Ben Casnocha: The Blog

Priestly Believed in Randomness and Side Projects

Joseph Priestly, the 18th century theologian, philosopher, and inventor, embraced three concepts I've written about at length:

• He exposed himself to randomness: try more stuff than the next guy; law of large numbers; insight at the intersection of seemingly unrelated ideas.


• He maintained side projects: hedge bets; humility around being able to predict which particular project will be the big win; stay intellectually stimulated.


• He experimented and iterated: many little bets over few big bets; learn by doing; adapt rapidly to changing conditions.

Priestly was never one for the grand hypothesis; he rarely designed experiments specifically to test a general theory….His approach was far more inventive, even chaotic. While the experiments themselves were artfully designed, his higher-level plan for working through a sequence of experiments was less rigorous, Priestly’s mode was to get interested in a problem – conductivity, fire, air – and throw the kitchen sink at it. (Literally so, in that many of his experiments were conducted in the kitchen sink.) The method was closer to that of natural selection than abstract reasoning: new ideas came out of new juxtapositions, randomness, diversity. Priestly would later credit the emerging technology of the period – air pumps and electrostatic machines – with helping him develop his distinctive approach: “By the help of these machines,” he wrote, “we are able to put an endless variety of things into an endless variety of situations, while nature herself is the agent that shows the result.

That's from Steven Johnson's book, as dog-eared by Russell Davies.

Teaching Entrepreneurship via Business Plans

How do universities teach entrepreneurship?

The most popular way is to place the writing of a business plan at the center of the curriculum. Almost every school has a business plan competition at the end of the semester.

Yet most real-life entrepreneurs do not put much stock in business plans. They think they're overrated. Recent studies show that VCs don't care what is in a business plan; the content of plans has little to do with which businesses get funded.

So there's a gap between how schools teach entrepreneurship and how entrepreneurship is being practiced in the real world. Students graduate with an entrepreneurship major and when they start their first business they think, "Step one is write a business plan!"

To be sure, business plans have their merits. Writing a business plan forces you to think about all the fundamentals of your business idea.

But even entrepreneurship professors would probably agree that the best way to learn about how to start a business is to start a business. If you're a college sophomore interested in running your own company, start businesses while in school and learn by doing it. This is what they do at Babson and Bentley.

Alas not all students can get real businesses off the ground while tending to their studies. So what's the next best thing?

Start micro-businesses. Start affiliate businesses. Sell stuff on eBay. Do web design. Write and sell e-books. Heck, write a blog and try to gain huge readership. A micro-business, which requires less than full-time work and could be operated out of a dorm room, probably would teach more than taking a class on entrepreneurship and writing a business plan.

Finally, you might just consider not studying entrepreneurship in school. Wait till you're out of school and start your business then. Meanwhile, study topics (philosophy?) for which the classroom has a comparative advantage over self-education and real-world learning. Business and entrepreneurship are probably near the bottom of the list in terms of teachability in the classroom.

Farmers Didn't Invent Tractors. They Were Busy Farming.

There's a cliche in innovation / entrepreneurship which says, "Scratch your own itch." That is, solve problems that you know really well. Choose markets you know really well.

But a lot of innovation doesn't come from the people who know the industry the best. That's because the closer you are to how something works now, the harder it is to imagine a new and better way of doing things.

In pondering why millions of dentists haven't been able to figure out that flaxseed oil helps your gums, Seth Roberts channels Jane Jacobs in this excellent observation:

For a long time, Jacobs says, farming was a low-yield profession. Then crop rotation schemes, tractors, cheap fertilizer, high-yield seeds, and dozens of other labor-saving yield-increasing inventions came along. Farmers didn’t invent tractors. They didn’t invent any of the improvements. They were busy farming. Just as dentists are busy doing dentistry and dental-school professors are busy studying conventional ways of improving gum health.

Jacobs also writes about the sterility of large organizations — their inability to come up with new goods and services. On the face of it, large organizations, such as large companies, are powerful. Yes, they can be efficient but they can’t be creative, due to what Jacobs calls “the infertility of captive divisions of labor.” In a large organization, you get paid for doing X. You can’t start doing X+Y, where Y is helpful to another part of the company, because you don’t get paid for doing Y. A nutrition professor might become aware of the anti-inflammatory effects of flaxseed oil but wouldn’t study its effects on gum health. That’s not what nutrition professors do. So neither dentists nor dental-school professors nor nutrition professors could discover the effects I discovered. They were trapped by organizational lines, by divisions of labor, that I was free of.

Bottom Line: Sometimes the big improvements come when you scratch someone else's itch.

Role of Side Projects in Innovation

My 2,600 word article for The American, a publication of the American Enterprise Institute in Washington, came out today. It's on the role of side projects in innovation. It draws upon examples such as 3M, Google, Apple, the Founding Fathers, and music band Metallica. Here's the conclusion:

Figuring out innovation—how to come up with a killer new idea and then execute it—has long been an obsession of entrepreneurs and the academics and journalists who study them. One of the great myths of the innovation process, often reported in the popular press, involves a creative genius experiencing a “eureka moment,” refining the golden idea, and then pursuing it toward blockbuster status.

Successful side projects and the policies that nurture them somewhat deflate this myth. First, they highlight the random circumstances that can give rise to important inspiration. Second, they promote experimentation—not abstract brainstorming—because the “aha!” moment does not always happen at the outset, as mythologized, but somewhere in the middle of the process. Third, they underscore not the mad, brilliant scientist at the top but the collective brainpower of all employees, especially those close to the customer—Richard Drew at 3M, Paul Buchheit at Google. These people are critical to sustaining innovation over the long term.

Most of all, side project successes serve as a reminder that when you try more stuff than the next guy, up go the odds that you are going to do something right. It is the law of large numbers in entrepreneurship. Thomas Jefferson once wrote, "It is amazing how much may be done if we are always doing." And as Jefferson later learned, it is amazing what can come of some of the things we least expect, which is good reason to always keep that crackpot project bubbling on the side and to stay open-minded about what it might one day become.

Do read the whole thing.

When the Blinders Come Off...

I could not respect how he functioned so completely immersed in the structures of his professional micro-universe. Yes, I too had previously derived comfort from my firm's exhortations to focus intensely on work, but now I saw in this constant striving to realize a financial future, no thought was given to the critical personal and political issues that affect one's emotional present. In other words, my blinders were coming off, and I was dazzled and rendered immobile by the sudden broadening of my arc of vision.

- Mohsin Hamid in his novel The Reluctant Fundamentalist, page 145, my review here

I read that paragraph slowly. It happens at a point in the novel where the main character is distracted at work by a brewing Pakistan-India war, and he notices his colleagues' total apathy to anything other than the company task immediately in front of them.

Most ambitious companies -- certainly start-ups -- require of their employees single-mindedness. They demand all-consuming focus, and to "give thought to the critical personal and political issues that affect one's emotional present" is seen a distraction. Some of the successful business executives I've met are absolutely immersed in their professional micro-universe. The politics of the world, their personal relationships, their personal philosophies: who cares? Whether they realize they're wearing blinders, I don't know. Whether blinders are necessary to achieve massive professional success, I also don't know.

I do know that most of the start-up folks I meet have a fairly narrow arc of vision (this is an observation not a criticism) and many cite this hyper-focus as key to their success. To me, if the narrow focus Hamid describes is necessary for professional success, and if such focus is especially necessary to start a start-up, and if you are a curious person, and if said focus requirement impinges on the flourishing of said curiosity, this represents one of the main downsides of the start-up entrepreneurship lifestyle.

Better to Start a B2B Company in a Recession

Sometimes, the best way to save money is to spend money.

You invest in education to improve your long-term earning potential. You invest in software to make your employees more efficient.

This is a basic concept that can get lost in the oh-fuck-we're-in-a-real-recession panic that is striking boardrooms and kitchen table conversations around the world.

But companies tend to remember it better than individual consumers. Companies tighten their belts more rationally. Consumers will blindly slash costs across the board. They hibernate and are unable to think about the long term benefits which can accrue from short term investments.

What does this mean to entrepreneurs? I think it's better to start a B2B business than a B2C.

Bottom Line: All else being equal (and this is a huge qualifier), if I were starting a new company in a recession or depression period, I'd prefer to sell to companies over consumers.

Focusing on the Fundamentals

Recently I was at a dinner with a few successful and experienced serial entrepreneurs and the discussion covered topics such as:

• How to deal with failure
• How to assess the caliber of a person you might want to hire
• How to make sure candid feedback is flowing through the organization, especially from the lower ranks
• Work-life-balance
• How to listen to customers without listening too much

The following night I was at a dinner with a few first-time entrepreneurs, young and green. The discussion covered topics such as:

• How to deal with failure
• How to assess the caliber of a person you might want to hire
• How to make sure candid feedback is flowing through the organization, especially from the lower ranks
• Work-life-balance
• How to listen to customers without listening too much

The questions and issues at both dinners were the same. What differed was the sophistication of the answers and the depth of the specific examples to buttress an opinion. But fundamentally, the experienced entrepreneurs were struggling with the exact same issues as the first-time entrepreneurs.

It's like in basketball. From third grade to the peaks of the NBA, coaches talk about the same stuff: footwork, ball-handling skills, boxing out, two handed passes, and so on and so forth. The fundamentals. You'll sometimes hear commentators talk about a struggling basketball team too enamored with fancy plays, scouting reports, or esoteric training regimens. The great John Wooden, they'll say, just coached the fundamentals over and over and over again.

In business the same is true, I think. Smart entrepreneurs, even as they accumulate experience and wins, still obsess over the key principles taught in Business 101: build stuff that people want, tell a story, hire amazing people, go after a big market, fail forward, iterate, and so on. They re-read Peter Drucker instead of the latest management guru. They still practice layups and free throws.

Four Types of Value a Product Offers to a Customer

Eric Ries writes an excellent blog on start-up tech entrepreneurship called Lessons Learned. It's one of the few very good instructional blogs in the entrepreneurship category.

A lot of people struggle to understand why people buy silly icon-gifts on Facebook or purchase different product features in online virtual worlds. Eric's most recent post in a sentence: If you're trying to understand the economics and psychology around virtual goods, remember that you already buy virtual goods.

As he says, all "real world" products -- like the jeans you're wearing -- contain a virtual goods component, such as the premium you pay for the cool brand that offers no additional practical value.

Every product's value consists of the following tangible and intangible elements, he says. The more your product can tap into the "virtual" benefit chain (like Apple products becoming part of the customer's identity) the better off you are:

Practical utility - This is the tangible benefit that a product enables, whether that's transportation, warmth, cleanliness, or entertainment. Many products derive all of their value from this utility, online as well as off: generic drugs are pretty similar to a number of non-epic consumables in your average MMOG.

Perceived value - This is the extra value a customer perceives as a result of good marketing, product design, product quality, or exception product/market fit. For example, many customers derive satisfaction from feeling like they bought the "best" product in a given category, even if that product has no objective performance difference from its nearest competitor. This is true even in cases where the customer derives no status benefit from the product (which we'll cover in a second). For example, home electronics brands like Sony and Bose work very hard to create an impression of exceptional performance even in products that are used primarily in private.

Social value - When I can use a product to my benefit in a social situation, it can be transformed in value. All gifting-type products are influenced by this source, as Hallmark has long understood. But plenty of other product categories depend on social factors: status purchases, beauty products, fashion products, and (at least here in San Francisco) food and produce. For a non-brand example, look no further than De Beer's successful, if pernicious, marketing of diamonds.

Identity value - This is the strongest source of value of all, and it's a little tricky to differentiate from the preceding two sources. This is the benefit you get from incorporating a product into your self-conception. For example, take your average Mac fanatic. When they buy an Apple laptop, they are doing more than enjoying a premium product and showing off. They are saying to the world and - more importantly - to themselves: I am the kind of person that buys Apple products. Apple has done a phenomenal job of convincing us that we, too, can be a little like Steve Jobs, if only we had one more iFoo in our lives. Many fashion and beauty products create this kind of affinity, especially in products that are not visible to others (don't make me spell it out). Identity products are not easily displaced, because the emotional investment is very high. This is every bit as true for online goods - just try and trade your friend's level 80 warlock for your "equivalent" level 80 rogue. Good luck.

The Entrepreneur's Creed

I do not choose to be a common man. It is my right to be uncommon – if I can. I seek opportunity – not security. I do not wish to be a kept citizen, humbled and dulled by having the state look after me.

I want to take the calculated risk, to dream and to build, to fail and to succeed.

I refuse to barter incentive for a dole; I prefer the challenges of life to the guaranteed existence, the thrill of fulfillment to the stale calm of Utopia.

I will not trade my freedom for beneficence, nor my dignity for a handout. I will never cower before any master, not bend to any threat.

It is my heritage to stand erect, proud, and unafraid; to think and act for myself, to enjoy the benefit of my creations and to face the world boldly and say:

This, with my family and friends, I have done. All this is what it means to be an entrepreneur.

Author unknown, via Dave Asprey.

Probe Alternative Causal Explanations

How can you contribute value to someone who knows more than you about the topic at hand, someone who's the "insider" when you're the "outsider"? Though there are a million life examples, this is notably a challenge all board directors face when interacting with their CEO who's closer to the details.

Ask good questions.

But asking good questions is very hard. So here's one type of question that almost always helpfully provokes: a probe on alternative causal explanations.

The CEO says: "We didn't close the deal because our competitor undercut us on price."

Question: "Are you sure it was price and not a poor sales presentation or the product lacking necessary functionality?"

The best advice (or should I say, the kind of advice most listened to / followed) is often given in a form of a question, and the best questions often make the person re-consider assumptions.

Bottom Line: People -- especially entrepreneurs -- can be quick to jump to clear cut causal explanations for events. An easy way to be helpful when asking questions is to probe on alternative explanations for why something happened.

Pursue a Side Project in 2009

My friend Josh Kaufman runs PersonalMBA.com, a great resource for those who want to improve their business knowledge via books. Today Josh issued a challenge to his readers to do a side project in 2009. I'm a huge fan of side projects (something you do alongside your full-time day job) and have a long article coming out soon on this topic. Here are Josh's guidelines:

1. Treat it like an experiment. The best reason to take on a side project is that you’re curious about a certain topic and you want to learn more about it. There’s no need to freak out over “committing” to something - you’re being an adventurous explorer here, not committing yourself to years of drudgery. [BC: And it doesn't have to have anything to do with work. Take a risk and try something new on the side!]


2. Make it positive. A project is some achievement you want to move towards, not something you want to move away from. Avoid phrasings like “I’m going to stop doing ________________”; use words like “I’m going to accomplish / create / build / improve ________________.”


3. Make it immediate. A project is something you’re working on now, not something you “plan to work on” at some indeterminate point in the future. Avoid phrasings like “in ________________ months” or “someday I’d like to”; use words like “by ________________ date” or “I’m devoting ________________ hours to this each day”.


4. Make it concrete. A project has a tangible result in the real world. Avoid ambiguous phrasings like “improve” and “better”; use words like “I’ll have,” “I’ll achieve,” or “I’ll be able to ________________”. Tangibility is the key - it helps you envision what this project will look like when you’ve accomplished your goal.


5. Make it specific. You should know when you’ve achieved what you set out to do. Avoid phrasings like “________________ will be better”; use words like “I’ll have accomplished ________________”. Include as much detail as possible - it should be absolutely clear when your side project is a success.

What side projects are you going to hatch in 2009?

How to Evasively Answer Two Common VC Questions

A few months ago Rick Segal and Paul Graham both offered good sample answers for entrepreneurs to use when asked the following two difficult questions from investor types.

First, via Rick Segal, Who's the CEO of the business? gets asked under any of the following masks:

"Help me understand how the current management team gets the company to 50 million a year in revenue?"
"Do you think you and your team are strong enough to get it over the finish line?"
"What's the track record of your management team with respect to successful exits?"

Rick suggests the following answer:

Your best positioning when you are starting a company is to start with and keep the title of founder. You get the maximum flexibility in dealing with company growth and minimal impact on your ego. You can answer any of the above with "Look, I'm the founder and we're running a million miles an hour towards being successful as you can see here... The objective is to find a financial part and a solid board to help me, as the founder, grow the management team and knock this baby out of the park"

Second, via Paul Graham, How much money are you trying to raise? He suggests the following dodge:

We advise startups to tell investors there are several different routes they could take depending on how much they raised. As little as $50k could pay for food and rent for the founders for a year. A couple hundred thousand would let them get office space and hire some smart people they know from school. A couple million would let them really blow this thing out. The message (and not just the message, but the fact) should be: we're going to succeed no matter what. Raising more money just lets us do it faster.

Start-up World = More Fun

In my experience, people in their 20's who work in start-ups or entrepreneurial environments are almost always happier than people working in banks or consulting firms. The young bankers or consultants justify their short-term unhappiness by their hopeful long-term payoff in money or prestige.

There are lots of reasons why I think my small-company friends are happier than big-company friends. I think the most important is that small, dynamic, innovative teams are just more fun than massive, anonymous organizations where you feel like a cog.

The fun factor is wonderfully captured by First Round Capital's awesome 2008 e-Christmas card, which you can view here on YouTube or embedded below. Seriously - what investment bank or consulting firm would do something like this? Along the same lines, check out the funny lip dub clip (also embedded below) from TechStars over the summer that all the teams contributed to. Again, where else would this happen but in a start-up environment?

Help People Save Money/Time...Or Waste It

In tough economic times the conventional entrepreneurial wisdom is: "Start a business that unambiguously saves people money or time."

True. But it might also be a good time to start a business that helps people (especially unemployed people) waste their newfound free time.

For example, I think it's a great time to be in the online gaming space.

Quick and Dirty Guide to Starting Up

The folks at Venture Hacks just updated their 35 slide presentation A quick and dirty guide to starting up. There's some great stuff here and it doesn't take long to click through. I recommend it for anyone interested in entrepreneurship or starting their own company.

One of the slides has the following Hugh Macleod quote. Not sure I agree or even think it's relevant to entrepreneurship but I found it provocative:

The price of being a wolf is loneliness. The price of being a sheep is boredom. Choose one or the other with great care.