Ardent 2: Get Out of My Building

Some of the most important business lessons are learned in the most unlikely ways. At Ardent I learned many of them with a sharp smack on the side of the head from a brilliant but abusive boss. Not a process I recommend, but one in which the lessons stuck for a lifetime. (Read the previous Ardent post for context.)

Lessons to Learn
By the time I joined Ardent I thought I was an experienced marketer, but I’ll never forget my first real lesson in what it meant to understand customers and product/market fit.

We were sitting in our conference room in our first “system-planning meeting”  trying to define the specifications of our new supercomputer and make the trade-offs between what was possible to build, and what customers in this new market would actually want and need. The conversation that day would become one of my professional watermarks.

Marketing is Heard From
Engineering was discussing how sophisticated the graphics portion of our computer should be, debating cost and time-to-market tradeoffs of arcane details such as double-buffering, 24 versus 32-bits of color, alpha channels, etc. I was pleased with myself that not only did I understand the issues, but I also had an opinion about what we should build. All of a sudden I decided that I hadn’t heard the sound of my own voice in a while  so I piped up:  “I think our customers will want 24-bits of double-buffered graphics.”

Silence descended across the conference table. The CEO turned to me and asked “What did you say?” Thinking he was impressed with my mastery of the subject as well as my brilliant observation, I repeated myself and embellished my initial observation with all the additional reasons why I thought our customers would want this feature. I was about to get an education that would last a lifetime.

Picture the scene: the entire company (all 15 of us) are present. For this startup we had assembled some of the best and brightest hardware and software engineers in the computer industry. My boss, the CEO, had just come from a string of successes at Convergent Technologies, Intel and Digital Equipment, names that at that time carried a lot of weight. Some of us had worked together in previous companies; some of us had just started working together for the first time.  I thought I was bright, aggressive and could do no wrong as a marketer. I loved my job and I was convinced I was god’s gift to marketing. Now in a voice so quiet it could be barely heard across the conference table our CEO turns to me and says, “That’s what I thought you said. I just wanted to make sure I heard it correctly.”  It was the last sentence I heard before my career trajectory as a marketer was permanently changed.

Get Out of My Company
At the top of his lungs he screamed, “You don’t know a damn thing about what these customers need!  You’ve never talked to anyone in this market, you don’t know who they are, you don’t know what they need, and you have no right to speak in any of these planning meetings.”  I was mortified with the dressing down in front of my friends as well as new employees I barely knew. Later my friends told me my face went pale. He continued yelling, “We have a technical team assembled in this room that has more knowledge of scientific customers and scientific computers than any other startup has ever had. They’ve been talking to these customers since before you were born, and they have a right to have an opinion. You are a disgrace to the marketing profession and have made a fool of yourself and will continue to do so every time you open your mouth. Get out of this conference room, get out of this building and get out of my company; you are wasting all of our time.”

I was stunned by the verbal onslaught. At that moment I felt so small I could have walked out of a room underneath the crack in a closed door.

Facts Not Opinions
The shock quickly wore off as I processed the gist of what he told me. He was right.  I personally didn’t have any facts, and if we were counting opinions, there were a bunch more educated opinions in that room than I had. All I had been doing was filling the air with marketing noises.

I was convinced that I had just been humiliatingly fired – 90 days into our new company.

Get Out of the Building
As I got up to leave the room, the CEO said, “I want you out of the building talking to customers; find out who they are, how they work, and what we need to do to sell them lots of these new computers.” Motioning to our VP of Sales, he ordered: “Go with him and get him in front of customers, and both of you don’t come back until you can tell us something we don’t know.”

And he was smiling.

My career as marketer had just begun.

Lessons learned:

  • Corporate culture is either set by fiat, by default, or by consensus. But regardless of how it gets set, it gets set early
  • An intelligent opinion is still a guess
  • The dumbest person with a fact trumps anyone with an opinion
  • There are no facts inside the building so get the heck outside

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Ardent 1: Supercomputers Get Personal

Last month on an east coast college tour with my daughter, I found myself in North Carolina for the first time in nearly 24 years.

I had last been in Chapel Hill on a winter’s day in 1986, traveling with the VP of Sales of our new supercomputer startup, Ardent. We were on the University of North Carolina campus to meet with Fred Brooks and Henry Fuchs. We just turned on the rental car radio as we entered campus and heard the mid day BBC news – the space shuttle Challenger had just exploded.

It was the best of times, it was the worst of times
Ardent would be my third technology company as a VP of Marketing (Convergent Technologies and MIPS Computers were the other two.) It would be the company where I actually earned the title.

This is the first of a series of posts on the company.

A Phone Call
After I left MIPS Computers I was in New York tagging along with a friend (a computer architect whose products at Apple a decade later would change the shape of personal computing) who was consulting for a voice recognition startup. We were sitting in our cheap hotel room when the phone rang. It was my ex boss from Convergent Technologies, “Steve we’ve all just resigned from Convergent and we’re starting a new company. I’ve convinced the team you’d be perfect, come join us as the VP of Marketing.” My ex-boss was going to be the VP of Engineering and I would report to the CEO whose marketing acumen and sales instincts seemed at the time to be telepathic and sense of theater was legend. And so was his reputation for being verbally abusive to his direct reports.  Gulp.

The culture and work ethic of Convergent had earned it the title “the Marine Corps of Silicon Valley”. (Not until I was older and wiser did I realize that this was not always meant as a compliment.)

Working with my old boss sounded like a great idea. And in the course of the phone call I put my friend on the phone and let him interview for a job.  On the ride to the airport my friend asked me what our new company was going to do.

Only then did I realize we both forgot to ask.

Never mind
The first idea for our new company was a software product that looked something like Hypertext. With a bit of research it turned out that a professor at Brown University had invented something close to what we had in mind. The VP of Sales and I flew to Providence to convince Andy van Dam at Brown to join our company, or at a minimum lead our advisory board.

On a rainy day in Providence we tracked Andy down just as he was leaving for a trip to Europe.  He agreed to talk to us as he packed his office, and we followed him down the street as he went to get a haircut. With me holding the umbrella our VP of Sales kept reminding him how wonderful it would be if his research could turn into commercial products- all as we all walked downtown to the barbershop. While van Dam sat in the chair getting his haircut, the VP of Sales and I flanked him on either side, with the barber trying to get his clippers in between us. We were painting a picture of hypertext on every desktop computer. I knew we almost had him convinced when our sales guy and Andy started talking to each other in Dutch.

As the conversation began to get down to how much stock and salary we could offer van Dam, we left the barber to finish his work and went to a payphone to call our CEO to confirm the deal. The response from across the country?  “Glad you two called, we were trying to get a hold of you guys.  Forget the Hypertext idea and come on back to California. We’re building a supercomputer.”  Oops.  We told Andy we’d talk further when he got back from Europe.

Supercomputers get Personal
Back in Sunnyvale my friend had not only been hired but had convinced the team that we should be building hardware – making a new class of computers not a software application. Our vision was that just as the PC was revolutionizing the business market, we were going to do the same for scientists and engineers. We were going to target scientists and researchers who were longing to do “interactive simulations,” requiring both scientific computing and visualization of real-world phenomena. We were going to invent a new product and create an entirely new market by putting a personal graphics supercomputer on every desk.

By the mid 1980’s microprocessor technology—specifically off-the-shelf RISC-based microprocessors like the one from MIPS, my previous startup– had evolved to support  the speed needed to support a new class of computers for scientists and engineers.  Unlike Intel chips, MIPS chip architecture also made it possible to plug in a math co-processor. By adding a vector unit to these RISC processors, we believed we could take some of the supercomputer market from Cray (at the time the maker of the most powerful scientific computers in the world) as well as from the emerging class of mini-supercomputers (Convex and Alliant.)

To do that we needed to build a supercomputer, but since the RISC processors weren’t fast enough, we decided to build a multiprocessor supercomputer, (running up to 4 processors in parallel.)  We had to write our parallelizing and vectorizing compilers and build our own high-end graphics boards, and write our own 3d graphics subroutine language – and put in all in a box that could fit in an office. Oh, and since it was not code compatible with anything, we were going to have to port all the key scientific applications our customers needed (as soon as we figured out who they were.)  Some of the other founders had sold minicomputers to scientists and engineers, but no one knew or understood the unique class of applications and customers of supercomputers.  We were going to be guessing.

Personal supercomputers meant yet again learning something completely new; new computer architectures, new applications and customers, new markets.

I couldn’t believe they were paying me to do this job; I would have gladly done it for free.

The Streets of Palo Alto
As our company was getting formed, I happened to bump into Gordon Bell – the ex VP of Engineering of DEC (the company that defined the minicomputer) on the streets of Palo Alto. (It was Gordon who had prodded John Hennessy and the MIPS team at Stanford to start a commercial chip company.) After telling Gordon what we were doing and who was doing it, he realized that he knew most of our founding team when they all had worked at DEC. I invited him to meet the team.  A few days later Gordon became a founder. (Later he would leave for a few years to start the Computing Directorate at the National Science Foundation, help spec what became the Internet and then come back and run Ardent’s engineering.)

I would learn a ton from Gordon for over a decade, not only about practical heuristics for managing complex engineering projects (i.e. the “schedule fantasy factor,”) or his eleven rules of supercomputer design but also a real appreciation for how a technical visionary thinks. (I tried my best to narrow the time that I went from believing that Gordon had yet another insane idea to when I realized it was a profound insight.) It was a challenge to keep up with him (I never did) but it was fun to try.

At the same time Gordon was looking forward, he had a great appreciation of saving the past. He and his wife Gwen would found the Computer Museum, first in the lobby of DEC headquarters, then in Boston (and now as the Computer History Museum in Mountain View, California.) When our kids were little they would play with the computer artifacts (Napier bones and Pascal engines) scattered across their living room and overflowing their shelves when we stayed at their condo in Boston. My first inkling that computing had a history (with deep military connections) was looking at the SAGE air defense computer at the Boston Computer Museum.

I would be lucky in my career to work with Gordon and three other people I consider as mentors.  They would all work in this one company.

Get Out of Building
Our trip to North Carolina was part of a year long effort to get out of the building to understand our market, customers and their applications. How I learned to “get out of the building” is in the next post.

Lessons learned:

  • Ardent’s personal supercomputer pushed at the edge of what was possible to build in technology
  • Our enthusiasm and passion for technology would soon intersect with our hypotheses about customers and market

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The Leading Cause of Startup Death – Part 1: The Product Development Diagram

When I started working in Silicon Valley, every company bringing a new product to market used some form of the Product Development Model.  Thirty years later we now realize that its one the causes of early startup failure. This series of posts is a brief explanation of how we’ve evolved from Product Development to Customer Development to the Lean Startup.

The Product Development Diagram
Emerging early in the twentieth century, this product-centric model described a process that evolved in manufacturing industries. It was adopted by the consumer packaged goods industry in the 1950s and spread to the technology business in the last quarter of the twentieth century. It has become an integral part of startup culture.

At first glance, the diagram, which illustrates the process of getting a new product into the hands of waiting customers, appears helpful and benign.  Ironically, the model is a good fit when launching a new product into an existing, well-defined market where the basis of competition is understood, and its customers are known.

The irony is that few startups fit these criteria. (None of mine did.)  We had no clue what our market was when we first started. Yet we used the product development model not only to manage product development, but as a road map for finding customers and to time our marketing launch and sales revenue plan. The model became a catchall tool for all schedules, plans, and budgets. Our investors used the product development diagram in our board meeting to see if we were “on plan” and “on schedule.” Everyone was using a road map that was designed for a very different location, yet they are surprised when they end up lost.

Product Development Diagram

Product Development Diagram

To see what’s wrong with using the product development model as a guide to building a startup, let’s first examine how the model is currently used to launch a new product. We’ll look at the model stage-by-stage.

Concept and Seed Stage
In the Concept and Seed Stage, founders capture their passion and vision for the new company and turn them into a set of key ideas, which quickly becomes a business plan, sometimes on the back of the proverbial napkin. The first thing captured and wrestled to paper is the company’s vision.

Then the product needs to be defined: What is the product or service concept? What are the features and benefits? Is it possible to build? Is further technical research needed to ensure that the product can be built?

Next, who will the customers be and where will they be found? Statistical and market research data plus potential customer interviews determine whether the ideas have merit.

After that there’s a discussion of how the product will reach the customer and the potential distribution channel. The distribution discussion leads to some conclusions about competition: who are they and how they differ. The startup develops its first positioning statement and uses this to explain the company and its benefits to venture capitalists.

The distribution discussion also leads to some assumptions about pricing. Combined with product costs, an engineering budget, and schedules, this results in a spreadsheet that faintly resembles the first financial plan in the company’s business plan. If the startup is to be backed by venture capitalists, the financial model has to be alluring as well as believable. If it’s a new division inside a larger company, forecasts talk about return on investment.  in this concept and seed stage, creative writing, passion, and shoe leather combine  in hopes of convincing an investor to fund the company or the new division.

Product Development
In stage two, product development, everyone stops talking and starts working. The respective departments go to their virtual corners as the company begins to specialize by functions.

Engineering focuses on building the product; it designs the product, specifies the first release and hires a staff to build the product. It takes the simple box labeled “product development” and makes detailed critical path method charts, with key milestones. With that information in hand, Engineering estimates delivery dates and development costs.

Meanwhile, Marketing refines the size of the market defined in the business plan (a market is a set of companies with common attributes), and begins to target the first customers. In a well-organized startup (one with a fondness for process),  the marketing folk might even run a focus group or two on the market they think they are in and prepare a Marketing Requirements Document (MRD) for Engineering. Marketing starts to build a sales demo, writes sales materials (presentations, data sheets), and hires a PR agency. In this stage, or by alpha test, the company traditionally hires a VP of Sales who begins to assemble a sales force.

Alpha/Beta Test
In stage three, alpha/beta test, Engineering works with a small group of outside users to make sure that the product works as specified and tests it for bugs. Marketing develops a complete marketing communications plan, provides Sales with a full complement of support material, and starts the public relations bandwagon rolling. The PR agency polishes the positioning and starts contacting the long lead-time press while Marketing starts the branding activities.

Sales signs up the first beta customers (who volunteer to pay for the privilege of testing a new product), begins to build the selected distribution channel, and staffs and scales the sales organization outside the headquarters. The venture investors start measuring progress by number of orders in place by first customer ship.

Hopefully, somewhere around this point the investors are happy with the company’s product and its progress with customers, and the investors are thinking of bringing in more money. The CEO refines his or her fund-raising pitch and hits the street and the phone searching for additional capital.

Product Launch and First Customer Ship
Product launch and first customer ship is the final step in this model, and the goal the company has been driving for. With the product working (sort of), the company goes into “big bang” spending mode. Sales is heavily building and staffing a national sales organization; the sales channel has quotas and sales goals. Marketing is at its peak. The company has a large press event, and Marketing launches a series of programs to create end-user demand (trade shows, seminars, advertising, email, and so on). The board begins measuring the company’s performance on sales execution against its business plan (which typically was written a year or more earlier, when the entrepreneur was looking for initial investments).

Building the sales channel and supporting the marketing can burn a lot of cash. Assuming no early liquidity (via an IPO or merger) for the company, more fund raising is required. The CEO looks at the product launch activities and the scale-up of the sales and marketing team, and yet again goes out, palm up, to the investor community. (In the dot-com bubble economy, the investors used an IPO at product launch to take the money and run, before there was a track record of success or failure.)

The Leading Cause of Startup Death
If you’ve ever been involved in a startup, the operational model no doubt sounds familiar. It is a product-centric and process-centric model used by countless startups to take their first product to market.  It used to be if you developed a plan on model that looked like this your investors would have thought you were geniuses.

In hindsight both you and your investors were idiots. Following this diagram religiously will more often than not put you out of business. The diagram was developed to be used by existing companies doing product line extensions – not startups creating new markets or resegmenting existing ones. Most experienced entrepreneurs will tell you that the model collapses at first contact with customers.

VC’s who still believe in the product development model in the 21st century offer no value in building a company other than their rolodex and/or checkbook.

Coming next Part 2: What’s Wrong with Product Development as a Model?

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Coffee With Startups

I’ve just met four great startups in the last three days.

An Existing Market
All four were trying to resegment an “Existing Market.” An existing market is one where competitors have a profitable business selling to customers who can name the market and can tell you about the features that matter to them. Resegmentation means these startups are trying to lure some of the current or potential customers away from incumbents by either offering a lower cost product, or by offering features that appealed to a specific niche or subset of the existing users.

Some of the conversations went like this:

Startup 1
Entrepreneur -“I’m competing against Company x and have been following the Customer Development process and I’ve talked to lots of customers.”
Me – “Have you used Company x’s product? Do you know have they distribute their product? Do you know how they create demand? Do you know how many units they are selling? Do you know the archetype of their customers?
Entrepreneur -“Well no but my product is much better than their product and I have this great idea….”

Rule 1: In an existing market Customer Development means not only understanding potential customers, but your competitors in detail – their product features, their sales channels, their demand creation strategy, their business model, etc.

Startup 2
Entrepreneur -“I’m competing against Company x and we are going to offer a lower-cost, web-based version. We’re about to ship next week.”
Me –“That’s a great hypothesis, do customers tell you that they’d buy your version if it was cheaper or on the web?
Entrepreneur -“Well no but my product is much cheaper and everyone’s on the web and I have this great idea….”

Rule 2: In an existing market Customer Development means understanding whether your hypothesis of why customers will buy match reality. This is easy to test. Do this before you write code you may end up throwing away.

Startup 3
Entrepreneur -“I’m competing against Large Company x and we solve problems for a set of customers – I’ve talked to many of them and they would buy it.”
Me – “So what’s the problem?”
Entrepreneur – “We just started letting early customers access the product and adoption/sales isn’t taking off the way we thought it would. We only have 20 customers, and Large Company x has millions.”
Me – “How are you positioning your product?”
Entrepreneur – “We tell potential customers about all our features.”

Rule 3: In an existing market directly compare your product against the incumbent and specifically describe the problems you solve and why Company x’s products do not.”

Startup 4
Entrepreneur -“I have something really, really new. No one has anything like it.”
Me – “Isn’t it kind of like Twitter but better?”
Entrepreneur – “You don’t get it.”

Rule 4: You may want to think twice positioning as a New Market. If customers immediately get an analogy for your product, don’t dissuade them. Save the “New Billion Dollar Market” positioning for the investors, not customers.

Lessons Learned

  • Deeply understand the incumbents that make up the Existing Market
  • The “hypotheses tested to lines of code written” ratio ought to be high
  • Position against the incumbents weaknesses – their customers will tell you what they are
  • Existing Markets adoption rates are measured in % market share gained, New Markets have adoption rates which may occur in your company’s lifetime

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Burnout

If you hang around technology companies long enough, you or someone you know may experience “burnout” – a state of emotional exhaustion, doubt and cynicism.  Burnout can turn productive employees into emotional zombies and destroy careers. But it can also force you to hit the pause button and perhaps take a moment to reevaluate your life and your choices.

Hitting “burnout” changed the trajectory of both ends of my career in Silicon Valley. This post, which is divided in two parts, is the story of the first time it happened to me.

Zilog
Zilog was my first Silicon Valley company where you could utter the customer’s name in public. Zilog produced one of the first 8-bit microprocessors, the Z-80 (competing at the time with Intel’s 8080, Motorola 6800, and MOS Technology 6502.)

I was hired as a training instructor to teach microprocessor system design for the existing Z-80 family and to write a new course for Zilog’s soon to be launched 16-bit processor, the Z-8000. Given the hardware I had worked on at ESL, learning microprocessors wasn’t that hard but figuring out how to teach hardware design and assembly language programming was a bit more challenging.  Luckily while I was teaching classes at headquarters, Zilog’s field application engineers (the technical engineers working alongside our salesmen) would work side-by-side with our large customers as they designed their systems with our chips. So our people in the field could correct any egregious design advice I gave to customers who mattered.

Customers
The irony is that Zilog had no idea who would eventually become its largest customers.  Our salesmen focused on accounts that ordered the largest number of chips and ignored tiny little startups that wanted to build personal computers around these chips (like Cromemco, Osborne, Kaypro, Coleco, Radio Shack, Amstrad, Sinclair, Morrow, Commodore, Intertec, etc.) Keep in mind this is still several years before the IBM PC and DOS. And truth be told, these early systems were laughable, at first having no disk drives (you used tape cassettes,) no monitors (you used your TV set as a display,) and no high level programming languages.  If you wanted your own applications, you had to write them yourself. No mainframe or minicomputer company saw any market for these small machines.

Two Jobs at Once
When I was hired at Zilog part of the deal was that I could consult for the first six months for my last employer, ESL.

Just as I was getting settled into Zilog, the manager of the training department got fired.  (I was beginning to think that my hiring managers were related to red-shirted guys on Star Trek.)  Since the training department was part of sales no one really paid attention to the four of us.  So every day I’d come to work at Zilog at 9, leave at 5 go to ESL and work until 10 or 11 or later.  Repeat every day, six or seven days a week.

Meanwhile, back at ESL the project I was working on wanted to extend my consulting contract, the company was trying to get me to return, and in spite of what I had done on the site, “the customer” had casually asked me if I was interested in talking to them about a job.  Life was good.

But it was all about to catch up to me.

Where Am I?
It was a Friday (about ¾’s through my work week) and I was in a sales department meeting. Someone mentioned to me that there were a pile of upcoming classes heading my way, and warned me “remember that the devil is in the details.”  The words “heading my way” and “devil” combined in my head. I immediately responded, “well that’s OK, I got it under control – as long as the devil coming at me isn’t an
SS-18.”  Given that everyone in the room knew the NATO codename for the SS-18 was SATAN, I was thinking that this was a witty retort and expected at least a chuckle from someone.

I couldn’t understand why people were staring at me like I was speaking in tongues. The look on their faces were uncomfortable.  The VP of Sales gave me a funny look and just moved on with the agenda.

VP of Sales?  Wait a minute.. where am I?

I looked around the room thinking I’d see the faces of the engineers in the ESL M-4 vault, but these were different people.  Who were these people?  I had a moment of confusion and then a much longer minute of panic trying to figure out where I was.  I wasn’t at ESL I was at Zilog.  As I realized what I had said, a much longer panic set in.  I tried to clear my head and remember what else I had said, like anything that would be really, really, really bad to say outside of a secure facility.

As I left this meeting I realized I didn’t even remember when I had left ESL or how I had gotten to Zilog.  Something weird was happening to me.  As I was sitting in my office looking lost, the VP of Sales came in and said, “you look a bit burned out, take it easy this weekend.”

“Burned out?” What the heck was that? I had been working at this pace since I was 18.

Burnout
I was tired.  No I was more than tired, I was exhausted. I had started to doubt my ability to accomplish everything. Besides seeing my housemates in Palo Alto I had no social life. I was feeling more and more detached at work and emotionally drained. Counting the Air Force I had been pounding out 70 and 80 hour weeks nonstop for almost eight years. I went home and fell asleep at 7pm and didn’t wake up until the next afternoon.

The bill had come due.

Recovery
That weekend I left the Valley and drove along the coast from San Francisco to Monterey. Crammed into Silicon Valley along with millions of people around the San Francisco Bay it’s hard to fathom that 15 air miles away was a stretch of California coast that was still rural. With the Pacific ocean on my right and the Santa Cruz Mountains on my left, Highway 1 cut through mile after mile of farms in rural splendor.  There wasn’t a single stop-light along 2-lane highway for the 45 miles from Half Moon Bay to Santa Cruz.  Looking at the green and yellows of the farms, I realized that my life lacked the same colors.  I had no other life than work. While I was getting satisfaction from what I was learning, the sheer joy of it had diminished.

As the road rolled on, it dawned on me that there was no one looking out for me. There was no one who was going to tell me, “You’ve hit your limit, now work less hours and go enjoy yourself.” The idea that only I could be responsible for taking care of my happiness and health was a real shock.  How did I miss that?

At the end of two days I realized,

  • This was the first full weekend I had taken off since I had moved to California
    3 years ago.
  • I had achieved a lot by working hard, but the positive feedback I was getting just encouraged me to work even harder.
  • I needed to learn how to relax without feeling guilty.
  • I needed a life outside work.

And most importantly I needed to pick one job not two. I had to make a choice about where I wanted to go with my career–back to ESL, try to work for the Customer or stay at Zilog?

More about that choice in the next post.

Lessons Learned

  • No one will tell you to work fewer hours
  • You need to be responsible for your own health and happiness
  • Burnout sneaks up on you
  • Burnout is self-induced.  You created it and own it.
  • Recovery takes an awareness of what happened and…
  • A plan to change the situation that got you there

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Rocket Science 5: Who Needs Domain Experts

What Business Are We In?
While the Rocket Science press juggernaut moved inexorably forward, a few troubling facts kept trying to bubble up into my consciousness. The company was founded to build games with embedded video to bring Hollywood stories, characters, and narratives to a market where “shoot and die” twitch games were in vogue. But underlying the company’s existence was a fundamental hypothesis we refused to see or test – customers would care if we did.

In the game business of the early 1990’s video was at best a brief narrative, a distraction you maybe watched once, not the core of the game. Our potential customers didn’t seem to be calling for Hollywood stories, characters and narrative. That’s OK, because we knew better. We thought we had figured out what the next generation of games was going to be. We were thinking we were in the movie business, but video games were more akin to pinball; both pinball and movies were entertainment but you would never confuse them with each other. Successful pinball companies didn’t hire Hollywood talent.

Meanwhile our company was pouring an enormous amount of dollars into building tools and video compression technology, while also hiring a lot of high-priced Hollywood talent like art directors, and script and story editors.

We Don’t Need Domain Experts
When I looked around at our executive staff, there wasn’t a single founder who was a gamer. Worse, there wasn’t a single person on our executive team who had come from a game company.  Nor was there anyone with game experience on our board. As the company grew a sense of unease started gnawing at the outer fringes of the “you’re in trouble” part of my brain. Meanwhile my partner was in heaven working with his newly hired group of game designers directing and producing our first games. When I pointed out my rising apprehension his response was, “I’ve been playing games since I was 10. I know what’s great and what’s not. We agreed this part of the company was my responsibility. Don’t worry the games are going to be great.” Given my fiduciary responsibility to my board and my investors did his blasé answer force me to grab him by the collar and scream, “Snap out of it, we’re in trouble!”

Nah. Instead I said, “Oh, OK, glad it’s all under control.” Then I went back to raising more money and getting more press for our soon to be spectacular games.

Hire Advice I Can Ignore
But the nagging little voice in the back of my head that said, “This doesn’t feel right,” wouldn’t go away.  So I hired a VP of Marketing from Sega, one of the video game platforms on which our games would run.  After only two weeks on the job, he came into my office and said, “Have you’ve seen the games we are building?”  What kind of question was that?   Of course I had seen pieces of the video we shot and beautiful storyboards. “No,” he insisted, “Have you seen the game play, the part that supposed to keep  players addictively glued to the game console for hours?”   Hmm.  “No, not really, but my partner owns the studio and tells me it’s spectacular and everyone will love it.  Don’t bother him; he knows what he’s doing.  Go spend some time outside the building talking to potential distribution partners.  Tell them how great it’s going to be and see how many pre-orders we can get.”

A month later the VP of Marketing appeared in my office again.  “Steve I have to tell you some bad news, I just showed our potential channel partners and customers a few completed pieces of the games we had. They think the games stink.”

loadstar

Now I know I heard his words because years later I can still remember them well enough to write them down.  But somehow the translation between my ears and what I was supposed to do with what I was hearing shut down. Was my response to stop development of the games?  Bring in some outside professionals to review our progress?  Call a board meeting and say we may have a serious problem?  Nah. I said, “That can’t be true! The press is saying we are the hottest super group around.  Look, we’re on the cover of Wired magazine.  They think we’re brilliant.  Our VCs think we are visionary. Stop annoying our game designers and start working on selling and marketing the games.”

Hindsight
In hindsight it’s easy to laugh.  Saying you knew how to build great games because you played them all your life was like saying, “Hey I  eat out a lot so why don’t I open a restaurant.” Or “I’ve seen a lot of movies so let’s start a movie studio.”  Only in Silicon Valley could we have got funded with this idea, and not surprisingly, it was our technology that had the VC’s confused. It was more like we had invented the world’s best new kitchen utensils and wanted to open a restaurant, or had built the world’s finest movie cameras and wanted to start a movie studio. Our venture backers and our executive team confused our technology and our tools — and our passion for the games business — with any practical experience in the real business we were in.  We were an entertainment business – and not a very subtle entertainment business.  As we were about to find out, if video game players wanted a cinematic experience, they went to the movies, they didn’t buy a video game.  Our customers wanted to kill, shoot or hunt for something.  Fancy video narratives and plots were not video games.

Interest Alignment
Why VC’s invested in companies like ours is what’s great and bad about entrepreneurship.  A Venture Capitalist I respect reminded me that he thought about investment risk as either:

  • investing $1 million in 10 companies and have all ten succeed.  With each of those ten companies returning 2x their money for $20 million. Or
  • investing in 10 companies and having 8 fail  – but the remaining two companies returning 20x their money for $40 million.

His point was that it was in the VC’s interest in having entrepreneurs swing for the fences.

However the VC’s are managing a portfolio while you, the entrepreneur are managing one company – yours.  While VC’s might love you and your firm, a 2x return isn’t why they’re in business.  It’s nothing personal, but your interests and your VC’s may not be aligned. (More on this in future posts.)

The Search for the Black Swan
What keeps founders and their investors going is the the dream/belief that your startup will be the Black Swan – a company that breaks all the obvious rules, ignores tradition and does something unique and spectacular and with a result that is unpredicted and financial returns that are breathtaking.

Think of the Microprocessor, Personal Computer, Internet, Twitter, Youtube, Facebook, Google, the iPhone. Creating those technologies and companies required entrepreneurs willing to follow their own vision and convincing  others that the path is worth following.

The mistake isn’t having a vision and taking risks.  The mistake is assuming you are a Black Swan and continuing to ignore the facts as they pile up in front of you.

Customer Development
There was nothing wrong about Rocket Science having a vision radically different than the conventional wisdom.  We could have been right and invented a new form of gaming and entertainment. What went awry was continuing to execute on the vision when all the evidence in front of us told us our hypothesis was wrong.  We compounded the problem when we failed to have an honest discussion about why it made sense to ignore the evidence.  (A tip-off is when you start saying, “they just don’t get it yet.”)

At Rocket Science, hubris took over and was about to lead to the fall.

Customer Development says having a vision, faith and a set of hypotheses are a normal part of the startup experience.  But it is critical to build in a process for testing those hypothesis outside the building and listening to the responses – or you might as well throw your money in the street.

Lessons learned?

  • While a lack of relevant domain expertise is not always fatal, believing you don’t need any is.
  • Founders need to validate their vision in front of customers early and often.
  • Your goals and your VC’s goals may not be aligned.  Make sure they are.

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Rocket Science 4: The Press is Our Best Product

At Rocket Science while my partner Peter was managing the tools and game development, I was managing everything else. Which at this stage of the company was marketing and financing.

Our “Hollywood meets Silicon Valley” story played great in Silicon Valley, they ate it up in Hollywood, and the business press tripped over themselves to talk to us.  The story had universal appeal, and we spun the tale and keep the buzz going.  It worked. Judging by the ink we had gotten, we were the hottest company in the game business, with stories in Fortune, Forbes, Variety, The Hollywood Reporter, and the cover of Wired magazine. Yet we hadn’t shipped a single product.

While it felt wonderful at the time, this was a very bad idea.

Wired 2.11 Cover

Everyone Else is an Idiot
The theme of our press blitz was all about how we were going to show the old tired game companies the right way to make video games. Our press infuriated the established companies who had spent years building games that sold well, but had zero press recognition.  (They all accurately predicted our demise because of our lack of game expertise.)  Ah, the arrogance of inexperience. Fortunately I’ve never been good at lying, to be effective in communicating a story I truly had to believe in what I was saying.  At the time I was a true believer that Rocket Science was going to change the gaming world. The positive effect of the tidal wave of press was as a door opener for us to raise money from corporate partners.  Companies in the entertainment business around the world knew who we were, and were interested in meeting us, if only to see what the hype was about. Our VP of Business Development had no problems getting meetings and fund raising was easy.

The Digital Dream Team
Way before the Internet phenomenon, we had created “Rocket Science the brand” that was much bigger in size and importance than Rocket Science the company. One magazine called us the “Digital Dream Team”, young, edgy and hip, and by the looks of the company (great building, nice furniture, and well dressed 20-year olds) we were trying to live up to the reputation.  All this activity occurring before we actually shipped a product.  We were larger than life, but as one potential investor told us, “You guys are all hat and no cattle.”

Believing Your Own BS is Toxic
Lots of noise and smoke before a product ships seems to be a toxic byproduct of enthusiastic entrepreneurs. Every generation of new technology seems to find a willing audience in naïve journalists and eager readers.  However, when the smoke clears the surviving companies are more than likely the ones that focussed on execution, not on creating a cacophony of press releases. If Rocket Science wasn’t a clear enough lesson in the danger of premature enthusiasm, the dot-com bubble that followed should have been. The only difference between us and the Internet bubble that would follow was that we did branding on the cheap by creating our image with public relations, whilethe dot-bomb era was to do it by spending enormous sums on advertising (those large venture rounds had to get spent somewhere.)

Hindsight is wonderful.  For years the one solace I was able to take from the Rocket Science debacle was that I had got the branding right. Then I watched the criminally expensive dot-bomb-bust branding activities to see how futile and wasteful it was to brand a company before it has shipped products.

To a Hammer Everything Looks Like a Nail
In hindsight my failure was that I executed to my strength – telling a compelling story – without actually listening to customer feedback.

It wasn’t that I didn’t know how to listen to customers.  It wasn’t that I didn’t have a smart VP of Marketing who was getting early feedback from customers and screaming that the games didn’t match the hype.  It’s that as CEO I was too busy talking to the press and raising money to hear customer comments directly.

I had outsourced customer feedback and ignored the input. In fact, hearing input that contradicted the story I was telling created cognitive dissonance.  So while the words may have passed through my ears I couldn’t “hear” it.  Not being able to hear negative customer input is an extremely bad idea.

Out of the Ashes
A few of the key tenets of Customer Development, came from the ashes.  The Customer Discovery lessons of “get outside the building and test your hypothesis with customers,” and “the founders need to hear the results,” came from this debacle.

The Customer Validation lesson of, “no formal launch until you have early sales validating the product and sales process” was also born here.  Given the lukewarm feedback we were getting from potential customers and channel buyers we should have dramatically dialed back the hype until the follow-on games could match it. Given the talented people we had, there’s no doubt they would have done so.  Instead the huge mismatch between expectations and reality of our first games diminished the brand and demoralized the company – we never recovered.

Lessons Learned

  • PR is not a product- it is a demand creation activity to fill a sales channel
  • The product needs to come close to the hype
  • Fire the CEO who insists on press and PR before they understand customer feedback
  • Branding is a process that should happen after you have customers

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