Jay Haynes

A VC: Taking Risk and Mitigating Risk

I haven't been blogging much - a little too busy, but this post from Fred Wilson made me think. What other ways are there to reduce risk?

A VC:

What we want to do in the venture capital business is take a lot of risk (which should be rewarded with a low entry valuation) and then actively mitigate the risk we took as much as we can (thereby reducing the risk for future investors and increasing the valuation).

It's the same thing that entrepreneurs want to do. When they leave their safe job and go out on their own, they are taking a lot of risk. Their entry valuation should be zero, meaning they (collectively if they have partners) own 100% of the business for whatever startup capital they invest.

Apple, Likert and Outcomes

The research we are conducting is going to ultimately be tested and quantified with a Likert scale to measure both importance and satisfaction.  The goal is to then apply Ulwick's opportunity algorithm (importance + max(importance-satisfaction, 0) to the results in order to quantify the opportunities, i.e. to find the under-served outcomes.

So I was interested to see a new Likert scale from Apple recently.  It looks like it is designed to forces users into one of three choices: agree, neutral or disagree and to give the scale more granularity.  It's also interesting to note that Apple seems to have innovated the design by placing the neutral option in the middle with more space.

For our outcome driven research, the key is the percentage of respondents who rate the outcome "very" or "extremely" (the right side of the scale).  So perhaps Apple's UI would improve the accuracy of the results.  It's certainly worth testing.

Seed Stage Pitch

I pitched a VC I know well today. They are a Series A investor, so I knew I had a few hurdles to overcome. I pitched two things in the meeting: 1. our hypothesis about why there is an opportunity and 2. our approach to uncovering the problem and creating a solution.

I organized the deck much differently than I have in the past. A typical pitch, mentions the solution upfront, soon after the problem/opportunity. But I realized that as a seed stage investment, what I was really pitching was the process of using outcome-driven research to define our solution.

The benefit of outcome-driven research is that it quantifies what an unmet customer need is (what the problem is) in a very specific, measurable and actionable way. So it dawned on me during the meeting - shouldn't every portfolio company be able to quantify its customers' unmet needs? Even portfolio companies that have a shipping product should go through this process, unless the product is a runaway success. In most cases the product is probably failing or at least not meeting expectations, and the company is basically running down a series of "blind alleys" until they find light at the end of one.

I realized that most venture-backed companies really iterate the "fuzzy front end" of the product development process, when what they should be doing is taking the "fuzzy" out of the front end altogether - at the seed stage, the early stage and the late stage.

Outcome Driven Innovation

We are in the middle of our first outcome-driven research project, so I thought I would post about our progress.

I am teaching this methodology at the Presidio School of Management, so I will also post my thoughts about teaching outcomes.

I was first introduced to all of this by a fellow professor, and as I have explored it in more detail over the past 6 months, I have been very impressed by its power.

AirHead

It's always interesting to see tech reviews by technologists or power users who don't understand markets.

CrunchGear has a review of the new MacBook Air that claims its lack of optical drive, its slower processor, lack of inputs and its thinness (!) are all "impractical" flaws. And Devin ends with an insightful analysis that "a lot of people will buy this laptop" even with its flaws.

So who will buy it any why? This is the real question, and one that CrunchGear unfortunately misses entirely because they are focused on the product and not the customer and the market.

So who is not going to buy the Air? Clearly people that use their laptop as their only machine and who do processor intensive work (video and photo editing, music production, graphic design, etc.) are not going to buy the Air. These users should buy a Mac Pro anyway because the power/$ ratio is much better. If a you are a professional and using your MacBook Pro as your main graphics machine, you are probably losing businesses to your competitors who can work faster and more productively on a Mac Pro.

Who will buy the MacBook Air? In short, me and people like me. My job is 100% communications (email, chat, contacts, calendar) and analysis (spreadsheets, presentations, documentation). And travel to and from the office and meetings every day. I absolutely never need a USB port because I have wireless printing. I definitely never need an optical drive unless I am installing software, and then I am happy to plug the optional drive (or use remote disk, of course). I suspect the processor and 2 GB will be plenty quick for my needs.

Finally, does it need to be that thin? Absolutely. The debate about thinness reminds me of ultralight backpacking. Until you have tried it, you won't believe how much better it feels to lose every ounce of weight.

There is one thing missing on the MacBook Air: a built-in 3G card. It is strange that my iPhone is always on a network, but my Mac is not. It would have been nice to see a Bluetooth connection between the Air and my iPhone to keep my Mac online on the road. I suspect we will see something like this in the near future.

"There's something in the air"

It will be hard for Apple to follow up last year's Macworld. Now that the 2008 slogan has been revealed, it's time to speculate.

Here are my predictions (and hopes):

1. Apple Store WiMax network.

Apple will announce it's own WiMax network for data and VoIP. The Apple stores will serve as giant connection points for Apple customers. iPhones will be able to make free VoIP calls when in range of a store and Mac users will get super fast broadband connections if they live within range of a store.

2. Mac to iPhone connectivity.

Any Mac will be able to use an iPhone to connect to the web via cell data networks.

3. Real over-the-air sync.

.Mac will be upgraded for OTA with iPhone and Macs. And iCal Server will be available via .mac seat licenses.

iPhone as Apple TV 2.0 Remote

Looks like there is a hacked version of this idea for ProTools.

But I think the big Macworld announcement could be the integration of iPhone as a WiFi remote for Apple TV 2.0 and the control of AirPort express audio. It would create a very low cost home entertainment control system.

Less Materialistic Holidays

New York Times.

A 2005 survey by the Center for a New American Dream showed that 78 percent of Americans wish the holidays were ‘less materialistic.’ At the same time, the average American spends about $900 on presents each year, according to the National Retail Federation.

Wesabe: Talk to Jason

This is a great way to get real customer feedback. Bravo to Wesabe.

Talk to Jason seven days a week. Call (800) 511-8544 between 12 pm and 4 pm PST.

“Hi! I’m Jason Knight, the CEO and co-founder of Wesabe. Every afternoon, from 12 to 4 p.m. PST, you can reach me directly at (800) 511-8544. If you have comments about our product, questions about how it works, or just want to chat a bit about what inspired us to create Wesabe, please give me a call. Sure, I could have an intern man the phones, but I can’t think of any job more important at Wesabe right now than talking to our new members and people who are thinking of signing up. So when you call, you’ll be talking to me. I look forward to it!”

Skin-Cell to Stem-Cell

Like 'Turning Lead Into Gold' .

In an unprecedented feat of biological alchemy, researchers have turned human skin cells into stem cells that hold the same medical promise as the controversial embryonic stem cells.

Scientists believe stem cell research will be able to cure numerous diseases and regenerate failing bodies. The new technique, however, doesn't require the destruction of embryos, or use human eggs or cloning. Thus, it sweeps aside the ethical objections to stem-cell research.