So last week I was doing some streamlining with the number of stuff I carry on me. Call me picky but carrying a phone and a wallet 1.0 is a nuisance. It is one too many occupied memory registers that could be used for something better to worry about. So I decided out with the wallet and in with a ultra-slim self adhesive credit card wallet 2.0 for my iPhone. Garbage collection complete. Now whenever I get the urge to check if my credit cards are with me, I know by default that if my phone is with me my cards are too.
But what’s this got to do with giving $100 of value for $10 in return? Well it’s what I found during this cleanup process inside wallet 1.0 that I want to share with you. I found this note…
“How can I give $100 value to 1m people and ask for $10 in return? Give value!”
The backstory
Circa 2008, I still remember when I 1st wrote this note on that yellow postit. I was a young snotty kid in search for “the secret to business success”. Ploughing through books, videos and seminars including the actual The Secret movie, I found zilch. Zero. Nada. Until I ran into a successful business owner who said to me “Find a way to give $100 of value for $10.”. I heard a pin drop (metaphorically speaking of course). Something so simple yet profound. It left an impact on me and thus had to be noted on paper so I could recall it every so often.
This is not a revolutionary idea nor is it a new one. But it helps me focus on what matters when it comes to making money through a vehicle like business or startup or whatever the fancy word will be tomorrow. The more this note soaked in, the more I realized we all have seen this in some other forms in the last few years during the startup gold rush.
Make something people want – YCombinator
If you are familiar with the good work of YCombinator then you already know of their motto “Make something people want”. You may also remember the famous advice by PG (Paul Graham, YC Founder) to AirBnBs founders; PG told Brian Chesky to go and speak with their NYC customers to find out exactly what their needs were and then deliver it. i.e. “Make something people want”. It’s not revolutionary. But it serves as a reminder to us, to be laser focused on the customer, execute and create magic.
10:1 (value to investment) Ratio
What I love about the 100:1 or 10:1 (value to investment) ratio is it helps you build a cash cow business. Building a profitable business gives jobs, changes lives and usually has a social impact. If you can give a 10:1 ratio of value:investment to your customers then; (a) you won’t have to compete on margins with the “me too startups” and/or (b) get into price wars with other companies/startups. You may recall from school business 101; price wars end with the one with the deepest pockets. From a customer point of view, getting a 10x in value is an opportunity cost worth putting money on.
“Rule #1: Build Proprietary Technology That Is 10x Better” – Peter Thiel
This is #1 Rule from Peter Thiel’s famous book, Zero to One, around business philosophy on creating a successful company. It is a great way to think about how your business creates value. If your not shooting for the stars then what’s the point. Now notice how the 10:1 rule fits into Thiel’s 10x better thinking. Of course it’s not easy to achieve those sort of ratios but when you do you know you are onto something special.
Venture Capital
The Startup gold rush has given anyone with an idea a reason to start a business. Venture Capital is often used as a means to fuel rockets (performing startups). We all believe our ideas are rockets. However the only rockets are those that have a competitive advantage like; (a) unique distribution, (b) talent and/or (c) 10x/10:1 customer value ratio. VCs love these because a VC firm is for profit; check out how VC funds work for an overview of the Venture Capital world. What I’m saying is that if you start a business with the 10:1 ratio you will have market elasticity in your favor and metaphorically speaking VCs knocking down your doors.
“Fortuna audaces iuvat”
Fortuna audaces iuvat
So let’s wrap this up…
It feels like if you put in the hard work and create a product that gives $100 of value for $10 (or somewhere abouts there) then..
Customers will love you,
Investors will love you,
Market will love you,
Employees will love you,
And the media + the startup community will love you.. and maybe dissect you (in a good way of course).
What’s not to love about solving a hard problem?
Let me know what you think in the comments section below.
Startup School 2010 was a success! both on the quality of the turn out of entrepreneurs, speakers and the organizers – Y Combinator and Stanford BASES.
The day started on a nice crispy Saturday morning 16th October 2010. Breakfast was provided to all those that attended while the Dinkelspiel Auditorium at Stanford University was prepared.
The morning of Startup School 2010 - at Stanford, Dinkelspiel Auditorium
Startup School 2010
Schedule
The theater got packed out with many great minds of all ages – even entrepreneurs 12 years of age eager to start changing the world. The following are notes I took during each of the speeches + video. Hope you enjoy the content and find it as valuable and inspiring as I did.
Brian Chesky (Founder of Airbnb) speaking to an audience of entrepreneurs. Spot me in the 3rd row! 🙂 Photo by Robert Scoble
Andy Bechtolsheim - Founder of Arista Networks & Founder of Sun Microsystems
Wow, what a great start to this day. Andy went over how Silicon Valley got to where it is today and then touched up on the following interesting topics:
The process in creating a business is in 3 steps: Discover –> Design –> Deliver
“Discover” phase has more value but typically less money is spent while moving to the right to “Deliver” has less value but more money is spent on it.
“The Horizon Effect”, also a topic in psychology, outlines how the majority of humans only purse goals which are in our horizon, stuff we can see, instead of stuff we cannot see. Aim past the horizon like Christopher Columbus did when he sailed past to the horizon only to find that he would not fall off the edge of the world.
Great companies:
Apple – spends the least on R&D ($1.2b) and consumer research. They trust their gut instinct to deliver super products. They also have less products to maintain than most companies.
Google – expects to solve the impossible. Most of their success today is attributed to the 1 day per week given to their employees to brain storm & prototype new ideas.
Innovation is the never-ending search for better solutions.
Most successful companies have more than 1 founder.
Paul Graham - Partner of Y Combinator & Founder of Viaweb
Paul spoke of Super-angels vs. VCs and how the landscape has changed. I didn’t take notes during Paul’s speech since Paul made it available online here.
The best way to have a good idea is to have plenty of ideas.
When something makes you angry, write it down. Then find a solution to fix it – that’s an idea right there. The question then becomes “how do you filter many ideas into a few to action”.
Key to business traction: Make someone awesome so that they show it to their friends who too want to become awesome. Hence they end up using your product.
Finding a good co-founder is like there is now 2 of you doing this.
Early on you don’t need offices, go virtual with a product like CampFire.
Private offices eliminate idea generation and progress. It is detrimental.
User “Experience” is the most relevant, not the technology. You are selling the experience not the technology.
As a founder, optimize your business venture for happiness. Read book “Drive” which outlines 3 human needs: Autonomy, Mastery and Purpose. Seek Freedom and Autonomy.
In the end, you want to have a choice and be happy about it.
Over drinks (after work) is where most ideas come from. People are more relaxed and free to let their imagination run wild.
Establish a business agreement (contract) at the very beginning of your venture. This should outline who does what and equity split. This eliminates nasty legal issues once the business becomes successful.
Books recommended by Tom for every entrepreneur to read:
Reid Hoffman - Partner of Greylock & Founder of LinkedIn
There is around 7 +/- 2 of sites people have in their mind. Your goal is to be one of those 7. Search is in the 7.
Competition is the noise you need to get above. One way to do this is to make sure they sux and you don’t.
Release version 1 of your product asap to test your hypothesis early and to prove your ideas. If you are not embarrassed by version 1 you have released too late.
Build an intelligence network early, from investors, co-founders etc to help with testing your hypothesis (pivot).
Make social features available for when new customers ask – “who else is here that I know”.
Don’t plan for more than 6 months forward since the consumer internet changes rapidly.
Hire people who cohere as a group and learn quickly.
Solve your venture’s hardest problem of distribution e.g. how to get to massive size. And then you are on your way to success.
If you are on LinkedIn let’s connect. Just let me know who you are.
My LinkedIn profile is located here: http://www.linkedin.com/in/semerda
Ron Conway - Partner of SV Angel + Ron's good friend MC Hammer
Provide a service where users are happy and then monetize.
Entrepreneurs build and innovate companies and investors should be lucky to be a part of it.
Never forget its your company, the founder’s company.
Once an entrepreneur, always an entrepreneur.
It takes guts but anyone can do it.
It’s crazy to start a company with 1 founder. It’s all about building a great team. And if you are a founder you have to build a great team some day so why not build it the day you start the company – the 1st hurdles to get over.
There is more in the videos below where Ron outlines his journey and the journey of great friends from Napster, Google, Facebook and Twitter.
Don’t be a cannon fodder. Work on things you love. Life is too short.
Key before you start your own music startup:
Artists are poor so they won’t pay you,
The market is totally saturated,
The economies are challenging with required payments to labels every quarter and lawyers waiting for you to become big so they can sue you.
If you want a good laugh and learn heaps about the risks of starting up a music venture then you should watch Dalton’s music business review (videos below) of his 6 years of building Imeem, what worked and what didn’t.
Mark Zuckerberg - Founder of Facebook speaking with Jessica Livingston (Y Combinator partner)
Facebook’s mission is: Give people the power to share and make the world more open and connected.
Mark stated that he acquires companies primarily for the excellent people. “Past handful acquires were a success so why not more.”
The goal is to build Facebook as the McKinsey of Entrepreneurship.
In the video below Mark speaks with Jessica Livingston (Y Combinator partner) on the initial days at Facebook, about the new movie Social Network and answers popular questions about Facebook.
Had many unsuccessful launches but persistence got them through. Paul Graham stated “you guys won’t die, your like cockroaches”.
Michael Seibel from Justin.tv introduced Brian and his co-founder to the Y Combinator methodology and eventually to Paul Graham. Initially, Paul didn’t like the business idea. That changed quickly.
Brian used a classic motivation / psychology approach that Anthony Robbins teaches: “Whatever you focus on expands (you get)”. So he decided to focus on revenue by printing a positively inclined graph depicting revenue and pasting it on the bathroom mirror. This way it was the 1st thing he saw every morning and the last before going to bed to dream. It worked!
Paul Graham advised: “Go to your users”. So Brian and his co-founder flew to NYC, Washington DC and Denver and knocked on people’s doors to sell their service – “do you know how much your bedroom is worth?!”.
Then, David, Barry Manilow’s drummer posted his apartment for rent while he toured with Barry Manilow. This changed the direction of AirBnB and the 1st “wiggles of hope ~ PG” appeared. AirBnB launched version 5 of their product and started to be Ramen Profitable.
Today, AirBnB is in 8200 cities, 166 countries and traffic has started booming in the last 5 months.
AirBnB is now a “Community market place for space”.
All this started with an airbed in a living room to solve an accommodation problem.
The following videos are titled “Powerless and obscure” – 1,000 days ago (October 2007). How Brian started AirBnB and it nearly fell apart only to survive after the 5th launch. Very inspiring and educational.
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