty box. I know this for a fact — another company (can't say who, sorry!) was offered a deal at the same time I was. This founder wanted to roll the dice (box B) and delayed the buyer. Two quarters passed and revenue failed to grow; the buyer nixed the deal. Months later with the recession in sight, the founder approached the buyer again, this time willing to accept a low offer. The buyer refused; that ship had sailed. There are those for whom this calculus doesn't apply because they want to be "King" no matter what. I'll bet Jason Fried wouldn't sell 37signals for $100,000,000; neither would Joel Spolsky sell FogCreek. Are Joel and Jason being irrational? Of course not. But neither was I. As of December 2007, I have the freedom to work on any project I want for the rest of my life while simultaneously providing for my family, never again worrying about bills, debt, having a place to sleep, or sending our daughter to any college she wants. I can stay home with my wife and new baby girl for as long as I want, having all the precious time and experiences and memories that they say money can't buy. But, in the sense of securing that freedom, it can. And by crossing the line, I did. Are you disappointed? Am I a sell-out? Comments welcome.

Related posts:You're a little company, now act like oneThe real reason we cried at Susan BoyleHow much of success is luck?Underbelly: What haughty startup bloggers don't tell youHow to get customers who love you even when you screw up

I’m involved with several little companies right now. They all have the same problem, and they’re all avoiding the clearest, fastest path to fixing it. Their problem is: We don’t have nearly enough sales. Some actual quotes (sound familiar?): “We have 300 downloads and no sales.” “People tell me I have a great idea, but none of them are buying my software.” “My sales/download conversion ratio is 1%. It should be 8%.” “Folks are signing up for an account but they don’t come back.”

Cartoon by Andertoons Of course everyone wants “more sales,” but I’m specifically talking about the early stage of your company, when your v1.0 is shaky but has enough features that it should be more viable than it is. When your website copy is good enough that people are willing to sign up or download, but the sales aren’t coming in like they ought. This problem is solved only one way: You need feedback from lost sales. Empirical data, not your own ideas about why people might not be buying. You need to talk with the people who were interested enough to find your website, read your marketing copy, download your product, and then give up without even an email. That’s the low-hanging fruit; those are the people who are in your grasp, who should be buying today, but aren’t. As Steve Johnson says, “All the answers are outside the building.” (Watch his one-hour presentation on the subject at the Business of Software 2008 Video Archive.) Or as Eric Ries says, “Not listening is the cardinal sin … Any other mistake can be overcome: shipping bad product, removing key features, erroneously banning community members, even kicking out a whole segment of customers.” But I find that entrepreneurs — especially technical ones — fight me on this tooth and nail. And I’m not surprised because, as usual, I too used to hold the I-already-know-why, I-know-my-customers-better-than-they-do attitude. So once and for all, I’d like to dispense with the usual arguments for why “more feedback” isn’t the problem:

Existing customers are telling us to do X, so we should do X. Customer requests are important and you must follow their lead, especially in the beginning. But what about the 98% of trial users who didn’t buy? It is they who hold the keys to more sales! Existing customers bought in spite of barriers to sale, so they’re no help in identifying the barriers. Listen to them to increase your product’s value, but listening to them to increase sales is classic survivor bias.

What we need is New Feature X, then people will buy. This is almost never true. The world is filled with successful v1.0 products that lacked obvious features; in fact I challenge you to find an exception. Ben Yoskovitz wrote a great post about this fallacy (with 27 concurring comments). Even Nintendo says “the most important feature is the one no one asks for.”

We need to clean up the software before we can get real feedback. At Smart Bear, the first incarnation of our code review product was so hard to decipher, I can’t understand how we got customers. They used it in spite of the problems, not because of them. If you’re solving a genuine pain, people will try the software, complain about it, ask for features, and generally be engaged; if that’s not happening, you’re not solving the right problem or not making that obvious, and that is critical to getting revenue. Have you ever worked on a software project for many years and lived through a face-lift? After you’re used to the new look and creature-features, when you see the old version it’s so bad you get embarrassed, right? It’s the natural order of things. Polish isn’t important if you don’t have enough revenue.

I’m a user myself, so I know what’s missing. That’s great, but all that means is that you have 100 ideas for new features, but “more features” is almost certainly not the problem. It means is you have a “vision” which is almost certainly not how your company is going to unfold. Often the real impediment to sales is as mundane as “New users are presented with a blank screen, so they don’t know what to do next, so they abandon the trial,” or “The installer doesn’t work properly under Vista, so people give up.” The fact that you’re a user yourself is the worst position for you to be in because you can’t be objective about the new user experience, and you can’t put yourself in the shoes of a user possessing below-average intelligence. Which half of them possess. There, I said it. Most of your users are dumb; almost all are dumber than you are. You are not your typical user.

Apple just knows what’s cool. So do we. This is a common misconception, easy to believe because Apple does keep product development close to the vest. However, it’s completely untrue. See the VentureHacks blog quoting Steve Jobs on the matter; then see their roadmap for collecting customer feedback and using it for repositioning, just like Apple does.

We can’t afford to delay the v#.# release. If you have no real evidence that revenue will suddenly improve with the next release, why do you think it’s important to release it? Just because it has “more stuff?” The only reason to be excited is because it’s different, and since the status quo isn’t work, you’ve got to try something different. But is that “stuff” why people are downloading but then abandoning? Until you can answer that question with empirical data, there’s no reason to believe the new stuff will be more compelling than the last stuff.

Getting revenue is a marketing/sales function; I need to be heads-down in the code. In a startup, it’s everyone’s job to get revenue. Sure, the usual day-to-day activities should be divvied up between founders; not everyone needs to write letters to bloggers and be glued to Twitter live-search. But if you don’t know why people aren’t buying, that’s the #1 bug and the #1 feature you need to be working on. There’s lots of ways (see below) to change the product or website in under a day that will begin fixing the problem. Saying “it’s marketing’s job” really means “I’m not going to help get revenue.” Unacceptable.

Hopefully by now you’re convinced to get more feedback from lost sales, but how do you go about doing it? Stay tuned! Next week I’ll post eleven specific ways to get more feedback, almost all of which take less than a day to implement. Is feedback really this vital or am I overstating? Leave a comment and join the conversation.

I talk to a lot of companies that are still hunting for customer #1, or a few sales have been made but the ball isn’t rolling yet. Most of them are making the same mistake: Their public persona is exactly wrong. I know, because I made the same mistake! But I learned my lesson, and I’d like to share it with you. Even before I had a single customer, I “knew” it was important to look professional. My website would need to look and feel like a “real company.” I need culture-neutral language complimenting culturally-diverse clip-art photos of frighteningly chipper co-workers huddled around a laptop, awash with the thrill and delight of configuring a JDBC connection to SQL Server 2008.

It also means adopting typical “marketing-speak,” so my “About Us” page started with: Smart Bear is the leading provider of enterprise version control data-mining tools. Companies world-wide use Smart Bear’s Code Historian software for risk-analysis, root-cause discovery, and software development decision-support. “Leading provider?” “Data mining?” I’m not even sure what that means. But you have to give me credit for an impressive quantity of hyphens. That’s what you’re supposed to do right? That’s what other companies do, so it must be right. Who am I to break with tradition? Surely my potential customers would immediately close the browser if they read: Hi, I’m Jason and I built an inexpensive tool for visualizing what’s in your version control system. It’s useful for answering questions like “When was the last time we changed this file?” Check it out and tell me what sucks! I mean, can you just imagine a person with “Software Engineer III” on their business card taking me seriously if I just talked like a human being? What if someone gets offended by the word “sucks?” No no, big companies want to see professional language! But I was wrong. I’ll explain why from the point of view of selling software over the web, but the same lesson applies to every little company trying to get off the ground. Now repeat after me: My next sale won’t be a 1000-seat order from Lockheed Martin. My next sale won’t be a 1000-seat order from Lockheed Martin. My next sale won’t be a 1000-seat order from Lockheed Martin. I’m telling you this having sold software to every size of company from micro-ISV to IBM, and, well, to Lockheed Martin. Your vision is to land $100k deals with big companies — and you will! But not today. Today your product is a shaky version one-dot-oh with bugs you haven’t uncovered yet, missing 80% of the features big companies require, and with no significant documentation like case studies or a proper manual or an ROI model or a large, reference-able customer. Today, you’re a complete mismatch with Lockheed Martin! But there’s a nice big niche that’s a perfect match: Early Adopters. Early Adopters are people who want to live on the bleeding edge. They like new technology, even if that means it’s buggy. They like working with teeny companies where they have a personal relationship with the founders, where they are showered with attention, and where their ideas are implemented before their very eyes. They don’t mind putting up with a hundred bugs so long as they get fixed fast. They want to be involved in the process. Tom is an Early Adopter. At Smart Bear I must have had ten or twenty of these guys before our product was stable enough and feature-rich enough to start getting attention from the big boys. The best part is, this is exactly the moment in your company’s life when you need Early Adopters to help you build the right product! You don’t need people who download, get discouraged, and then never call you back. You need a chatty Cathy who wants to dive in and help out. So now back to your website, your blog, your Twitters — your public corporate persona generally. What do you put up on your website that screams out to those potential Early Adopter Cheerleaders that you are exactly what they’re looking for: A cool new company with a fresh product and fresh attitude; a product that might be rough around the edges but is ripe for feedback and collaboration; a company that may be small today but is thinking big. Well here’s how not to it: Say “a leading provider of” and blather on about how you “Provide the ability to quickly and easily do XYZ so you can go back to accomplishing high-value tasks.” Puh-leeze. Can you be more uninspiring? Balsamiq Studios is doing it right. Read their company page. It’s says “Hello.”  It says “Yes, a couple of guys in a studio.” They don’t skirt the issues of being a small company: I know, it sounds iffy: how can such a small team create, test, maintain, market, sell, and support a software company? Well, that remains to be seen. Balsamiq made $800,000 in their first year of operations, so don’t tell me “big companies” need to hear garbage PR/marketing language. Balsamiq got 100 product reviews during their first six weeks of operation, so don’t tell me “a couple of guys in a studio” isn’t a good public persona. You want that kind of success? Stop acting like a faceless, humorless, generic, robotic company! Put yourself in the shoes of that Early Adopter. Does she want to see useless garbage phrases or does she want to hear about how you totally understand her pain? Should you come off as a big, established, safe company or as a cool, passionate, small team who wants to make a difference? Should you hide behind “Contact Us” forms or display your phone number and Twitter account on your home page? Should you promote features and benefits you don’t really have implemented yet or should you promote your forums, blog, and weekly all-customer virtual meeting where everyone chimes in with feedback? Be human. Stop hiding. Be yourself. What do you think about how small companies should present themselves to their customers? Is it appropriate to be informal or is formality needed? Leave a comment!

I talk to a lot of companies that are still hunting for customer #1, or a few sales have been made but the ball isn't rolling yet. Most of them are making the same mistake: Their public persona is exactly wrong. I know, because I made the same mistake! But I learned my lesson, and I'd like to share it with you. Even before I had a single customer, I "knew" it was important to look professional. My website would need to look and feel like a "real company." I need culture-neutral language complimenting culturally-diverse clip-art photos of frighteningly chipper co-workers huddled around a laptop, awash with the thrill and delight of configuring a JDBC connection to SQL Server 2008.

It also means adopting typical "marketing-speak," so my "About Us" page started with: Smart Bear is the leading provider of enterprise version control data-mining tools. Companies world-wide use Smart Bear's Code Historian software for risk-analysis, root-cause discovery, and software development decision-support. "Leading provider?" "Data mining?" I'm not even sure what that means. But you have to give me credit for an impressive quantity of hyphens. That's what you're supposed to do right? That's what other companies do, so it must be right. Who am I to break with tradition? Surely my potential customers would immediately close the browser if they read: Hi, I'm Jason and I built an inexpensive tool for visualizing what's in your version control system. It's useful for answering questions like "When was the last time we changed this file?" Check it out and tell me what sucks! I mean, can you just imagine a person with "Software Engineer III" on their business card taking me seriously if I just talked like a human being? What if someone gets offended by the word "sucks?" No no, big companies want to see professional language! But I was wrong. I'll explain why from the point of view of selling software over the web, but the same lesson applies to every little company trying to get off the ground. Now repeat after me: My next sale won't be a 1000-seat order from Lockheed Martin.My next sale won't be a 1000-seat order from Lockheed Martin.My next sale won't be a 1000-seat order from Lockheed Martin. I'm telling you this having sold software to every size of company from micro-ISV to IBM, and, well, to Lockheed Martin. Your vision is to land $100k deals with big companies -- and you will! But not today. Today your product is a shaky version one-dot-oh with bugs you haven't uncovered yet, missing 80% of the features big companies require, and with no significant documentation like case studies or a proper manual or an ROI model or a large, reference-able customer. Today, you're a complete mismatch with Lockheed Martin! But there's a nice big niche that's a perfect match: Early Adopters. Early Adopters are people who want to live on the bleeding edge. They like new technology, even if that means it's buggy. They like working with teeny companies where they have a personal relationship with the founders, where they are showered with attention, and where their ideas are implemented before their very eyes. They don't mind putting up with a hundred bugs so long as they get fixed fast. They want to be involved in the process. Tom is an Early Adopter. At Smart Bear I must have had ten or twenty of these guys before our product was stable enough and feature-rich enough to start getting attention from the big boys. The best part is, this is exactly the moment in your company's life when you need Early Adopters to help you build the right product! You don't need people who download, get discouraged, and then never call you back. You need a chatty Cathy who wants to dive in and help out. So now back to your website, your blog, your Twitters -- your public corporate persona generally. What do you put up on your website that screams out to those potential Early Adopter Cheerleaders that you are exactly what they're looking for: A cool new company with a fresh product and fresh attitude; a product that might be rough around the edges but is ripe for feedback and collaboration; a company that may be small today but is thinking big. Well here's how not to it: Say "a leading provider of" and blather on about how you "Provide the ability to quickly and easily do XYZ so you can go back to accomplishing high-value tasks." Puh-leeze. Can you be more uninspiring? Balsamiq Studios is doing it right. Read their company page. It's says "Hello."  It says "Yes, a couple of guys in a studio." They don't skirt the issues of being a small company:

I know, it sounds iffy: how can such a small team create, test, maintain, market, sell, and support a software company? Well, that remains to be seen.

Balsamiq made $800,000 in their first year of operations, so don't tell me "big companies" need to hear garbage PR/marketing language. Balsamiq got 100 product reviews during their first six weeks of operation, so don't tell me "a couple of guys in a studio" isn't a good public persona. You want that kind of success? Stop acting like a faceless, humorless, generic, robotic company! Put yourself in the shoes of that Early Adopter. Does she want to see useless garbage phrases or does she want to hear about how you totally understand her pain? Should you come off as a big, established, safe company or as a cool, passionate, small team who wants to make a difference? Should you hide behind "Contact Us" forms or display your phone number and Twitter account on your home page? Should you promote features and benefits you don't really have implemented yet or should you promote your forums, blog, and weekly all-customer virtual meeting where everyone chimes in with feedback? Be human. Stop hiding. Be yourself. What do you think about how small companies should present themselves to their customers? Is it appropriate to be informal or is formality needed? Leave a comment!

Do you read business blogs where the author has failed three times without success? No, because you want to learn from success, not hear about "lessons learned" from a guy who hasn't yet learned those lessons himself. However, the fact that you are learning only from success is a deeper problem than you imagine. Some stories will expose the enormity of this fallacy. Bullet holes: A brain teaser During World War II the English sent daily bombing raids into Germany. Many planes never returned; those that did were often riddled with bullet holes from anti-air machine guns and German fighters. Wanting to improve the odds of getting a crew home alive, English engineers studied the locations of the bullet holes. Where the planes were hit most, they reasoned, is where they should attach heavy armor plating. Sure enough, a pattern emerged: Bullets clustered on the wings, tail, and rear gunner's station. Few bullets were found in the main cockpit or fuel tanks. The logical conclusion is that they should add armor plating to the spots that get hit most often by bullets. But that's wrong. Planes with bullets in the cockpit or fuel tanks didn't make it home; the bullet holes in returning planes were "found" in places that were by definition relatively benign. The real data is in the planes that were shot down, not the ones that survived. This is a literal example of "survivor bias" -- drawing conclusions only from data that is available or convenient and thus systematically biasing your results. Doesn't most business advice suffer from this fallacy? You read about successes but what about the businesses that "never made it home?" Like the downed planes, could failure contain more lessons than success? Burying the other evidence Scientific journals like to publish extraordinary results, so studies that don't show anything of statistical significance aren't published but rather are abandoned or silently stowed away in academic filing cabinets. This practice is called the "file-drawer effect," and it's a particularly insidious form of survivor bias because it's invisible. Peter Norvig sums it up nicely: When a published paper proclaims "statistically, this could only happen by chance one in twenty times," it is quite possible that similar experiments have been performed twenty times, but have not been published. Pharmaceutical companies have exploited this effect to intentionally skew results. It's gotten so bad that journals are calling for a public database to prevent fraud: More than two-thirds of studies of anti-depressants given to depressed children, for instance, found the medications were no better than sugar pills, but companies published only the positive trials. If all the studies had been registered from the start, doctors would have learned that the positive data were only a fraction of the total.--Washington Post Doesn't most business advice suffer from this fallacy? Harvard Business School's famous case studies include only success stories. To paraphrase Peter, what if twenty other coffee shops had the same ideas, same product, and same dedication as Starbucks, but failed? How does that affect what we can learn from Starbucks's success? Experimental proof of ESPDr. Joseph Rhine brought the rigor of experimental psychology to the study of the paranormal, and ESP (Extra Sensory Perception) in particular. He made waves in the 1930s with controlled experiments testing whether a person was able to predict the order of the cards in a shuffled Zener deck (with symbols like circle, square, star, and wavy lines). In a typical experiment, 500 people are screened for "strong telepathic ability," measured by significantly above-average performance in a 25-card deck. Those selected are tested again, and more drop away. Tested a third time, perhaps one person passes again and we conclude that such a repeat performance is statistical evidence of genuine ESP. To see why this is just a different face of survivor bias, consider the following experiment. I believe some people are "heady" when it comes to coin-flipping -- getting heads more often than chance alone would suggest. So I put 1000 people in a room and tell them to flip a coin ten times. Sure enough, a woman named Margaret makes "heads" ten times in a row! The chance of her getting heads ten times in a row is only 1-in-1024, so I conclude Margret has special abilities. Actually that last statement is true but misleading. The chance that Margaret would flip ten heads in a row is 1-in-1024, but that's not the experiment I ran was it? I let 1000 people flip and "found" Margaret in the crowd. The chance that somebody in a crowd of a thousand would flip heads ten times is a whopping 62%! Because so many people are attempting the feat, some normally-unlikely events will happen. This isn't a test of Margaret's abilities at all! Doesn't most business advice suffer from this fallacy? Take me for instance. I've done three consecutive successful startup companies, so that's proof that I know what I'm doing and that you should do everything I say, right? Except maybe I'm just the one in the crowd who guessed right on the Zener cards three times, and there's no reason to believe I would be successful a fourth time. Specific examples of survivor bias in business advice So far I've been asking rhetorically whether survivor bias might be severely skewing business advice. Steven Levitt (of Freakonomics fame) investigated this question directly. He was reading Good to Great by Jim Collins, a book that analyzed eleven companies that were mediocre -- just pooping along -- but then transformed themselves into stock market sensations. A conclusion was that the common trait was a "culture of discipline." This book has sold many millions of copies, so it's a good example of popular writing on business advice. One of the eleven "great" companies was Fannie Mae, and Steven Levitt was reading this book just as Fannie was collapsing in financial disaster. Hmm, he thought, I wonder how those other "great" companies are doing. Turns out, had you invested in those eleven companies in 2001 (when the book came out), your portfolio would have underperformed the S&P 500! (Fannie Mae wasn't even the only case of total disaster -- also extolled was the now-bankrupt Circuit City.) Why didn't these companies continue to succeed? It turns out Jim started by combing through 1435 companies looking for good candidates for the book, and picked eleven. It's the ESP experiment all over again! On top of that, Jim doesn't bother asking whether any of the 1424 other companies also displayed a "culture of discipline." Maybe that's something that many public companies have regardless of performance. Is this book an aberration? Nope, Steven investigated another business book from the 1980s -- In Search of Excellence -- and found the same effect. Steven then comes to the same conclusion that I'm coming to: These business books are mostly backward-looking: what have companies done that has made them successful? The future is always hard to predict, and understanding the past is valuable; on the other hand, the implicit message of these business books is that the principles that these companies use not only have made them good in the past, but position them for continued success. To the extent that this doesn't actually turn out to be true, it calls into question the basic premise of these books, doesn't it? Oops, did I just invalidate my blog? Lately I've been wondering if a lot of business advice -- both mine and others -- is really a case of survivor bias. I mean, I didn't start out at Smart Bear with a load of philosophy and a fixed idea of who the customer was or even what the products would be. How do I know this post-hoc philosophy and advice isn't just a case of survivor bias? Am I not like the ESP-savant, successful not by force of nature but by simple chance of surviving? Or perhaps I'm like Dr. Rhine the ESP experimenter -- convinced I've discovered something important with "objective measures of success" -- and yet I'm actually living in a dream world. More to the point, how can you, dear reader, ascertain whether my articles or any advice from anywhere suffers from this fallacy? In the end of course you don't know. But here's something: Just the fact that you're aware of survivor bias means you're less likely to be fooled by it. So, reading this article has helped a little.

Beyond that, prefer advice that makes you think and forces you to answer tough questions of yourself, not advice that simply tells you to march in a certain direction. Use advice as a sounding board rather than gospel. What do you think? How do you decide which advice to take? Leave a comment and join the conversation.