I can't hear your idea and the answer is NO!

If you are responsible for delivering a product that works and doing it on time, you have a monster inside. It starts as a small feeling in the pit of your stomach, but this menacing character can quickly take over and as deadlines approach, Dr. No is unleashed and this evil doctor cannot be controlled.

There is a tension between people who dream up product on paper and people who build product for reals for reals…I have had to work through this tension with every product team from sneakers to mix tapes to video games and iPhone apps…the creators keep asking for more and the builders say no louder and louder and if not managed effectively this split causes you to loose the valuable collaboration between disciplines and the creative solutions that come out of great engineering teams.

If your engineering lead has become Dr. No, you may have a culture that treats engineering as a resource to be consumed, as executors who can never work fast enough or hard enough to deliver for everyone else. Can you hear it in your product meetings? No…silent behind a blank look. No…wrapped in rolled eyes or a shrug. No…articulated with a frustrated shake of the head. No…slicing through a suggested change before it can be considered. NO…cutting off the thought before it is complete.

You are the CEO. It is your f’ing fault. It Sucks for everyone. You have to fix it.

At my game company, I was responsible for product and Dr. No was in the house as soon as we started writing code and it was my fault. I had spent 6 years managing design and development at a sneaker company. The process of game design was similar, but building a digital product was totally different than working with leather and molded rubber. I knew what I wanted built but I didn’t understand how our product was built and didn’t get why some “big” changes were easy and some “small” changes were impossible. I started to think it was a personnel issue and that I needed a more creative/open minded and hard working CTO/engineering team.

Turned out I just needed to learn some basic logic about our product architecture and incorporate these constraints into my thinking. Also, once I started trying to learn, started listening to the reasons why some of my requested features were crazy, the engineers started listening to me and identifying the goal that lay under the feature request — adn finding awesome ways to achieve the goal without derailing the entire product process.

It was a communication issue and I had to own it so the two sides of product creation could stop speaking past each other in different languages based on different assumed priorities and different work flows and processes.

I worked with my team and we adopted some simple rules that really helped.

1. We started every product change or feature request with a statement of the goal. Before any work was done, we got to agreement on the goal.This put everyone on the same side, trying to find a solution leveraging their expertise/knowledge
2. We moved from a culture of “no” (engineering saying no to requests and design saying no to new ideas for product coming out of engineering) to a culture of “why?” that focused the whole team on understanding an approach and collaborating to remove blocks in the process and to understand the trade offs that have to be made as resources are allocated and deadlines approach.

The head butting didn’t stop, but it got down to a healthy level. People learned from each other and made each other better. Designers worked within the constraints of what could be done and engineers found ways to deliver product that met the designers’ goals.

I don’t think designers and other product creators need to be able to code, but they need to understand the engineering process enough to consider it as they design. Engineers do not need to “get design” or be UI/UX experts, but they need to internalize a view of the end user as interpreted by the product/design team.

For some more on this with specific tactics for designers and engineers, see this piece on designstaff.org

VCs are tools. Tools are heavy, hard to carry and if not handled properly, they can hurt you. But, a good tool applied to the right problem at the right time can make you more efficient and help you build with higher quality and greater precision. The best tools can open up new worlds of possibility and help you focus on hitting exactly what you’re aiming for; remove friction and point all your energy at blasting through the market you are attacking.

When you are ready to build, tool choice really matters.

The best builders know what they need, how to choose the best tools and get the massive leverage from a great match of tool/builder/project. When you are about to put metal to wood, ready to make the first cut, take the time to carefully evaluate and select your tools. There are a ton of options out there and most are great for a specific job — each offers specific advantages and all have specific limitations.

There are lots of axes you can choose to pick up and swing. Make sure you don’t bring an ice axe to get shit done in the wood shed.

Start-ups are a natural home to frenetic activity. People work super hard and put in long hours to see their vision fulfilled. In this world you have to do more than you think is possible faster than imaginable.  Investors are the same way, doing everything we can to see everything, go to every event, talk to every entrepreneur and make sure we don’t miss out. On either side of the table chasing every opportunity without focus or priorities is a fast path to working more and more and accomplishing less and less.

I love hustle, but hustle without depth and focus is a waste of time.

With this in mind, I spent some time looking back at 2011 – the milestones in life and at work.  Life was great with a move to Brooklyn and a new baby. Professionally 2011 was fantastic in a lot of ways and I loved spending a year in New York meeting really smart people who are busting it to build really cool stuff. However, looking back, I brute forced my way through much of the year and in 2011 I got eaten by my inbox.

Last year I spent a lot of time in the glorified position of inbox zero, but at what cost? What was urgent (often for other people) bubbled to the top and got done, but things that are important to me – time to engage deeply with a product or service; a lunch meeting that extends into post lunch coffee when the conversation is great; letting an idea you are passionate about or area you want to learn about consume you for a morning or a day; carving out time to chip away at a long term project in a consistent way for a month or a year – got squeezed out of the calendar.

My 2011 accomplishments, the goals achieved, all came from the discipline to focus and the control to slow down and make time for deeper, more meaningful engagement and learning. But somehow, the sense of accomplishment in the measurable elimination of unread e-mail often over-shadowed the need to prioritize my time, energy and focus each day.

I can’t let this happen again, so all the respect in the world to Brad and David, but in 2012 my new year’s resolution is to do less, slower.

It is a great time to be a designer. Big companies are recognizing your value and your scarcity and start-ups are investing in design. With all this attention starting to focus on the craft, you will get calls, lots of calls.

Be excited, but be careful.

If the "product guy" can't answer these three questions, move on

Design is a hot topic right now and the bandwagon is filling up fast. Recruiters, investors, product guys, all calling to see if you want to come work at a start-up that has a great concept and early traction, but really needs some help on the design side…

When you hear this, listen. It could be a great opportunity. When you hear this, be skeptical, it could be some investor pushing a team to check a box. Everyone is saying you need a designer to be successful, but most people don’t know what a designer needs to be successful – and it is up to you to figure out if you are just a name on a list and will be a resource to be consumed or if this is a chance to be an integral piece of a culture that is driven by design.

I have been there, at the start-up that needed a ton of help on the design side to be successful. When I was the creative director for AND 1, we decided to invest in design and opened an office in Portland, OR. We ended up pulling some of the top designers from NIKE and Adidas over to our side. We built a fantastic squad. It started paying off immediately in marketshare and mindshare. Leading this team was a blast but I think we created a real advantage because this talent was poured over a culture compatible with design rather than into a department to be consumed as a resource.

The recruiting effort was intense and we went after top people across the industry – selling them on joining a start-up as designers. As the conversations progressed, I realized that all the best guys were asking us the same 3 questions in different ways and they all related to our culture.

1.    Where do new ideas come from? For example, how did product X or marketing initiative Y go from idea to in market? Who was involved? What did the process look like?

In my experience, designers flourish in a best idea wins culture. Look for a company where you are expected to contribute on any topic at any time. You will be more successful at start-ups that want engagement and vision on every consumer touch point and internal process and are set up to act on individual insight. If the person interviewing you knows what they would do with a great idea, it is a good leading indicator of this type of culture.

2.    Who is your customer? How do you know? What would it take to change the definition of your customer?

The best product teams I have been involved with always got the vision holders close to the consumer and created powerful loops of market feedback. Look for a culture that counts on everyone to help define the customer and that is open to new perspectives from customer service to finance to sales etc. A well formed, but plastic customer description that is expected to evolve with new insight means the door is open for innovation and that your developed sense of consumer empathy will be put to good use. 

3.    What does your brand stand for and what are your product priorities? 

At AND 1 we started and finished with the ball player with attitude and believed in brand above all else. Companies that have a well defined vision for the brand and believe in building brand across all consumer touch points are more likely to support successful designers. Brand conscious start-ups tend to be consumer centric and have a native, design driven culture where you can have material impact without material politics.

I think any designer considering a role at a start-up should be asking some version of these three questions and learning if they will be a design resource or a successful designer. If the company is not set up to let you succeed, keep waiting, the phone should ring again in 5…4…3…2…1…

If you are a designer thinking about joining a start-up I hope you will reach out. If you have other questions you think are critical to ask, I hope you will leave them in the comments.

These businesses are much more than putting things in a box once a month. On the panel we talked about paid and organic customer acquisition, the complex operational requirements of the business and the value of original content as an engagement mechanism.

The most interesting piece of the conversation for me was around the question “how do subscription commerce companies create value and are there industries or subscription models that are more or less attractive for entrepreneurs and investors?”

Check the box to create maximum value in subscription eCommerce

Across all the “Birchbox of X” companies I have seen in the past 12 months, I think there are two things required to create maximum value in the subscription commerce space:

1. Opt-out economics
2. Brand voice

Value Driver #1: Opt-Out Economics

One of the great things about the subscription model is consumer commitment. When they subscribe, the consumer makes the purchase decision one time, but they buy every month. The best services completely separate the pain of the purchase from the reward of the product. The consumer gets a ton of distance from the pain of paying and may even think of the service as a gift. Big eCommerce businesses can be built by making compelling offers to your membership on a regular basis, but if the decision not to make a purchase in a given month is not equivalent to canceling your membership, then you are a building push commerce and might be closer to a flash sale site than a subscription business.

Value Driver #2: Brand Voice

Subscription commerce is most valuable when it fundamentally changes a consumer’s consideration and buying process. These companies need a powerful brand voice because the conversation with the consumer is on-going. It is this voice that builds an unfair advantage when it comes to curation and personalization in a cluttered market. It is this voice that helps the consumer discover what they want, shows them why they need it and delivers the surprise and delight to generate loyalty, motivate engagement and drive incremental purchases.

Because of these two must have value drivers, subscription businesses work best in categories of consumer goods that are overwhelmed with choice from infinite brands; categories where the consumer understands quality in a qualitative rather than quantitative way and where experimentation with a new product is both low risk and delivers immediate results.

When you have all these things working for you, you have built a service that moves people. You have the chance to change the way people shop.

The conversation covered a ton more than this and I really enjoyed it. Thanks to the other guys up there with me, including moderator, Anand Sanwal from CB Insights, Greg Alvo from OrderGoove, Rob Lafave from our portfolio company Foodzie, Matthew Smith from Shutterstock and Todd Smith from Stunner of the month

by the time I am crafting code, algorithms will perfectly predict the data stream to avoid latency

I have been thinking about APIs and the REST architecture in the context of the real-time web.

I continue to wonder what happens as we drive toward analysis of data streams rather than of data pools.  In this case I am wondering about the future of the REST architecture. When we approximate real-time, do the periods between transition states, the rest period in the RESTful application, get smaller and smaller? Do the number of calls to the databases per time period increase? In the limit will we see I/O count approach infinity and the time that applications spend in a RESTful state approach zero? As the data (and state) is changing on both the client and server side in real-time, all the time, at what point does the way that we build apps need to change from API calls to an always open, real time API connection? How does this affect pricing for businesses built on a charge per API call model?

To the layman (a.k.a. me) it feels like the move from wireless communication on a walkie talkie to talking on wireless phones. With a walkie talkie, the connection is two-way, but it is one way at a time. Only one person can talk at once and you have to let the other party know when you are done by saying, “over.” On the phone two (or more) people can all talk at once because the line is “open.”

I am no engineer (and hope to get some technical horsepower to engage in the comments) but want to know what happens to the fundamental ways we think about building applications and interpreting data that result in actionable insight in this real time state of the web.

Design creates innovation (even in the most common elements)

I see the rise of design thinking in all sectors of internet-enabled businesses. The rapidly evolving building blocks of the web, modern programming languages, open source projects, and cloud -resources, are pushing the cost of getting to launch toward zero. (X)aaS platforms are compressing the innovation stack and reducing engineering pre-requisities at a similar pace. The dramatic reduction in the cost of a development cycle has spawned the lean start-up and with it, a new appreciation for consumer feedback and iteration. The question entrepreneurs have to answer is no longer  “can this be built and by who?” but, “should this be built and for who?”  This is design thinking.

At the core, design is an inductive language, moving from individual need to possibility and every start-up should have a native speaker on their leadership team. Designers listen to individuals and identify simple narratives. Problem solving is driven by insights and understanding, product testing through rapid prototyping and iteration, iteration, iteration. The agile principles of the lean start-up are key tenants of a great design process and this confluence makes me believe designers will be the most critical talent shortage for start-ups within the next 12-18 months.

When I started working with designers at AND 1, design was a foreign language for me. My first design briefs included a generic description of the consumer and the commercial constraints of the product (price etc). They were requirements documents or product specs, not design briefs. The products did not do well and I will never forget the feedback from the design team on my product direction:

Not visual. Not emotional. Not personal. Not helpful.

The design team hammered me to look at more than what the kids were wearing on the court, but also what they were buying, what moved them and what they aspired to – cars, motorcycles, architecture, song lyrics, ads, movies and tv shows – and focus on understanding the motivations, not the actions. In this transition, I understood the power of inductive thinking and became obsessed with observing the individual in order to translate day-to-day actions and underlying motivations into the visual and emotional language of design. I started looking for the “damn factor” in everything and working to see mid-summer snowballs before they melted. This practice has stayed with me and I continue to see design as the language of innovation and get excited when an entrepreneur is a native speaker.

In my role at First Round, I am starting to meet entrepreneurs who are building design-focused companies. They have a deeply personal relationship with the consumer that drives their products to be dramatically better than alternative solutions and I love this. As a global design hub for fashion, architecture, furniture, art and media, New York is a fantastic place to build a design-centric company. If you are investing in design in your start-up, I hope we can connect.

to every MBA student out there...verbs not nouns

I spent Tuesday at Harvard Business School with some other VCs. I have an MBA and my knock on the degree is that it is risk mitigating at the core and most programs do not focus on de-risking, but on not taking risk in the first place. Thus, consultants and bankers go in…more senior consultants and bankers come out. The MVP program at Harvard is changing this.

Unlike the standard business school business plan competitions, this is not about plan, it is about do. Initiated by students Dan Rumennik, Jess Bloomgarden, and Andrew Rosenthal, it was born out of the “start-up Tribe“. The applicants are required to submit the standard stuff including business description supported by market research, team biographies etc. BUT, they also have to submit the following:

• a description of the minimum viable product you intend to build, and a detailed accounting of the specific resources you will need to accomplish this, the identified sources of those resources (e.g., web developers, prototypes, etc.) and the cost of those resources which should add up to your budget and requested award. Also indicate what resources you may already have raised or invested in the venture.
• what specific results the MVP is designed to provide and how the results will help the team progress with business idea.

This changes the plan (noun) into a plan of action that includes specific steps and actions to be taken (verb).

I met with some winners and some who entered but did not win. All were MBA students but unlike most, they were focused on de-risking a business by building, testing, and learning rather than de-risking life by applying, interviewing and accepting.

Congrats to everyone involved and thanks for taking the time to meet me this week. You are on to something and no matter what happens with your business, the fact that you are doing it means you are getting more out of your MBA than most.

the 4th route of escape...

At First Round Capital we invest at the seed stage. The companies are agile, the ideas are powerful and the founders are pushing the limits. These businesses are kind of like motorcycles. I used to ride a motorcycle and I used to be an entrepreneur. I think the two are similar in lots of ways…fast, fun, scary, sexy, independent…but the biggest similarity to me is the instincts required to be safe on a bike and to be successful in a start-up. In the early days of riding the motorcycle and in my career as an operator, reacting to traffic like I was driving a car almost killed me….a couple times.

The Brakes can Kill You

In a car there are three ways to avoid an accident. You can stop, you can go left or you can go right. The safest thing to do is almost always hit the breaks and we are trained as drivers to have this instinct – unknown situation, hit the breaks. You can test this the next time you are in a car with someone – just yell, “oh my God” really loud and watch them break first and figure out why you are yelling second.

When you ride a motorcycle you have 4 escape routes, not three. You can go left, right or stop, but you can also accelerate your way to safety.

Same in a start-up.

When you are running a start-up there is always someone yelling, “oh my God” really loud. “oh my God, we crushed our projections,” “oh my God, our biggest customer just canceled,” “oh my God, McDonald’s wants to partner with us,” “oh my God, I am not sure I can pay the mortgage.” Some of these voices come from the outside, but much of the yelling for me was the voices ion the inside.

At AND 1 we delivered a large order of shoes to a huge account and the trash talk slogan inside said, “You need a bra, your game’s sagging.” The account had a 30 day exclusive on the style and the shoes were selling well the first week, and then the head buyer called to say they were pulling our stuff off the floor. A girls team in Texas had purchased the shoe and one of the parents went nuts about the language inside the shoe.

As this was taking place, we had thousands of pairs of these shoes ready to leave the factories to fulfill orders from all our other accounts. My first instinct was to hit the breaks, open all the boxes and take the slogan out even if it meant shipping the shoes late.

I told the CEO what I thought we should do and laughed at me. According to him, hit the gas not the breaks, put more attitude in everything we do and accounts would be begging for more of the “sagging” shoe and every other AND 1 product. He was right. We accelerated in the face of an accident and we more than made up for the returns in new sales.

In the face of the ups and downs, I am not saying it is always best to accelerate, but I do think the best entrepreneurs use all four escape routes to avoid danger and they fight the instinct to hit the breaks until the last possible moment. When they decide slowing down is the only option, they break hard and change course dramatically.

Seeing Through Curves

In a car, you use the steering wheel to point the vehicle where you want to go. On a motorcycle, you look where you want to go and the bike follows. This is particularly important in curves because if you tried to think your way through the confluence of friction, centrifical force, gravity and horsepower you would never make it.

Look through the curve

Seeing through curves is easy when you know the road and enter ever each curve at a comfortable speed. It is more challenging when you are on a new road where you have never been and enter a curve a little too fast and the curve turns out to be a little sharper than you thought. Now you are leaning over further than you are used to and the pavement feels really close to your shoulder. You want to look at the road directly ahead of you for debris that might cause you to slide and lose control. You want to back off the gas and maybe even use the breaks to slow down and lean less. It feels safer to slow down and to focus on the road right in front of you but it is actually much more dangerous than trusting yourself, focusing on the open road after the curve and making sure you get there.

Same in a start-up.

As the company starts to make progress and pick up speed it is unfamiliar and at times it feels like it could all come apart. The number of things that have to be done is insane and the time to do them is impossibly short. Everything is a first priority because you never know what will be the key break through that makes the company. Is this sales meeting the “one”? Is this product feature the “one”? Will this call or this deal or this hire be the difference between success and failure?

In my fitness gaming company every detail felt infinitely important. I had a million things going on and I realized I had stopped looking through the curve and started focusing on the road right in front of me when I was agonizing over the language in our instruction manual and heard the news that Sony was building a fitness game. This pulled things back into focus for me, motivated me to only do things that would help us deliver on the vision of being first to market with a personalized, interactive, goal-oriented fitness game for Playstation and Xbox.

As a founder, there will be times when you need to look down at the road in front of you and dive into the details of a specific deal or product feature. It is important to do this altitude switching, but the best start-up leaders never lose sight of the open road on the other side of the curve. They are always leaning in harder, pushing the business to go faster and trusting their vision to carry them over the bumps in the road and through the curve.

The most effective entrepreneurs that I have worked with are in touch with their motorcycle instincts. They know how to accelerate to avoid an accident and they have mastered the art of seeing through curves. I wish I had been more in touch with these instincts as an operator and I hope this post is helpful to others.

***UPDATE***

Please see these 10 great additions to this theme from Douglas Hackney on his blog.

I saw this in the sample that the kid held in his hand while he looked at all the other stuff because he couldn’t put it down. I saw it in the laughter and clowning that would break out when they discovered the hidden trash talk on the bottom of a shoe or printed on the lace-tips. I saw it in the crowds at Footaction who would wait around for 25 minutes to see the original MixTape clips come around again on the in-store TV loop.

Damn! (click to see the hotness)

When you build something that hits a deeper nerve and a consumer experiences it, they get excited, they smile, and they feel the need to tell someone, anyone about the product. “Damn! That shit is hot!” It could be packaging, customer service, design or functionality, but it has to create emotion. You cannot write a product spec or design brief that has the Damn! Factor as a requirement or a feature, but when your product has the Damn! Factor, you can’t miss it.

At First Round Capital, we recently released our annual holiday product; a.k.a. the FRC holiday video and I think it had the “Damn Factor.” The whole firm transformed into an entertainment production juggernaut replete with writers, camera crew, stage hands, talent, extras, producers and directors and created something that people had to share with their friends. As the responses started to light up twitter, my phone and e-mail, I was reminded why design, product and service have re-emerged as the primary voice of consumer facing companies.

The social web has made it possible for individual customers to convey their emotional connection to your product or brand to a large, interconnected audience of potential consumers. Great product has always made marketing easier, but now it cannot be separated from your marketing. With social, every point of contact between you and your customers can be broadcast and has the potential to achieve viral syndication – and product experience is the primary point of contact between you and your customers.

If you touch consumers make sure you are running a Damn! Factory. If not, keep grinding.

it's so simple on paper...

Over the past 2 years I have been working to understand the advertising technology world as a consumer and as an investor. As part of this effort I try to talk with people who have forgotten more about this space than I may ever know. In a recent conversation about selling ad tech to agencies and brands, one of these people dropped the following knowledge on me — I added some of my own editorial, but this post is really about passing on his insight.

When selling your technology to an agency or brand you need to answer these questions as part of your sales/partnership presentation. Think about the meeting from the potential client’s perspective and recognize that they are coming in wondering about the following things:

1. How does it ACTUALLY work?  (If we wanted to do this, how would we pull it off?)
2. What is required from the agency/brand/your company? (What are the steps from start to finish?)
3. What type of creative works best? (If you were to give the creative specs to the production department, what would they be?)
4. How would the brand/agency measure this integration and who are the partners we would use?  (Make sure you don’t spend time bashing the current platform the potential clients are using. Instead, focus on how your tech fits into their ecosystem.  The “more” it fits into their ecosystem, the more budget you can get pointed in your direction with less perceived behavior change.)
5. What does a test look like?  (Specific details of dollars and scale)
6. What are the minimums and what is delivered from the test?
7. What is the “story arc” for optimization? (If we move from a test to a longer term buy, what gets optimized?)
8. Who does the work over the life of a campaign? (Who is responsible for identifying these learnings and implementing the optimization?)

Hope this is helpful to anyone selling a technology service and if you have other key questions/tips/tricks I would love to see them in the comments.

You have to pass a test to drive a car, but anyone can start a company

To get some jobs you have to qualify. For some you need to get a specific degree, pass a certain test or get certified by an accredited body. To be a founder you have to be courageous enough to declare. In reality, it is harder to get your driver’s license than it is to claim the best title in the world. Founder.

Don’t let perfection get in the way of participation. If you wait until you have everything figured out, you will never do anything except prove you have no idea what you are doing. Better to close your eyes and jump. Declare passion for a project, build it and ship it. No matter what the commercial result, you will have done something great. You will also have learned that no one has any idea what they are doing, but the best know they will figure it out and just go.

The company might fail, but you will not. My company failed and it shaped me as a person. I would not give those highs or lows back for anything and the education I received was priceless. I learned what it feels like to be compelled, driven by your heart not your head. To be obsessed with the product and delivering an experience that is created with feeling, not reason. I know why this insanity should be respected, sought after and honored and I recognize it in others from having seen it in the mirror.

I would tell people I wanted to build a fitness video game and some got it – that gave me confidence. Others would look at me like I was nuts – that made me question them or work on improving my pitch. The idea evolved with the help of advisors and customers, but my deep sense of intuitive truth in the idea and the market space never waivered. Inexperience combined with a confluence of uncontrollable events blew up the company, but I was right to leave the best job I could imagine, at AND 1, to be a founder and I am glad I did it.

If you are thinking about it, trust yourself and jump. You miss 100% of the shots you don’t take. Besides, if you miss a shot you do take, you can get the ball back and shoot again. Some things are about skill but rebounding is all about hustle.

If you have started a company, I would love to hear the thing that made you take your shot in the comments.

That conversation might look like this:

Think of travel as an example. When I was in elementary school, we lived in California and every summer we would go to Boston and travel a bit on the east coast visiting family. This was a big trip and involved lots of planning – flights, rental cars, hotels, special dinner reservations etc. My parents spent hours on the phone with a travel agent to create an itinerary and make all the arrangements.

I have no idea if she was successful or not, but I bet she is doing something different today.

The airlines have not done much better. They tried to increase their margins by reducing and then eliminating commissions for travel agents. They did this by exposing inventory directly to consumers with technology. In the process, they mis-judged their ability to differentiate their service from their competitors and turned the luxury of air travel into an experience customers tolerate to get from point A to point B quickly. In general, the consumer views the product as a commodity and price drives the purchasing decision.

The same thing is happening in the advertising space and Google is leading the charge. The seed was planted in search, but the whole ad world has fallen into a trap similar to the one that changed the fortunes of the travel industry. To increase margins, publishers were happy to shift from CPMs to higher eCPMs made up of CPCs and CPAs. The shift to pay per action models changed the way advertisers thought about online marketing from a demand creation mechanism to a demand capture mechanism and today you are 50x more likely to see a direct response ad than a branded ad in your travels around the web.

The problem that publishers did not anticipate as they focused on the dollars available in direct response formats is demand capture is granular – specific to individual customers who the publishers do not own– while demand generation is broad – about building awareness across a specific type of customer and associating a brand with content/presentation that can be found at a specific site. Publishers chased the near-term dollars of direct response and in the process they commoditized their inventory.

The Right Media Open 2010 conference last week confirmed for me that sometime very soon the vast majority of existing ad units will be sold via real time bidding platforms and audience management platforms turning publisher inventory and publisher audience into commodities unless they can bring brand building ad dollars online.

The Fortune 100 views the bulk of online ad volume as ineffective for brand building and sees it as undifferentiated. They also see digital media buying as inefficient from a budget perspective. They are used to paying 2% on top of a TV buy, so 12% on top of a display buy does not make sense. This highlights the challenge of attribution as brands want to understanding where this 12% is going and what specific value they derived from it. On average there are 14 stops on the way from ad call to ad served and this inefficiency leads to 2.7x the cost to buy digital advertising over offline media.

Today, big brands are focused on direct response and don’t care where the ad appears (with some obvious XXXceptions) – they just want it to be relevant to the person and to drive a specific conversion behavior.

This puts publishers in a tough place and agencies are not much better off.  However, this shifting landscape creates opportunities for entrepreneurs in the branded advertising space. I know there are some great people building companies around this massive opportunity with new ad units, video advertising and leveraging data to drive and measure awareness rather than direct response and I hope to meet some of them in the coming months.

Where have all the singers gone...

A couple portfolio companies that I work with have SaaS based products and have recently searched for and hired sales leaders. Working with them on these searches got me thinking about the impact of SaaS on the changes in the sales process and what that means for hiring sales people if you are running a SaaS company.

When I worked at AND 1 Taiwan and China became second homes. Our brand was growing and we needed more factory space for production, we needed more suppliers for leather and more CNC shops for EVA foam and rubber molds. Managing this process taught me a lot, but the biggest change was my tolerance for whiskey and my ability to sing karaoke.

The sales culture was all about relationships. Pricing, priority and product selection/availability were all determined by your relationship with the supplier and specifically with the designated sales representative. Reciprocity of this relationship based decision making was assumed and so Because of this sales process, sales guys spent their “entertainment” budgets and then some. They took us out for fancy dinners, worked hard to make sure we all drank too much and ended the night with trust building exercises at the karaoke bars.

Enterprise software used to be sold as a product. The software as a product was sold to a director or VP, not the end user. This VP had a check list of features that needed to be included in the product spec and they had a static use case in mind as they made purchasing decisions. Often this sale was made face to face and based on a relationship between buyer and seller. “Entertainment” budgets were believed to drive ROI and probably did.

If you are building a SaaS product you know the impact of cloud based architecture on software development and business infrastructure is dramatic and has been covered to death. If you are looking to hire a head of sales for your SaaS based business, you should also know the impact of SaaS on the sales process and the money you will save in your entertainment budget.

As the cloud roles in, SaaS is eliminating the B2B sales approach. Software as a service is delivered at a monthly cost that fits even the most junior discretionary budget. Now it is possible for any employee to enter a credit card and click check-out. With SaaS, every sale is B2C and every sales person needs to understand their product as a user or be out of a job.

The old audience was VP’s and directors who wanted to choose a product that offered the right feature set so they didn’t get fired for making the wrong choices. The new audience are practitioners who want to buy a service that makes it easier for them to get their job done. The old audience was VP’s and directors who wanted to buy from someone they knew and trusted, and could blame if they made a mistake. The new audience are practitioners want to buy from someone who understands the first 5 things they do when they log in on Monday morning. The old audience wanted to be “entertained” and the new audience wants to be educated. This is a critical shift.

When the initial sale is made to an end user, the product is the primary consideration and it will be tested to see if it meets specific needs. The interaction with the customer is typically not face to face. The sale is driven by how well the sales person understands how the product addresses the user’s professional needs and day-to-day pain points.

In this environment, sales people are tasked with making the Monday morning log-in easier rather than selling via the Thursday night log-out. B2B is replaced by B2C and entertainment budgets need to be shifted to sales education budgets.

Look forward to your thoughts on SaaS sales or karaoke in the comments.

What can I getcha?

I had dinner the other night at Anchor and Hope in San Francisco. I was meeting an old friend who I had not seen since his battle with cancer and his significant other who I had never met. It was very important to get a great meal and to be able to talk through the last two years of his life.

The waitress did a fantastic job. She, made great recommendations for appetizers, entrees and desert, helped us choose a fantastic wine and brought the check. At the same time, she managed to disappear into the fabric of the evening by anticipating our needs and making it unnecessary for us to interrupt our thoughts or conversation to ask for anything.

Her ability to anticipate was the magic and it was the difference between good food and a great experience.

In the small part of the conversation that we spent on my work, I mentioned one of our portfolio companies, Swipely. I described the service and my friend said he would love to try it. That night I went into my account to invite him and remembered that I had promised an invite to someone else as well.

I sent both invites out and watched a good product become a great experience because of anticipation.

The first invite I sent resulted in a “thank you”  for inviting someone new to Swipely. The second invite returned a different message. Because in the time it took for me to follow through on my promised invite, this person had gotten an account from someone else.

The obvious endpoint of this user experience path would be a message letting me know the person is already a member. A slightly better endpoint would be a page that allows me to see their profile. Swipely has taken this a step further and anticipated that if I want to invite someone to the service, I am likely interested in following their swipes. Rather than ask, they anticipate and return a message letting me know the person I wanted to invite is already a member and that I am now following them.

With this simple change, a good product experience is made great. By anticipating my needs, Swipely showed me the magic.

If you have other examples of products/services that anticipate your needs, let me know in the comments or @message me on twitter @phineasb

Every product developer needs these tools

Great product feels like magic to the consumer. Great product developers can read the consumer’s mind and anticipate their needs in product delivery.

I had dinner the other night at Anchor and Hope in San Francisco. I was meeting an old friend who I had not seen in a few very tough years and his significant other who I had never met. It was very important to get a great meal and to be able to understand the last two years of his life.

The waitress did a fantastic job. She, made great recommendations for appetizers, entrees and desert, helped us choose a fantastic wine and brought the check as required. But, at the same time, she performed a subtle act of magic. She managed to disappear. By anticipating our needs and making it unnecessary for us to interrupt our thoughts or conversation to ask for anything, she became invisible.

Her ability to anticipate was magic and it was the difference between good food and a great experience.

In the small part of the conversation that we spent on my work, I mentioned one of our portfolio companies, Swipely. I described the service and my friend said he would love to try it. That night I went into my account to invite him and remembered that I had promised an invite to someone else as well.

I sent both invites out and felt a good product become a great experience because of anticipation.

The first invite I sent to my friend from dinner resulted in a “thank you”  for inviting someone new to Swipely. The second invite, that I had promised to send a few weeks before, returned a different message. In the time it took for me to follow through on my promised invite, this person had gotten an account from someone else.

The obvious endpoint of this user experience path would be a message letting me know the person is already a member. A slightly better endpoint would be their profile page. Swipely has taken this a step further by reading my mind. They anticipated that if I want to invite someone to the service, I am also interested in following their swipes. Rather than ask, they create magic and return a message letting me know the person I wanted to invite is already a member and that I am now following them.

With this simple change, a good product experience was made great. By anticipating my needs, Swipely showed me the magic.

If you have examples of magic product experiences, I look forward to the list created in the comments.

Sneakerhead (VC) Illustration by Sam Flores for LRG

I changed the name of my blog. I want to explain.

I have been collecting shoes since 1985. As a kid I would do jobs in the neighborhood to earn money for kicks. When the Air Max came out I had to have it and once they were dirty, I cut them apart to learn how they worked. My original Jordan 1′s suffered the same fate. I wore those with two pairs of socks so I could fit a 6.5 and get AJ’s, not the sky jordans that the rest of my friends had to wear in the kids size.

As a ball player I was in the sneaker culture and quickly moved from curious to addicted. Understanding the story behind the shoe, the inspiration, was always the best part. It was not enough to know they were hot, I wanted to know why they had been built that way and I love to talk about it.

After collage I worked at AND 1 and while still a collector, also became a creator. We did the mix tape and the ToChillin. We did trash talk tees and ad campaigns with Spree getting his hair done to the National Anthem within days of choking his coach. Our customers tattooed our logo on their bodies.

The designers had reasons for every shape, stitch, material and color we put into a shoe. As the creative director, I learned how to bring the consumer’s eyes into the design studio and work with the artists to create product that would pop. They taught me the language of design and creativity.

We had to choose from thousands of sketches, hundreds of prototypes and build a line of 10-12 styles every 3 months. Each shoe had to create an emotional reaction from the consumer from across the playground court or the food court and continue to delight with discovery through the purchase and use.

At the end of the day, my job was to work with extremely talented people to help them bring their vision to market. In my role at First Round I do the same thing. My years of addiction, of developing a curiosity and deep appreciation for the creative process and for discovering what a consumer really wants are paying off.

If you want to share your creative vision for a technology product or service or if you want to talk kicks, I am in.

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I was taught to believe messaging matters and in my conversations with entrepreneurs, I always want to learn about their marketing strategy. A trending topic in my conversations about customer acquisition and loyalty is adding “game mechanics” to a consumer internet service. It reminds me of Josh’s post on viral marketing and the more recent article by Dave McClure encouraging start-ups and Vc’s to focus on marketing and design in consumer internet businesses.

Just like “viral” and “social” before it, GAMES ARE HARD TO BUILD and cannot be bolted on to the marketing strategy.

Well designed game mechanics are addictive

The ability to define value for the consumer with in-game rewards that motivate behavior that reveals consumer utility is the magic of game mechanics. Tony Adams makes my point with his list of business models available to Foursquare. Each of these models is dependent on the user’s willingness to expose their location to the system. If Dennis and Naveen had decided to ask users to click a button every time they went somewhere the utility of Foursquare would have never been discovered. They knew this and they built a game. You start out “playing” foursquare and you end up “using” it (as you might use crack).

The fitness game that I built in 2003 (now licensed to Ubisoft as YourShape) and my work with MTVGames taught me a lot about how to use game mechanics to motivate specific consumer behavior. We offered rewards within the game to support consumer engagement long enough for the player to discover the utility of the product. The combined effect of in-game rewards layered with real-world benefit was an incredibly sticky experience.

When I designed the fitness game, here are the three high-level things I focused on:

1. On-boarding: Give them the perception of managable choice, meaningful rewards and at least one clear/obvious path toward the next discovery item. Make the choices easy and include understandable consequences for every action

2. Capture: once the consumer enters, there have to be lots of reasons for them to keep going. Give them managable choice, meaningful rewards and at least one clear/obvious path toward the next discovery item

3. Deep engagement: Create emerging complexity with layers of simplicity that interact so as one is mastered, another is being discovered. Encourage experimentation by making it obvious that you can find your way back to a stable place (allow them to hit CTRL Z).

When you build these three elements into the design of the game from the beginning, the user floats between a sense of mastery (that could lead to boredom) and a sense of overwhelming complexity (that could lead to frustration). Done right, the optimal gaming experience looks like this:

A well designed game experience looks like this

If you are using game mechanics that help users discover the utility of a service or motivate a significant consumer behavior change let me know in the comments, @phineasb on twitter or by e-mail  Phin@firstround.com. I would love to talk.

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I joined First Round Capital as a Principal knowing I would have a voice on the investment team, not a vote.

Keeping you out or fighting to keep you in? Gate keepers can do both...

I have a specific approach to meetings with entrepreneurs and work hard to add value to each founder who takes the time to meet with me. Some of this value is strategic. It is based on my experience as an entrepreneur, as a consumer-focused product development and marketing guy, and pop-culture loving sneakerheadVC who loves to talk with smart people building great stuff. Some of this value is tactical. It is based on my position within First Round, the visibility I have into our deal process, our portfolio and the time I spend with our partners and my peers.

For the founders who are friends with a partner (and I do not mean you have their e-mail address from the bio on our website or some tangential LinkedIn introduction, but real, call you on your mobile on a Sunday to discuss some aspect of cohort analysis and strategies to reduce customer churn type friendship), you don’t need tactical help and talking to me prior to meeting with a partner is a waste of time.

For everyone else, I can help.

I spend my time between Philadelphia, New York and Boston meeting with entrepreneurs who are building companies that are intriguing to me and working with them to see if First Round would be a good investment partner. Some of these companies are introduced to me by a partner at First Round and some of them come from my personal network.  I learn a lot from each of them.

Just like a partner, I try to figure out if I believe the market is big, the team is kick-ass and the approach is differentiated. Just like a partner, I need to understand if our model is in alignment with the entrepreneur’s goals and if our approach is likely to support the evolution of their vision. I have to identify a fit with our investment focus (Internet technology), the stage we invest (seed stage), and the structure of deals we participate in (equity investments).

Different from a partner I also try to decide if I think a specific partner will share my view and if together, we can build passion for the business across the investment team. Each week I participate in pitches with the partnership and spend time talking to them about the deals they are reviewing. I dig into the questions they ask and understand each business that they are evaluating and what is driving their point of view on each investment decision. When I read a plan or meet with an entrepreneur, I usually know how each partner will react to the pitch, what areas they will be excited about and the concerns they will have about the model, the market and the team.

This pattern recognition is valuable for entrepreneurs and I am happy to share it.

Visibility into my thinking and what I have learned from Josh, Chris, Howard and Rob based on the thousands of deals they have seen in their careers will improve your pitch and may help you think about the business differently, identify a larger opportunity or have a better chance of capturing the opportunity you have already identified. The partners trust my judgment and know that I help founders shape their story to resonate with the partnership, provide clarity around the entrepreneur’s hypothesis and define the needs and the opportunities represented by the business. My knowledge of our investment thesis is better than virtually any other deal source and because of this, my conviction around a deal, my voice, is an extremely strong signal for the members of the investment team who do have a vote.

It is natural to view us junior people in the VC world as gatekeepers to the real opportunity. When you are building a company, time is your most valuable resource and if you can be more efficient by going directly to a partner, it is very appealing.

Non-partners on the investment team are friction in the system, but if we do our job well, we can be the friction that keeps you IN, rather than the force that keeps you out.

Since June, I have been hanging out in the New York tech scene (and getting back into the NYC-kicks scene as a sneakerheadVC) and think the environment that cradled jazz and created Hip-Hop is now supporting a new generation of creative talent. For me, the key to the NYC community, what makes it sexy, is a culture that expects to win and to win big. Certainly the urban density and the consumer insight this offers to those who will listen is powerful and the scale required for notable success in this environment sets a high bar for entrepreneurs to judge themselves against, but it is the swagger of NYC, the assumption of victory and pride in the success of other New Yorkers that defines this movement.In my mind companies being built in NYC have advantages and these advantages led an entrepreneur to tell me, “I don’t care what they do. I am in New York, they aren’t. Ultimately, we will win.”

The reality of starting a company in NYC is an environment that shapes your thinking as an entrepreneur:

1. User feedback — surrounded by millions of people who will try shit, interrupt you and tell you what they think. NYC start-ups know they have to iterate early and often or become irrelevant. Stealth doesn’t happen here.

2. Not afraid to jump — you have to have guts to live in NYC in the first place. Starting a company is hard, but the street-smarts required to survive the bright lights and big city serve New York founders well.

3. Really big pie — when the center of the universe is outside your front door, you don’t view ideas or the entrepreneurial ecosystem as a zero sum game — collaboration, not competition, is the dominant approach. Entrepreneurs in The City know each other, help each other and root for each other. They are also honest with each other.

4. Culture of winning — success is expected in NYC. Home to the world’s most famous arena, Wall Street, Hip-Hop, Madison Ave. and the fashion industry–if it is not a big idea it is not getting airplay in NYC. But everyday new ideas spring up and take shape as smart, highly motivated people are inspired by their environment and informed by their community.

5. No sleep ’til Brooklyn — the answer to “what do you do?” in NYC is your job. In New York people live to work, love to crush and the entrepreneurs find time to have a blast doing it. I have been lucky enough to work hard and play hard in NYC this year and I can’t think of a better place to do it or a better group of people to do it with.

If you have other reasons that NYC is creating so many sexy companies with such great commercial potential, I would love to discuss in the comments and if you want to include me in your hard work or play in 2010, shoot me an e-mail (phin@firstround.com) or find me on twitter @phineasb