Raja Jasti’s Blog - Renaissance Thinking

Building startups takes a lot of patience and preseverence. There may be times when a startup comes perilously close to death. But an entrepreneur’s belief and fight can singlehandedly will the company to success (providing the company’s vision has merit which is not always clear, but that’s another story).

Pandora, a online music startup is a case in point. NYTimes has a fascinating story on Pandora’s near death experiences and its eventual success.

OAKLAND, Calif. — Tim Westergren recently sat in a Las Vegas penthouse suite, a glass of red wine in one hand and a truffle-infused Kobe beef burger in the other, courtesy of the investment bankers who were throwing a party to court him.

It was a surreal moment for Mr. Westergren, who founded Pandora, the Internet radio station. For most of its 10 years, it has been on the verge of death, struggling to find investors and battling record labels over royalties.

Had Pandora died, it would have joined myriad music start-ups in the tech company graveyard, like SpiralFrog and the original Napster. Instead, with a successful iPhone app fueling interest, Pandora is attracting attention from investment bankers who think it could go public, the pinnacle of success for a start-up.

Pandora’s 48 million users tune in an average 11.6 hours a month. That could increase as Pandora strikes deals with the makers of cars, televisions and stereos that could one day, Pandora hopes, make it as ubiquitous as AM/FM radio.

“We were in a pretty deep dark hole for a long time,” said Mr. Westergren, who is now the company’s chief strategy officer.. “But now it’s a pretty out-of-body experience.”

At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and payments from iTunes and Amazon.com when people buy music. Revenue will probably be $100 million this year, said Ralph Schackart, a digital media analyst at William Blair.

Pandora’s success can be credited to old-fashioned perseverance, its ability to harness intense loyalty from users and a willingness to shift directions — from business to consumer, from subscription to free, from computer to mobile — when its fortunes flagged.

Hot mail discovered it. Paypal has it. Facebook has it. Twitter has it. It is the magic of viral growth. You all know what it means. Your customers are your best marketers. If your product usage invloves users bringing in more new users, it can give you exponential growth (if each user brings in 2 or more users).

Seth godin says viral growth trumps lots of faux followers. This is a great insight if understood properly can improve the effectivenss of your marketing.

Many brands and idea promoters are in a hurry to rack up as many Facebook fans and Twitter followers as they possibly can. Hundreds of thousands if possible.

A lot of these fans and followers are faux. Sunny day friends. In one experiment I did, 200,000 followers led to 25 clickthroughs. Ouch.

Check out the graph on the left. The curves represent different ideas and different starting points. If you start with 10,000 fans and have an idea that on average nets .8 new people per generation, that means that 10,000 people will pass it on to 8000 people, and then 6400 people, etc. That’s yellow on the graph. Pretty soon, it dies out.

On the other hand, if you start with 100 people (99% less!) and the idea is twice as good (1.5 net passalong) it doesn’t take long before you overtake the other plan.  (the green). That’s not even including the compounding of new people getting you people.

But wait! If your idea is just a little more viral, a 1.7 passalong, wow, huge results. Infinity, here we come. That’s the purple (of course.)

A slightly better idea defeats a much bigger but disconnected user base every time.

The lesson: spend your time coming up with better ideas, not with more (faux) followers.

as told by Steve Blank, a great story teller. This is long video so watch at your leisure.

Eric Riles talks at Stanford about 3 prevalent myths (aka reality distortion field) that contribute to spectacular startup failures:

1. We know what customers want

2. We can accurately predict the future

3. Advancing the plan is progress

If you are an entrepreneur and working on a startup, please do your self a favor an watch and grok the lessons from this video clip. You will save a lot time and money and hopefully avoid failure from any existing reality distortin field.

From Harvard Business Review editor’s blog (via Rajesh Jain):

Fryer: You conducted a six-year study surveying 3,000 creative executives and conducting an additional 500 individual interviews. During this study you found five “discovery skills” that distinguish them. What are these skills?

Dyer: The first skill is what we call “associating.” It’s a cognitive skill that allows creative people to make connections across seemingly unrelated questions, problems, or ideas. The second skill is questioning — an ability to ask “what if”, “why”, and “why not” questions that challenge the status quo and open up the bigger picture. The third is the ability to closely observe details, particularly the details of people’s behavior. Another skill is the ability to experiment — the people we studied are always trying on new experiences and exploring new worlds. And finally, they are really good at networking with smart people who have little in common with them, but from whom they can learn.

Fryer: Which of these skills do you think is the most important?

Dyer: We’ve found that questioning turbo-charges observing, experimenting, and networking, but questioning on its own doesn’t have a direct effect without the others. Overall, associating is the key skill because new ideas aren’t created without connecting problems or ideas in ways that they haven’t been connected before. The other behaviors are inputs that trigger associating — so they are a means of getting to a creative end.

Gregersen: You might summarize all of the skills we’ve noted in one word: “inquisitiveness.” I spent 20 years studying great global leaders, and that was the big common denominator. It’s the same kind of inquisitiveness you see in small children.

Fryer: How else do you think the innovative entrepreneurs you studied differ from average executives?

Dyer: We asked all the executives in our study to tell us about how they came up with a strategic or innovative idea. That one was easy for the creative executives, but surprisingly difficult for the more traditional ones. Interestingly, all the innovative entrepreneurs also talked about being triggered, or having what you might call “eureka” moments. In describing how they came up with a product or business idea, they would use phrases like “I saw someone doing this, or I overheard someone say that, and that’s when it hit me.”

I can identify with the aha moments triggering big innovative ideas. I can remember exactly when and where I have those ideas. They ienvitably happen to me while talking with others, not when I am alone (though the thoughts get refined while I reflect on them alone). Most often they are triggered by ideas from totally unrelated areas and contexts. That is where asscoicating kicks in. I call it connecting the dots. That is the quality that people like Stve Jobs and Jeff Bezos have that many others do not.

So here is the short, one sentence answer to how innovators think :  ’they can connect the dots much much better than others’.

That is how I view my job description as the CEO of my startup. See the big picture, connects the dots, and make it rain.