You often hear how important it is to look at a person or company’s history before hiring, investing, etc., and although it is crucial, it is also crucial to do more than look superficially. Conversely, just looking superficially can cause significant damage and lead you into a bad decision.
Using track record when hiring
Probably the most important factor when considering a candidate is what they have previously done in their career. While a weak candidate can shine for a day of interviews and a great candidate may not be good in an interview environment, what a person has done previously in their career is a strong indicator of what they can do for you.
The challenge is how to analyze a person’s track record. If you look on LinkedIn, 90 percent of people are all in the top 10 percent. In some cases (though I have found it rare among candidates for senior positions), people lie about their prior roles and achievements. This issue is easy to uncover; you just need to ensure you do your due diligence on background and reference checks. The one caveat is not to rely on the references that you are given, as almost anyone can find three or four people (often friends) that will say good things about them. You need to dig deeper, for key positions and achievements figure out who they reported to or worked with, then reach out directly to those people (I usually use LinkedIn) to get the real story.
The other key element of checking candidates’ track records is understanding their true roles on the major achievements they tout. Continue reading
Earlier this year, I wrote about Nir Eyal’s great book, Hooked, and how it can help you create a product with great retention (e.g, something habit forming). What is particularly interesting is that one of the most habit-forming endeavors is entrepreneurship and building companies. The four principles of the Hook Model—Triggers, Actions, Variable Rewards and Investment—also show why entrepreneurship is so addictive.
First, there must be a trigger. Triggers prompt you to take an action. In the case of starting a business, the trigger is seeing an opportunity. It could be waiting for a taxi that never arrives (probably the trigger for Travis Kalanick to start Uber) or going to a restaurant based on a critics review and getting a bad meal (possibly the trigger for Jeremy Stoppelman with Yelp). It is consistent at retail, you cannot find a good wine so you think about starting a wine store.
The next step in the Hook model is the action phase. The trigger, driven by internal or external cues, tells the user of what to do next. There are three ingredients required to initiate any and all behaviors:
- The user must have sufficient motivation.
- The user must have the ability to complete the desired action.
- A trigger must be present to activate the behavior.
The hottest book in Silicon Valley currently is Hooked: How to Build Habit-Forming Products by Nir Eyal, and for good reason; it is an incredibly valuable book for building a business. As Eyal points out, amassing millions of users is no longer good enough. Companies’ economic value is a function of the strength of the habits they create. User habits become a competitive advantage. Products that change customer routines, where users become hooked, are less susceptible to attacks from other companies.
Users who continually find value in a product are more likely to tell their friends about it. Frequent usage creates more opportunities to encourage people to invite their friends, broadcast content, and share through word-of-mouth. Hooked users become brand evangelists: Megaphones for your company, bringing in new users at little or no cost.
Habit-forming products change user behavior and create unprompted engagement. The aim is to influence customers to use your product or play your game on their own, repeatedly, without relying on overt calls-to-action such as ads or promotions. Once a habit is formed, the user is automatically triggered to use the product during routine events such as waiting in line at Starbucks. Eyal uses the Hook Model to show how to create a product or game that become habit forming for users, that have a long term competitive advantage and are more likely to generate word of mouth.
The Hook Model
The Hook Model describes an experience designed to connect the user’s problem to a solution frequently enough to form a habit. Eyal defines habits as behaviors done with little or no conscious thought. The convergence of access, data, and speed is making the world a more habit-forming place. – Businesses that create customer habits gain a significant competitive advantage. It has four phases: trigger, action, variable reward, and investment. Continue reading
A recent response to a question on Quora about whether Quora was generating revenue showed a mistaken philosophy in many young companies, that not having revenue is a good thing. For those who are not familiar with it, Quora is a question and answer site where users post questions, people respond and questions are up/down voted based on their quality, so the best answers flow to the top. The company has raised about $61 million in two rounds of financing.
A couple of months ago, A Quora user posted the question: Is Quora Profitable?. Marc Bodnick, who leads Quora’s business and community teams, responded: “No, Quora the company is not profitable. We don’t have any revenues!”. Continue reading
I get many questions on how to raise money, and in the current business environment the best strategy is growing your business through cash flow. Institutional investors who are open to the game industry are primarily looking for companies that are at a later stage, have significant cash flows and customer bases and are already close to an exit. In fact, the venture capital environment has shifted for almost all enterprises, with a typical A-round (the first round of institutional investment) now primarily going to more advanced companies that already have traction. A few months ago, I wrote about Turning Your Customers into Venture Capital and the importance of that practice has been magnified in recent months.
You do not need investment to create a billion dollar company
I recently read Hamdi Ulukaya’s article in Harvard Business Review on how he grew Chobani (the Greek yogurt maker) into a $1 billion business without any external capital. This article drove home that financing from cash flow could not only be a way to create a nice, profitable lifestyle business but also create a billion dollar business that could IPO if it wanted to go that route. If you are not going to rely on a huge investment to build your company, though, you need to do everything the right way since you cannot just fall back on a big pile of cash. As Ulukaya wrote, “Too many entrepreneurs believe it’s impossible to scale a business without relying on VCs or other equity investors. That view is wrong. If I could grow a company from zero to $1 billion in less than a decade in a capital-intensive industry, many other businesses can too.”
One of the questions I am most often asked is how to raise capital in North Carolina (or some other place that does not have many venture capitalists [VCs]) or whether the company should just give up and move. Until recently, the only advice I could give was “Keep plugging away and once you get traction you will be more attractive to non-local investors.” But given the success—some would say dominance—of game companies outside the San Francisco area, I have a more positive outlook. A recent blog post by Mark Suster also does a great job of providing tactical advice on how to raise money if you are not located in a major VC area.
Suster, a serial entrepreneur who is now a partner at GRP Partners, provides a lot of practical suggestions that improve your chances of raising capital. Suster points out that yes, it is easier to raise money if you are in a major VC center (San Francisco, New York, LA or Boston), and if you do not have a strong tie to the local area it would be easier to raise capital if you relocate. That said, he pointed out that some great companies have raised large sums outside these regions and provided some very useful tips for doing so. Continue reading