Founder Musings

5 crucial questions that lead to great product

There are 5 crucial questions (and a bonus question) to get to a great product, and it actually has been the fundamental and essential questions that most of us were taught in grade school:

Who, What, Where, When, Why, How

Why?

Why should the user be interested in your product?

Pro Tip: This should not be a list of features. This should be a story. 

Inward: Why did you build the product or company? If you answer to make a lot of money –I encourage you to dig deeper and ask “why”? Usually it is because you believe that there is something much deeper that your relationship with money is just an indicator. It could be that you grew up poor and money meant security, and creating that sense of security for other people. But keep asking “why” until you scratch to the core value that is driving it.

“What?”

What do you want people to feel?

This will allow companies to design for motivations rather than a list of features. It will put your product in context. While conventional wisdom tells you to solve a problem. Not all products solve a problem (e.g. entertainment), but ALL products make you feel something (rage, relief, stress, anger, etc..). And that emotional connection and feeling can supersede much more. In fact, an emotional connection is needed to create loyalty.

Inward: What are the core motivations that drive (you) the company? The challenge of solving a problem, the meaning you can derive or the accomplishment you can achieve when the problem is solved?

“How?”

Outward and Inward:

How is your product different?

I remember when we had just started out in social gaming on Facebook, the question was asked how do I prevent someone from stealing my game and doing the same exact thing but better. I answered they can copy the interface, game loops, and systems, but they cannot copy the process or creative minds that created them. 
 
Other people can only see the surface which is everything that can be copied. But, underneath the designer was building towards a vision. Otherwise it is just a product that is an imposter, and has a very little life span unless they start innovating. 
 
The difference isn’t just what the user can see, it is what they can feel. The users see the features, but feel the process it took to make this product.

“Who?”

Who wants this?

This step is the most crucial and cannot be avoided. Most products and companies ultimately fail because the team could not build something that someone (or many people wanted). Answering the why and the what digs at a vision to either enable you to introduce your product and put a foundation to your company. 
 
You cannot rely on the market to tell you who you are but you must rely on the market to tell you how you did.

I had a friend who created a game once and a fellow game designer asked him what is the vision. My friend answered “well we will test it and see what people like and then tweak it”. That is a surefire way to create an imposter game — it will look like a game, walk like a game, talk like a game but really isn’t a game.

When validating, always in the background be aware of the want/desire and motivation behind the action or metric. But, the most important piece of this process is learning. In fact, that is the whole goal is to learn as quickly as possible. Learning is not just book learning but also building intuition which takes time. Then repeat as often as possible.

The most inspiring story about validating and learning is from founder and CEO Miriam Naficy of Minted. When she first released her website, it was crickets. The metrics were horrible, just horrible. But they saw a small flicker of a flame in the product — very small. They decided to tend to this flame and grow it and grow it until it is what it is today.

Check out the video which is so much more inspiring.

https://techcrunch.com/video/fail-story-minteds-mariam-naficy-on-being-trashed-by-the-press/

And,now they have their own storefront in San Francisco:

“When?” and “Where?”

There are thousands of amazing products out there, but if no one discovers your product, does it exist?

Your product will exist, but it will be as if your product had never existed.

The when and where questions focus on the marketing and distribution portion of your product. When are you going to launch it? Where are you going to launch it? (phone, social media, radio, tv?) Where are you going to acquire users? These will all impact your ability for your product to be discovered and in essence if your product will exist. Without the focus on marketing, it will be as if your product never had existed.

Focusing on these 5 questions will prevent your product and company from becoming just another forgotten product — and really stand out.

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☞ Follow me on Twitter Holly Liu

I am the co-founder and Chief Development Officer of Kabam, these perspectives are my own and do not necessarily represent Kabam.

How to Raise Money from China

Whether you are a startup or a fund trying to get overseas money, most likely it will be from China. China is producing the largest middle the class the world has yet to see. The Yuan is a tightly controlled currency that could be in danger of devaluating in the coming years. In August 2015, the stock exchange took a dive causing many retail investors to be impacted. Looking for something less risky, overseas investing looked and continues to look quite appealing.

Knowing that China will be and is a power player, it is never too early to start to learn how to navigate through Chinese waters. Here are some tips to help it “easier”.

Remember “easier” is relative.

It’s always good to start with a warm intro.

China is a highly relational society, meaning things can get done easier, faster, efficiently and more effectively if you know the right people. I know this is true of raising money in the Silicon Valley, but it is even more so in China. I hear a lot of conflicting stories about the current fundraising climate, and it is because you hear that the few that are able to raise money easily is mainly through a personal connection.

If you do not know someone in China it is best to partner. There are many firms that work in deal making and can help. But if you choose a partner be sure to find one that has experience as well as reference check. Reference check by talking to their past clients. Make sure the clients are similar background to yours as well as had experience working with Western (or more than likely American companies). They will be able to help you navigate through legal policies and structures when dealing with international monies.

If the partner is a result of a close intro and you want to reference check, do so carefully. If you reference check via a group of mutual friends, know that this may get back to the partner. In fact know that any reference checking will get back to the partner so be sensitive to make sure it is not like you are digging dirt and heap praise on both parties even though you may very well be doing a reference check.

Also it is customary for the person introducing to be rewarded in the form of a finder’s fee. Most fees will be charged at 3% of the introduction or for services rendered. Do not be surprised and realize it is just the cost of doing business.

Take a haircut from the numbers, and everything else.

When someone says they can get you into a deal or they can get you XX amount in funding take about a 30% haircut and you may only slightly be disappointed.

Or do the triangulation method and take the number they are repping and ask another person how much they think they can get, the real number is somewhere in between.

The reason is that documentation does not serve as an audit trail or as a third party verification system (a la media systems in the US), therefore everyone produces their own numbers which always come with their own motivation. Therefore, it’s best to take a haircut from the numbers in your head and then triangulate.

Choose one: valuation or terms.

You set the price, I’ll set the terms.

In most deals that I see from China, the fund/company sets the price and China sets the terms. This means they are willing to pay extra money to set terms that enable them to have more control in the deal or operation. To the Westerner, it will seem strange what they care about or even ludicrous what they ask for. But, you will have to try to educate the Chinese investor around how things are done in Silicon Valley and find some way to meet in the middle.

Sometimes it will feel like explaining to my grandfather (who was born in 1918 in China) why Safeway does not allow you to bargain the price on a head of lettuce — it just is not set up for such customized pricing.

I have seen investors ask for a hurdle rate to be met on VC funds, investors ask for money returned before another round is raised. Sometimes the investor will be insistent and put in their terms as contingency of their money. And they have money to be able to do this.

It’s good to be king.

Most of the time the Chinese investor will be optimizing around control. If they had a choice between rich (and very little control, but a lot bigger pie) or king (not as much money but a lot of control), the king scenario appeals to many Chinese investors — especially if the source of money is from an individual or family entity.

Even most Chinese funds and entities are ran like a family business, where decisions are made by one person and no one moves until that person — most likely the boss’s son — approves of the deal. When the de jure culture is optimized around the boss’s son, decisions are focused around control.

This also means that the investor my come in later with expectations for you to follow through with their suggestions and advice. It is important to figure out the best way to work with them not just before the deal is signed but even after. Oftentimes, the deal works fine, but the integration is problematic. I’ve seen situations where the investor or buyer would say yes to everything before the deal was done, and then nickel and dime all the smaller, but important pieces in the integration phase, afterwards.

Cash is king, so it is not over until the money is in the bank.

It is still a cash-based society. Even though China has gone over to mobile payments it is still connected to a debit card. This means that their thinking of returns tends to be around cash. As a company or fund, you should think about how their money can be locked up for the shorter period of time. And as protection, some parties will hold money in escrow until a milestone is reached or they will call down a larger percentage of the commitment earlier on — being sensitive to the cash based society. This also means for the company or fund — it isn’t over until money is in the bank.

Bonus: Communication is faster over Wechat than email, and fastest face to face.

Silicon Valley sometimes treats email like an instant messenger; however, China actually has an instant messenger that is used like an instant messenger — it’s called WeChat. One thing to note is that business and personal communication (and social networking/media) is done over Wechat.

Within our Beijing Office there will be days where people do not check their email (our company is on Google which is blocked in China and needs a VPN), but they will check Wechat several times a day. Therefore we have had to make important announcements over WeChat.

This means if you are looking for a faster response from your Chinese counterparts, it may be best to go over to Wechat. And if they are slow to respond on email, it may be because they do not check it several times a day like we do in Silicon Valley.

☞ Follow me on Twitter Holly Liu

I am the co-founder and Chief Development Officer of Kabam, living in Beijing, China for over a year. Kabam raised $120MM USD from Alibaba, and sold their first generation mobile games to Chinese mobile publisher, Gaea. These perspectives are my own and do not necessarily represent Kabam.

The first step to product-market fit

It was 2006. We pushed our product to production for the world to see, and world returned with: crickets. So we did the next sensible growth hack — we emailed our friends and family and then asked to them to email their friends and family.

A few days went by, crickets. We were barely growing. We began to double down on marketing, finding a head of marketing to help us scour blogs to run constests as well as other ways to reach potential audiences. Still weeks went by — crickets.

We then went back and iterated on the product. We probably did 3 different product directions but all in the same space — each one feeling more lackluster than the next.

Suffice to say we did not have product-market fit. In fact product and market began to feel like the north and south poles of a magnet — in constant repulsion of each other.

When it came time to assess if we wanted to continue down this route, Facebook had launched its Developer Platform in May 2007. For those who were not around, this was a birth of many new companies: Slide, Zynga, RockYou, etc.. — and a birth of a whole new era.When we got feedback from the board about our possible new direction of going onto Facebook, she said:

Yes, go where the users are!

There were many reasons for the failure of our first product (and company) launch. The bottom line is:

We didn’t build something people wanted.

Looking closer, why we didn’t do this is not only because it is hard, but also because we approached product and market as two separate entities that worked in serially and sometimes against one another:

When something was wrong we looked at it this way:

But we should have looked at it this way from the beginning:

If you think product > market you end up with Google Glass. Well conceived product but no clear reason for me and many others to want it. If you think that market > product then you end of up with many startups that you never heard of that died on the vine thinking they could just spend their way into traction or use pure marketing buzz for traction like Color or Clinkle — Either way it is failure.

As a startup you have two levers to pull: product and market. While, oftentimes people think that product is the one that you are in full control and market has its own whim. That is true — partially. You are 100% in charge of product and market is something you have to work with, but do not see it as a different entity. If you do you will be in danger of seeing them as separate and never will there ever be a fit.

The first step to product-market fit is to see them as equal entities that should continually be in balance.

If you do that right, you are on your way to see this:

A small note: If you are entering into a mature market, such as mobile — the cost of marketing is so high that it is prohibitive. This means that the emphasis on product and a core innovation should be taken into account. Examples of this include: Google, SpaceX, Snapchat, etc…

In other words in mature markets your product has to be so damn good and at the core innovative, that it can overcome the marketing barriers just so product can be seen as equal plane to the market.

☞ If you liked this post, please hit the “green heart” below — because sharing is caring!

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☞ Follow me on Twitter Holly Liu

I am the co-founder and Chief Development Officer of Kabam, these perspectives are my own and do not necessarily represent Kabam.

The top lie startups sell you

Startups say a lot of things to get you through the door. We have the best kombucha, benefits, product, talent, culture, people, etc…. But I think the top lie they sell is this:

We are a true meritocracy.

Reality is that no one operates at a true meritocracy, but everyone aims to be meritocratic. If any startup thinks about what a true meritocracy entails, they would want to be as far away from that as possible. In order to reward people based on their skills, ability and talent, the organization needs a standardized and effective way to test their talent. This means:

The ultimate meritocracy is pure bureaucracy.

The government — beacon of a bureaucracy — is truly a meritocracy. Everyone is classified into a grid, their future pay increases are clear. Promotions are clear. However, startups and governments are on opposite sides of the spectrum. No startup wants to have red tape to hamper growth, freedom, innovation and opportunity. In striving for meritocracy, startups operate between these two spectrums: relational and independent.

On one end of the spectrum we have relational where who you know and who you are is the foundation of trust. On this end trust is built through loyalty. However, if you are too relational it becomes a world of incompetent leaders, inept getting promoted, relationships over talent, and good people begin to leave — an overly political environment — adhocracy.

At the other end of the spectrum is independent where data is the foundation of trust. However, when taken to an extreme, data comes before a relationship and everything becomes rigorously tested where verification becomes the stamp of truth. In this world the leaders are skillful; however, incompetent at making decisions and leading the organization. They will test themselves into the future rather a vision that connects the dots. People become boxed in their current role and level because their data has not fit the standard. People get bitter, malaise sets in, and good people begin to leave — an apathetic environment — bureaucracy.

Most startups aim to operate in the middle taking things from both sides of the spectrum and applying it to the organization. However, oftentimes organizations will apply the wrong spectrum to the wrong activities. For example, hiring has the largest impact on an organization, yet organizations continue to hire in a relational manner, depending on if the hiring manager and its project team “liked” them.

When we were growing, at times we would place growth over quality. This caused problems for us later at the most atomic level of the organization. We would bring in a candidate for a certain project and then someone from that function would hire them. A matrixed hiring decision — like that wasn’t a warning sign. One time there was a candidate which one team loved and the functional lead who was on another team disliked. The project team one out. A few months later, the project was cancelled and we worked on transferring this person. Soon many HR issues would creep up as well as the issue began to spread to the entire team cause a stand still for weeks on end. Ultimately organizations are fluid, projects spin up and down but is is all in service to the company. And that is how we should have hired — in service to the company.

Create a hiring process where situations like this can be avoided. This means a centralization of hiring decisions and and a decentralization of input in a standardized manner. Hiring becomes less relational and more dependent on data out of the hands of the hiring managers and teams. This means you are hiring for the company not the team. It should be a company culture fit, not a team fit. This also means that as an organization moving people around will be a lot easier, less churn (voluntary or involuntary).

The costs of this, is that hiring is slower as well as for some (specialized) roles there is some specialized talent. Managers have less autonomy and some would argue less accountability if they cannot hire their talent. However, if we draw an analogy to the parenting world : there are XX million parents in the world that the only thing they cannot choose when their child is born, what gender the child is, what their personality is, how the child looks — the only thing the parent can choose for the child is their name. And, generations have seemed manage just fine developing and managing someone they did not choose.

Firing someone in organizations make it as slow as possible for risk reasons — which is usually the wrong reasons. (Please note that depending on the type as well as phase of the organization risk tolerance levels are different.)From a human perspective it is a purely data driven process that is a large spectacle and waste of time. The manager begins to have behavior issues, goes to HR. HR asks them to document it and put them on a performance improvement plan (PIP) for some period of time, usually 30 days. This is to ensure that them opportunity to communicate clearly. However, oftentimes these PIPs never work. The manager wants to terminate the employee and it is all a show, so wouldn’t it be best to just put the employee out of its misery? The answer is yes, and YES if the manager had been communicating and developing this employee all along. What really should happen is a more adult conversation at the time when a PIP happens and both sides agree to to it not working out and the opportunity to end the relationship should be given right there. If both sides do not agree, then you should allow the PIP process or allow the employee to leave. But, you should always aim for “no surprises” — this builds a culture of trust rather than fear.

When it comes to operating between these spectrums, continuously analyze on what fits for your business and phase. As a whole, do not aim to be on one side of the spectrum, just in the middle — taking from best practices from both sides for your activity at hand. When thinking of talent — don’t just think about a person from a skill level but also leadership talent. Oftentimes that is not included in the definition of skills or developed. And please whatever you do…do not become a meritocracy!

So next time when a startup is telling you it is a true meritocracy, ask these questions:

1. How do you define and measure talent?
2. How is that definition and measurement applied to everyone?
3. Are there exceptions?
4. Who is considered top performers? How does the organization focus on them?
5. What does high potential look like?
6. How does the organization value relationship building?

And, If any startup tells you, “we hire the best talent” — for God’s sake, please ask them how they define the best. Note: This can be applied to any organization that uses best as a modifier when selling things.

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☞ Follow me on Twitter Holly Liu

Why China pays for access and Silicon Valley does not

Reading the exciting next steps of Angel List now that it has the backing of CSC — a Chinese private equity fund. As I was one thing that struck me as the differences of investors in U.S. versus China, could be summed up below:

TC [Techcrunch]: How would you describe your interactions specifically with CSC?

NR [Naval Ravinkant]: They’re far easier to deal with than the U.S. investors I’ve dealt with. If you go to a U.S. investor and say, “I’m going to get you access to the top seed-stage deals in Silicon Valley,” to them it’s like, “Yeah, but I could set up my own team,” or, “I know such-and-such investor in the Valley already.” In China, if you say, “Hey, you can put matching dollars behind people betting their own money,” they lean forward.

I have been thinking about this difference for awhile and why the mindset is such for a reason. Unlocking the reasons why can not only bring better understanding but can tap into faster closes, more money and better partnership outcomes. The reasons for this are nuanced and relate to much of their history, culture and development of their economy, but I will attempt to attribute a few reasons for this practice of paying for access.

Please note that some of these reasons are the same exact reasons for why Didi has as hot at world domination in ridesharing.

China is a develop(ed) country with a developing mindset

China’s development and growth has been really in the last 15–20 years. People from afar are amazed continuously at the changes this country has had over this period. The change happens so quickly that one can easily forget that there are things that are still developing just like in the “developing” world.

Local vs. Foreigner

The first advice any Westerner gets in entering China is to get a “local” partner if you want to do business. This is almost never the advice the other way around for a Chinese to do business in the West. When you land in China as a foreigner (yes myself included as a Chinese-American), you are struck with the stark difference between locals vs. foreigners. If you live as a foreigner there for some time, the society makes a stark difference between the two from education all the way to healthcare. This just is not the case in most developed countries. When visiting Germany, Japan, or Canada I do not expect to go to different health facilities because I am a foreigner. However, in any developing country, I will be most interested in going to a foreigner hospital for an emergency.

A relative suffered from some major health issues in Beijing went to the hospital. They went to the local wing and took one look at the lines and thought they could die just waiting in line. Immediately, they went to the international wing on the other side and was one of only 3 people. This was in the same hospital.

The people in that society reinforce the difference as well — local pricing vs. foreigner pricing, food recommendations, and even toilets. Oftentimes recommendations from locals would be tacked on with “oh, but that is really for local tastes, you probably won’t like it”.

The societal infrastructure reinforces the emphasis on locals being different is most seen in developing countries. It is customary and recommended that you visit with a local guide when visiting developing countries. These guides will keep you out of trouble and help you navigate.

When it comes to access to deals, it is a natural extension for China to assume that the local will have an inside track. They know Silicon Valley is still considered the hotbed of technology and would willingly pay to get into the good deals. Venture is very localized, and venture firms usually pay to get into good deals by setting up an office and staffing it with local investment professionals in that country. Even if a Chinese investment fund set up an office in Silicon Valley , would they get into the best deals compared to folks investing for years?

Cash-based Society

Business in China is highly relational as a reflection of their culture and society. However, compound this with a lack of infrastructure and the value of trust goes even higher. Where would you put your money if digital personal banking was not around? Most likely under a mattress. If you gave it to someone to manage, it would be family because literally you know where they live if anything went wrong. The system of accountability was based on community not from a report or record.

The introduction of digital personal banking in China has been around in the last 10–15 years. However, most people use cards like cash and credit only penetrates about 10% of China. Therefore, even with a card, it is treated like cash as a debit card, connecting directly to that person’s bank account. The bank account number is the same as a bank card and the only thing protecting someone from stealing your money is a 6-digit PIN number.

I was speaking to a local Chinese person about this security concern of mine with Chinese debit cards. He told me he didn’t trust credit cards because the card could not be protected by a PIN.

When it comes to deal access, they will trust people over recorded numbers. Typically financial reporting in China has had a stormied history and even gets dinged for its lack of transparency in the US markets. (Chinese based companies that IPO in the US have had lower valuations). So once they find a partner they feel they can trust paying for access makes sense.

Loyalty Based Trust

While on the surface many things from China are very developed — smartphone penetration, biggest middle class the world has seen, housing ownership, mobile payments — underneath many of these things is still a developing world mindset. China is still incredibly cash based, relational based, susceptible to change, with heavy reliance to catering to local culture (even within their country).

At the heart of society is trust based on loyalty

Loyalty-based trust is seen in most societies where there are warlords, clans, fragmentation and factions — most developing countries. China is by far more developed than most developing countries, but it still is not as easy to navigate around, live, or do business as other developed countries (Korea, Singapore or Germany). And it is still highly fragmented. You need to work with provincial government officials to get something done within that province. For developing countries, trust starts out highly relational and is earned through loyalty. Loyalty puts an emphasis on the relationship moreso than anything written.

When it comes to deal access, paying for that access means that most likely it was done because a relationship was there. In this scenario each person in the relationship will also be able to have more say and learn from the partner bringing in the deal flow. If the Chinese investor were to set up their own office, it would be a little harder for them to learn. Now, it could be that eventually their ambitions would be to set up their own SV office, but more often paying for deal access enables them to deepen the relationship in a way where they can also play an influential hand.

China knows VIP service , and access is at the heart of it.

China knows service, especially VIP service. VIP service works well in places where there is a mass population and you are removing a pain point. Think about this next time you are running late to the airport and you get to pass all these people standing in line and walk right up to the counter for priority check in. This service would not exist if the common experience was not so painful.

The default common experience is a lot, a lot , a lot of people. Getting from point A to point B could look like this:

With so many people fighting for few resources, life can be a constant struggle. A rush on the subway, a rush for standing room, a rush to lunch and a rush for the elevator will have anyone on gaurd.

In China, I had to wait in line just to go into the subway station and a 10 minute line to get on an elevator in a building. And neither of them were broken, it was just the normal influx of people at that time.

And after these ordeals, anyone who is just a little wealthy and tired might just pay for access. This is why private clubs and memberships do better in China and other crowded places.

Therefore when someone from China pays for deal access, they live in a world where access is difficult to come by, and it gives them the convenience of a continuous flow with minimal work. It is not strange at all, and in fact may be a welcome part of the partnership.

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☞ Follow me on Twitter @hollyhliu

I am the co-founder and Chief Development Officer of Kabam, and have resided in Beijing, China for over a year. These perspectives are my own and do not necessarily represent Kabam.

Top 5 myths about scaling

We started in 2006 with just 4 people. We steadily grew to about 30 people and stayed there through 2009. In 2010 we grew to 80 people. By the time we ended 2011, we had 450 employees and opened up three offices and we had made over $100 million in revenue. It was safe to say we were in the growth phase of our start up and trying to scale up. Here were the top 5 myths about scaling:

We just need to hire more people to reach product-market fit.

This is a very tempting thought especially if you do not have product-market fit yet. The thought is maybe we just need to hire more people to put out more features or to do more BD — if we just had more (or better) resources we could get it done and everyone would be using our product. After all you will do everything in your power to give your company the best chance at life.

Stamp these thoughts right now. If you are just beginning your startup, if the following things are not happening, then don’t consider hiring someone unless someone on your current team cannot absolutely do the thing that is needed:

• If your servers are not melting — you do not have product-market fit.
• If you do not have 100% of your staff working overtime to answer user or customer support because of volume — you do not have product-market fit.
• If every time you refresh your admin tool, the numbers do not change (for the better)— you do not have product-market fit.

Even if these things are happening, consider consultants and talent models where you can try before you buy. Hiring people to add to your small team is a large investment that costs a lot more than you expect. You should make sure you have your product-market fit nailed before you scale or you might have to have a really tough conversation with folks.

We just need to hire more people in order to meet our revenue targets.

This is also a common thought, but equally dangerous.

If your revenue plan depends on hiring many many people to achieve it, think of another revenue plan.

I am not saying that you need to come up with a new revenue target, but you should consider another plan to where you achieve your revenue target does not require tens of thousands of new employees to make it work. First, talent is expensive, especially if you are in the US. Secondly, your business becomes operations heavy which means it is hard to be defensible, and difficult to scale. This also allows more populous countries with cheaper labor to come in and compete / win quicker than you. And, thirdly, what happens when your company does not make its revenue targets? (See the first myth)

We need “professional” managers.

This is the dilemma that all startups encounter — someone who is skilled and knowledgeable about their function but doesn’t want to or have to people manage. Then the infamous phrase “(s)he doesn’t scale”. Then they get a “professional” manager, someone who has managed an org of hundreds or thousands. More often than not one of two things happens: (1) the “professional” manager gets fired or leaves because they were not a “culture fit”, could not move fast enough, or is frustrated at the lack of infrastructure (2) the entire team leaves below him/her and they have to re-build. While how you transition matters, we have found that if you get someone who has been managing a team that is about 3x larger than its current team, that manager has difficulty being seen as “get shit done” in their new environment. They may be used to an EA (executive assistant) or an HRBP (HR Business Partner) already there, instead of building it. People will see them only as a people manager and not able to be able to give strategic input. If the manager comes from an environment whose team they managed is about 5x smaller than its current team, they will have a lot of manager issues that are related to “not scaling” or first time manager issues.

The biggest caveat is that you choose someone who wants to manage and has recently managed the current size of the team. We had an executive who was fell into the “professional” manager category. He quickly grew one of our groups from 50 to 200; however, by the end of the year it resulted in a layoff. Partly, the executive was doing his job of scaling the org, but was not as attuned to growing it with product or else the layers upon layers of Sr. Manager, Director, Sr. Director, etc would and should not have been introduced all at once.

If you are in the growth and/or the beginning of the scale phase of the organization, lean towards managers who have managed smaller or equal sized teams but are more than likely hungry to go to the next level. If you nurture these types of people in your organization, you will be able to scale will having continuity, which in the end can buy time for you to get that next success into the marketplace.

Otherwise you end up with a lot of management and no one doing the work — and who likes that?

We don’t need any managers.

It’s easy to swing the other way and say we don’t need managers at all, we can home grow them. Experienced or “professional” managers are extremely useful in getting the organization to the next level. The trick is finding the right “professional” managers. These managers need to be able to not only manage their current team, but they must understand, and be excited about, the idea that their boss could have less managerial experience. This gives the manager opportunity to lead from behind as well as well as open to pushing her as a leader. Because, more than likely the CEO or a top executive is a founder and comes in rough around the edges — strong vision, strong execution but maybe poor communication, poor at management, or something else.

This rests on the idea that being a manager or leader is a skill that can be acquired through practice, which I believe can be done. After all, most success in life requires zero talent.

We can keep our culture exactly the way it is.

I remember sitting in a room with an early employee. He had just walked past an entire team and spewed his frustration in a public verbal manner. Yes, the team was stunned. Yes, he knew immediately that it was wrong and he was remorseful. He had said the organization was changing and he could not handle it getting bigger. Before, when he would lose his temper he could individually go up to every person and apologize; however, with now over 100 people it would be too hard to not only apologize but for every person to know the context of his apology and his history.

Unfortunately for the early employee he had felt the culture was changing because the sheer number of people coming in. He couldn’t reconcile the way he was used to — individually. And he was right. The culture was evolving to intake the influx of people. Why not get a handle on it?

I remember before I left on maternity leave my CEO pulled me aside and asked me to head up HR. I was shocked as my background was in product design. First, he said we will be adding a lot of people into the organization and he needed someone he could trust. Secondly, he said that he needed a builder who could focus on culture and values because that will get everyone on the same page when it comes to talent. We would be adding a lot of people and he would soon need visibility through around top performers and more importantly the right filter to figure out who those were. Values and culture was the quickest way to get eveyone who enters into the organization on the same starting block.

If done right culture will evolve based on a set a values that pushes the organization and business forward. The amazing thing about culture is it is happening every day and it’s never too late to focus on it, but the later you focus on it the more painful it will be to reach your goals (like retirement :/). So think strategically about your goals and how it can support your vision and mission.

For us this has been manifested in the evolution of our values. You will read many many management books (and myself) say your values should never change. However, I believe that your values should evolve as the organization and the business evolves. I have seen our values evolve from the from descriptors (like Netflix) to now “we” statements to evolve our mindset and behavior on how we need to attack the marketplace.

I leave you with this question:

Culture is happening everday, why not shape it for the good of your vision and mission?

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Didi’s Shot at World Domination in Ridesharing

*This is a follow up to Uber + Didi = Dudu?!

Ridesharing Consolidation

Ridesharing is one of the first sharing economy to take off globally with copy cats faster than AirBnB. The regulations are unique for every country; however, versus housing it is much faster and easier for global startups to produce a local rideshare offering (Grab, Ola, Go-Jek, etc…)

Therefore what has happened within ridesharing is that we see consolidation much faster. First at the local levels (myTaxi + Halo, Didi + Kuadi), and then at global levels in the forms of mergers and investments — first Didi+Lyft and then the latest: UberChina+Didi .

Didi’s New Position (as of buying UberChina 2 weeks ago)

Didi has investments with the following companies:
Lyft (US)
UberChina (China)
Grab (SE Asia)
Ola (India)

Didi basically has every country covered within ridesharing through investments. It only needs to conquer the rest of the developing world, which they are the best position to do.

Expansion into Developing Countries

Didi is in the best position to understand these markets from a developing market point of view. In developing countries and markets, there are several traits shared with China:

Dependency on local — One thing that has struck me in living in China is a distinction between local vs. foreigner. This comes down to schools and services. In the Western world, there is no distinction between local and foreigner. We don’t have a “local” hospital for “local” people and a “foreign” hospital for people from another country used to a different (higher) standard of medical care. This is a by product and indication that the country is still developing.

In many Western countries, I never see different services offered to local people or foreign people. In the US we have the same schools and expect almost all immigrants to speak english (perfectly). There are not two levels of service or even different hospitals.

However, for a developing country, the dependence on locals can offer a large amount of wisdom to how the ecosystems works. The dominance and importance of local is due to their developing infrastructure.

Infrastructure — The infrastructure in terms of technology as well as payment systems have grown and leaped frog into the next generation technology.

When I visited China in 1991, to make a call, there was one phone that was shared by the entire neighborhood.

It did not make sense for China to wire every home. This paid off, because when mobile hit, they were ready for it (after building several cell towers and laying down fiber). They did not need to upgrade the home and deal with helping 1.2 billion people change from ethernet cable to wireless.

Also the payment infrastructure has been on a cash only basis in most developing countries, that swapping for to a credit system requires much a lot of infrastructure.

Debit vs. Credit — Only about 10% of China’s population owns a credit card. They automatically tie all their payments to their debit card that is password protected.

When talking to a Chinese local, he said he does not want to get a credit card because it does not have password protection — this was just last week!

What I chalk it up to is comfort in moving a cash-only society into a digital cash society. Credit is something that has been enjoyed by the developed countries and is quite Western in nature. This is mainly because of the lack of infrastructure to make credit a success. Being able to track credit card payments as well as setting up a billing system of invoicing as well a collections arm — well that requires time, infrastructure, and mindset shift.

Didi approaches a develop(ed) country with a developing mindset. They provided a local solution (integration into local China taxis) , with local payment integration (Wechat) using the current infrastructure where people (pay now_ had the most trust. Therefore their path to world domination is best served by leveraging local partners, so the investments into dominant ride sharing companies come to no surprise.

Customers

In China, Didi effectively has a monopoly on the ecosystem (integrating into the local taxis), which means they can have monopolistic pricing, leaving customers with no choice if a taxi is needed. Furthermore, with no competitor such as Uber (as small as it was), there is no need for Didi to attract drivers through bonuses or subsidies. Less supply, with demand stagnate means pricing tends to go up.

While the government may regulate against this, Didi is currently dominate and a monopoly until the government does something. And in this situation the customers’ wallets are the ones potentially hit the hardest by Didi’s new position.

Executive Summary

• Merge with largest local ridesharing taxi service
• Invest in the largest ridesharing companies in all continents (exception is Lyft)
• Buy UberChina — kicking out any foreign competition
• Expand to developing countries through local partners
• Raise prices to how you wish

And there you have it — Didi’s plan for world domination.

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I am the co-founder and Chief Development Officer of Kabam, and have resided in Beijing, China for over a year. These perspectives are my own and do not necessarily represent Kabam.

Uber + Didi = DuDu?!

What the UberChina + Didi Deal can show us about doing business in China.

The largest deal this past week that rocked the ridesharing world is that Didi acquired UberChina for $8 billion USD. The bottom line is this:

It is very difficult for foreigners to do business in China

No duh! But here is a perspective from being in China for over a year and as a founder of a company who has a WOFE (Wholly Owned Foreign Entity) in China, and doing business in China.

Technology companies

To operate as a technology company in China, you need a license to be able to run your servers from within China. Of course you can run your servers outside of China, but it will be really slow and there is a risk that the government can block your IP address easily. This is one of the main reasons why technology companies partner with a local party to gain access to the ICP license held by the local entity.

Social Apps and Websites

I had asked many expats and locals the question of why China just did not shut down Uber if it was so disliked and “illegal”. I had many answers, but the one that made the most sense (from a local) was that Uber was not a “social” app or company and therefore the government would not be able to block that one without having to block their local offering as well. There wasn’t good reason to block it. Of course both of them were operating illegally until recently.

The larger concern the Chinese government has is around information flow that could lead to issues of providing safety and civil unrest for a world of 1.2 billion people that has a past of being fragmented, with unification a constant theme through their history. Furthermore, education levels across the entire country vary, with about 85 million people still left uneducated. This is why censorship from the government’s point of view is for the greater good of the entire society. With that point of view, someone can understand why Facebook, YouTube, and Google would be blocked vs. something like Apple, Nike or Uber.

Government Bodies

China therefore has regulation around things that influence their culture, which is mainly through entertainment and social apps. Currently the quota is only 34 foreign movies allowed into China.

This impacts cultural lenses for foreign startups entering. This hits home for our company as we launched our Marvel game for China ， 漫威格斗 (Manwei Ge Dou) because the cultural references on some characters were not there, nor did China grow up on the comic books. While Marvel is a popular franchise in China, it is a much less familiar franchise than the ones the Chinese grew up with.

Now that is just entertainment, imagine the other cultural references (which turn into regulations) that they may not have (or more than likely replaced by other things that you don’t have) when entering the market. Note: While this is true of any other country, China is special in how it has been closed so long to Westerners, so it is more “foreign” than most countries to the West.

Local Practices

Didi is a little different than Uber. Didi attacked it with a local mindset. While China is a develop(ed) a country, it approaches business with a developing mindset.

Therefore, the mindset of going global begins locally.

Here is a list of differences (not exhaustive), when it comes to the two services:

Fapiao (发票）
A fapiao is a legal invoice (or receipt) that legitimizes the transaction in China and is a way for the government to track and monitor taxes paid on transactions. This obviously is helpful for tax deductions and reimbursements of expenses (but talk to a tax accountant for your situation!) This is printed by the business, usually at the time of transaction, and different for each industry. If you are using it for expense purposes with your company, you need to ask for it or the company will not reimburse you. Legal taxis will print this out before you leave the taxi.

Most locals will complain about Uber China’s 发票 system which is cumbersome that involves email.

You are in a mobile app, why open up email, which is not always installed on a China worker’s phone. Because culturally, email is used differently in China than in Silicon Valley. In Silicon Valley, you can expect a response as quickly as in chat; however, in China WeChat still reigns to get a quicker response. We have seen this in our Beijing Office. It is better to send a wechat message out to our employees if we need to tell them something timely, otherwise they check email around once a day. I usually tell my Silicon Valley counterparts if something needs to get done quickly to do it over Wechat.

On the other hand, Didi’s seamless integrations allow you to complete this within the application that allows you to access the needed documents in a local-friendly way:

Local Taxis
Didi’s integration is with the local taxi system enables more supply of drivers within their service at a cheaper price. In many ways Didi allows riders to literally hail a taxi from the phone rather than “ridesharing” with “driver”.

UberChina introduced with a private black car service within China without the integrations into the local taxi service. When they wanted to offer a cheaper version of their service, they opened up People’s Uber allowing normal car owners to offer rides and become a driver.

However, one thing that was miscalculated: car ownership in China is quite expensive and lower per capita. To get a foreign car, you will at times pay 4x the price for a luxury car due to taxes. This means the supply of drivers is a lot lower for Uber China, causing the usage of the service lower.

Furthermore when a person just wants to get from point A to point B, a private car is not necessary.

Bonus Structure and Fraud
In a fight against each other both UberChina and Didi were offering aggressive bonuses and subsidies to get more drivers on the road for their service. This was great for riders, but bad for the companies.

Higher bonuses opens the door to more fraud, that involve several parties or several steps to to create multiple accounts. However, in China where the population is 1.2 billion people, finding willing participants is not difficult. Also finding ways to skirt the system can easily be done through buying multiple Uber driver accounts on Taobao （淘宝）, China’s largest e-commerce site to find anything — literally (even fake prescriptions). This means someone can be sitting at home with multiple accounts picking up and dropping off people without having to leave their home, while Uber has to pick up the bill.

Didi on the other hand is also impacted by fraud; however, because the driver bonuses are lower, it does not attract as much activity as Uber.

While offering big bonuses have gotten more drivers on the road; at what cost, and how much of them were real? Uber has claimed to provided 1 million rides a day, costing them $1 billion dollars a year.

You do the math.

Payment Methods
Integration for UberChina favors foreigners much more than locals. UberChina runs on a credit card payment system, but China does not. China’s credit card penetration is about 10%, the rest of the country runs off of a debit card system (UnionPay being the largest), with a high adoption of mobile payments via Wechat, China’s most popular mobile messaging service. Paying through UberChina is not as accessible and it wasn’t until 2014 they were able to use a local payment system like Alipay.

Didi on the other hand, backed by Tencent and Alibaba enjoys a seamless integration into the Wechat Wallet:

The fierce ridesharing battle in China over. The foreigner has lost, proving once again that China is formidable.

☞ If you liked this story, hit the green heart below

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I am the co-founder and Chief Development Officer of Kabam, and have resided in Beijing, China for over a year. These perspectives are my own and do not necessarily represent Kabam.

Founder CEO vs. Professional CEO

What if Jerry Yang Stayed?

This week the tech industry is abuzz about Yahoo being sold to Verizon for $4.8 billion dollars. People are in mourning and rightfully so as it was the beginning and end of an era. Many of us grew up on Yahoo being the gateway to the World Wide Web as it was affectionately referred to back then.

I have wondered since the recent discussion around selling the core of Yahoo: What if Jerry Yang stayed as CEO? It’s hard to re-write history; however, the core belief is that founders are in the best position to lead their company, especially a technology company, from its depths to new heights. There are countless examples of this: Steve Jobs, Jeff Bezos, Michael Dell, Marc Beinoff, and Mark Zuckerberg.

Of course we all say running a company is very different than building a company, and founders above all else know how to build. But can they run the company successfully long term or towards an exit?

For this article, founding CEOs are CEOs that are the founders of the company. Any CEO who is not a founder is considered a Professional CEO.

But let’s look at the data, shall we?

Financial Data of Founders & Exits

Captured by Pitchbook, you can see the following here:

The ROI for the total investment is better for a founding CEO, and you can argue that the lower amount of capital raised means that a founding CEO is much more capital efficient. While professional CEOs raise more money, getting a return on that investment is almost 2x lower than a founding CEO.

Data analyzed for Andressen also suggests that founder CEOs perform better across median exit valuation,exit valuation/total investment, and return on investment.

Why is this?

Continuity Experience

Founding CEOs rarely come in with professional experience, but they build a specialized set of experiences that lead to intuition about their own business. Most CEOs of high tech companies are young and daring. To have a modicum of success, they will have to master market timing and product excellence to get traction. And, if they are around long enough, they have taken the company through changes either through new product or strategy.

Up until then, every point twist and turn the founding CEO has the continuity of not only making each decision but living through the implementation and consequence of each decision. Having the continuity can and should back stop for preventing an organization from having to re-learn painful lessons with poor decisions of the past. The founding CEO will be able to recognize the situation, remember the consequences of the last time and hopefully make a better choice. Of course while each situation is different and unique at a larger level, every company goes through the same issues or threats such as: lack of product innovation, market changes, or competitive forces.

Being able to respond and having the right resources, talent and ability to blend them all together will make the difference between failing CEOs and successful CEOs.

For Kabam we have gone through 3 major pivots, each one led by the founding CEO. Each change built upon the next. At each change we were able to take what we learned about product or market and apply it to the next stage. The first change we learned that we needed to go where the users are and the users needed to be passionate. We then grew our products to have over 60 million registered users and when ABC wanted to distribute video on Facebook, they called us up. The next change came with the recession in 2008 and we changed our business model as well as products. We learned that directly monetizing the user enabled aligned incentives and allowed us to focus on a long term relationship with our customers. Our last change we moved to mobile. We learned about platforms. As our current platform (Facebook) was maturing and changing looking at growth platforms (mobile) was where we needed to go. Each change built upon the last. Without a founding CEO being constant at the helm it would not be able to enable change in such a congruent in nature. In fact, it enabled us to make changes to our organization to change with the market changes.

Heart Strength

It is only a founder who has been there when the company was nothing. Therefore to go to a place where the company is at its nadir is something that is not new only the founders. This is where the founding CEO gains her heart strength to drive the company to its vision from whatever stand point. They are able to see past circumstances and into its ultimate vision of the company far greater and unimaginable in the current state. It’s the reason why Jerry Yang held out on selling for Microsoft. And, it makes me wonder if Jerry Yang stayed on as founding CEO, we would we see a better outcome than this one? Afterall he did make the prescient investment into Alibaba.

After re-buffing Microsoft, would and outside CEO have enough heart strength to bring Yahoo back AND go against a somewhat hostile board? Would they have the belief or the energy? For it would be only someone like a founding CEO who would or could have the heart strength , fortitude, and belief in the company to have it rise form nothing back to something. If anyone, it would be the founding CEO. And, heart strength can be such a stronger predictor than any metric or forecast given.

So for founder CEOs of tech companies, keep on trucking, you have the best shot of making or saving your company. Success is yours, and remember:

No guts, no glory.

And those who believe in founders, thank you.

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I am the co-founder and Chief Development Officer of Kabam, these perspectives are my own and do not necessarily represent Kabam.

Scaling past “Get Shit Done”

Get Shit Done is the mantra that litters every organization when it starts. We want people who have a can-do attitude who can get shit done. This makes sense when the very thing you are trying to do is launch. However, hopefully your product is gaining traction and it hits the growth and/or scale phase.

The problem with “Get Shit Done” is you end up with a lot of “shit”.

Often when an organization is execution focused, corners are cut and a lot of re-do/iteration occurs. Not to mention that this mantra can create a culture that biased against women, and other minorities that can help make your company diverse. Striking a balance between executing quickly and diversity can mean a slow death or a prolonged life. While, striking the balance between re-do and iteration can really become quick death or instant growth for any startup trying to scale out of the founder stage and into the growth and/or scale phase.

How do you make sure your company will choose the path of life over the path of death?

Focus on mission, vision, and values.

When the organization is small , nothing is written down, it is all by osmosis — much how a family has values but no need to write them down or communicate them explicitly. That is because people learn culture by watching others.

Culture is caught, not taught.

Begin to write and codify the organization’s values, communicate them, hire against them and reward behavior that is in line with your values. Create rituals and practices that will reinforce your values, building your culture based on them. Ultimately it is more important to behave in line with your values than write them down.

As your organization grows, culture will be at the core and you want to make sure that the core is strong permeating all that the organization does. By definition of the organization growing, means diversity will occur. Have diversity as part of the core will enable an organization to withstand the changes and types of people it will need to grow and scale. (Note: I recognize culture is a fuzzy subject and will devote more articles in the future to this. )

Allow room for Management.

As an organization grows and scales, the most difficult thing is getting everyone “aligned” or working on the same page. I never had a need for project managers (sorry for those PJMs out there!), until we grew to a certain size. At that point, I realized these people were integral to helping an organization avoid re-work and move towards iteration. Also as we got larger, our mistakes were costlier, so getting shit done was not something that was effective. The greatest of tech companies all come to realize that execution looks different at a larger stage and the mantra Get Shit Done does not scale. Google needed to change from a 1:150 manager ratio, while Facebook had to move past their mantra of Move Fast and Break Things. Realizing and embracing a little bit of time upfront for planning, then everything can be smoother.

Management allows balances the two strategies of cutting time short, like the tortoise and the hare. The hare will move as quickly to get shit done as possible, pushing builds daily, but you might need a hot fix every couple of hours. The tortoise moves deliberately planning each step, measuring and confirming over and over before telling the team to move forward. Pushes move to weekly and no follow up hot fixes. If the hare moves to fast, many things are broken and have to be fixed. At some point the hare is just re-working and not learning. If the tortoise spends too much time planning, the hare wins. Management allows for the balance between these two strategies on how to best execute in each unique situation. [adapted from Before I Go]

Ditch the Warring Factions.

One of the largest hinderances to a culture that prevented us and still holds us or any organization back is the warring factions. The #1 reason startups fail is the co-founders cannot get along. The reason why is because how can an organization continue to fight for market share, against apathy or against its competitors if its fighting against one another.

Silicon Valley is littered with Type-A competitive behavior, that is very sadly testosterone agro filled. Execution is wonderful, but not when it is done against each other.

At one point in one we had duplicate organizations, and within one organization we had two VPs of the same function with two teams. When I pushed the president of that organization why he had two teams of duplicate functions, he felt that “iron sharpened iron” and he wanted competition to bring out the best in each of them. However, I was always left wondering if both of the groups were to be combined into one team and not waste their time one-upping each other how much more ground could have been covered.

I am for friendly competition and understand some organizations completely justify duplicate organizations at given times; however, think carefully about the ultimate end result and if it is really what you want. In our case, the end result was a dissolution of both the groups; however, even before the dissolution, the VPs spent much of their energy trying to hold onto their status rather than working together to make it happen. While I spent many conversations hearing about “the other” group.

If you focus on your culture, great leadership, and remove friction, you can move from getting shit done to making great things happen. And isn’t that what we all want?

BONUS QUESTION: 
How do you know which phase your organization is in?

When you are putting together your desk on the first day on the job, you are at the founder phase.

When being at a company for over 3 months makes you a veteran, you are at the growth phase.

When your has the following positions in one department: C-level, SVP, VP, Sr. Director and Director, you are at the scale phase.

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I am the co-founder and Chief Development Officer of Kabam, these perspectives are my own and do not necessarily represent Kabam.