Reblogged from NANIGANS BLOG:

This Sunday televisions across America will be set to watch the NFL conference finals, with the New England Patriots and Baltimore Ravens facing off followed by the San Francisco 49ers and New York Giants. Who are Americans cheering for this weekend? We turned to Facebook data from the Nanigans Ad Engine to find out, creating the below infographic:

Read more… 248 more words

With the hype of Facebook’s f8 developer conference behind us, with its celebrity cameos and star-studded after parties probably calling in some help for the morning clean-up, it’s now time to think of the sobering implications of how this groundbreaking update to the Facebook platform causes us to rethink our social marketing strategies going forward.

Facebook’s ‘social feedback loop’

While we’ve described tools like Timeline and the new Open Graph features in our post yesterday, the really interesting piece is how they all fit together to create a feedback loop between Open Graph Apps and the Facebook experience — one that is designed to spur social discovery and engagement.

Let’s examine this in more detail.

It all starts with the apps

Developers must define “actions” and “objects” within their Open Graph Apps. Actions consist of verbs like “watched,” “listened,” “cooked” or “ran.” Objects consist of the nouns users connect to within an App like a “movie,” “artist,” “recipe” or “route.”

Open Graph Apps create stories in the Ticker

When a user takes an action on an object within the Open Graph App, the app will automatically broadcast this within the Facebook experience to the real-time Ticker. The App broadcasts this without the user needing to click an additional “allow” (s/he signs off on this when initially allowing the App).

All of the “stories” broadcasted to the Ticker are accessible to a user’s friends, and include the App developer’s customizable “flyout” with more in-depth information. For instance, if it is a music app, any song listened to by a friend can be played right from the Ticker simply by scrolling over it.

Ticker stories are Aggregated in the Timeline

Apps can also be part of a user’s Timeline, and showcased by developer-created Aggregations that display a user’s actions taken within the App in visually appealing ways.

More important stories can be posted to the News Feed

By identifying patterns within a user’s News Feed, Facebook’s new GraphRank algorithm may deem the broadcasted action “relevant” enough and publish it to a friend’s News Feed. Keeping with the music App theme, a post might be important if several friends are listening to the same artist or if time is put into creating and publishing a Playlist. Simply playing a song, on the other hand, is considered a “lightweight” action and therefore kept in the Ticker.

Stories can be sponsored and promoted to the News Feed

Finally, let’s talk about our favorite subject, Facebook Ads. All of the real-time activity streaming past in the Ticker is available to be “sponsored”, whereby a marketer can promote those stories to a targeted subset of the user’s friends, via the new Graph Targeting capability. As we said yesterday, if you own the object or “noun,” you can create a story to promote any Open Graph action or “verb” (e.g., Jay-Z can promote any “listen” of his songs from any music app). Additionally, using Graph Targeting, you can target users who create specific connections with verbs and objects (e.g., you can target those people who have “listened” to Jay-Z ).

7 recommendations for marketers

This powerful feedback loop drives discovery, engagement, and potential targeting and messaging opportunities. Here are some suggestions around how to leverage this:

1. Get onto the graph: Create an app and/or attach your site to the social graph via Facebook Connect and social plugins
2. Go beyond Pages: Marketers (especially brand marketers) have long relied as the “fan page” as their only real presence on Facebook; it’s time to go beyond that to determine how to create a truly “social by design” experience that conveys your brand identity. Otherwise, you might find your messages are lost among all the real-time activity streaming from Open Graph Apps.
3. Create stories: By going beyond the verb “like”, new opportunities are opened, whereby every offline experience and action that is inherently social can now be put online and be addressable. Think about “driving a new car” or “sampling a new beverage.”
4. Analyze your audience: Dig deep into the patterns and trends of your users, and how they create and engage with their friends’ stories. This will be an essential step in determining how to leverage GraphRank to drive additional discovery.
5. Use Sponsored Stories to drive Friend-of-friend awareness: Those stories that resonate most, should be plucked out of the Ticker in real-time and put into the News Feed to drive further engagement and interaction.
6. Use GraphRank to make your Marketplace ads more effective: We are just scratching the surface around how Facebook is moving toward more intention-based advertising. And believe me, we’ll have lots more to say and show here in the future.
7. Go beyond the click: Understand how your users behave once they are within your application — which actions they are driving, which ones they don’t. Finding others like them will become even more important than ever.

Putting it all together

To make this a little clearer, let’s take an example publicized at f8: someone “cooking” swish chard via a recipe app. If you were Stop & Shop, perhaps looking to drive registrations for the Pea Pod delivery service, this “action” is something you would want to target. Ultimately, this type of targeting will increase the pool of potential people to advertise to on Facebook (while I do not list cooking as an interest on Facebook, I often share updates when I do cook).

And perhaps more interesting are the new forms of behavioral targeting that will arrive based on combinations of actions, objects and people. If I “watch” a documentary of the Red Sox winning the 2003 World Series on Netflix and one of my friends discovers this through the Ticker and watches himself, Ace Tickets would love to serve me and that friend a Sox ticket offer — together.

We hope this helps clarify how all of these pieces fit together into a new “social feedback loop.”  The advertising opportunities teased above are just the tip of the iceberg — and they won’t appear overnight. We look forward to helping App owners and marketers serve more valuable ads in more innovative ways, and pave the way for the future of social advertising.

Note: I was live at Facebook’s f8 developer conference yesterday, and posted this originally to the Nanigans blog, and also to BostInnovation. I’ve made some minor grammar updates here, to correct for my speed-blogging.

We’re at f8 in San Francisco today, with the keynote speeches just concluding. After an entertaining opening with comedian Andy Samberg masquerading as Mark Zuckerberg, the real “Zuck Dawg” (as Samberg called him) took the stage to deliver the true keynote. Facebook’s CTO Bret Taylor and VP Product Chris Cox followed, along with brief cameo CEO appearances from Spotify’s Daniel Ek and Netflix’s Reed Hastings. 

Overview of Announcements

Two major announcements were made at f8: (1) introduction of the Timeline and (2) development of the Open Graph.

Timeline

The Timeline puts the current profile on steroids, transforming it from a mindless stream of activity (hear that, Twitter?) to enable you to “tell the story of your life.” This redesign provides a structure through which you can highlight and curate the most important stories, photos, App activity and more into a single place. So, instead of just those granular updates, you can aggregate all of your activities, shares, events and apps into buckets within your profile. These can be browsed at a high level year-by-year, or can be drilled down into to see even more specific life events; you can even filter by content type (e.g. places vs. photos).

Open Graph

We all know that Facebook’s Open Graph Protocol is neither open, nor a graph, nor a protocol; today, we finally saw the first two of those descriptors take shape. Rather than selecting from a set number of pre-defined “nodes” in the graph (e.g., pages, apps, places) and simplified “edges” (e.g. App installs, Likes), anything can be connected to anything. OK, admittedly, when Zuck said it, there was dead silence; so, let’s dig into what this really means:

Think of there being an infinite number of Open Graph “objects” in the world, or “nouns” — things like “books,” “movies” and “TV shows.” Likewise, there are a number of “actions,” or “verbs” — such as “read,” “watch,” “listen” and “ate.” What Facebook is allowing is for all of these nouns to be connected by these verbs. The result: instead of just Liking something, you can “read a book” or “watch a movie.” The idea is to create a richer set of connections that ultimately create a new “social stories” that you can share with your friends, or discover about them.

Putting Timeline & Open Graph Together

Many of you probably noticed Facebook’s News Feed redesign launched broadly yesterday. Most significantly, it introduced an additional mini News Feed called the Ticker. The Ticker is meant to be a real-time stream where all of those passive Open Graph actions (“read,” “watched,” “listened,” etc.) are broadcasted. This makes the shares more socially acceptable, in the sense that we aren’t annoying our friends in the main News Feed by sharing ten things a day.

These smaller, “lightweight” shares in the Ticker stream past in real-time, and can be interacted with to create social experiences. And it is these social experiences which then, of course, feed back into the Timeline. For example, if I see someone listened to a Jay-Z song on Spotify in the Ticker, I can discover and listen to that song in real-time. That music discovery can then become part of my Timeline. Broader patterns (i.e., 10 of my friends are watching a movie) and more important posts (i.e., I created a playlist) will hit the main News Feed.

Those experiences, and actions, can then be “Aggregated” back into your Timeline. For instance, a TV watching app can create a nicely formatted query to showcase your most frequently watched TV shows in a given year.

What It Means for Developers & Marketers

The overall goal of the Timeline is to tell a more representative story of your life, as opposed to a chronological list of actions that only represent the most recent part of your life. The Timeline allows you to take your hundreds of thousands of social “stories”, and reorganize them into both a more consumable timeline and buckets that define who you are – such as the food you cook, content you read, music you listen to and activities like running you participate in.

The goal of the new class of Open Graph Apps is to incorporate more of those smaller moments into the Ticker, which triggers social discovery and engagement through learning about and sharing experiences with your friends. This is done by enabling real-time seamless connections through the Open Graph between Facebook, Apps and your friends. These social experiences can be aggregated into and viewed on your Timeline. Overall, this creates a nice, positive feedback loop that drives more engagement. 

What does this mean for App developers and marketers?

For developers, there is now greater opportunity to drive social discovery through next-generation Open Graph Apps, especially in media (news, music, video, etc.) and lifestyle (shopping, running, cooking, etc.) verticals, which are inherently social but have not been leveraged well on Facebook to-date.

For marketers, all the stories broadcasted in the Ticker can now be “sponsored” and turned into more powerful Sponsored Stories ads. If you own the object or “noun,” you can create a story to promote any Open Graph action or “verb” (e.g., Jay-Z can sponsor / promote any “listen” action driven by any of the many music apps). Additionally, marketers can make use of Graph Targeting, whereby people who generate connections can be targeted (e.g., targeting anyone who “listened” to that Jay-Z song).

But… more on implications later! Back to the conference, and we will follow-up with more information.

[UPDATE: Below is a link to the intro by Andy Samberg and Mark "Zuck Dawg" Zuckerberg.]

One issue that enrages me enough to rant about is is how often we conflate what is a goal with what is a constraint. While the differences may seem like nuance, confusing a business’ goals, with the the constraints they are subject to, leads to a lack of focus and ultimately failing to achieve what you really want.

Goals are clear objectives for what you want your end state to be, while constraints are given conditions, or circumstances that your solution must satisfy…so to paraphrase Seth Godin, a goal would be “to go to the moon”, and a constraint of that would be “to overcome gravity”. Sounds simple enough, right? Then why do these get confused so often, and how should we think about each one?

Constraints Need Goals

Thinking in constraints only is like playing not to lose, where your goal is to win. The most common example I often see is stating profit or revenue numbers as your goal…umm yeah, you’re supposed to make money, but that’s not all there is to your business is it? The best brands do not set their goal as to make money above any other vision (ok, well maybe Gordon Gekko does, but you saw what happened to him). Goals need to be the instantiaton of a larger vision that makes a compelling reason for the plan to all stakeholders. Yes, it often *has* to make money, but that’s the key – when we say *has to* we’re often speaking of a constraint.

Goals Need Constraints

On the other hand having great, visionary goals that are unchecked also leave room for the final execution to go awry (see “The Homer” for an example). In cases like this, vision can run too far afield without rooting the design and execution in real reality. Design by its definition is about managing constraints, including all of the financial metrics. Here the solution is only feasible if it achieves the goals and conforms to the set of constraints.

Example: Airlines

On a recent Continental / United flight, the proud “change agent” CEO, Jeff Smisek, stepped out on my screen to espouses their *goal* to “provide clean, safe, reliable air transportation”.

Way to shoot for the stars guys! I mean seriously, those are givens. How many airlines could go around crashing dirty planes and still have a business? What differentiates them from everyone else? Maybe its about providing more routes so travelers can get “wherever you need to, when you need to”. If “safety” was really their goal, I’d suggest to wrap naked passengers in bubble wrap. Poorly constructed goals, lead to poor execution, since they don’t really identify what really matters.

As Guy Kawasaki says: “Make Meaning”

The best view of this I’ve seen is in a video by Guy Kawasaki. In it he says:

“If you make meaning, you’ll probably make money. But if you set out to make money you will probably not make meaning and you will not make money”

He further defines goals as things such as “increasing quality of life”, “righting a wrong”, and “preventing the end of something good”. He does a better job than I could ever do, so see it here.

As an entrepreneur, your work and your life are intertwined, there is no such thing as a “balance” between them. You’ve made immense personal sacrifice, ask much of those people near and dear to you, so anyone who tells you you need to make crisper distinctions, simply doesn’t understand what it takes, and what you’ve signed up for. Yes, taking a “job” is different, but startups demand this level of effort.

Moreover, this type of lifestyle is increasingly seeping into the mainstream. Given the nature of mobility devices (laptops, iPads, smartphones), connecting us ubiquitously wherever and whenever (including planes and trains) we are. This shift will change the very nature of work, and in turn blur the lines of work and life, the way most entrepreneurs face it.

So what does that really mean? The best metaphor I can use is pro sports, and with basketball and football seasons in full swing, I thought I’d illustrate what I mean using those as analogies.

1) Being in the game / on the field

These are the times you’re really “in the zone”, that’s in the office, building or selling products, or just being “in the game”, kicking ass and taking names by giving it your all out effort. By any definition an outsider can give, this is “doing work“. To most outsiders their definition of work begins and ends here; where most productivity gurus will focus on optimizing this aspect alone, and anything outside of this is considered “work”. But, as we know with entrepreneurs, and pro athletes, it doesn’t end there.

2) Resting while on the court

Then, there are all of the peripheral activities that you do, that are hardly seen as “essential” to the core objectives, but you go through each day, and no one would define as “personal time”. These are moments where you find “breaks in the action”, and you can use to quickly regroup your thoughts and prepare for the next set of time on the court. Such things include:

• Lunch with co-workers
• Some of those extra meetings discussing operations, facilities, or other matters
• Speaking engagements, interviews, and even blogging

Yup, I said it. Some may take offense to these things, but realistically, while important and helpful, are not essential to your core business of building and selling stuff.

3) On the bench

There are also those times when you’re definitively “out of the game”, but are actively observing, preparing, and getting ready for your stint back on the court / on the field. This can include activities like commuting / travel, organizing your notes, preparing for an interview, or your Sunday night prep. Again, it’s all necessary and unavoidable, but you’ll definitely take on a different level of involvement than #1 & #2, but again are not considered “personal time”.

4) In practice / film room

These are the times you spend honing your skills,, dissecting what went right / wrong, and generally preparing for your next time back in the game. To me this is the time I spend reading relevant blogs / business books, attending conferences, researching competitors, playing with other products in the industry, and general networking events. To some extent some major internal strategic planning  sessions, or personnel reviews, could fall into this category as well.

5) Day off

Then there are the times where you need to unplug completely from anything related to your “job”. These can be daily activities like working out, or having a meal with people you care about. However, this can also be the more mundane stuff like doing laundry, paying bills, and generally making sure your personal life doesn’t collapse. The best example of this is when it comes in the form of quality time allowing you to reconnect and recharge over a longer period, like taking a Saturday evening out, a lazy Sunday with family & friends, or perhaps even a “vacation”.

6) Off season

When a real, longer break in the action comes your way, you can treat it as a longer “vacation”; however, the best players use the time to do extra preparation, training, and development of new skills. Think of this as the equivalent of an academic sabbatical. While it doesn’t have to be as exotic as Steve Jobs’ learning calligraphy, or taking spiritual enlightenment trips to India, there are many other examples, ranging from taking a trip, a class, working with other companies, or as I did: went to business school.

Other states

There are many other states, while you’re on the job (i.e. that do not fall well into states #1 – #5). They can be such things as:

• Injured reserve (sick days)
• Post-game celebration (co-worker bonding)
• Community work such as working with other startups, directly, or through various incubators and academic institutions…some may call this “in the game”, but it’s likely because they do it better than I do
• Oh yeah, and sleep…but only a little bit

Well, if you haven’t heard, we at Visible Measures recently moved office space. However, what you probably didn’t know is that this move, and all of the office space design, was performed entirely by the company employees….this is a lesson in crowdsourced design.

As a growing technology company, with state-of-the-art technology, and in a really hot market, we were bursting at the seams of our former office space…so it was time to move on to bigger, and better office space.

What we did

Unlike most companies of our size, we decided to go back to our roots, and keep things very frugal, and “startup”…or as VM advisor, David Cancel, would say “ghettopreneur”.

This approach meant all of the basics would have to be handled; like boxing stuff up, moving furniture, renting a U-Haul truck, and lots of little trips back and forth. However, in taking this approach, we were afforded to do something very unique: to all pitch in to design our own office space. To make things fun, we enacted an HGTV-style competition where teams signed up and developed their own concepts on a limited budgets, and timeframe, to execute their concepts. While the budget was fixed, we erred on the side of fewer rules, in order to let the creativity flourish. Additionally, we employed the best interior designer I know (um, well…ok it’s my wife) to provide guidance to the teams, and to help out with our other common areas.

What we got

The results of our design crowdsourcing experiment were incredible, and included the following:

• A replica of Seinfeld’s Monk’s cafe
• A physical history of video from the 1800s – present
• Inspirational images and quotes elegantly displayed to remind us that we’re doing something bigger than oursleves
• A room fashioned entirely out of cardboard, to symbolize innovation, resiliency, and resourcefulness
• A zen like retreat, including a fountain made by hand
• Kick-ass common areas and flexible workspaces, all with Ideapaint walls, company memorabilia, and inspirational images (e.g. Rocky) and objects (like championship banners)

The takeaway from this, our people on the front-lines have an incredible sense of what it takes for them to be most productive and happy. So by providing some support and leeway, their creativity was unleashed and resulted in a finished product far better than any individual, or “committee”, could possibly conceive.

What this means to us as a company

In this blog, I’ve discussed some of the factors of creating culture, as well as the academic underpinnings; however, demonstrations like this, of what a team can do, are surprising when you see them in action.

I have personally never been a part of anything like this, where (for a company of this size and funding) so many people come together voluntarily to make this happen, but it’s certainly really cool and a lot of fun. So many people contributing in so many ways, from helping to prep, to lending vehicles, to bringing in food / coffee (and beer), to words / e-mails of encouragement, and so so many other acts large and small done without being asked, and on pure initiative, heart, and selflessness…and in the end, our space is exceptionally cool and fun.

This entire experience has been symbolic of the kind of dedication and hard work it takes to build a truly unique and legendary company. A great company is created by what happens within its walls, not outside of it; and what its people can do, not what can be done for them. I can definitively say, this is the stuff legends are made of. Thanks to all of the employees of Visible Measures for going way above and beyond the call of duty, and for creating and shaping a venue to do many more incredible things in the years ahead.

See for yourself

Don’t take my word for it, see the slideshow below for a taste of what a talented, and committed, bunch of geeks can do!

With all of the recent hype around the spurned $6B acquisition offer of Groupon by Google, and the holiday shopping season upon us, I thought I’d share our experience at Lime Tree Cove, with promoting our products through group buying.

In considering, researching, and executing our campaign we learned a lot, and wanted to share our experiences and views of what types of products / services are best suited, and which are not.

First, a breakdown of group buying economics

By “group buying”, I’m referring to the numerous services that showcase discounted products and services; usually done with a minimum number of people accepting, in a “deal a day” model that targets specific local markets. While there are a host of sites offering this service, such as Groupon, Eversave, Living Social, BuyWithMe, Woot, getsugar, Tippr, and more, there may be subtle differences, but the general model works as follows:

• The consumer receives a 50% discount on the list price of the product
• Of the remaining 50%, 50% of that goes to the site
• So effectively, you’re selling your product at a 75% discount

For more information you can go here, but for all intents and purposes, you can expect to give a pretty steep discount, and not all types of products and business models can stomach this. So let’s look at who, and when, this type of promotion works best and worst…

When Groupon makes sense for you, as a merchant

The group buying economics are harsh, and the time-limited nature and hyper-promotion of the deals may overwhelm, so its clearly not for everyone, in all situations. Here are some scenarios that we had, where we could take advantage of the “group buying” benefits.

1) You have “expiring” inventory
It’s no accident that restaurants comprise nearly half of Groupon’s inventory, and OpenTable is also getting into the act. Imagine on Monday nights, during off-peak hours, there are lots of empty tables that if it isn’t used, are worth zero. Likewise, whale watching boats, that have seats that are either filled or empty once the ship has sailed (literally and figuratively). This is great inventory to burn through group buying.

2) You have an experience good with a high potential lifetime customer value
When introducing new products and services that are heavily reliant on “experience”, it is helpful for consumers to get a trial version — this is why you see companies hand out packs of chewing gum on street corners. By giving customers a “taste” of your product, you’re hoping to “acquire” this customer, and make your product their preferred choice going forward. The effect of this is to use Groupon as your “customer acquisition” vehicle, which even if costly, the “lifetime value” of that customer will be recouped once they return repeatedly and purchase at full price.

David Skok has a great post on the economics of customer acquisition costs and customer lifetime value, if you really want to understand how best to leverage these economics.

3) You want to create initial awareness quickly to leverage word of mouth marketing
This approach works if you’re entering a new market and are willing to subsidize educating a group of lead users. The idea is that with a passionate core group of customers, you can leverage their influence to attract other customers in their social network, and/or to influence retail or other channels that covet that initial user base. The best part of Groupon is that people love to talk about what a great deal they got, and so this approach can help seed your product and expand from there.

4) You have an array of complimentary products
When your product experience can be improved with other products you offer, you have the potential to increase the average order size of every single Groupon redemption. You can see this strategy in action in the fast-food industry, where “combo meals” subsidize the price of the burger with high margin complimentary products, like fries & a drink. Therefore the additional, high-margin products offset the small Groupon margins with full-priced sales of complimentary goods.

5) You want to liquidate excess capacity or inventory
Groupon may be a good option for you to quickly clear out inventory that’s sitting on the shelf. Another derivative scenario is that you have a factory with “excess” capacity, or has not reached minimum efficient scale; then having a quick way to sell off that additional inventory is extremely helpful.

6) Other reasons
Group buying may also be a consideration for those that have ridiculously high margin businesses, have high fixed cost leverage, or who want to reach a specific demographic efficiently (predominantly females aged 18 to 34). Of course if you have more than one of the reasons above, that’s also a good indicator.

Merchants who should approach Groupon with caution

You have an uber premium / luxury product
For those super high-end retailers, Groupon may not make sense. The “deal of the day” model may erode the sense of scarcity and exclusivity, so common with luxury goods. Consequently the short term gains may serve to degrade overall brand perception.

You operate with thin margins
For those merchants who find themselves in negative margins with Groupon, and cannot guarantee the offsets we spoke of above, don’t do it. You’re not a web company, and its not about “eyeballs”; these are real merchants with tangible products / services that cost real money to produce / deliver. If you’re not set up properly the results could be disastrous.

You are throughput constrained
Since the Groupon audience is so large, there is the chance that you can make more sales than you can actually deliver on. There is certainly some wiggle room, in that customers can redeem their voucher over a set period of time, so sales can be spread out…and then, there is the chance they don’t. So make sure your inventory management, personnel, and fulfillment operations are all ready to go. Also, ensure that an influx of new discount seeking customers does not negatively impact your existing customers.

Our experience with group buying

At Lime Tree Cove, we did a promotion with Eversave, a Groupon competitor. Although we may not have gone through this thinking, in as much detail as we have here, the results we saw are as follows:

• Created initial awareness and a passionate group of early adopters
• Our best source of gathering new customers is from our existing customers, either through gift-giving, or via word-of-mouth; an effect well captured in group buying.
• Showing evidence of market traction, helped us access new retailers and markets in a much shorter timeframe.
• We subsidized the cost of our applicator devices with our accompanying spice line, which 90% of customers chose to do.
• We reached our core demographic (women 25-55) very efficiently.
• We did a low-downside experiment, and now have more experience to help us going forward.

Hope this helps you in deciding whether your product / service can be kicked into high gear with this new wave of group buying sites…or at least help you understand what all the fuss is about.

3D-TV is not going to be the next big thing. In a previous post, I looked at different factors that drive innovation diffusion to commercial success. Using that same model, it’s pretty clear that current 3D-TVs have a tough road ahead of them.

Testing 3D-TV against the diffusion of innovation framework

Let’s look at the 7 factors of innovation diffusion, and do a back of the envelope analysis to see what I mean:

The net effect: slow growth projection

The net effect is that I believe 3D-TV will have a slow ramp, based on the model above.

Additionally, the macro trend of video consumption is toward video “snacking”, and “cord cutting”, with the advent of YouTube and social video. Mobile technologies (like the iPad) and new devices (like Roku, PS3, and AppleTV) are making it even easier to consume what you want, when you want it, and on whatever device.

So the real need to have an immersive in-home experience revolve around sports, live events, and movies; I think in-home 3D may have a place in those three areas. However, the complexity and expense of the setup, limited availability of content options, and the overall inconvenience of having to wear glasses impede the diffusion of this technology…oh yeah, and apparently harmful to drink and watch a 3D-TV, so I certainly won’t buy one

[UPDATE Nov 1, 2010: It seems TechCrunch has caught on to this trend as well with this post]

In my previous post, I discussed some rules of thumb for designing and building culture at startups. Here I’ll dive into a little more detail into the academic underpinnings of those ideas, stemming from a course I took called Designing & Leading the Entrepreneurial Organization while at MIT Sloan, taught by Diane Burton. This is my retelling of that information, so I take no credit for the theories and research behind it…so I’ll do my best to do it justice.

The research, by the Stanford Project on Emerging Companies (SPEC), sampled 175 young high-tech firms in Silicon Valley, over the course of 1994 – 2000. They analyzed these companies along three core dimensions of how they approached managing people, and arrived at five prototypical employment models (whether intentionally or unintentionally)…which you can think of as like a business version of the famed software Design Patterns.

Dimensions of Analysis

Three separate dimensions of how the founding teams approached the nature of work, were examined.

1) Attachment:
How the companies viewed the nature of their employees’ motivation for joining and staying with the firm, fell into three main categories. First was the “work”, meaning the primary motivator for their employees was the desire to do exciting tasks. Second was “love”, or the strong family-like bonds and relationships with their peers. The final category was “money”, as the simple transaction of work for pay.

2) Selection:
The next dimension examined the bases used to select new employees. Generally, the companies used three different methods: skills, potential, and fit. Some viewed the company as a set of tasks that required people with the skills to accomplish them, while others focused on how employees would grow & tackle problems over time, and the final group valued how prospective hires would connect with others in the team.

3) Coordination & Control:
Each company was analyzed in terms of its method to coordinate and control operations, of which four different types emerged. The first, and most common, was to rely informally on peers and the overall organizational culture to align employees. Second, was the “pedigree” or well-known professional standards by which employees were conditioned in, such as coming form elite organizations or academic institutions. The third approach of control was more traditional, in relying on explicit, formal procedures and systems. The final method had founders themselves controlling and coordinating work personally, by direct oversight.

The Five Employment Models

When looking at the variants of each of the three dimensions, the potential 36 unique employment models (3 x 3 x 4) ended up converging into five main models, as follow:

Star cultures are the ones that aim to recruit top “rockstar” talent, and pay top dollar for them to reach their maximum potential.

Engineering cultures are built around the attachment to the work, in a performance driven, achievement oriented, environment revolving around team-based problem solving.

Commitment cultures are found at the companies that want to be like “families”. There is strong loyalty to the company, and employees are recruited for their fit, and stay connected via their “love”

Bureaucracy cultures have more formalized management, and while not necessarily overly hierarchical, rely on procedures, systems, and rigorous methodologies to accomplish their goals.

Autocracy firms mainly are focused on the transactional exchange of skills and performance for money. Relationships here are more transactional, and focus less on the “warm and fuzzy”. There is centralized coordination of a highly competent group of people to accomplish a well-understood mission.

Choosing the right model for the right job

The above employment models are meant to be descriptive, meaning not implying a value judgment on which model is “better” than another. However, when examining common patterns of business strategy, there become clear correlations to the employment models. Here are four common business strategies.

Innovation as a form of competitive advantage, where firms seek first-mover advantages by winning a technology race.The emphasis of these firms is to develop ground breaking new technology, to create a new market.

Enhancement of existing technologies, or what Steve Blank & Bob Dorf call a resegmented market. The main approach here is to find an approach that is “slicker, quicker, or better” than the existing incumbents.

Marketer approaches seek competitive advantage by relying on building key relationships, or specialized access to markets, via high degrees of customer service, brand building, or customized services. In many cases, this type of firm will start out by building specialized niche products in close coordination with their customers.

Cost strategies seek to build a sustainable low-cost advantage via superior production, economies of scale, and other operational efficiencies. While minimizing cost, or “capital efficiency” is essential at a startup, low-cost strategies are less common.

When mapping the various employment models to each of these strategies, the following patterns emerged amongst the sample set of companies.

Effect on Business Results

So the real question was what effect these models had on business results; here are some of the findings:

• Commitment models were the most likely to go public and the least likely to fail outright
• Star firms had some correlation to IPOs, but when they did had the largest increases in market capitalization
• Hybrid models, or models that changed, were the least likely to IPO and changing the model increased the likelihood of overall failure
• Autocracy and engineering firms did the worst post-IPO

Another interesting note was that when employment models changed, they tended to move from star or commitment model toward bureaucracies. Changes in general, were more disruptive to the organization when it was to a hybrid or something outside of one of the five models.

Takeaways and Applications

Using the employment models can help understand organizational culture in the following three contexts. First, if you are thinking of starting a company, it’s worth spending time thinking about the factors you’ll want to look for in building your team, and put more clarity around the type of model you’ll want to build, so as to build a competitive advantage from your HR strategy. Second, if you’ve already started a company, without this level of rigor in your hiring approach, it’s worth thinking about why people really work at your company, what makes them get out of bed in the morning, and the modes of control in place. Finally, if you’re looking to join a company you should apply this lens to think about how they approach their HR strategy. This stuff is hard to change once it’s started, so if you don’t like it, you’ll likely be stuck.

Academic References

Burton, M. D. (2001). The company they keep: Founders’ models for organizing new firms [Electronic version]. In C. B. Schoonhoven & E. Romanelli (Eds.), The entrepreneurship dynamic (pp. 13-39). Stanford: Stanford University Press.

I was recently asked by good friend, and coach Bob Radin, a professor at the Carroll School of Management at Boston College, to speak to his MBA class, called “Managing People in Organizations”. Bob asked me to give them the perspective of what it takes to design and build culture at a startup; for which I provided some perspective, as well as a mini-framework, to help students think about how culture plays an integral role when founding a startup, or even selecting where to begin their post-MBA career.

In addition to the slides, here is a description of the main takeaways of the discussion.

If you cannot view the slides above, you can find them on Slideshare here: http://slidesha.re/cbifUH

Culture is hard…especially at a startup

Despite the romantic notions, culture in a startup just doesn’t happen: it’s designed and created under tremendous adversity. Starting from “zero”, managing hypergrowth, pleasing multiple stakeholders, and managing big personalities / egos make it exceptionally harder than an existing company. The other dirty little secret is that money — whether coming into it via financing, or having to bootstrap for extended periods — can really change behavior and put additional stress on the fledgling culture.

The Three Ps

The overwhelming tendency, of inexperienced founders, is to “cut and paste” various attributes from other startups (an example of what I call Karaoke Creativity). The culture a founder sets up must be specific to the problem / market, the people involved, and the business context. So cherry picking other mission statements won’t cut it; instead, I provided three things to think about when designing and building a culture to stand the test of time.

i) Purpose:
The underlying values and beliefs define the DNA of the company. It’s not the formalized, nice-sounding values that are emblazoned on a plaque on the company walls (unless it’s this one), rather it’s about what these companies actually do, on a day-to-day basis.

To answer that question, drive to the core to the single most important thing to the company: I’d argue at Google it’s the “product”, at Goldman Sachs it’s the “deal”, at Zappos it’s the “customer”, and maybe at Apple it’s “Steve Jobs”. While this is a very blunt tool, asking this question is a way to distill all of the corporate jargon into a single focus…which is needed to orient everything else.

ii) People:
While the founder(s) of a company massively, and perhaps irrevocably, shape the core values of a startup, its execution rests with the people in an organization; they’re the ones that turn purpose and values into culture. While an eternity can be spent on this topic alone, some important topics covered here include:

• Essential competencies & qualities of the people you recruit. I have my own take on what to look for, and also borrowed from Ben Horowitz’ thoughts as well.
• Hiring and retaining key people. I again I borrowed from Ben’s philosophies and also from Bruce Temkin on “re-recruiting”.
• Common organizational “patterns” that underlie startups, referencing the work of a Professor I had while at MIT Sloan, Diane Burton. Her research shows that that many startups fall into characteristic models — for more information, you should read her paper.

iii) Process:
The final way to instill culture revolves around all of the tools, processes, and mechanisms put in place that enables people to do their job effectively, and what drives “rewards” (promotions and accolades), and “punishments” (reprimands and lack of advancement). We touched on subtopics such as org charts, motivators (see see my post), performance evaluations (see my post), and other workplace “rituals”.

Sticking with it is even harder

At the beginning of a start-up, it’s easier to have a handle on all parts of the process; however, as the company grows, everything you have created will be tested by many external factors, so sticking to your guns is hard. Here are a few of the examples we discussed, from the small to the large, that test the stewards of startup culture:

• Keeping regular meetings: especially when urgent client matters draw you away
• Celebrating the small stuff, in the face of never feeling unequivocal success
• Debating a key, desperately needed hire who doesn’t quite “fit”
• Parting ways with key team members
• Helping employees through very difficult personal issues that will impact their work

Such kinds of issues are very real and can test founders’ deep morals. As a result, the decisions one makes can severely alter the fabric of the startup’s culture.

Takeaways

Culture is critical to the healthy functioning of any company. While culture anywhere is challenging to build, startups have unique qualities that make it increasingly difficult. Using the “Three Ps” is by no means a recipe, rather a reminder of the key elements that founding teams need to commit to create, maintain, and align in order to develop and steward the culture at their startups.

Thanks

I’d like to thank the students of the Carroll School of Management, in the “Managing People in Organizations” MBA class, at Boston College for a great discussion and for pushing me to solidify these thoughts.