Tag: innovation

How NFL Coaches are like Midlevel Workers in Corporate America

Category : Sports
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Bill Belichick is widely thought of as the smartest coach in the NFL.  He has been hugely successful, coaching the New England Patriots to the Super Bowl four times in his 9 years of coaching, winning three.  Like many successful people, Belichick rubs many NFL fans the wrong way, leading many to revel in his failures.  Part of the schadenfreude can be explained by his somewhat abrasive personality and win at all costs mentality.  He was caught up in the NFL cheating scandal a few years ago where he was accused of ordering Patriots employees to tape opponents practices before important games.

It was no wonder that Belichick was universally slammed by pretty much everyone after his decision to go for it from his own 30 yard line in the 4th quarter last night’s Sunday night game against the Indianapolis Colts.  Here’s the situation.  The Patriots were winning by six points with a little over two minutes to go.  The Patriots faced 3rd and 2 from their own 28.  A first down in this situation wins the game.  The Colts defense stopped the Patriots on 3rd down, forcing a 4th and 2.  Instead of punting, Belichick ordered his offense back out onto the field to go for it.  They didn’t get it and Peyton Manning drove the Colts 28 yards for the game winning touchdown.

It’s obvious that the Patriots should have punted and forced the Colts to go 70 yards to try to win the game, right?  To steal a line from Lee Corso, not so fast my friend.  Belichick is way ahead of the curve.  According to research by David Romer at UC-Berkely, NFL teams punt way too often.

The Patriots convert first down from 2 yards out 76% of the time (ESPN’s stat from Sportscenter).  This stat means that by going for it, the Patriots had a 76% chance of winning the game.  Belichick only had to think that his defense would give up a touchdown to Peyton Manning and the Colts offense at a lower rate for it to be a good decision.  Manning had already driven the Colts to three 75+ yard touchdown drives in under two minutes in the game.  Belichick made the decision to go for it and this time it did not pay off, which brings me to why I love watching him coach a game.

Coaches in all sports, but especially football, almost always play it safe and go with conventional wisdom.  I’ve written about the lack of innovation in football before, mostly relating to play calling.  Last season I came up with a hypothesis:

I think it is because coaches fear being fired for not just doing poorly, but doing poorly a different way.  If coaches go with the conventional wisdom and fail, they will not be criticized as harshly as if they experiment and find new ways to fail.  If they succeed, like Mike Martz’s high-flying pass offense for the Rams called “The Greatest Show on Turf,” they are given some credit, but when the same coach experiences a minimal decline, he is criticized more harshly than a conventional coach.  For example, when Martz decided to pass in a late game situation, just like he had during other times in the game and failed, he was roundly criticized.  If he had run and failed, the players would have been criticized for not executing.   There is no upside for innovation here.

Today, I found out that this hypothesis has a name, via the Freakonomics blog:

If his team had gotten the first down and the Patriots won, he would have gotten far less credit than he got blame for failing. This introduces what economists call a “principal-agent problem.” Even though going for it increases his team’s chance of winning, a coach who cares about his reputation will want to do the wrong thing. He will punt, just because he doesn’t want to be the goat. (I’ve seen the same thing in my research on penalty kicks in soccer; it looks like kicking it right down the middle is the best strategy, but it is so embarrassing when it fails that players don’t do it often enough.) What Belichick proved by going for it last night is that 1) he understands the data, and 2) he cares more about winning than anything else.

It takes a leader to be willing to go against the grain, even when he knows that he will be excoriated by his peers.  He could have taken the easy way out.  If he did, today’s headlines would most likely read “Patriots defense no match for Peyton Manning and the Colts.”  Instead, we have “Colts make Pats pay for Bill’s unusually dumb decision.”

I think that this problem helps explain why big companies are slow to innovate.  They face the same problem.  Mid-level employees face the same problem as NFL coaches.  If they simply keep their heads down and do what 99% of the other workers would do, they will get credit if they succeed, but face much less criticism if they fail.  Most corporate cultures punish failing in a new way much more than failing the same old way.  If a mid-level employees actually do something innovative and it works, many times they are given less credit than they deserve.

I think this problem helps explain why startups are able to innovate much faster than big companies.  If big companies want to innovate faster, they need to empower their employees to go against the grain and make tough decision.  They need to actually mean it.  Companies need to view a failure for what it is, a failure, rather than get caught up in how the person failed.  This is not to say that someone who decides to pull the corporate equivalent of going for it on 4th and 20 from their own 5 yard line shouldn’t be criticized.  As long as the decision has a reasonable chance of success, they should be applauded for their innovation, rather than criticized for thinking outside the box.

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A View of the Internet from 1995

Category : Technology
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I just came across one of my favorite articles again today.  It’s a Newsweek feature from almost 15 years ago about whether the Internet would actually catch on or not.  The article, The Internet? Bah! Hype alert: Why cyberspace isn’t, and will never be, nirvana, attempts to bring a dose of reality to the “Internet craze” sweeping the nation.  Written in 1995, the author starts the article with this quote:

After two decades online, I’m perplexed. It’s not that I haven’t had a gas of a good time on the Internet. I’ve met great people and even caught a hacker or two. But today, I’m uneasy about this most trendy and oversold community. Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms. They speak of electronic town meetings and virtual communities. Commerce and business will shift from offices and malls to networks and modems. And the freedom of digital networks will make government more democratic. Baloney. Do our computer pundits lack all common sense?

Reading it now, the first part seems like it has to be an Onion article.  While most are laughable now, I don’t want to focus on what he got wrong.  Here’s a quick taste of some of Clifford Stoll‘s predictions from 1995:

  • “The truth in no online database will replace your daily newspaper”
  • “No computer network will change the way government works”
  • “You can’t tote that laptop to the beach”
  • “We’ll soon buy books and newspapers straight over the Intenet. Uh, sure.”
  • We won’t be able to find the information we want
  • The Internet won’t be useful in government
  • Computers in schools? “Bah. These expensive toys are difficult to use in classrooms and require extensive teacher training.”
  • “We’re promised instant catalog shopping–just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obselete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month? Even if there were a trustworthy way to send money over the Internet–which there isn’t–the network is missing a most essential ingredient of capitalism: salespeople.”

He was clearly wrong about pretty much everything in the first section of the article, but I think he gets the second part partially correct:

What’s missing from this electronic wonderland? Human contact. Discount the fawning techno-burble about virtual communities. Computers and networks isolate us from one another. A network chat line is a limp substitute for meeting friends over coffee. No interactive multimedia display comes close to the excitement of a live concert. And who’d prefer cybersex to the real thing? While the Internet beckons brightly, seductively flashing an icon of knowledge-as-power, this nonplace lures us to surrender our time on earth. A poor substitute it is, this virtual reality where frustration is legion and where–in the holy names of Education and Progress–important aspects of human interactions are relentlessly devalued.

I think he was right that ultimately, online connections are indeed “limp substitutes” for the real thing, but he missed that the Internet could help people make connections with people they never would have had the chance to meet in their non-Internet lives.  I’ve made connections with people though my blog, facebook, twitter and other networks like Brazen Careerist, who I never would have run across if I weren’t online.

This article brings up another interesting issue.  People love this article now because Stoll was so wrong about so many things.  How will people in my generation look 15 years from now?  We have created huge amounts of content on blogs and social networks, much more than previous generations.  Much of this content contains strong options.

Surely many of us will be as wrong as Stoll was in his Newsweek article.  In 1995, Stoll’s article was fairly reasonable.  He was well informed, involved in the industry and took a strong stand on an issue he believe in.  Unfortunately, today it looks ridiculous.  There is no way Stoll could run for office and win.  His opponent would have more fun than Republicans who make fun of Al Gore for “inventing the internet.”

If an informed stakeholder can get something so wrong, isn’t it likely that most of us will probably write something that will be completely wrong 15 years down the road?  Will articles like these preclude us from running for office?  How about getting a job?  Should we be worried about how history will view our blog posts?

Like unflattering pictures posted online, I hope that blog posts that history proves to be wrong are forgiven.   As long as the posts were well written, logical and thought out, posts where we are wrong should not count against us.  Knee-jerk reactions or Glenn Beckesque rants SHOULD be held against the writer.  If not, we will have some boring future leaders who weren’t even willing to take a stand when they were young!

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Raising Money from Family and Friends

Category : Entrepreneurship
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It’s really easy to find information about raising money from angel investors or VCs, but many people neglect another important way to fund your startup: raising money from family and friends.

There are pros and cons to raising money from family and friends, but for your first round (especially in your first company), I think that the pros outweigh the cons (if your family can afford it), especially if you follow some common sense rules so that you can still go to your family reunions.  It seems to me that many in the startup world look down on companies that are funded by family and friends.  I think that’s a mistake.  I’m writing this post because I wanted to share my experience raising money from family and friends so that others can see it is a viable option.

When it came time to raise money with my first company, I had the choice of whether to try to raise money via angel investors or from family and friends.  After doing some research, I decided that family and friends was the route I wanted to take.  We were able to raise six figures fairly quickly from a good group of investors, which helped us stay focused on running our business instead of raising money.  Whereas many angels and angel groups would have wanted to get to know us for 3-6+ months, we were able to close our round in about 6 weeks.

How were we able to raise money quickly?  How do you actually go about approaching family and friends for money?  What if your family doesn’t have much money?  Why should you do it and why are they better than angels/vcs?

We were able to raise money quickly because we wrote a detailed business plan, did our research and found people who were willing to believe in us.  At first, we wrote a 2 page executive summary of our business that included how much money we were trying to raise, our valuation, how much 1% of the company would cost, why we needed the money and what we planned to do with it.  This exercise helped us really figure out how to tell our family and friends what we were doing.  It is especially important to avoid the curse of knowledge when writing your business plan, but its even more important when the investors are your family and friends.  Next, we developed our full business plan, making sure to be as clear as possible.  We made it clear that we were asking for investment in exchange for ownership in the company, rather than loans.

Next, we talked to our lawyer about how to raise money.  He helped us write up an offering summary, amended our operating agreement to allow us to take on investors and filled out all of the necessary forms for the government.  He also helped us add to our business plan to make it more understandable to non-tech people.  Our professionals that were working with us (lawyers, accountant, professors) were able to point us in the right direction of people with money.  This is even more important if your family does not have the resources to invest in your startup.

All of our investors were accredited investors, which means that they have net worth of at least $1m or a yearly salary of over $300k.  Accredited investors helped us in two ways.  First, since they were high net worth individuals, they could afford to take the risk of losing their money.  While we were confident we were going to be successful, we still knew we could fail and lose our investors’ money.  Second, having all accredited investors meant less paperwork for us and our legal team.  Having accredited investors helped us avoid the mistake that some people make: raising money from people who cannot afford to lose it.  This is a huge mistake, even if you think you are going to be successful.  It is the quickest and surest way to give yourself way more stress than you need and get yourself taken off their holiday card list.

We were up front with our potential investors.  While we were confident we were going to be successful, we told the investors that the worst case scenario involved them losing 100% of their investment.  We told them that they might not be seeing a return on their investment for 3+ years and tried to think up scenarios that would cause these bad outcomes to happen.  It was clear that our investors were more comfortable with us once we showed them that we had done our homework and were not simply selling them snake oil.  Don’t make promises you can’t keep just to get someone to open their checkbook.  They will not be happy with you when you are not fulfilling your promises a few months down the road.

Make sure you don’t set your valuation too high.  While you are trying to get a good deal for your business, you want to make sure that your investors are getting a good deal as well.  After all, they are your family and friends.  Another key is to not take too much money from one single investor.  In my first company, our biggest chunk from one single investor was $70,000.  While we ultimately made him money and he could have afforded to lose his investment, it would have been more comfortable for everyone involved to have gotten a little less from one single source.  It’s also not the end of the world if one of your potential investors turns you down.  Don’t press for money from someone who is uncertain because they will be the first to complain when things are not going as well as you had hoped.

Many angel investors will tell you that their investment comes with connections that you will not get from your family and friends.  While there is some truth to this statement, I think that it is overrated.  Your family and friends will get you money more quickly and be more willing to take you at your word.  A family and friends round will also set you up nicely for a second round from an angel or VC if it is necessary down the road.  If you can show that your family and friends believe in you, it gives you credibility.  If I see a startup without some amount of family and friends money, I wonder “wow, this guy couldn’t even get his Mom to believe in him, so why should I?”   It brings up questions in my mind, but is not a deal breaker.

I have had good experiences raising money from my family and friends and I think more people could benefit from thinking about going this route, rather than just thinking about angels/vcs.  Check out my list of Dos and Don’ts and Pros and Cons of raising money from family and friends below:

Do

  • Write a simple executive summary and longer business plan
  • Be upfront and honest about potential losses
  • Be honest about the time horizon for payoff
  • Make sure your investors can afford to lose 100% of their investment without any hard feelings
  • Seek out accredited investors from your professionals

Don’t

  • Oversell yourself, your company or the opportunity
  • Underestimate risk
  • Take too much money from a single source
  • Set your valuation too high
  • Get mad if they turn you down

Pros

  • Raise money more quickly
  • Better valuation and less stress than angels/vcs
  • Potentially make your family/friends money
  • Easier to get money than from angel groups for first time founder

Cons

  • Can be awkward if you fail
  • Doing business with family/friends can be nerve wracking
  • No network

What do you think?  Have you had experience raising money from family and friends?  What did I miss?

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Every Startup Needs a Mentor Team

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Every startup that wants to succeed needs a mentor team.  These mentors don’t have to be a formal board of advisors, but they should be a diverse group of accomplished business people, lawyers and professors.  They don’t have to be experts in the area you are starting your company, but it would be useful to try to find one person who is.  You should be able to call or email them anytime you are stumped on a problem you are trying to deal with.  You should also be able to meet with them every 1-2 months to give progress reports and talk through your business.  Ideally your core team should consist of 3-5 people, but even 1 mentor is a huge help.

It’s important to have a mentor team for a bunch of reasons.  First, your mentors will be able to bring an outside perspective that isn’t as close to the business as you are as the founder.  Its amazing how many problems someone smart who is a little removed from your business can solve.  Second, having a mentor team builds credibility both with others in the business community like potential partners and customers and with potential investors.  When I look at startups, if the founder doesn’t have a mentor team, I start to wonder if their idea is any good or if the founder is totally committed.  Sort of like a partner, if the founder can’t find someone to like them and their idea enough to be a mentor, there might be something wrong with the idea or the team.  Third, mentor teams provide valuable insight into areas that founders many not have experience.  Whether its a tax question or how to approach investors or how to present to a partner company, people who are smart and have been successful before usually are able to help you out.

My mentor teams for my businesses have consisted of a lawyer, successful entrepreneurs, professors.  For my current company, my partner and I joined the MERLIN Mentors program here in Madison to add to our existing network of advisors and mentors.  If you are starting a company, see if there is a program like MERLIN in your area.  It is a great way to gain access to mentors who can help you succeed, especially if you don’t have an existing network.  If there isn’t a program, email interesting professors you find online or in your area.  Write a business plan and enter into a business plan competition.  Join LinkedIN and see if you have any connections who might be able to help you.  Ask your friends and family if they know anyone who might be interested in listening to your ideas.  Not only is it easier than you think to find a good mentor, it’s also one of the most important things a startup can do.  It doesn’t even cost any money!

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