Max Marmer

There is a new class of ventures emerging. They’re not focused on creating the next profitable widget. Their core purpose is about empowering people with tools, knowledge, social connections to live a better life and fulfill their dreams.

The currency of their value creation is broader than just along the economic spectrum. They are about unleashing the abundant resource of human potential and social capital.

This is a transformative departure from most organizations whose fundamental currency is economic capital. Given this, there’s bound to new ways of organizing, sharing resources, knowledge, tools and people. Social capital is fundamentally positive sum, and therefore potentially abundant, as it grows in value the more it’s used. Whereas organizations based on economic capital predominantly engage in pure quid pro quo, zero-sum exchanges of value.

I’m not sure what all the implications of this are, but I think we should try very hard to figure it out.

Here are some thoughts on why there are probably new organizational possibilities:

Organizations that are based on a currency that is positive sum rather than zero sum have the possibility to collaborate with others in truly new ways. If we find effective ways of sharing resources that grow the more they are used that has the potential to create exponential impact.

Organizations based on social capital also might be able to more easily collaborate with others on achieving complimentary aspects of mutually shared visions. With projects guided by social capital, sharing makes more sense, and there’s ways of creating mutually reinforcing value that grows the overall pie. Companies guided by an economic bottom line are incentivized to control a whole vertical themselves and treat those with similar intentions as competitors.

I also took a stab a few months ago at a theory called the Lego Model for how organizations might be able to achieve scale through collaboration. Lego Model. http://maxmarmer.com/2009/12/the-lego-model—-from-the-force-for-the-future-blog/

I think there’s a lot of potential to take many of these type of projects and create an organization similar to YCombinator but for projects centered around “unleashing human capital”.

This consolidation and focus around a single brand could create a rising tide that lifts all of our work by focusing energy around what these new class of companies need to be successful which could include things like more effective PR, fundraising, and most importantly, collaboration. I think by bringing projects and people together in this fashion there’s an opportunity to rethink some fundamental assumptions about work, business and value creation. Experimenting with some loosely organized uniting brand allows us to begin how to build these structures in way that could accelerate the trajectory of all the projects it touches.

This is a project my friends and I will be working on over the next year or two. If this is something that interests you, let me know.

In a previous post I described market evolution as follows:

But once there are lots of teams executing on a new opportunity, most of the battle from a macroeconomic perspective has already been won, it’s just a matter of which individual player will earn the spoils (and how long they can maintain relevance before a competitor overtakes them or the market becomes commoditized). Fact is, there were many search engines and social networks before Google and Facebook. The markets they operate in were big enough that inevitably an industry giant would emerge who would be able to use the lucrativeness of the market to generate a runaway positive feedback loop up until saturation. Though not inevitable, it would be very hard for Facebook and Google to screw up and concede supremacy in their primary markets. But it is probable a new company will beat them to the new markets they try to extend to. For more on the power of markets see Marc Andressen’s post, the founder of Netscape and now Ning, on why the market is the only thing that matters and when it is big enough it will practically drag companies to a solution.

Once the timing and conditions are ripe there will be enough people trying to tackle the clear billion dollar markets that somebody will get the execution right. The startup ecosystem is that good at providing all the puzzle pieces!

Future billion dollar companies will ride trends such as the move to the cloud, mobile information, personalization utilizing our preferences and social graph, and new data capture enabled by the falling cost and size of sensors.

Two more examples of byproducts. Focusing on byproducts makes you less likely to achieve them. Instead focus on what the real end goal should be.

I recommend first reading the original post where I discussed byproducts: Why You Can’t Get More Happiness, Money and Love By Pursuing Them Directly

Learning from Failure

You’re first startup venture will probably fail and it will be a great learning experience that will increase your chances for being successful on your second venture. But you can’t go into that first venture with the expecation that will just be a great learning experience, because then it probably won’t even be a good learning experience, otherwise you’ll quit too early. Only if you have the unwavering irrational belief that this venture is destined to succeed will you push hard enough and long enough to learn some real lessons.

Competitive Spirit

Passion for athletics commanded the largest portion of my free time from the time I was 5 to the time I was 17. At some point around 13-14 I had some pretty tough injuries that were misdiagnosed with compounding lingering effects. (I’ve described that in some more depth in this post)

At some point around 17-18 I wound down my competitive athletics commitments so I could focus on my burgeoning entrepreneurial interests. Now that I have some distance from my athletic career I can see how much I’ve gained from sports.

The other day I was watching a Giants game and they were doing a brief promotional segment on a Giant’s sponsored program for getting more young girls involved in sports. They started listing all the virtues of playing sports, “competitive spirit, toughness, teamwork, ambition…” but hearing those traits rattled off made me want to snicker. In my experience, the only players who touted those virtues as reasons for playing weren’t very good. And the coaches who talked about those virtues to their players usually had bad teams. The good coaches and athletes focused on what they needed to do to get better, what they needed to do to win games and more importantly win championships.

I wasn’t driven by developing toughness, or being a team player. I wanted to win, and I wanted to realize my dreams of playing professionally. But I knew winning required mental toughness and involving my teammates. And along the same lines, you don’t pitch teamwork for teamwork’s sake, you pitch teamwork because it’s required to win.

You don’t chastise cheating, because it’s morally wrong, you don’t do it because it can hurt you chances of winning. Minor discrepenciases of what’s allowed by the rules are fine, and you have to weigh the risk/reward consequences of doing something unallowed.

But after my urge to mock the girls baseball promotional subsided, I realized I have all those traits, and they’ve carried over to other areas of my life even though I’ve stopped playing sports 6 times a week. And while instincts and genetics deserve credit for the existence of these traits, my engagement in sports nurtured and developed these traits.

But the reason I had such a negative visceral reaction to listing the virutes, comes down to byproducts and end goals. Teamwork, toughness, and ambition are all byproducts and by even considering them or any other byproduct as a valid end goal you make them less likely to occur.

In this post Steve Blank urges startup founders to consider what kind of risk they face if they want to be successful. They must figure out if they face technology risk, market risk or both? But I believe the key principle to understand here is market evolution.

In order to understand market evolution I think it’s helpful to dive a bit deeper into the special case where a startup has technology risk but no market risk, admittedly this occurs very rarely for web startups and is more likely the case for a life sciences startup. But this is still relevant for web startups because often you can gain deeper insights into an issue by understanding why something doesn’t apply than why it does.

The first key idea is that in even in cases where there is only technology risk and no market risk, the market still evolved out of nonexistence. If you identify that there’s only technology risk and no market risk for the startup you’re working on, than that’s because the market has already formed and there’s a lot of pent up demand as a result of no one being able to satisfy the market.

Steve Blank has classified market types a startup can be in into 3 major buckets, New, Existing and Resegemented (as niche or low cost).

For the purpose of mapping the possibility space of markets I’d like to add two more market types to the list: at the beginning, Non existent; and at the end, saturated/commoditized.

While new companies can’t play in non existent or saturated markets these stages are important additions to mapping the lifecycle of a market.

So now let’s take the canonical example of something that has only technology risk: finding a cure for cancer. There is clearly no market risk because if you developed this cure now, the world would beat a path to your door.

But while there is no market risk for cancer now, that hasn’t always been true, and it won’t always be true. The market for cancer cures, just like any market will will evolve through all these stages: nonexistent, new, existing, resegmented and saturated.

When is the market for cancer drugs nonexistent you ask?

For most of human history, actually. Since life expectancy has been below 40 for most of human history people died too early for cancer to have any relevance.

And even after human life expectancy began to rise to where cancer was killing people, there was still market risk, because first we had to discover what cancer was AND EDUCATE the public about cancer, before it would be possible to sell any kind of cancer treatment, even if it was invented.

One of the key points Steve emphasizes about new markets is that in order to grow the market, the potential customers must be educated. You can’t reliably sell someone what they don’t yet want or understand.

But the main point I want to emphasisze is that all markets are highly dependent on timing. Markets don’t exist for most of the time and when they do there are small windows of opportunity. The only time there is no market risk is when there is clearly an existing market, evidenced by extreme demand, but there are no companies serving this market because nobody has found a solution. There is only technologically risk here, because all you have to do is make the technological breakthrough to win.

Update: What this means for other industries

All industries face market risk. There are just a few problems where the market has evolved and technology has not been able to meet it.

Web tech has evolved to the point to where most applications face only market risk and no technology risk. We will eventually develop the tools and infrastructure to where new advances in the life sciences and in biotech only face market risk. The early signs of this are in Craig Venter’s research which will eventually allow us to program life in the same way we program machines. An industry transitions from facing both technology and market risk, to facing predominantly only market risk when creators stop focusing most of their energy question, “Can we even build this?” and instead focus on the efforts on the question “If we build this, will anybody want it?”

There are so many different perspectives about the right way to create a successful startup, how do we make sense of all this conflicting advice? Do you just have to figure out what works for you and stick to your guns? Assuming people are modeling the world correcting and not attributing their successes and failures to the wrong things, (which humans are extremely prone to!) can we piece different advice together to create a coherent picture of what actually works?

I believe by filtering advice through these 6 variables we can begin to stitch together the insights entrepreneurs are documenting everyday into unified schools of thought. The leading framework right now is the Lean Startup but I believe other internally consist schools of thought will soon emerge.

Most startup advice makes sense only if you take into account a number of variables to clarify the situation you’re talking about. Otherwise, people are usually both right, but talking past each other. I believe these 6 can bring clarity to to the startup advice & theory landscape.

(See my post here about how most advice that seems to conflict usually doesn’t.)

1) Life cycle of the startup Where is the startup on the continuum of Problem/Solution fit, Product/Market, Optimization, Scaling, and Transitioning to a Large Company.

You must clarify what stage of the startup you’re talking about. “Get as many users as you can” is great advice if you’ve found product/market fit, but it’s terrible advice if you haven’t.

2) Industry What industry are you in? (Web 2.0, Enterprise, Life sciences, Bio Tech, Social Entrepreneurship) Startups can come from many industries, by clarifying upfront what industry you are operating in you can understand what kinds of risks and constraints you’ll be facing, including Technology Risk, Market Risk, Capital Requirements, Intellectual Property and Government Regulations.

Technology risk is best understood as, “Can you make it”. Market risk is, “Will anybody buy it?”

3) Target Customer At a high level that means is it Business to Business (B2B) or Business to Consumer (B2C). But this question can be answered with increasing specificity, by stating more granular customer segments such as teens, CFO’s at fortune 1000′s or any Internet user with friends.

Don’t charge for your product initially so you can learn as much as possible about your users is good advice for a B2C property but if you give your product away to businesses they won’t take you seriously and kindly show you the door.

Sean Ellis preaches creating a product that creates extremely gratified users. That’s what you should strive for if you’re creating a consumer product, but you’re going to make more money selling lemonade and cotton candy to a business than selling them on how your product makes users feel good. Business don’t care about gratification, they care about ROI.

4) Business model How does your company create value and for whom? Do you charge for your product? (SaaS, Installed App) Do you give aspects of your product away for free? (Freemium) Do you monetize your users indirectly? (ad based). David Cohen has a great list here that I think covers most possible business models for Internet startups.

Driving a lot of traffic to your site and getting users to spend a lot of time with your product may make sense if you can monetize your users through ads, but if you have a freemium business model and your users aren’t buying your premium product you’ll just have a very expensive server bill at the end of the month and little revenue.

5) Network Effects Does your service get better the more people use it? Think Marketplaces, and Social Networks (eBay, Twitter, Facebook).

6) Market Type Are you in an existing market, a new market or resegmenting an existing market?

Hiring an amazing Marketing and PR team is a quick way to flush your money down the toilet if you’re in a new market, because getting your message out will not increase your revenue as the market hasn’t fully formed yet.

7) Expected Market Size Do you have the potential to be large high growth company? Or will your company max out as a small business?

If you’re market size is small, you’re wasting your time trying to get funding from VC’s.

Examples:

Depending on the configuarion of these variables for your startup you’ll change the order for how you grow your business and validate your assumptions.

Steve Blank has an amazingly detailed workflow in Four Steps to the Epiphany that describes the whole life cycle of the startup (1) but you it only applies with a high degree of accuracy to enterprise B2B startups (2,3) that monetize customers directly (4), with no network effects (5) and are in a large market (7). (He clearly outlines the different strategies you should pursue depending on if you’re in an existing market, new market or a resegmented market (6).)

Ash Maurya has created a great workflow for the first two stages of the startup (1) Customer Discovery: reaching problem/solution fit and Customer Validation: reaching product/market fit that works for web 2.0 consumer startups (2,3) using a SaaS or premium business model (4), with no network effects (5), an existing or resegmented market (6), and can be adapted to any market size (7).

Note: I don’t think the way the positioning statement are developed work well for educating customers about a new market.

Andrew Chen describes why you may want to consider building a minimum desirable product rather than a minimum viable product. However this advice only applies to the Problem/Solution & Product/Market Fit stages (1) of a consumer web (2,3) startup, where users are likely monetized indirectly (4), there are network effects (5), is in a new or resegmented market (6) [otherwise what is desirable is already proven], and is shooting for a very large market (7).

Can this framework make sense of the debate between the Lean Startup and the Fat Startup?

I think Brant Cooper summarized it best with his tweet: “Fat vs Lean” C’mon now, people, money isn’t fat, it’s muscle. no money isn’t (necessarily) lean, it’s skinny.”

How much capital you raise depends most on your market size (7) and VC’s trust in you. How far along the startup is (1) often doesn’t even matter if your a successful veteran entrepreneur, VC’s will just give you a few million upfront and save you the headache of raising capital multiple times. The only drawback is that you can’t aim for an early exit.

How you spend money however is still heavily dependent on the stage of the startup (1). You want to keep burn as low as possible until you reach product market fit. And how you spend money on marketing (User Acquisition, Branding and PR) is highly dependent on Market Type (6).

This framework can also help you answer questions such as, how should you react to your competitors?

The first thing to do is to look at where you are in the lifecycle (1). If you are pre-scale, you should just ignore your competitors. Focus on playing your game.

The other most important variable is again Market Type, as it will guide all your marketing strategies. You’re also going to want a very deep understanding of your customer (3) and how much you can spend to gain market share, before the costs outweigh the benefits (7).

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While there are certainly more variables, I believe these are most of the limited number of variables that will get you 80% of the way to understanding the right approach you should take.

What variables have I missed that should be included?

Below is an email I wrote to a friend about the implications of what I’m working on for the future of learning and education…

I got to this point by pivoting towards the vision of finding the future of learning.

I’ve been down in the details of startup culture for awhile so I forgot about this implication…

I actually believe if this format of support and learning is figured out with the most premium startups, it represents the future of learning and will trickle down to revolutionize education.

I think all the edu-startups have education wrong. They are trying to solve the problem through new ways of content delivery. But to transform education we have to look at how people actually learn and make an impact.

The best way to learn is very analogous to the lean startup. It’s about having a vision for something you want to do and then going and testing that hypothesis immediately by trying it. Whether it’s medicine, law, mechanical engineering or entrepreneurship. People need to test what it’s actually like as soon as possible and see if they can experience “flow” engaging in this activity.

The goal is to find something you really want to go deep into. John Seely Brown has my favorite quote in that regard, ““very often just going deeply into one or two topics that you really care about lets you appreciate the awe of the world … once you learn to honor the mysteries of the world, you’re kind of always willing to probe things … you can actually be joyful about discovering something you didn’t know … and you can expect always to need to keep probing. And so that sets the stage for lifelong inquiry.”

Another great quote from Steven Pinker is: “Accomplished people don’t bulk up their brains with intellectual calisthenics; they immerse themselves in their fields.” When colleges say they are teaching you how to think or building analytical rigor, this why it’s BS, because it doesn’t translate as well as they think it does.

Education is about supporting people to move through these 5 stages:
(1) No Desire — or intrinsic motivation (2) Desire to make an impact but uncertain about what, how or why (3) Possess an idea for a project but lack the knowledge and ability to know how to begin (4) A prototype has been built but need help gaining traction (5) The project has succeeded on a small scale but needs support going mainstream.

Essentially what Founders First will be doing is accelerating the A+ Founders who are very close to the finish line and then begin working backwards. The farther back you go there’s actually less a need to invent new things and more a need to just aggregate and streamline many of the programs that already exist to inspire young people and help them take the first step.

I wrote a quick post trying to adapt lean startup principles for education: http://maxmarmer.com/2010/05/lean-education-and-learning/

We will give you suggestions for tailoring you ideas in a way that makes them more creative and more effective with your audience. We’ve created our checklist of six principles for precisely this purpose.

But isn’t the use of a template or a checklist confining? Surely we’re not arguing that a “color by numbers” approach will yield more creative work than a blank-canvas approach?

Actually, yes, that’s exactly what we’re saying. If you want to spread your ideas to other people, you should work within the confines of the rules that have allowed other ideas to succeed over time. You want to invent new ideas, not new rules.

-Page 24, Made to Stick

The concept described here is so powerful. It took a little while to really sink in when I first read it. But I find myself referencing this idea ALL THE TIME.

Don’t just read what this passages says, but what it implies. What they’re describing here applies to so much more than just creating sticky ideas. It describes the process for effectively doing almost ANYTHING.

The message: Don’t start from scratch and try to reinvent the wheel. The things that work almost always follow a common pattern. Research what others have said the successful pattern looks like. If you can’t find any research, at least make an attempt to infer the pattern on your own.

A page earlier the authors write,

Highly creative ads are more predictable than uncreative ones. It’s like Tolstoy’s quote: “All happy families resemble each other, but each unhappy family is unhappy in its own way.” All creatives ads resemble one another, but each loser is uncreative in its own way.

Whatever you want to do there’s a small finite number of effective approaches that are far superior to randomness or just “trying stuff and seeing what happens”, whether it’s creating sticky ideas, creating a startup, getting people to like you or achieving happiness.Taking this idea a level of abstraction higher is an homage to the patternist view of life. We are not our matter, we are our pattern.

Many things people strive for are actually byproducts of what the real goal should be. But by focusing on the byproduct instead of the goal, the desired byproduct is ever elusive.

Let’s look at a few examples:

Happiness

The real goal is finding activities you’re passionate about and consistently engaging in them.

That definition skews towards work, but consider spending time with people you enjoy being around an ‘activity’ and it can encompass romance and family time.

Becoming “Networked”

Lots of people want a big network, full of powerful influential people, but if you focus on that is the end goal it’s probably not going to work out very well and you’ll come off as very insincere.

Having a large, powerful network is the byproduct where the end goal is helping other people, building relationships or trying to make an important vision happen that others can get behind.

Making Money

Making money is a byproduct of focusing on creating value.

If you focus on making money, you might end up making a lot if you’re very driven, but if that drive was applied toward how you could create the most value, you’d make a lot more money.

The one caveat with making money is that it only captures the economic spectrum of “value”, but a lot of people are working on how we can measure other kinds of currencies and make them more fungible so that in addition to financial capital we can measure things like social capital and emotional capital.

Confidence

I can’t become more confident by saying to myself, “C’mon Max, be more confident”.

Confidence is a byproduct of being really good at something, which is only obtainable through practice and repetition.

Though often people can practice and practice and not improve. That’s why people will tell you, “practice doesn’t make perfect. Perfect practice makes perfect.” While that’s directionally correct, a better answer is “practice in pursuit of perfection will allow you to increasingly approach perfection and achieve excellence”

Conclusion

The list goes on and on of things that many people try to achieve directly but are actually byproducts: Enlightenment, Love, Creativity, Status, Success, etc. etc.

It’s not wrong to want byproducts, but they are not things we can get, in the capacity we want, by focusing on achieving them directly. Byproducts are the rewards we get for living our lives the right way.

And by recognizing how byproducts break down into corresponding end goals it becomes clear there are no short cuts. When we care about other people, other people care about us. When we create value for others, we are rewarded financially. When we do amazing work, we gain respect. To live a rich life where we are happy, financially abundant, surrounded by amazing people and confident in our own abilities, requires cultivating curiosity, persistence, self-reflection, self-discipline, compassion, character, drive and many other esteemed traits.There is truth in the words that our external reality is a manifestation, or a byproduct, of our internal reality.

I encourage you to look at the things you want, and figure out what’s a byproduct and what’s the actual end goal that you should authentically commit to.

I don’t know about you, but as activity on social media sites has surged the last year, I’ve found a lot more noise in my feeds and as result of my projects getting more serious I’ve had less time to sift. I know I’m missing a lot of interesting things people have to say and always find aggregation and curation helpful.

At my friend Tyler Willis‘ urging I signed up for the daily venture hacks email digest and they’ve been doing a terrific job of synthesizing important articles being written within the startup community.

In that spirit, here is an aggregation of my enduring tweets from the last few weeks:

• The more you know the more you realize you dont know. But the more you know the more you can do. The goal is ability not absolute knowledge
• Two consec 20 hr weeks != one 40 hour week of productivity. Off/on ramps to a project are long. Sustained focus super important. Batch.
• The hedonic treadmill is so real. It’s great for accomplishment and progress but lame for happiness. Reflection of your path charted is key.
• The right plan is critical. It’s not sufficient because the hard work is in the execution but executing well on the wrong thing is worthless
• Time expectations: 3-5 hours are minimal if you’re coming from an empty schedule but fitting it in is a huge challenge if already maxed out
• Good plans have agility & unpredictability built in. Bad plans steer you away from possibility of making bigger realizations.
• A lot of smart is continuously eliminating false beliefs & building a repertoire of building blocks that construct increasing truthfulness
• Authors of Made to Stick argue that mental simulation of the past is more effective then simulating the future. Counterintuitive. Pg 211-213
• The music genome project aimed to “Capture the essence of music at the fundamental level”. The human genome captures humanity at a fund lvl?
• Finished the checklist manifesto, excited by its potential. Its simplicity appears vapid but the way it interacts w cognition is profound
• Noticed at the airport people are much happier at arrivals than departures. True with most things in life? Ppl seek comfort not uncertainty.
• “Narcissists don’t care how you feel, whether you like them or not, they just want you to be in their movie. Apathy is your only weapon.”
• “At times stories are ink-blot tests of what’s going on in the life of the reader.” – Steve Blank
• “Many designers don’t measure real world impact. Many design orgs & schools give out awards for designing products that never get built” – Eric Ries
• Great learning tool: ability to chat live w people reading the same blog post/article. Or easily see friends who have read the post. Exist?
• One of my big irritations is when people make a mistake and I fix it, but they are unwilling to learn what went wrong so it doesn’t reoccur.
• Customer Discovery provides a good way to inch into a startup idea partime before quitting your job and going full throttle.
• Sean Ellis & Steve Blank measure PMF dif bc theyre talking about B2C vs B2B (& respectively Gratification vs. ROI are the important metrics)
• The all things D interview with Steve Jobs makes me think a lot of the portrayals of Jobs as a dictator has some truth but is mostly wrong.
• We all have tons of assumptions in our mental model of the world. Surrounding urself with smart ppl makes you more likely to adopt good ones

Intelligence is about building up continually improving mental models of the world and correcting false assumptions as you find them. As you have more models and modules you can solve more problems and understand more things. For example, when you can cross pollinate modules from psychology to shed new light on business problems. Some people learn faster than others, but intuitively or unconsciously improving your models is more important than building them quickly.

Think of it like winning a race. A fast engine is important, but being a great navigator is a stronger competitive advantage, and is something you can control. Good navigators know what to pay attention to, they know how to read a map, they know what roads are short cuts, what roads are windy, what roads are dead ends and what roads are breathtakingly scenic.

Winning your own race of intellectual fulfillment is less about your engine—we’ve all got relatively similar equipment— and more about your ability to drive the car.