Maybe it comes from working with designers at AND 1 and MTV, or from my summer at McKinsey, but I really like visual representations of data and visual frameworks for breaking down problems.

The best visual frameworks clarify the world with simplicity and present the problem in the most basic elements. One of my favorites is the 2X2 matrix. I have been playing around with the idea of adding a section to this blog called 2Xtuesdays for awhile and never did anything about it.

Then my friend Rob Go was late to a meeting and let the world know with this tweet:

Rob was late, but showed the world he has a small ego. Nice.

Schedules are crazy and it is hard to be on-time no matter how hard you try, but the real test is how you deal with being late, when you are inevitably late to an important meeting. I respect the public apology and have laid out a 2×2 framework that I think helps explain the choices we have with respect to punctuality and ego:

just don't be the guy in the bottom right...

Thanks Rob for the inspiration, and I hope inspiration for the next 2Xtuesday will occur in the comments.

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

This looks productive...

At First Round we have a great network of CEO’s in the portfolio and they are frequently engaged in conversation on our CEO mailing list. Recently, a meme on running great board meetings got started and a list of best practices emerged. After seeing the same question on Quora and discussing it with the CEO who started the conversation on our list, I decided to summarize it in these 10 points and post it as an answer within the Quora thread as well.

1. Send out materials 3+ days in advance (making it fair to expect everyone to have reviewed them in preparation for the meeting) and expect everyone to review them prior to the meeting.
2. No blackberries
3. 2-3 hour meetings, preferably with dinner the night before or lunch before.(Social time makes the subsequent meeting time better and most investor’s heads will explode if they are away from their blackberry for more than 3 hours anyway)
4. Simple 1 page dashboard to review the business numbers (Ideally these metrics are consistent over time and create a shared sense of past, present and future performance)
5. Move the administrative stuff to before the meeting and get it done in 1-2 minutes. (If it can’t be covered in 1-2 minutes it probably isn’t administrative stuff)
6. Move the financial discussion to the end of the meeting (this section always drives investors into the weeds and board meetings should be primarily about the forest view on the company)
7. Many fewer slides. More discussion. (Because you sent the materials out 3+ days in advance, you want to leave time for your well prepared board to share their insight)
8. Bring in the subject matter experts from your team.
9. Deep dive on one topic per board meeting is far more productive than trying to go deep on everything. (It is critical to prioritize the topics and push for guidance on areas most critical to the success of the business)
10. Your board members have to do work. Come with a list of specific “asks” to each meeting. (This could be another area where a 1 page dashboard could be helpful…nothing like a scoreboard to motivate people.)

I have seen each of these things done well across the boards I work on and while every CEO should bring their flavor to this list, as general guidance I hope it helps.

I look forward to learning about other things that you think we should add or specific objections in the comments.

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.

My grandmother lives on a farm in Virgina and she always says

“There is no fertilizer like the owner’s footprint in the fields.”

Regular inspection makes for fertile ground

My grandparents had a nice business raising cattle. The market for free-range beef drove growth in their business and they cleared more fields and shifted resources to produce the feed they needed for the larger herd over the winter.

The business soon required more work than two people could handle and they decided to hire permanent help to support the daily operations of the farm, maintain the fields and tend to the hay and corn production required for the winter.

The spring and summer went well with crops planted on time and the cattle remaining healthy under new management. Revenues were up and my grandparents thought they were getting what they expected.

They went to Florida.

Returning in March they noticed the herd seemed smaller. Inspecting the numbers, revenue was flat but revenue per head was down. When pressed, the farm manager said the cattle were not keeping weight like they had in the summer. Inspecting further, my grandparents found that the management team had only turned the hay field twice, instead of the three turns they used to achieve. Also, the professional crew had not used proper fertilizer reducing the yield in the corn crop. To make it through the winter feed was rationed and the cattle had lost weight. To meet revenue targets, the one well understood metric for the business, the number of cattle sold per month had been increased.

This was not sustainable. The need for more granular metrics was obvious.

My grandparents assumed that by inspecting revenue they could expect the other measurable aspects of the business to be managed properly. They did not think to set targets for turns of the hay fields, corn yields and total volume of feed projected based on weekly growth. They did not set targets for herd size or average weight per head and did not measure this key driver of revenue sustainability at regular times throughout the year.

In our world of technology start-ups someone once said

“You get what you inspect, not what you expect.”

As your business scales, farming your data can drive significant value. Set goals and measure success against the data that flows out of daily operations. A culture where metrics are transparent and everyone is empowered to take action based on the data is a culture that scales. When this works each team member leaves fertilizing footprints in the fields and, as a founder, you may get what you expect without being inspector and chief.

Defining the data to measure can be difficult, but there is a lot of guidance available. This piece from Josh on cohort analysis is great as is the SaaS metrics PDF published by Bessemer. No matter what your business, a data driven management approach can help you succeed. If you have specific metrics that you use to manage your business or other resources you feel are good sources of guidance I would love to discuss best practices in the comments.

When I was selling shrink-wrapped product to Best Buy, we showed the buyer testimonials from our alpha and beta users to convince him that the product would live up to our promise and walked him through a demo. He was not convinced and we were stuck at maybe. Then we gave him the full product on a development X-box. He took it home to his wife and teenage daughters so they could preview the game. They loved it in the console environment and we closed the sale.

This is an example of previum.

In a previum model, the customer gets the full experience for free in a limited way. In the freemium model they get a limited experience for free in an unlimited way. Both models leverage the power of free for customer acquisition. The critical difference is the previum model forces the user to cross back over the penny gap and become a customer or accept a tangibly limited experience. The freemium model is less effective because it asks the consumer to adopt a limited version of a product and then encourages them to cross back over the penny gap with the promise of a better experience.

Sony has filed for a patent in the video game space that includes a great graphic to illustrate this point. Ask yourself which is more convincing — the Freemium Model:

Freemium: Pay me and I promise to give you a bigger sword. Did I mention, it is WAY bigger!?!

or the Previum Model where you get to experience the big sword and see how much better it can be:

Previum: What's wrong, want the big powerful sword back? You can have it for the low price of...

In the previum model, the consumer gets to see everything you have to offer and to experience it in full, for free. After some period of time or number of uses, you ask them to pay for the services they are enjoying.

The hardest thing you can do in any business is close a sale. You basically have two dials you can turn to get someone to pay:

1. increasing the perceived value of the product (marketing)
2. decreasing the cost or of the product (pricing)

In the digital world we have taken this to the extreme with freemium and decreased the consumer cost of the initial offering to zero. The penny gap helps you acquire users, but when potential consumers experience your limited offering at no cost the power of free may work against you.

Consumers are educated by the tangible thing they experience as they engage with your service and it gets harder and harder to convince a consumer to cross back over the penny gap with the promise of value added services. Eventually, the free product defines your business and 90% of your consumers decide the free version is good enough without ever experiencing the full product.

In the non-digital world companies have used previum models to acquire customers for a long time. Auto-dealers will let you take a car home for the weekend and gas stations offer a free car wash with the purchase of a full tank of gas. Restaurants give away food at happy hour and at physical retail you can try an item on before purchase. In each example, the perceived value of the service you are buying is higher because you get the full experience before you buy.

I think more digital products/services should be sold with the previum model and hope to discuss it further in the comments.

Relative sizes of policies on privacy

The New York Times did a great job exposing the complexity of the new Facebook privacy policy. In the same week, they also covered the Diaspora project emerging out of NYU. In the confines of the discussion of privacy on Facebook, user control of data as described by The Times and the reported shift in consumer tolerance for “living in public” is a big deal.

Bottom line, the current online privacy environment is messy, lacks transparency and does not offer some consumers enough control. The black and white issue is not public vs. private at the network level but transparency and control at the individual user level.

Facebook is leading the way in rapidly adjusting  their privacy policies in response to new opportunities and as they do this, more opportunities for innovation are created — both leveraging consumer data and helping consumers control its use. Politicians also see opportunity, but the path towards regulation is often littered with abandoned innovative efforts.

Diaspora* is not alone in seeing an opportunity to serve consumers who want more transparency and control around their data. The private sector response to privacy concerns is not just about Facebook, it is much broader. In a recent announcement of the product vision for FireFox 4, Mike Beltzner describes one of the three key features as

“Empowering: putting users in full control of their browser, data, and Web experience.”

For me, this is proof of the efficiency of the private market and I hope Mr. Boucher and the rest of Washington take notice, give a friendly nod to the entrepreneurial community and get out of the way.

Facebook’s privacy policy and default sharing settings have evolved over time and the images below from Matt McKeon do a fantastic job illustrating this…

The "evolution" of Privacy on FaceBook

The comparison of the extended Facebook policy to the length to the US constitution is appropriately snarky. However, the draft of the Boucher bill (PDF) is 5448 words across 27 pages and my guess is the legislation will get longer in the process of becoming a law, not shorter. Worth noting, it is already just 400 words short of the new Facebook policy and shares the distinction of being longer than the US constitution by a good margin.

Both the Boucher bill and these private sector efforts are focused on providing consumers with control and transparency around the use of their data. The difference is the start-ups are innovating at a rapid pace and their goals can be described in 11 words and 1 word respectively.

The Boucher bill will not take effect until one year after it is enacted, the Diaspora* project and FireFox 4 will be available to everyone by the fall. The Boucher bill spends all 5,500 words describing what companies can’t do with consumer data. The entrepreneurs efficiently focus on what consumers want to do and will deliver a viable mechanism for transparency and control of data to the market. This is a case of regulation vs. creation and the winner is clear.

+1 for entrepreneurs.

A couple weeks ago I had the chance to speak at Hobby NYC thanks to my friends at Harvest. Hobby is something they have done for three months now, and it gives people a chance to talk about their passions and how they pursue them. I talked about my sneaker addiction and had a blast. There is joy in pursuing a passion and as I watched the talks that night, I was reminded of the pitches I love to hear – excitement for the idea, detail in the inspiration and depth in the subject matter.

Cheers to everyone out there pursuing their passions as businesses, hobbies or side projects. No matter the outcome on paper, you have won the game.

I have embedded my portion of the evening below along with the slides, but all the videos are available on Vimeo. I am not sure when the next Hobby NYC event will be, but I will be there and it will be great.

Here is the talk:

Hobby: Phin Barnes, Sneaker Addiction from Harvest on Vimeo.

and here are the slides:

The “lean-washing” of the start-up world has to stop. The concept of the lean start-up, customer development and building minimum viable product have gone mainstream. Like anything popular, there are true practitioners and then there is everyone else. Those who have studied the concept and integrated lean principles throughout their business practices are changing the way companies are built and defining a new path to success.

Everyone else is just lean-washing. In my experience lean-washing and the abuse of the lean start-up approach is out of control. Mis-understood and mis-used, I see the “MVPs” coming out of the lean-washing movement as the Most Visible source of Pollution on the web.

The concept of iteration informed by consumer feedback and usage data is powerful and it has been utilized in product development for a long time. In physical products you are forced into step-changes because of long feedback loops. The web allows us to shorten the product cycles and smooth the curve of product improvement. In this environment we can iterate based on a constant stream of customer actions.

However, innovators from Henry Ford to Steve Jobs have offered their perspective on customer feedback and Seth Godin’s archives include advice on taking customers too literally. He reminds us

Letting your customers set your standards is a dangerous game, because the race to the bottom is pretty easy to win. Setting your own standards–and living up to them–is a better way to profit..

The biggest danger is the customer might actually like it – and then you get New Coke.

You can’t be a perfectionist but the first product should embarrass you only after you learn from customers and release a far better version, not before. If you are embarrassed prior to release, you could have done better with the time and resources available.

Lean-washing is not hard to detect and here are some symptoms you can look out for:

1. Product vision and refinement has been replaced by random test and repeat
2. Iteration does not answer a specific question
3. User feedback is general, conflicting and taken at face value
4. Consumer data is not studied or actionable
5. The team spends more time talking about lean start-up methodology and best practices than it takes to crank out an MVP at other companies

Customers (and the data they generate) are there to help us validate or disprove specific assumptions on the path toward a defined vision. Testing and learning without a specific direction is a waste of time. Keith Nowak recently wrote a very thoughtful post-mortem of Imercive and described the start-up development process as running down a series of dark alleys.

Getting through the dark alleys before it is too late requires concerted dedication to going through the process of attempting, learning, and correcting as quickly as possible.

A start-up is a race against the clock and the value of disciplined execution is supreme.

Based on my own experience building things that people will buy, I do not believe customers should be asked to teach what product development skill, marketing acumen, market insight and entrepreneurial gut already know. At best, customers can react to your product and tell you what they think they want, but it is the entrepreneur’s job to understand what they mean and execute fast enough to build what they need.

In every product development and marketing decision we make, the last question should be what does the consumer think of this and is this confirmed by their behavior data. The problem with lean-washing is you ask the consumer first and in many cases the vision is lost in the echo chamber of consumer queries, buzzwords and un-analyzed data.

There is no honor in this deal

At a lunch with a friend who is running his own company and working to raise money, the topic of termsheets came up (First Round is not an investor in his company and he was not talking to me about an investment) but it got me thinking about deal terms. It is no secret that investment dollars are flowing and the number of deals being done is rising.  Along with this increase in the pace of funding, more termsheets are being put in front of entrepreneurs on each deal. In this environment, I encouraged him to look for simple terms that are easy to understand, straightforward to negotiate and that create long-term interest alignment. I told him to look for honorable terms.

My first experience with the value of simple terms came my freshman year in college. I went to Haverford College, a small Quaker school outside Philadelphia. The Haverford community is managed by a simple Honor Code that governs academic and social life at the college. It can be summarized as, “Be respectful. Be Honest.”

This sounds like utopia and I was skeptical until my first exam. The test was set for 90 minutes and was closed book, closed notes. I came to class prepared for the exam and was surprised as the professor began to teach a full lecture. At the end of class she asked us to pick up an exam, reminded us of the closed book, closed notes status and the time limit. She then asked us to return the exam by the end of the week.

With this responsibility, and the ability to take the exam in my room with the door closed, I experienced the value of simple terms and clear expectations. I took the exam with my book closed and without my notes. I did not finish in time and chose to stop. The lesson in that moment was far more valuable than anything I learned the rest of the semester. Honor is expected in governance by simple terms.

When I think about investment deal terms, I am convinced that no level of contract engineering can protect you as much as mutual respect and transparency. The simplest investment terms would be agreement on valuation based on the entrepreneur’s vision and the investor’s assessment of risk, a handshake and a check.

Any complexity beyond this represents protection in the event things go wrong. This protection is for both sides and is necessary, but the level of downside protection your investors ask for, embodied in the terms of the deal, tells you something about their approach to your business. Your level of comfort sitting across the table before an investment is made is the best indicator of the confidence you will have sitting on the same side of the table in the future. How investors (and entrepreneurs) negotiate terms is the way they will manage and advise the company.

This early interaction is signal, not noise. When you raise money you should look for signals that indicate a long-term partnership rather than a transaction, you should look for a partnership based on simple terms like, “Be respectful. Be Honest.”

I now have a logo for SneakerheadVC and a new twitter icon. Like any creative effort there is a story behind the logo and I wanted to share it here.

While working on another side project I will be unveiling shortly, I found Jason Walton through @spencerfry and Carbonmade. A quick search for illustrators lead me to Jason’s portfolio and I reached out to see if he would be interested in helping me with a small side project. I described the project and asked him to send me a couple examples of the work he felt was closest to the style I was describing. In addition to existing work, an early version of the sneakerheadVC logo you see at the top of the page was one of the examples he sent over. I love the logo, but the experience of working with Jason has as much to with my affinity for the image as the quality of the final result.

We talked about First Round Capital and my sneaker addiction coming together in a logo as they had in the name, SneakerheadVC.  Jason suggested using the First Round color palette and adding an FRC to the shoe because the opportunity to work at First Round is what made me a VC. Jason was also inspired to represent the shoe as a simple line drawing because First Round is a seed-stage fund and we often invest in a vision before all the details have been figured out.

If you have graphic needs big or small I would encourage you to check out Jason’s stuff. I would also recommend using Carbonmade to discover artistic talent of all kinds and if you are in the creative services business, throw your portfolio up there. It is killer.

MVPP: one slogan per shirt

When I was at AND 1 my job was to understand the customer and build product that he would love (and buy). In my role at First Round, I get to meet tons of smart people who are doing the same thing. I was making t-shirts, shorts and shoes and they are building technology, but at the end of the day, understanding what the consumer will love (and buy) is the essence of the work.

A popular framework for product development is MVP, minimum viable product as championed by Eric Ries. Iterative development is great because knowing your consumer is hard and it is tempting to cheat by throwing every feature you can think of into the product. At AND 1, when I was not sure what a consumer would love, I would add features to make the product “better.” A buyer at Footlocker taught AND 1 the real cost of this approach and introduced us to what I call MVPP, minimum viable product purchase.

When AND 1 started, there were 5 trash talk slogans and shirts were printed in a Philly basement. The slogans are still great and I try to work them into my game as much as possible

1. Your game’s as ugly as your girl
2. Wear a collar, you just got dogged
3. I’m the bus driver, I take everyone to school
4. You have NO game
5. I saw your game on a milk carton (it’s missing)

Early on, AND 1 got the opportunity to meet with Footlocker for the first time and it felt like a “make or break” moment for the brand. The team spent a ton of time putting together samples to show the buyer and went up to New York with 5 sample shirts. Black, Blue, Red, White and Grey. Each one had the AND 1 logo on the front and all five trash talk slogans on the back. If one slogan is good, 5 must be better, right?

The meeting went really well, but the buyer made a critical product suggestion: Why not put one slogan on each shirt instead of five slogans on one shirt? He thought kids would buy two or three shirts each, and that by recognizing the minimum viable product required to get our customer to buy, we could double or triple our market.

If the shirt was changed, he said he would take 5 of each in each of the five colors. Doing the quick math, that was 125 shirts and made Footlocker AND 1’s largest single customer. Later it became clear that he was ordering in thousands and AND 1 was one step closer to becoming the number one basketball company in the world.

The product suggestion, focus on MVPP, changed the trajectory of the company very early in its life. Now, when I learn about new products and technologies, I always wonder if we could grow the total opportunity by offering less. In the effort to build the best launch product or to discover product/market fit, are we iterating into offering much more than the consumer requires to make a purchase decision? Does our launch offering set expectations for the consumer that will make it harder for the company to grow in the future? Rather than killing features, could we save them for later?

Elegant design achieved through killing features and discovery of product/market fit informed by iterative development are frequently discussed and I would love to get your take on this extension of MVP to MVPP in the comments.

My post on saying “no” to grow generated some great conversation in the comments. It also got me thinking about the problem from the other side: How to find the right things to say “yes” to in your development plans.

I was out west this week for our E-commerce Summit and asked leaders from our portfolio how they manage strategic priorities. It was portfolio power in action and the thoughts below are the result.

When you dive down to the weeds, make sure you know how to get back up

Adjusting the focus from high-level corporate vision down to strategic initiative and on to project definition and then to tactical next action and back up as quickly as possible is something I wish I had been better at as an operator. Founders can get stuck firefighting and micro managing, for months on end because the company is an embodiment of something that has been in their heads for years. Speed and agility are critical to a start-up and the ability to switch altitudes fast can be the difference between failure and success.

We can force altitude switching with 6 questions and when done right, the quality of the decisions will skyrocket.

1. Why are we doing this?

Clarity of purpose and explicit alignment with the vision for the business are critical to these decisions. Try to imagine the initiative is a success in every way and then imagine what that means for the business as a whole. If you are happy with the impact, it is something to say “yes” to.

2. Why haven’t we done it before?

Once you decide to pursue something, asking why it hasn’t been done already is a great way to expose constraints and limitations. Breaking the initiative into components and evaluating the goals of each component will also help you see if the team is working on pieces of the problem already or, equally importantly, has decided not to pursue it. The need to re-prioritize existing efforts in order to push the new initiative forward is important to recognize and communicate.

3. How will we do it?

This is about creative thinking and generating as many ideas as you can. “Brainstorming” is a topic to itself, and everyone has different takes on the most effective ways to manage creative sessions. (IDEO has some great slides on this) In my experience the most important thing is to get away from “No, because…” The goal is to capture the details of what success will look like not evaluate barriers to achieving the success you envision. No judgment, most ideas wins.

4. What is the best way for us to get there?

Once you have a lot of good ideas, you need to organize them through a process that accounts for your current position, team strengths and areas of weakness. This is a curation process. No ego, best idea wins.

5. Have we left anything out?

Repeat the “create” and the “curate” process again (and maybe again).

6. What should we do first?

It is critical to prioritize the projects and next actions if you expect anything to get done. Decide what should be dropped if anything, and decide ownership and accountability for what remains – who is responsible for each project and next action, and who will play supporting roles (if any) on each.

Access to this advice would have helped me say “yes” to the best ideas and eliminate the rest more quickly in my former life. I hope you all find it helpful. Also, thanks to everyone in the portfolio who helped me with this and I look forward to suggestions for improvements and refinement of these six steps in the comments.

***A shout out to Eric Koger at ModCloth for pointing me to The Natural Planning Model as described by David Allen in Getting Things Done for additional reading. If you don’t want to read the whole book, there is a good summary on this MindZone wiki.***

There are so many ways to say it, but none of them are easy.

In the world of agile development and minimum viable product, teams of really smart people can build, test, learn and repeat un-constrained by technical or financial limitations with little to no funding. Powerful learning organizations are being built and the impact on the start-up community has been significant. However, once the corporate mission has been established, the success of any lean start-up depends on the CEO’s ability to say “NO” more than any other factor.

Recently I was working with a company in the First Round portfolio that has fully embraced the lean start-up process. The company has a fantastic team of experienced engineers who embrace the process and actively seek to discover both consumer problems as well as product solutions. They manage their product cycles in hours, not months. They test more hypotheses in shorter amounts of time and with less capital because of their approach, and the result has been extremely high quality product that consumers love. Their development process is a great example of The Lean Start-Up as described by Eric Ries.

Over the past week a competitor identified a new consumer problem and our team immediately saw a way to leverage our technology to create a solution. It was built and tested tested. Consumer response was mixed. After multiple iterations, the team had achieved product/market fit, and the new service showed meaningful user growth—more importantly, it was a major source of new customer acquisition.

But…it was also a major source of difficulty for the company because the CEO did not question the impact of these customers on the rest of the business. The product development team created an elegant solution to a real consumer problem that the other areas of the business depend on ignoring. It is the CEO’s job to protect the team from this type of effort by evaluating the hypotheses being tested and saying, “NO” if the possible answers do not move the business forward in alignment with the mission.

When I was managing product development teams, the challenges of an iterative problem solving process paled in comparison to the effort required to fend off the in-bound product suggestions and feature requests. As these companies grew I had an increasingly difficult role in saying no to the distractions created by new customers, new advisors and new competition. You should always listen to each of these sources, but they are data points to be interpreted. The entrepreneur is the only one who can layer in the complexity of strategic vision, corporate mission and values to the product development process. The more talented your team, the harder this is, but the most successful CEOs are able to filter the signal from the noise and say, “No” when they need to.

The resources required to build and test continue to shrink. While this allows more iterations, it also makes saying “No” harder because it gets easier to test than not to test and the cumulative effect on focus is harder to see. If you have effective strategies for filtering out the noise and maintaining focus in your product development cycles, it would be great to discuss it 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.

One of the benefits of being part of a seed-stage fund is that we often get to see the next big trends before they become widely known.  For example, Josh has a widely known thesis on data-exhaust and the implicit web where he identifies the value of the data trail we all leave behind. This thesis supported multiple investments including our investment in Mint.

In the 200 milliseconds it takes you to draw your gun, my algorithmic gun slinger could make 39 stock trades and shoot you in the heart

I believe we are now seeing a change in data processing and decision-making that will be equally significant for investors and entrepreneurs.

Historically, data analysis and computation was done on log files and stored data pools.  In these types of businesses, the data decisioning was done “out of band” — or not in real-time.  However, we’ve now started to see a whole series of applications and businesses where data analysis and decisioning is happening “in band” on streams of data.  In these applications, milliseconds matter.  Massive data analysis and computation are being performed in real-time — and the user’s experience is affected by this analysis.

This is a fundamental change.  Humans do not operate in milliseconds. For the real time web to function, the human decisions have to occur before the clock starts. We need to focus on predictive analysis and algorithms that make rule based decisions for us informed by the data stream.

The Facebook Newsfeed (already has machine intervention) and the Twitter Stream are the most frequently noted “data streams”, but the auto-generated data created by every consumer action, ad impression and click are orders of magnitude larger.  Including the data streams generated by CDNs and ISP’s you can see the exponential nature of the decision requirements in this new streaming data world.

The first vertical to move to real-time is advertising (Spark Cpaital’s Mo Koyfman has a nice summary of the shift in on-line advertising on his blog). It is not surprising that advertising is the first industry to move in this direction. It is most similar to the financial markets and over the past ten years the percentage of equity trades on US exchanges driven by algorithms has grown to over 70%. This was the insight behind Appnexus and Invite Media and may explain why some of the first guys to envision a transparent market for display inventory and real-time bidding came out of a finance school.

In our portfolio I see the power of operating in stream. Ad insertion order compliance can now happen in real-time based on contextual data streams analyzed by Double Verify.  VigLink can identify un-affiliated links across the web and not only append the link with an affiliate code, but choose the profit maximizing link in each instance, in real-time. Knewton’s testing platform is able to provide each student with a customized and personalized test-prep experience, based on their real-time adaptive education platform.  Aggregate Knowledge automatically produces personalized and dynamic creative for advertisements by using real-time algorithms.  In milliseconds Monetate applies a specific set of merchandising rules to individual consumer data streams. The result is a unique shopping experience for each visitor to an e-commerce site.

As we move from a world of data pools to data streams and processing power is distributed to the edge, what other changes will take place now that milliseconds matter? Will infrastructure changes take place as well? Will the real-time web increase the value of a millisecond enough to force companies to co-locate their algorithms at the CDN site or even the end-point device level?

I would love to discuss it in the comments, @phineasb or phin@firstround.com

Alignment with your investors is crucial. Adjustments are available if you ask questions before you sign the term sheet

When you are fund-raising, your job becomes getting cash into your company. However, the best entrepreneurs don’t just get funded, but find funding alignment with their investors in terms of values, vision and approach. Since joining First Round Capital I have met with hundreds of entrepreneurs and many of them never ask me any questions about our process or our approach to working with our portfolio.

I know the fund-raising process is really, really hard. It is an emotional roller-coaster. It demands 100% of your energy, your time and your heart but you should be asking questions, interviewing your potential investors, and choosing your investors.

It is important to know you have alignment in terms of financial interests and that you are not only working toward the same outcome but also have agreement on how to get there. If you do this, you will experience many of the commonly listed benefits of chiropractic treatment:

1. It is completely safe

There should be no penalty for asking questions and if there is, you probably don’t want to work with those guys anyway.

2. Allows better sleep

The fundraising process is hard for many reasons, but the thing I hated most was being evaluated over and over in a process where I felt I had little to no control. Asking questions about your investor’s expectations and approach put you in the driver’s seat and will help you feel comfortable when you accept the term sheet.

3. Corrects the cause of pain rather than treating the symptoms

Treating the symptoms of misaligned exit expectations or disagreements around strategic vision is always painful to you and to the company. Don’t set yourself up to suffer through the distraction and pain of on-going treatment of symptoms. Correct the cause of the problem by asking questions prior to accepting the investment.

4. Relieves stress and tension

Alignment with your investors on values, vision and approach allows you to build trust and treat your investors as partners with no hidden agenda. You will get much more strategic value as you work to build your business and steer your company to success if you are not fighting the people who backed you along the way. It will also be much more fun and probably more successful.

5. Improves posture

Your investors will become one of the most powerful signals about your position in a market, your prospects for the future and the overall quality of the operations of your business. Alignment of interests will create a powerful posture for your business and insure you are all pulling in the same direction when it becomes time to get back on the roller-coaster and raise your next round.

The benefits of Chiropractic treatment are touted by some and dismissed by others, but when it comes to raising money, I am a believer. Take your VC to the chiropractor and find alignment or keep looking for other sources of capital.

If you have benefited from alignment with your investors or have suffered through the opposite, I would love to discuss it in the comments.

Ryan Graves wrote a great piece on why Foursquare is his ride of choice. Worth a read as an overview of the check-in space>

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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.

My friend Dave Knox just added a piece on his blog that looks at this issue through the lens of business development and sales. It is a great perspective on B2B deals.

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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.