Books Posts

“Some managers are uncomfortable with expressing emotion about their dreams, but it’s the passion and emotion that will attract and motivate others.”

– Jim Collins

“People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”

– Maya Angelou

(Both quotes are from The Presentation Secrets of Steve Jobs by Carmine Gallo.)

I’ve started reading Emotions Revealed by Paul Ekman, a consultant to the television series Lie to Me. It’s an excellent and accessible catalog of emotions. For example, Ekman describes the differences between 10 or so different kinds of enjoyable emotions: sensory pleasures, contentment, excitement, relief, wonder…

It’s a good complement to The Definitive Book of Body Language (a fun and easy read), which you can find in our bookstore.

Last week, I spoke to a startup that was in discussions to license one of their products to a competitor. The competitor asked for historical sales data about the product, and the startup was wondering whether they should share that information with a competitor. Our conversation went like this:











The book I mentioned in the conversation is Bargaining for Advantage. It answers almost every negotiation question. I read the book cover-to-cover — that’s rare.

The answer to this particular problem starts on page 68 of Bargaining for Advantage and there’s a good summary on page 72:

“The solution here is to take your time and build trust step by step. It helps if you can use your relationship network to check the other party out. If that is not possible, take a small risk before you take a big one. See if those on the other side reliably reciprocate in some little matter that requires their performance based on trust. If they pass the test, you have a track record on which to base your next move.”

Almost every problem you run into in a startup is not unique. Someone else has had the same problem and knows how to solve it. With the right advisors (books, blogs, people), you can solve it the easy way, instead of the hard way (experience and failure). Save the risk and innovation for the important stuff.

P.S. If you’re sharing secrets with VCs, read these posts: Three things you should never tell a VC when fundraising and How to Deal with Skeletons in your Closet (and my comment).

“Buying every book recommended by Venture Hacks.”

Jonathan Grubb, Founder of Get Satisfaction

The Venture Hacks Bookstore is live and magnificent. Check it out.

It contains 8 of our favorite books for entrepreneurs and we’ll be expanding it over time. We don’t recommend a book unless we refer to it regularly.

We’ve sold $13,385.74 of books since we first start tracking sales with Amazon Associates links. Here’s a little taste of the bookstore…

Negotiation

Bargaining for Advantage
G. Richard Shell
My favorite negotiation book period. It synthesizes the principled negotiation of Getting to Yes with the psychology of persuasion in Influence. I refer to it often. Among other things, it helps you answer questions like “Should I be the first to open? Should I open optimistically or reasonably? What sort of concession strategy works best?” Our full post →

Product

Extreme Programming Explained
Kent Beck
Revelatory. Develop your product like this book tells you to, unless you know better (e.g. you have experience building operating systems, space shuttles, Googles.) Buy the first edition. Our full post →

This bookstore is the result of a multi-million dollar engagement with IBM Global Services that was three years late, even before it started. Please do visit and up your entrepreneurial game.

Pitching Hacks is here. The PDF is $29 and you can download it immediately. 83 pages. Buy it here. Fuck that, it’s free.

Samples

We’ve raised $100 million for startups like Epinions, invested another $20 million in companies like Twitter, and advised many others. Pitching Hacks shows you how to apply the simple lessons we’ve learned along the way. Check out these samples:

Table of Contents
Why do I need an introduction?
Can I get investors to sign an NDA?

Many successful investors and entrepreneurs like Marc Andreessen, David Cowan, and Brad Feld have generously contributed passages sprinkled throughout this weighty tome.

Many of the ideas in Pitching Hacks first appeared on this blog — that was our first draft. Thanks to your feedback, we’ve written this book — a second draft. Please send us more feedback — so the next revision is even better. You can always reach us at team@venturehacks.com.

Testimonials

Thanks to the beta testers who paid to give us amazing feedback (check your inbox for a revised copy!). They made the book much better. Here are some of their (unsolicited) testimonials:

“Your first stop if raising money!” – Adam Smith, Xobni

“Almost every sentence in Pitching Hacks is a valuable nugget. I thought the book was *awesome*, and definitely up to the high standard of quality that you’ve already established in your blog.” – Travis Leleu, Industrial Interface

“Pitching Hacks is amazing, just packed with great practical advice. A must-read if you’re even thinking of raising money.” – Luke Groesbeck, JobAlchemist

“I loved the book!  I suppose it should be no surprise that a book about articulating ideas clearly and concisely, has managed to clearly and concisely articulate its ideas.” – Aaron Iba, EtherPad

“I really truly liked the book. Entertaining and informative read. Can’t say that about a lot of business-related books.” – Yokum Taku, Wilson Sonsini

From The Human Equation:

“Seven dimensions that seem to characterize most if not all of the systems that produce profits through people.

  1. Employment security.
  2. Selective hiring of new personnel [especially screening for attributes that cannot be taught such as attitude and cultural fit.]
  3. Self-managed teams and decentralization of decision making as the basic principles of organizational design.
  4. Comparatively high compensation contingent on organizational performance.
  5. Extensive training.
  6. Reduced status distinctions and barriers, including dress, language, office arrangements, and wage differences across levels.
  7. Extensive sharing of financial and performance information throughout the organization.”

The author is Jeffrey Pfeffer, a professor at Stanford. He also co-wrote Hidden Value, which we covered in We don’t pay you to work here.

Implementing the whole system

Extreme Programming works well when you implement all of its practices. Most of the practices by themselves have too many flaws to be very effective. Each practice by itself may even have more disadvantages than advantages.

But all of the practices together work well. Why? For each practice, there are other practices that obviate its flaws. Wheels by themselves just roll a bit and fall over. But when you connect them to a car, the entire system can get you from Boston to San Francisco.

The practices in The Human Equation also work well when you implement them all. You can’t offer extensive training if you plan to lay people off when times are tough. That’s just a good way to waste money on training. You can’t offer employment security if you don’t hire new employees very selectively and if you don’t terminate the ones that aren’t effective.

If you’re searching for a magic incentive system to get high performance from your team, there isn’t one. If you’re willing to do the hard work of implementing a set of simple organizational practices, The Human Equation and Hidden Value have some suggestions.

In 1936 (!), old-school economic giant John Maynard Keynes described the spontaneous optimism that drives startups:

“A large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

“Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die—though fears of loss may have a basis no more reasonable than hopes of profit had before.

“It is safe to say that enterprise which depends on hopes stretching into the future benefits the community as a whole. But individual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits, so that the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death.”

The General Theory of Employment, Interest, and Money

(Via: Mavericks at Work)

“A raise is only a raise for thirty days; after that, it’s just your salary.”

– David Russo, VP of Human Resources at SAS Institute

This is one of my favorite quotes from the book Hidden Value. It explains why money by itself doesn’t motivate high performance. Money by itself can only motivate the quest for more money. A raise is only a raise for thirty days; after that, it’s just your salary.

We are motivated to perform when our work expresses who we are, when the business’ goals are intrinsically meaningful to us, and we feel that we are valued as people, not simply as economic agents.

But, even in startups, financial incentives and HR practices often treat us like economic agents:

“Consider the implicit values conveyed in the modern management practices adopted by many companies. Most firms today emphasize, among other things, the employee’s responsibility for being career resilient, employment at will and no-fault dismissal, pay for performance, downsizing to cut costs, and maximizing shareholder value above all else. What is the message any sentient employee takes from these practices? Pursue what is best for you, not the firm or the customer, adopt a free-agent mentality, and do not invest any more in the firm than it is willing to invest in you. The underlying values are crystal clear, even if they are never expressed in a formal way. In this sense, arguments by managers that value statements are irrelevant or inappropriate miss the point: All organizations have values; the only question is how explicit they are about them.

“And what happens when employees behave in accordance with these values? First, a rational employee is not likely to exert much effort in activities beyond what he or she is explicitly rewarded for. A ‘show me the money’ mood prevails. Second, a smart employee will be constantly alert for new and better job opportunities in other organizations—loyalty is for fools. Third, unless cooperation is explicitly monitored and rewarded, teamwork is viewed as optional… To resolve some of these problems, management’s job is to design ever more sophisticated control and incentive systems to ensure that the necessary teamwork occurs and that the loss of intellectual capital is minimized.”

The problem isn’t that money is a weak motivator. The problem is that money is a terribly strong motivator. By itself, money motivates the wrong people to do the wrong things in the quest for more money.

This is why Zappos pays employees to leave. This is why Tandem Computers didn’t tell employees their salaries until after they started working. In other words: we don’t pay you to work here—we pay you so you can work here.

Organizing around values, not value

The authors, Charles A. O’Reilly III and Jeffrey Pfeffer, both from Stanford’s Graduate School of Business, studied how eight companies, from Men’s Wearhouse to Cisco, ignore the pernicious assumption that compensation should be the foundation for management systems:

“First, each of these companies has a clear, well-articulated set of values that are widely shared and act as the foundation for the management practices that… provide a basis for the company’s competitive success. [e.g. Southwest’s “Work should be fun… it can be play… enjoy it.”]

“Second, each of these organizations has a remarkable degree of alignment and consistency in the people-centered practices that express its core values. [e.g. Southwest: “We hire happy people.”]

“Finally, the senior managers in these firms, not just the founders or the CEO, are leaders whose primary role is to ensure that the values are maintained and constantly made real to all of the people who work in the organization… The senior managers in each of these companies see their roles not as managing the day-to-day business or even as making decisions about grand strategy but as setting and reinforcing the vision, values, and culture of the organization. Dennis Bakke at AES [a $2B company] claims that he made only two decisions in 1998, one of which was not to write a book on the company.”

Extraordinary results with ordinary people

The book’s subtitle is “How great companies achieve extraordinary results with ordinary people.”

Every rational company in the world is trying to hire the best people in the world. And all but one of them will fail at this task. There can only be one company with the best people. Hiring the best is a failing strategy.

Organizations must be designed to thrive with ordinary people. If businesses can thrive with the capabilities of ordinary people, they can also thrive with extraordinary people. Practices like Extreme Programming, that were designed for programmers with ordinary skills, work even better with extraordinary programmers.

Read Hidden Value for specific recruiting, training, information-sharing, and rewards practices that aim to exploit the capabilities of ordinary and extraordinary people alike.

“If people come for money, they will leave for money.”

James Treybig, CEO of Tandem Computers

“We do use agile methodologies at Heroku—I developed my own (informal) style of agile at the last company I founded, and brought that forward to this venture.”

Adam Wiggins, Founder, Heroku

I first learned about lean startups in an excellent book called Agile Software Development—learn more about it in our review.

The second step in my lean journey was a book called Extreme Programming Explained. It is dirt cheap (you can buy the first edition for a penny) and the entire book is accessible to non-programmers. If you buy it, try to get the first edition—the second edition isn’t as good as the first.

The subtitle of this book is “Embrace Change”—here are a few excerpts to whet your appetite…

The Driving Metaphor

“Driving is not about getting the car going in the right direction. Driving is about constantly paying attention, making a little correction this way, a little correction that way.

“This is the paradigm for Extreme Programming (XP). Stay aware. Adapt. Change.

“Everything in software changes. The requirements change. The design changes. The business changes. The technology changes. The team changes. The team members change. The problem isn’t change, because change is going to happen; the problem, rather, is our inability to cope with change.”

What is XP?

“To some folks, XP seems like just good common sense. So why the “extreme” in the name? XP takes commonsense principles and practices to extreme levels.

  • If code reviews are good, we’ll review code all the time (pair programming).
  • If testing is good, everybody will test all the time (unit testing), even the customers (functional testing).
  • If design is good, we’ll make it part of everybody’s daily business (refactoring)…
  • If integration testing is important, then we’ll integrate and test several times a day (continuous integration).
  • If short iterations are good, we’ll make the iterations really, really short—seconds and minutes and hours, not weeks and months and years (the Planning Game).

“When I first articulate XP, I had the mental image of knobs on a control board. Each knob was a practice that from experience I knew worked well. I would turn the knobs up to 10 and see what happened. I was a little surprised to find that the whole package of practices was stable, predictable, and flexible.”

What XP promises

To programmers, XP promises that they will be able to work on things that really matter, every day. They won’t have to face scary situations alone. They will be able to do everything in their power to make their system successful.  They will make decisions that they can make best, and they won’t make decisions they aren’t best qualified to make.

To customers and managers, XP promises that they will get the most possible value out of every programming week. Every few weeks they will be able to see concrete progress on goals they care about. They will be able to change the direction of the project in the middle of development without incurring exorbitant costs.”

If you’ve already read this book, please let us know how you liked it. And if you haven’t, what are you waiting for?

I just finished reading Certain to Win. It’s about the warfare strategy of John Boyd, as applied to business. In war, you build your team and dismantle the enemy. In business, you build your team, delight the customer, and incidentally dismantle the enemy.

You might know John Boyd as the OODA Loop guy. I never really “got” the OODA Loop so, based on Eric Ries’ recommendation, I read this book.

In a software startup, the OODA Loop looks like this: (1) Come up with an idea, (2) Code it, launch it, (3) Learn from usage data. Keep repeating the loop, each time using the Learnings to influence your next idea. This is the Idea-Code-Data loop.

As you eliminate waste in a lean startup, you can repeat the loop at a higher tempo than the competition; serve customers more effectively; and incidentally sow panic, paralysis, and surrender in the competition. For example, the Obama campaign used high tempo OODA Loops to win the most “market share” in the 2008 presidential election.

This might seem abstract or too obvious to be useful, so here are some of my favorite passages from the book—they should fill in some of the puzzle.

On agility and playing chess with half the pieces:

“Go find the best chess player you can and offer to play for $1,000 under the following conditions:

  • Your opponent moves first
  • You move twice for every move of his or hers.

“In fact, you can even offer to give up some pieces, to make it more fair. You will find that, unless you are playing somebody at the grandmaster level, you can give up practically everything and still win. Keep the knights and maybe a rook.

This is a graphic illustration of how the smaller side, using agility, can overcome a large disadvantage in numbers. Does it strike you as far-fetched and removed from what happens in the real world? Consider that Honda and Toyota can bring out a new model in roughly 2 years, with superb quality, while it still takes Detroit at least a year longer…

“The idea that operating at a quicker time pace than one’s opponent can product psychological effects offers a way out of the “bigger (or more expensive) is better” syndrome. An opponent who cannot make decisions to employ his forces effectively—his command and staff functions become paralyzed by bickering and bureaucracy, for example—is defeated before the engagement begins, no matter how many weapons sit in his inventory. In this way, one could truly achieve Sun Tzu’s goal of winning without fighting. [Ed: If you move fast enough, every enemy is effectively incompetent.]”

On shaping the market through agility:

“With a strategy this powerful, your aim is not to respond to but to create the market conditions that you want…

“Customers often want things because competitors have dangled them in their faces… such “discovery of customer wants” does not provide the basis for strategy; it represents a failure of strategy…

“The essence of Boyd’s strategy in business competition is to shape ourselves and the marketplace to improve our capacity… to survive on our terms—generally at the expense of our competitors.”

On planning and strategy:

“Strategy is merely a scheme for creating and managing plans…

“There is nothing wrong with planning… generate and discard many of them as you cycle within your OODA loops.”

On not following the rules:

“The Americans would be less dangerous if they had a regular army.” – British General Frederick Haldimand, Boston, 1776

On culture as a long-term competitive advantage:

“Herb Kelleher, chairman and recently retired CEO of Southwest Airlines, brags that competitors could copy the details of his sytem—direct (as opposed to hub-and-spoke) routings, no reserved seats or meals, one type of aircraft, etc.—but they couldn’t copy the culture, the vibrant esprit de corps, because “they can’t buy that.” So far his words have been prophetic, at least as far as the other US major airlines are concerned.”

Related: Mike Cassidy: Speed as THE primary business strategy

“When confronted with a problem, have you ever stopped and asked why five times?”

Taiichi Ohno

Summary: Whenever you find a defect, ask why five times to discover the root cause of the problem. Then make corrections at every level of the analysis. By applying five whys whenever you find a defect, you will (1) uncover the human problems beneath technical problems and (2) build an immune system for your startup.

This is a guest post by Eric Ries, a founder of IMVU and an advisor to Kleiner Perkins. Eric also has a great blog called Startup Lessons Learned.

Taiichi Ohno was one of the inventors of the Toyota Production System. His book, Toyota Production System, is a fascinating read, even though it’s decidedly non-practical. After reading it, you might not even realize that there are cars involved in Toyota’s business. Yet there is one specific technique that I learned most clearly from this book: asking why five times. I believe this is a critical lean startup technique.

When something goes wrong, we tend to see it as a crisis and seek to blame. A better way is to see it as a learning opportunity. Not in the existential sense of general self-improvement. Instead, we can use the technique of asking why five times to get to the root cause of the problem and make corrections.

Ask why five times whenever you discover a defect.

Here’s how it works. Let’s say you notice that your website is down. Obviously, your first priority is to get it back up. But as soon as the crisis is past, have the discipline to conduct a post-mortem in which you start asking why:

  1. Why was the website down? The CPU utilization on all our front-end servers went to 100%.
  2. Why did the CPU usage spike? A new bit of code contained an infinite loop!
  3. Why did that code get written? So-and-so made a mistake.
  4. Why did his mistake get checked in? He didn’t write a unit test for the feature.
  5. Why didn’t he write a unit test? He’s a new employee, and he was not properly trained in Test Driven Development (TDD).

Make five corrections.

So far, this isn’t very different from the kind of analysis any competent operations team would conduct for a site outage. The next step is this: you have to commit to making a proportional investment in corrective action at every level of the analysis. So, in the example above, we’d have to take five corrective actions:

  1. Bring the site back up.
  2. Remove the bad code.
  3. Help so-and-so understand why his code doesn’t work as written.
  4. Train so-and-so in the principles of TDD.
  5. Change the new engineer orientation to include TDD.

Making corrections builds your startup immune system.

I have come to believe that this technique should be used for all kinds of defects, not just site outages. Each time, we use the defect as an opportunity to find out what’s wrong with our process, and make a small adjustment.

By continuously adjusting, we eventually build up a robust series of defenses that prevent problems from happening. This approach is at the heart of breaking down the “time/quality/cost, pick two” paradox, because these small investments cause the team to go faster over time.

5 whys uncovers the human problems beneath technology problems.

In the example above, what started as a technical problem actually turned out to be a human and process problem. This is completely typical. Our bias as technologists is to focus on the product part of the problem, and five whys tends to counteract that tendency.

It’s why, at my previous job, we were able to get a new engineer completely productive on their first day. We had a great on-boarding process, complete with a mentoring program and a syllabus of key ideas to be covered. Most engineers would ship code to production on their first day.

Make your corrections proportional to the cost of the defect.

We didn’t start with a great program like that, nor did we spend a lot of time all at once investing in it. Instead, five whys kept leading to problems caused by an improperly trained new employee, and we’d make a small adjustment. Before we knew it, we stopped having those kinds of problems altogether.

So it’s important to remember the proportional investment part of the rule above. It’s easy to decide that when something goes wrong, a complete ground-up rewrite is needed. It’s part of our tendency to focus on the technical and to overreact to problems.

If you have a severe problem, like a site outage, that costs your company tons of money or causes lots of person-hours of debugging, go ahead and allocate about that same number of person-hours or dollars to the solution.

The budget for corrections should be, in total, proportional to the cost of the defect that triggered the five whys. So, if the site was down and five people burned a whole day on it, maybe five man-days of fixing is appropriate. But if the problem cost three customers 25 cents each, maybe only a few hours is appropriate.

But always have a maximum, and always have a minimum. For small problems, just move the ball forward a little bit. Don’t over-invest. If the problem recurs, five whys will give you a little more budget to move the ball forward some more. You can keep your cool because five whys will be there if the problem recurs.

In Part 2, I’ll describe how to get started with five whys.