Thoughts on the 500 Startups Corporate Startup Engagement Report

500 Startups, one of the world’s leading startup accelerators, recently released a report on how large companies can best work with startups. Given their unique position in the market, 500 Startups surveyed executives at companies like General Motors, Simon Ventures, Embraer, and more to learn what they’re doing to drive collaboration with startups.

500 Startups Corporate

The 500 Startups Corporate report has tons of useful takeaways for both startups and corporate innovation teams. Here are their best practices for corporate innovation teams and my take below:

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The E-Myth Revisited Key Takeaways

e-myth revisited book cover

Disclaimer: When I first heard of The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber, I was extremely skeptical. I was catching up with my friend Spencer Whitman, who is the General Manager of Rent Jungle, and asked him if there’s anything he recommend I read as I embark on my journey of growing and scaling Unlimited Brewing Company. He immediately mentioned The E-Myth Revisited, whose title made me recoil in horror. My first thought was that this was some weird book about how the dot-com era was a fluke and that technology is overrated. Luckily, Spencer went on to explain that The E-Myth Revisited title stands for “The Entrepreneur Myth Revisited”, not the electronic myth. I immediately bought the book because I knew if I thought too much about the decision, I wouldn’t read it.

The E-Myth Revisited turned out to be one of the better business books I’ve ever read. Part philosophical treatise, part business advice, and part psychology manifesto, this book provides a whole new way to think about the personal development of an entrepreneur. Key takeaways are below.

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The Optionality Trap

The optionality trap starts when we’re young:

“Get good grades in school. You’ll have more options when choosing a college.” -Parents

“Pick a major that applies to many different industries. That way you’ll have more job options.” -College Counselor

“Consulting is a great field. From there, you can do whatever you want.” -Career Advisor

While this advice isn’t necessarily wrong, very rarely do we take a step back and examine what exactly we’re collecting all these options for. Perhaps at the beginning of our careers, we have some vague idea of a goal or accomplishment we want to reach but we’re not quite sure: a) how to reach the goal and b) if we even want to reach the goal in the first place. So naturally we choose the path that keeps the maximum number of future possibilities available to us. Unfortunately, this fuzzy goal mindset is often carried through to adulthood and leaves us grasping for optionality with all of our major life decisions. And over the course of a lifetime, this optionality maximization mentality turns us into habitual option collectors and prevents us from reaching our goals.

But I’m getting ahead of myself. Let’s start with the basics.

What is Optionality?

Optionality is a concept from the finance world. When someone holds an option, it means they have the right to do something but no obligation to do it. As Mihir A. Desai puts it in his Crimson article, “Optionality is the state of enjoying possibilities without being on the hook to do anything.”

When the universe conspires in your favor, you participate in the upside. And when it doesn’t, you aren’t on the hook for the negative consequences. It sounds pretty great, doesn’t it? In finance, this is referred to as a “non-linear payoff”, which literally means you stand more to gain than you do to lose.

Thanks to books like Antifragile, the idea of optionality has become popular in the mainstream. Predictably, people are very interested in the idea of having possibilities without any obligations. The optionality concept has been applied to things like careers (picking a job that opens up as many future opportunities as possible), relationships (dating around and not making commitments because you never know who else you’ll meet), and more.

Of course, in the financial world, every option has a cost associated with it. And so do real world options. But while financial options have an explicit price attached to them, real world options have more subtle costs.

What is The Optionality Trap?

When we first start making life decisions on the basis of the future options they create for us, we do so to reach some long-term goal. Perhaps we want to someday travel the world or start a company. Maybe we want to build enough skills and reputation so we can work on our own schedule. Or most common, we just don’t know what we want to do so picking an option that gives us more options seems to make the most sense.

However, when we do this for long enough, it becomes a habit and we start making all of our decisions through the lens of future optionality. After awhile, we aren’t even conscious of this rationale. We post-rationalize decisions and think we want to go to business school or consulting for their own sake but really, we’re optimizing for the opportunities we’ll have afterwards. Quoting Mihir Desai again:

The Yale undergraduate goes to work at McKinsey for two years, then comes to Harvard Business School, then graduates and goes to work Goldman Sachs and leaves after several years to work at Blackstone. Optionality abounds!

The optionality trap is something that ensnares us, not through outside forces, but through our own risk aversion and indecisiveness.

My opinion is that the optionality trap originates from an aversion to being hurt emotionally. A desire to avoid emotional pain is of course, completely natural. But in this avoidance lies an emotional stuntedness that prevents us from ever trying anything worthwhile and learning through the process.

Common Optionality Trap Examples

The optionality trap can affect more than just our career choices:

Startup Ideas

Let’s face it: coming up with startup ideas is not hard. The hard part is determining if your idea is viable and then of course, executing on it. And yet there are thousands and thousands of potential entrepreneurs sitting on the sidelines with a concept or an idea that “isn’t quite ready yet”.

Guess what? It’s never going to be ready. Instead of getting started with customer development to see if their idea has legs, these would-be entrepreneurs are keeping the option of being an entrepreneur alive, while not engaging in any of the emotional (ego) risk of being wrong.

If you have ideas, start testing them.

I also often see entrepreneurs who come up with tons of ideas but can’t pick one to go deep on. This is a close cousin of the “not ready yet” problem. These entrepreneurs are giving themselves optionality but never actually selecting one of their options.

As Chaz Giles frequently reminds me when I try to get “clever” with startup ideas, “Someone has built a profitable business selling bird diapers. Don’t overthink it.”

By focusing on optionality of ideas over execution, would-be entrepreneurs will never succeed. But perhaps more importantly, they will never make mistakes and in the process, completely stunt their own learning curve.

Corporate Innovation

Individuals aren’t the only ones guilty of optimizing for optionality. Companies frequently do it too.

In companies, the optionality trap is often seen in the insidious form of endless meetings, which leads to decision-making procrastination. Quite simply, companies that don’t make decisions can’t be wrong. Actually, that’s not true at all – by not making decisions, companies are defaulting to making the wrong decision. But the individuals at the company (a key distinction) get to avoid making a decision which could potentially be wrong, which means they avoid any potential blame.

This is once again the optionality trap at work. By not making decisions, individuals within a company keep all their options open. But by not making a decision, their company (which ultimately includes them) fails at solving whatever problem they were trying to solve.

Dating

The optionality trap in dating is the ultimate modern day problem. When you can login to a dating app and get access to a huge number of single people, it becomes tough to commit to anyone. What if there’s someone better just on the other side of that app?

Plus, as you get to know someone, their flaws start coming out while the ephemeral “people” on the dating apps are still perfect. At least in theory.

When you live with the belief that there are people better than your current fling just a tap away, it becomes impossible to emotionally commit to someone. And without emotional commitment, no relationship can flourish.

Living Situation

For those lucky few who have the option to live wherever they want, the easiest thing to do is to live nowhere. I’m referring, of course, to the currently en vogue nomad lifestyle. Don’t get me wrong: the ability to live and work anywhere is generally awesome. Lord knows I’ve taken full advantage of it. But there are downsides that very few people talk about. For example:

When a person spends all his time in foreign travel, he ends by having many acquaintances, but no friends.

This quote about the nomad lifestyle was made by Seneca in Letter II of Letters From A Stoic, which is about 2000 years old but still holds true today. By not living anywhere, you experience a wide variety of locations but never develop deep relationships with people and place that someone who lives in the same area for years would enjoy.

How To Get Out of The Optionality Trap

You’re probably sitting there thinking to yourself, all this talk about optionality traps is fine but HOW do you actually make a decision? If you’re looking at two options with different risk profiles and appeal, how in the world do you decide which one to go for? Andy Dunn from Bonobos says it better than I can:

The risk is not in doing something that feels risky. The risk is in not doing something that feels risky.

Very little is obvious in the research on human decision-making and happiness. Very few things are proven. One thing that is proven is this: the only regrets octogenarians have are for the risks not taken.

Here’s why:

If the risk taken does pan out, it is good. But if it doesn’t — and here’s the key thing — we find a way to justify the risk taken as learning.

That’s the secret.

If our goal is to live a good life without regrets, it’s so important to internalize Dunn’s quote. If we choose the path that doesn’t speak to our souls but feels safer, there’s a very strong likelihood that we’ll ask that dreaded question years later: What if? What if we took the plunge?

But if we choose the risky path and it doesn’t work out, we can (usually) call it a learning experience and move on. There’s very little thinking about what would have happened if we had taken the safe path.

By knowing this and then projecting to how you’ll feel in 10, 20, or even 40 years out as a result of this decision, you can take on the fear that quite naturally arises at a decision point. And by taking fear out of the equation, you can make a decision that’s based on what you actually want, rather than basing it on what’s safe or comfortable.

Is There a Time and Place For Optionality?

Despite what you may think from my railing against the optionality mindset for the past ~1800 words, there are plenty of times in my life where I’ve chosen optionality over the more direct path. While I do regret some of those decisions, there are a couple times that I’ve chosen optionality and it worked out.

Like most complex matters, there’s no “one size fits all” solution to decision-making. Big life decisions are deeply personal. Even something like deciding to go into consulting, which on the surface seems like it’s driven by optionality, can be a courageous decision depending on what the motivation is.

Ultimately though, if you know you want something, the fastest way to get there is to chase it directly. Optionality is a backup tactic, not something to pursue first.

Closing Thoughts

The siren call of optionality is admittedly an alluring one. But it’s also dangerous. Unfortunately, when we don’t know what to do or the path to our goals is unclear, the easy default choice is to defer and pick something that gives us the most future choices. But the universe is strange. When we choose a path, things start to happen. Things we can’t necessarily predict in advance. Andy Dunn says it nicely:

If you can’t decide what to do, get on the road. You won’t find the answer. It will find you.

In other words, go punch the optionality trap in the nose and get after it.


Further Reading:

Mihir A. Desai’s Harvard Commencement Address

The Risk Not Taken by Andy Dunn

Antifragile by Nassim Taleb

Letters From A Stoic by Seneca

Crucial Conversations Key Takeways

Crucial Conversations

Crucial Conversations: Tools For Talking When Stakes Are High was recommended to me by my brother, Jay. Like many of us, I have a bad habit of shying away from confrontation and difficult conversations. It’s a natural reaction. Tough conversations are usually unpleasant and have the potential to escalate into full blown conflicts. But the truth is, by avoiding difficult conversations, we suppress disagreement and emotion until they bubble to the surface and blow up. Crucial Conversations provides a toolkit for those of us not naturally gifted at the art of handling difficult conversations.

Biggest Takeaway: Crucial conversations require finding “The Pool of Shared Meaning”

If there’s one thing to take away from this book, it’s the idea of creating a “pool of shared meaning” between key stakeholders. In their research for the book, the authors examined what unique conversational tactics are used by those who are more skilled at dialogue than the average person. Here’s one of their key findings:

People who are skilled at dialogue do their best to make it safe for everyone to add their meaning to the shared pool – even ideas that at first glance appear controversial, wrong, or at odds with their own beliefs.

The pool of shared meaning is essentially where a group’s collective knowledge goes. When the group has more accurate or relevant collective information, they can make a better decision. And when people don’t feel safe or comfortable adding their opinions to the pool of shared meaning, it means people are operating with different information, which of course will lead to differences of opinion and conflicts.

Equally important, since by definition the pool of shared knowledge is shared, people are much more willing to follow through on whatever decision the group makes. As Samuel Butler once said:

He that complies against his will is of his own opinion still.

When a group needs to take an action, you don’t want to be using force or authority to convince them. It’s much better, both for long-term and short-term cohesiveness, for individuals to willingly go along with whatever the group collectively decides.

Start With Heart: The Mindset For Crucial Conversations

If you’ve read Extreme Ownership by Jocko Willink and Leif Babin, the mentality expressed in the following quote from Crucial Conversations will sound very, very familiar:

The first step to achieving the results we really want is to fix the problem of believing that others are the source of all that ails us. It’s our dogmatic conviction that “if we could just fix those losers, all would go better” that keeps us from taking action that could lead to dialogue and progress. Which is why it’s no surprise that those who are best at dialogue tend to turn this logic around. They believe the best way to work on “us” is to start with “me”.

The key framework here is to understand what you really want out of a crucial conversation, what you want for others, and what you want for the relationship moving forward. Once you’re clear on those things, it becomes a lot easier to operate with a cool head and take a skillful approach to crucial conversations.

Part of the reason this technique works so well is it allows you to hijack the normal physiological response to conflict. Normally, when engaging in crucial conversations, our body has difficulty distinguishing between a tough social encounter and a physical threat. Accordingly, blood will be diverted to your muscles and less will flow to your brain, leading your mental facilities t0 decline – at the worst possible moment! But by applying a logical framework and thinking about goals, your body realizes that this is not a physical altercation, and you’ll be able to think clearly.

Apart from the physiological benefit to using this framework, the other advantage is that by working on yourself first, you may find that you are the reason the conflict is happening! Taking this moment to stop and reflect can nip conflicts in the bud before they really escalate.

Getting Others To Share: AMPP Framework

It’s all well and good to understand the concepts above but without getting the other person/people to open up and share, there’s not really a “conversation” happening. The AMPP Framework shared in Crucial Conversations is a useful one in getting others to open up. You may already use some of these techniques but it’s useful to see the entire framework:

Ask to Get Things Rolling

This technique is simple – you just need to be willing to stop sharing your thoughts and step back to invite the other person to talk about their viewpoint. This far easier to say than to actually do in practice.

An example of asking: “I’d really like to hear your opinion on this.”

Mirror to Confirm Feelings

The main purpose of this technique is to convey to the other person that it’s ok to share their feelings. Conveying this doesn’t have much to do with the words coming out of your mouth. Instead, your body language, tone of voice, and attitude are going to give the other person the confidence to share their feelings with you.

An example of mirroring: “You say you’re okay, but by the tone of your voice, you seem upset.”

Paraphrase to Acknowledge the Story

Again, this technique will either work or fall apart based on your body language. Paraphrasing is exactly what it sounds like: repeat what you’ve heard in your own words to confirm you understand correctly. It also helps the other person see that you truly want to understand what they’re saying.

An example of paraphrasing: “Let me see if I understand this correctly. You’re saying….”

Prime When You’re Getting Nowhere

This is mostly a last resort technique but in cases where you’re pretty sure what the problem is, you can share your best guess as to what the other person is thinking. Crucial Conversations recommends you use this technique only when the other party still doesn’t feel comfortable sharing, even after trying all the other tactics. In my experience, priming can be pretty helpful – it shows the other person that you’re aware of what they’re feeling.

An example of priming: “Are you thinking that…”

Resolving Differences of Opinion: The ABC Framework

Differences of opinion are a fact of life. So how do we resolve them? The ABC framework is a good place to start:

Agree

This is something I can personally attest to: In many, if not most, disagreements with other people, I agree with 90% of what they’re saying. But in the heat of the moment, that 10% difference escalates into a standoff. The authors of Crucial Conversations are instead suggesting that you first find the places you and the other person agree. Which then sets the stage for…

Build

Instead of looking for trivial differences between your opinion and the other person’s opinion, skilled communicators take the areas of agreement and build from there. For example, when the other person leaves out an element of the argument, an unskilled communicator will say something like: “Wrong. You forgot to include…” while a skilled communicator will say: “I agree. In addition, I noticed that…”. It’s so simple but this little switch takes a conversation from confrontational to friendly.

Compare

When there is a difference of opinion, instead of pronouncing the other person’s ideas as wrong or conveying your opinion as if it’s confirmed truth, it’s more effective to treat both opinions as two sides to a story. This can be conveyed through phrases like “I see things a bit differently”. Again, this invites others to share their opinions and test your ideas. While you may not ultimately end up agreeing, communicating in this manner creates a larger pool of shared meaning and a more productive conversation.

Pick up your copy of Crucial Conversations on Amazon or wherever you buy books and let me know what you think in the comments or on Twitter.

Fix Your Map, Not The Terrain

I recently had the pleasure of joining Nat Eliason on his podcast ‘Nat Chat’ to discuss Antifragile by Nassim Taleb, which if you don’t know, is one of my all-time favorite books. During the podcast, Nat gave an example of a “naive intervention” that’s been percolating in my mind ever since: In response to children being distracted in class, doctors have, for years, been liberally prescribing Ritalin to “help” students focus. Instead of examining and redesigning the distractions and flawed class structure that leads to almost 20% of American boys being diagnosed with ADHD, the education and medical industries have decided to drug students into submission. And this naive intervention leads to long-term issues, as there seems to be a link between taking Ritalin and cocaine addiction later in life, due to the similarity between the two drugs. Nat referred to this overprescription trend as “trying to fix the terrain, instead of fixing your map”, the terrain in this case being children and their attention span while the map is the solution to capturing their attention.

To put it more broadly, your map is your model of the world while the terrain is the actual world. Models are always, always, always (I can’t stress this enough) an approximation of reality. When models are effective, there is very little difference between the model and reality. When models fail, there’s a large difference. And because the world is constantly changing, models require continual feedback loops and updates to remain effective. Changing the model is much more in your control than changing reality, yet many notable screw-ups (like the ADHD example above) happen when humans try to re-shape reality instead of re-shape their model.  

This terrain/map concept is so powerful and broadly applicable. Through the work I do, I see a ton of parallels with both corporate innovators and startups trying to force the landscape to adapt to their expectations instead of adjusting their solutions to the new reality.

Retail: Legacy Brands vs Adaptive Brands

In retail, the vast majority of legacy brands still base their strategy on a terrain that existed pre-Internet and pre-social media: namely, the supply-driven retail business model. Spotting these companies is fairly simple: they are the ones who are late to the game on almost every trend. Why? Because trends now emerge organically through “the public” (sometimes influencers but often just the dregs of the interwebz) instead of through corporate tastemakers.

The old model for retail was for a buyer or tastemaker to decide which products would be released in a given season. These buyers were/are extremely skilled at understanding consumer preferences and the model worked well for a long time. But now that we’re able to access products from around the world, taste has simply become too complex for any single human being (or in my opinion, an algorithm alone) to control or predict. Instead of a top down model of tastemaking, trends now generally emerge from the vast pool of humanity, without an easily determined reason – though people will try (and fail) to analyze trends in hindsight.

Brands that have embraced this new model (like Zara) are able to identify emerging trends through rapid piloting, kick the design and supply chain processes into action for successful experiments, and get products in-store before the trend has really taken off. Equally important, they can economically halt the process and respond to the next trend when the current one is over. Brands that have built processes like this to adapt to the new retail environment are exemplifying the idea of “fixing their map” to adapt to the new terrain.

Startup Sales Process

Likewise, over the years, I’ve seen plenty of startups miscalculate just how long and involved the enterprise sales process is, how many stakeholders there are, and the risks involved when a large company works with a small one. The startups who successfully navigate this process are the ones who, often through trial and error, develop an accurate model for the organization they’re selling to. This includes knowing who the key decision-makers are, what they are being judged on, what their top priorities are, and most importantly, how your startup fits into the picture.

The startups who get frustrated in this process are usually those who come into it with unrealistic expectations of how quickly a deal will get done, simply because of how much sense it makes…on paper. While mapping a deal on paper is important, it isn’t nearly enough to move things along.

To successfully close a deal with a large company, it takes an understanding of who in the company is actually buying your product, what that person or department is tasked with, what they’re succeeding and failing at, and so much more. All of this deep, detailed knowledge can only be gathered through research and many interactions with the target company. And this knowledge is then used to build and iterate on your map (i.e. model) for how to get the deal done.

But if a startup runs into a wall during the sales process and attempts to change the procurement process (i.e. change the terrain) – good luck. Those processes were likely created by a painstaking process involving dozens of people and months of debate. Most importantly, you – a little startup – don’t have the leverage to demand that the large company change their process. If the startup has a ton of leverage, it’s possible (though unlikely) that the large company may volunteer to fast-track the deal. But I have never seen a startup successfully demand that the large company change their process.

Conclusion

When things aren’t going right or are more difficult than expected, it’s easy to look externally and blame outside forces. But more often than not, it’s our model that’s flawed, driven by expectations which don’t match the reality of the terrain. Taking a step back and evaluating our map is often all we need to do to correct things. An even better tactic is to build in opportunities to check and adjust your map as you go along, for example interacting with customers often to continuously test your assumptions. These feedback loops are the only way to make sure the map you’re using is an accurate representation of the terrain and not a forced fit “solution” that has little connection to reality.

The Powerful Sales Hack I Learned By Watching 8 Mile

Confession: 8 Mile is one of my favorite movies. That’s not only because I’m a huge hip-hop fan. The gritty Detroit scenes, the classic hero’s journey, the great acting, and yes, the rap battles all play their part in making 8 Mile one of the movies I turn to when it feels like life is beating me down.

In addition to being such an inspiring and entertaining film, the final scene features a major lesson to be learned for anyone trying to sell. For those who haven’t seen the movie (or if you just want to see some great rap battles), start by watching the video below:

Prior to the above final scene, Jimmy Smith Jr. (played by Eminem) constantly has his physical and personal characteristics thrown in his face as insults, the most immutable being the fact that he’s white in a neighborhood that’s mostly black. On top of that, he and his friends aren’t known for being gang members or drug dealers and are simply people who have regular, low wage jobs at an automotive plant. For the majority of the movie, Smith feels defeated by the constant attacks on something he can’t change. The turning point comes when he realizes that his perceived weaknesses can be turned into his strengths, especially if framed the right way. Nowhere is this seen more strongly than in the final battle:

This guy ain’t no motherf***ing MC,
I know everything he’s got to say against me,
I am white, I am a f***ing bum,
I do live in a trailer with my mom,
My boy Future is an Uncle Tom.
I do got a dumb friend named Cheddar Bob
Who shoots himself in his leg with his own gun,
I did get jumped by all 6 of you chumps

One of the things that shows skill when freestyling is being able to come up with creative insults. When someone calls out everything you’re about to say, how in the world can you respond? Their self-deprecation takes all the responses right out of your mouth and leaves you gasping for air.

Sales Pitch Objections

The preempting insult strategy from 8 Mile always reminds me of something I love to hear in sales pitches. Startup founders and salespeople have heard every objection in the book. Things like:

  • Your company is too small
  • You’re too young
  • The product isn’t “polished”
  • You don’t have enough customers

Most salespeople will do their best to brush over the perceived weaknesses of their product. They certainly won’t be bringing up their product’s weaknesses as part of their pitch.

However, none of the above common objections is insurmountable and can actually be turned into advantages. For example, a way to pre-empt the “you don’t have enough customers” objection is to say that you’re currently working with a select group of invite-only early adopter clients. And we all know everyone wants to be part of an invite-only club. The “your company is too small” objection can be reframed by saying you have a small, agile team that can respond to customer requests more quickly than any large company ever could. You get the picture.

I’ve even seen some companies include some of these common objections in their pitch decks or as part of an FAQ section of their website. This is the ultimate show of confidence and highly recommended if you know your responses are going to be powerful.

*****

Ultimately, whether you make a sale or not is highly dependent on how you respond to objections and questions. Every product and company has strengths and weaknesses. Those that try to gloss over the weaknesses and only highlight their strengths run the risk of being perceived as shady or dishonest. But a company that shows you what it’s weaknesses are AND is able to re-frame those weaknesses as strengths? That’s who you want to work with.

What Buying Books and Venture Capital Have In Common

If this is your first time visiting my site, there’s something you should know: I love reading. As subscribers of my monthly reading recommendation newsletter know (if you’re not a subscriber, what are you waiting for?), I have an eclectic taste in books. My recommendations run the gamut from psychology and war history to novels and science or math books.

From the title of this post, you might be thinking that I have a utilitarian view of reading. For the record, that is not true. By no means should you be looking at reading purely from a return on investment (ROI) standpoint. Reading is first and foremost a pleasure. That being said, a useful book is one of the best investments you can make. In fact, reading is one of the very, very few areas of life which offer the potential for 100x or higher returns.

There is so much knowledge just sitting there in books, waiting for someone who can communicate the ideas effectively and take them into the real world. In fact, a large percentage of the people we consider highly intelligent may just be more well read than us. Many of the problems that companies, governments, and individuals face on a regular basis have been in existence for hundreds, if not thousands of years, and have been solved over and over.

The clever innovator or highly accomplished consultant who can solve all your problems may just be pulling their solutions from a better set of sources (books) than you are. And those better sources are the reason they’ve been able to differentiate themselves and get out of the commodity workforce. It’s clear – books can give you a competitive advantage that few other things can. But it requires an investment of both time and money.

There’s a quote I love by the Dutch Renaissance scholar Erasmus that really drives this home:

“When I get a little money, I buy books; and if any is left, I buy food and clothes”

I’m not recommending you starve yourself to read – we do have libraries after all. But if you want to buy your books (and I recommend you do), it isn’t too difficult to justify the investment. Because that’s what a book is – an investment.

Let’s assume that a book will cost you $15 (you can buy books for much, much less than that but I’ll save those tips for another post). If you buy three books per month, you’re spending $540 per year. If you choose your books wisely (which isn’t easy), you’ll get through 36 books over the course of the year – far more than the average person. Compound this advantage over a few years and you’ve pretty strongly differentiated yourself.

In fact, it wouldn’t be surprising if just one of the books you read leads to an insight which results in your next company, a consulting contract, or a promotion at work. I’ve experienced this firsthand – a $12 book plus a few cold emails once led directly to a $10,000 consulting gig. There aren’t too many investments that can beat that ROI.

And therein lies the similarity to venture capital. Since books have the potential to lead to such high returns, you can afford to be wrong about books many, many times in your search to get it right. In fact, if I never again see a dollar of return from reading, the one consulting gig I earned covers the cost of over 830 books.

This is similar to (but even better than) venture capital economics. VCs fully expect a large percentage of their investments to go to zero. Their entire job is to find the one or two companies which will drive the returns of the entire fund. This means finding the company that can deliver the 100x return. The same applies to buying books. In my case, the ROI of that one book was 833X. While I won’t be competing with Andreessen Horowitz in the venture game any time soon, knowing that reading books can lead to huge payoffs helps me justify the amount of time and money I spend on reading.

*****

Of course, not every book you read needs to get you a consulting contract or a new job. Some books, fiction or nonfiction, are just an absolute pleasure to read and have no (direct) impact on your earnings potential. If you’re fortunate enough to find one of these books, lucky you. They’re more difficult to find than the 100x return books.

 

 

 

 

Innovation Isn’t a Department – It’s a Culture

I’ve been going through the Jocko Podcast archives over the past few months. While listening to Episode 47, one of the listener questions really got my attention. The listener asked Jocko if he did anything ritualistic to get himself mentally prepared before his Navy Seal operations. Pretty innocent question and one that I’d imagine many listeners have thought about.

Jocko’s answer was both powerful and counter-intuitive. I highly recommend listening to the full answer here. Here’s the most relevant section:

“I hate to spoil the romantic vision of the mindful warrior poet but that actually, that idea is just not what happens. Here’s the reality: first and foremost, when you’re in combat and preparing for an operation – you are freakin’ busy…there’s so much planning and preparation that needs to be done…you’re not just sitting around trying to figure out your mindset.

That being said, mindset IS a part of combat. So how did I get in the right mission mindset? Well the mindset is not achieved in the minutes or even hours before an operation, from chanting a mantra, or breathing, or meditation, or some song that will get you in touch with your warrior spirit. The mindset is achieved in the weeks, and the months, and the years BEFORE that specific operation commences.

We lived in the mindset and that mindset came from the training we went through, the repetition of the fundamental skill sets. The mindset comes from the discipline – waking up early, studying the tactics, understanding the enemy – from all those unmitigated daily disciplines”.

That is such a powerful answer, and one that any large company hoping to innovate should pay extra attention to. Before I dive into this further, a quick disclaimer: Yes, I fully understand that corporate innovation is orders of magnitude more trivial than war.

The Wrong Type of Innovation Culture

That being said (to borrow a classic Jocko phrase), there are SO many companies that think “innovation” can be learned in a single workshop or can be siloed into a department which will invigorate the rest of the company. You see this all over the place. Everyone seems to be looking for a shortcut and there’s no shortage of charlatans trying to sell it to them.

And when companies try to shortcut their way to innovation and fail, they wonder what went wrong. Let me say this unequivocally: things didn’t go wrong because you picked Outlook over Gmail, or because you chose to go to Tel Aviv for your innovation trip instead of San Francisco. It wasn’t because you picked the wrong innovation workshop vendor, or because you don’t have an open office plan.

Companies who try to make their innovation teams look like the cast of HBO’s ‘Silicon Valley’ are falling for the innovation myth equivalent of the “mindful warrior poet”

This focus on appearances and shortcuts is just another symptom of the “innovation theater” mindset. Innovation theater refers to companies (and people) who optimize for the appearance of being innovative instead of actually being innovative.

Without a doubt, innovation in large companies fails because of company culture. So what can leaders do to make their culture more innovative?

Incentives

Instead of trying to workshop innovation, companies need to build a questioning and experimentation mentality into their company culture. This starts with incentives – both positive and negative. Employees need to have some air cover from their superiors to question the status quo and try new things. In most organizations, a failed project can scar your career for life. This type of massive negative risk disincentive is a great way to ensure that employees never try new things. Getting rid of disincentives (or at least reducing the magnitude of the downside) is a good way for companies to get out of their own way.

But it can’t stop there. Employees also need some positive incentives for developing new businesses. Creating new things with proper incentives is hard enough – imagine having to do it in an environment where your best case scenario is earning a year-end plaque? Creating upside – both financial and prestige-based (early promotions, recognition, and more) – is crucial.

How Do You Spend Your Time?

Too often in large companies, employees spend the entire day running from meeting to meeting, with little time to breathe and collect their thoughts or do any “actual” work. This is no way to innovate. Creating new concepts, even non-disruptive ones, is grounded in thought and experimentation. Twenty person meetings typically have very little to do with it.

Google’s famous “20% Time” policy allows (or arguably, used to allow) employees to spend up to 20% of their time on side projects. This policy was responsible for the creation of Gmail, Adsense, and Google News, products which created or disrupted their categories. The biggest advantage to encouraging employees to start these side projects is that companies enjoy a risk-reward ratio that is massively in their favor. If a concept fails, barely any money or time was spent on it. If it succeeds, well, the results of Gmail speak for themselves. This is exactly that kind of low risk, high reward investment that professional investors hunt for all their lives.

While 20% time may or may not be directly applicable to your company’s situation, managers should be more comfortable giving employees leeway to experiment with new concepts. You never know what your company’s Gmail will be.

Added bonus: employees will feel more empowered and engaged, which usually leads to less turnover!

*****

There’s no workshop, partnership, or class that will magically turn a stale company into an agile machine. Creating an effective innovation culture requires months and years of foresight, proper incentives, and vigilance against the innovation theater mindset. And to paraphrase Jocko, an innovation culture is built through unmitigated daily disciplines, not shortcuts.

Losing the Beginner’s Mind: FIDM Recap

Last week, I had the opportunity to give a talk on product innovation at the Fashion Institute of Design & Merchandising (FIDM). While I think they called me in to share some of the things I’ve learned during my time consulting to The Estee Lauder Companies, it’s hard to say who got more value out of the talk: the students or me.

I’ve switched industries a lot in my (admittedly) short career. Over the past few years, I’ve worked in higher education, early education, ad tech SaaS, cosmetics, and alcohol. Because of that frequent switching, I’ve often been a beginner and forced to get up to speed in new industries quickly. However, during the Q&A portion of the talk at FIDM, I realized I had stopped looking at the cosmetics industry through a beginner’s eyes. The students (all of whom were about 20 years old) were asking questions about the industry, sales channels, and technology from angles I had never thought of but seemed obvious as soon as they brought them up.

For example: among millennials, beauty influencers have huge power to drive sales, simply by recommending a product or featuring it in a makeup tutorial video. Several students brought up the (valid) point of diminishing consumer trust in influencers because of all the undisclosed sponsored posts. In hindsight, this concern seems obvious but in all my time working with beauty brands, this point has either been completely avoided or jokingly brushed off. Yet these students were able to very easily see the long-term consequences of the current influencer trend: diminished consumer trust. Instead of working with influencers or celebrities, these students were interested in figuring out how to build better peer-to-peer recommendation systems that start and end with product effectiveness in a personalized way and can’t be gamed by larger brands. Amazing concept!

What surprised me the most about the FIDM Q&A session is how unaware I was of losing my “beginner’s mind“. I’ve only been in the beauty industry for two and a half years – which is nothing if you compare it to colleagues who’ve been doing this for twenty or thirty years. But those two years were more than enough to make me miss obvious concerns with the current trendy marketing strategy. This brings up an important question: at what point do people lose their “beginner’s mind” and is it possible to keep this creative state of mind for longer periods of time?

At this point, I don’t quite know what the best solution is but I suspect it has something to do with continually exposing yourself to others without much experience and limiting your interactions with so-called “experts”. While I’m sure there’s some value in having deep knowledge within a specific field, it certainly does seem like the more time you spend working on a given problem, the more difficult it is to see the tangential opportunities that might be obvious to a beginner.

I’ll be exploring this beginner/expert dichotomy further in future posts but in the meantime, let me know your thoughts or experiences with the beginner’s mind on Twitter or in the comments!

Four Common Mistakes Startups Make When Selling to Large Companies

For the typical early stage startup, closing a deal with a Fortune 500 company can provide a huge boost in morale and momentum (and hopefully cash). Enterprise deals are a signal for investors to indicate traction, a common source of free media attention, and a key factor when potential employees will weigh your offer against other opportunities.

Over the past several years, I’ve sat on the corporate side in my role building the External Innovation group at The Estee Lauder Companies, where I’ve worked on 200+ deals with startups of all sizes. Before that, I sat on the startup side of the table and led growth at several venture-backed companies; closing enterprise deals with companies like Proctor & Gamble, LinkedIn, Spotify, and Honda.

With this dual background, I’ve seen (and made) my fair share of mistakes in building startup-corporate interactions. Avoiding the mistakes below just might be the difference between celebrating a deal with a new enterprise customer and sitting on the sidelines wondering what happened. To paraphrase the classic sales quote from Glengarry Glen Ross: champagne is for closers.

Mistake #1: Assuming Large Companies Have Limitless Cash

Yes, you may be pitching to a billion-dollar company but the person you’re pitching to doesn’t have a billion-dollar budget. While corporate budgets may (keyword: may) have more wiggle room than startup budgets, your corporate counterparts are still dealing with many demands on a limited budget. On top of day-to-day budget concerns, large companies, even successful ones, may implement spending freezes for specific departments. It’s entirely possible that your potential customer will be comparing your product with something in a completely different industry, simply because you’re competing for the same budget dollars.
Have some empathy for the budget concerns of your corporate counterparts and it’ll pay off by differentiating you from other salespeople they encounter.

Mistake #2: Trivializing Deep Corporate Knowledge

While it is possible that your startup is “changing the world”, the Fortune 500 companies you’re pitching to have already changed the world and know a thing or two about how things work. There’s nothing more annoying to your corporate counterpart than trivializing the deep knowledge they have of their industry.
You can also run the risk of shooting yourself in the foot by extrapolating current trends in your presentation. Do you really think you’re the first person to tell a corporate innovation director with twenty years of experience that artificial intelligence is going to take over every industry by 2030? Whether you’re right or not, the point is they’ve heard that story before and may view it as a sign of arrogance. Showing some humility and using phrases like ‘our hypothesis’ go a long way towards establishing your honesty and credibility.

Mistake #3: Using Too Much Startup Jargon

True story: the first time I mentioned the word “accelerator” in a corporate R&D lab I was consulting for, a senior scientist gave me a confused look and said he “didn’t realize particle accelerators were funding startups now”. While this may initially make you facepalm, it was a great reminder that those of us in “startup world” truly live in a bubble that most of America, and the world, are not part of. Taking the startup jargon down a notch will help you get your point across.

It sounds cliché but knowing your audience is the key to effective communication. When pitching to individuals who’ve spent their entire careers in large companies, avoid using startup words that they won’t understand and connect with. It’s not the job of the audience to figure out the presenter – but it is the job of the salesperson to make sure their pitch isn’t going over the audience’s head.

Mistake #4: Ignoring Implementation Costs

In the omnichannel world we live in, any large company with a physical retail presence is constantly pitched new in-store technology concepts. While the startups offering these technologies are charging reasonable prices (often as low as $30/location/month), what is often ignored is the cost a company must incur to implement a new technology. For example, a technology that provides customer intelligence via iPad to in-store sales staff so they can sell better requires an extensive training program, troubleshooting, and potentially even in-store hardware upgrades. So even though a technology like this may only cost a total of $6,000 per month (200 locations x $30/location/month), the implementation costs (for things like hardware and training) across 200 locations could easily exceed $100,000.

Implementation costs are difficult to avoid entirely but there are steps startups can take to help their clients reduce costs and get themselves closer to signing a deal. These steps include negotiating reduced hardware pricing with manufacturers, assisting with or even providing free training, and offering to troubleshoot software issues for sales staff. Whatever you do, the important thing is to make it feasible and simple for the large company to say yes to working with you – and that doesn’t always involve the price of your actual product.

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Once you’re able to snag a meeting with a decision-maker at a large company, it means you’ve got their attention. They are interested (albeit at a very high level) in what your product can do. That said, these decision-makers are looking at dozens of other companies who are competing for the same budget. The easiest thing for a decision-maker to do is say no and any of the mistakes above give them an easy out. By always keeping your audience in mind, being empathetic to their concerns, and avoiding critical mistakes, your probability of closing a deal goes way up. And that’s ultimately the outcome that both large companies and startup salespeople are after.

This post originally appeared on the Global Accelerator Network blog. Thanks to Joe Benun for feedback on an earlier version of this post.