“Have a heart that never hardens, and a temper that never tires, and a touch that never hurts.”
“Have a heart that never hardens, and a temper that never tires, and a touch that never hurts.”
There just isn’t anything more miserable than working for someone who is rotten — or worse, who makes you feel rotten. I am a realistic optimist, but sometimes your boss just wants to see through you. Hate is a strong word, and I do not use it lightly. But sometimes that’s what it feels like. You feel hated.
So, how do you recognize pending misery before it’s upon you? Do you know the one true sign that your boss wants you gone?
This post is the counter-balance to my wildly-popular post last week, The One Sign Your Boss Loves You. In that post, I pointed out that a boss saying “You did a good job” benefits employees by making them feel special, giving them a sense of team, and providing protection. These are important feelings for supportive bosses to inspire in employees and loved employees work harder than ever.
As the CEO of Aha! (product strategy and visual roadmap software), I take employee happiness seriously as a leader of a rapidly growing, high-performance team. And I do my best to make sure that everyone is challenged and growing.
But what happens, though, when your boss is far from supportive?
You are not happy when your boss is nasty and you want to leave your workplace. Studies have shown that less than half of the workforce feels appreciated by their bosses and that two-thirds of them say they’ll seek new work within a year. It’s hard to bring your best to a boss who brings his or her worst. So how do you know if your boss is just incompetent or if he really wants to show you the door?
The one key sign that your boss wants you gone is that your boss ignores you.
Being ignored is worse than being ridiculed. At least when you are ridiculed, you are acknowledged. A boss who is showing hatefulness by ignoring you does three things:
When your boss is avoiding you, he is indicating that your presence in the workplace doesn’t matter to him. He is sending clear signals that you are not someone with whom he needs to be engaging. Avoidance is worse than dismissiveness and is akin to rendering you invisible.
Gives your work to others
By giving your work to others, your boss is saying that your work doesn’t matter and/or that he doesn’t believe that you can do it. This indicates lack of trust as well as a lack of investment in you. If your work is being given away, you’ve already been written off by your boss.
A hateful boss takes credit for your accomplishments and grabs your ideas. Rather than defining his own success in part by whom he lifts with him, he is stealing your success to make himself look more grand. You can’t get ahead in that environment.
Having a spiteful boss is painful. It’s just not worth it to put up with someone who isn’t going to change, so you may need to change direction yourself to free yourself from a tyrant.
You should not reach for job change readily, but when your boss does what is described above, it may be your only path to sanity and growth.
What signs do you look for to tell if your boss is holding you up or holding the door?
ABOUT BRIAN AND AHA!
Brian seeks business and wilderness adventure. He has been the founder or early employee of six cloud-based software companies and is the CEO of Aha! — the world’s #1 product roadmap software. His last two companies were acquired by Aruba Networks [ARUN] and Citrix [CTXS].
Greetings from a jazz bar in Sardinia, Italy! If you’d like to see what I pack when I also hit cold weather like the pelting rain of Scotland — while still keeping it under 20 lbs. — check out my recent post on Gadling here.
The Monica grape wine here is excellent and a new taste for me. In the spirit of trying new things, I wanted to share a few tips for the would-be bloggers/writers out there (that’s you at some point). Here are five timesavers to save you grief and suffering:
1. Decide how you’re measuring success before writing a post. What’s your metric? Form follows function.
Is it Technorati rank? Then focus on crafting 1-2-sentence bolded sound bites in the text that encourage quoting. Quotes can be just as important as content. Alexa or other traffic rank? Focus on making the headline and how-to appeal to tech-oriented readers on Digg, Reddit, etc. Number of comments? Make the topic either controversial or universal and end with a question that asks for opinions (slightly more effective than asking for experiences).
2. Post less to be read more.
No matter how good your material is, too much of it can cause feed-overwhelm and unsubscribes. Based on input from close to a dozen top bloggers I’ve interviewed, it takes an average of three days for a new post to propagate well in the blogosphere. If you write too often, pushing down the previous post and its visibility, you decrease the reach of each post, run the risk of increasing unsubscribes, and create more work for yourself. Test posting 2-4 times per week — my preference is two — and don’t feel compelled to keep up with the frequency “you have to post three times before lunch” Joneses. Quality, not quantity, is what spreads.
3. Define the lead and close, then fill it in.
This is a habit I picked up from John McPhee, a master of writing structure and recipient of the Pulitzer Prize. Decide on your first or last sentence/question/scene, then fill in the rest. If you can’t decide on the lead, start with the close and work backwards.
A good formula for the lead, which I learned from a Wired writer, is: first sentence or paragraph is a question or situation involving a specific person, potentially including a quote; second paragraph is the “nutgraph,” where you explain the trend or topic of the post, perhaps including a statistic, then close the paragraph explaining what you’ll teach (the “nut”) the reader if they finish the post.
4. Think in lists, even if the post isn’t a list.
Separate brainstorming (idea generation) from synthesis (putting it all into a flowing post). I generally note down 10-15 potential points for a post between 10-10:30am with a double espresso, select 4-5 I like and put them in a tentative order from 10:30-10:45am, then I’ll let them marinate until 12am-4am, when I’ll drink yerba mate tea, craft a few examples to match the points, then start composing. It’s important to identify your ideal circadian schedule and pre-writing warm-up for consistent and reliable results.
5. The best posts are often right in front of you… or the ones you avoid.
Fear is the enemy of creativity. If a good serious post just isn’t coming, consider trying the obvious or ridiculous. Obvious to you is often revelatory for someone else, so don’t think a “Basic Confused Terms of Blogging” or similar return to basics would insult your readers. Failing a post on something you take for granted, go for lighthearted. Is this self-indulgent? So what if it is? It might just give your readers the respite from serious thinking they secretly crave. If not, it will at least give them an excuse to comment and get engaged. Two weeks ago at 3am, I was anxious because the words just wouldn’t flow for a ground-breaking post I wanted to finish. To relax, I took a 3-minute video of me doing a few pen tricks and uploaded it as a joke. What happened? It promptly hit the Digg frontpage the next morning and was viewed by more than 120,000 people within 24 hours. Don’t take yourself too seriously, and don’t cater to readers who have no sense of humor. If blogging can’t be fun at least some of the time, it isn’t worth doing.
Nobody sits down to make something they hope will be immediately or quickly forgotten. Elon Musk compares starting a business to “eating glass and staring into the abyss of death,” and no one would willingly do all that if they thought their efforts were going to disappear with the wind.
The vast majority of creative work, sadly, is not only forgotten, it never had a chance to be anything but forgettable. In the United States alone some 300,000 books are published on average per year. Roughly 300 hours of video are uploaded to YouTube every minute. Since it launched in 1985, some 6,000 films have appeared at Sundance. How many of these products endured for years or decades? Not many.
But some people do figure it out. The publishing industry, the music industry, the movie industry, despite what you read in the newspapers, are successful not because of the hits that come out each week, but because of their library of content—what insiders call “perennial sellers.”
Perennial sellers are movies like the Shawshank Redemption, artists like Iron Maiden, startups like Craigslist, books like the 48 Laws of Power, (and The 4-Hour Workweek, which is 10 years old and still sells more than 100,000 copies per year in the U.S. alone). Look at Craigslist, now 20 years old, which makes annual profits of over half a billion by monetizing just 2-3 categories of listings. These are the kind of products that customers return to more than once, and recommend to others, even if they’re no longer trendy or brand new. In this way, they are often timeless and unsung moneymakers, paying like annuities to their owners. Like gold or land, they increase in value over time because they are always of value to someone, somewhere.
All my life (and career) I have been studying these kinds of perennial sellers. Not just because it’s what I do for a living as an advisor to writers, musicians and entrepreneurs, but to incorporate them in my own writing. What follows in this post are some of the lessons we can learn from the creators who have made things that last—not for months but for years. I’ve split them into two distinct buckets, how to make something that lasts and the kind of marketing required to develop a loyal audience that lasts.
It was the great Cyril Connolly who would tell writers that, “the true function of a writer is to produce a masterpiece and that no other task is of any consequence.” This is true of anyone setting out to produce a perennial seller in any space in any era. Phil Libin, the founder of Evernote, has a quote I like to share: “People [who are] thinking about things other than making the best product never make the best product.” The legendary investor and Y Combinator founder Paul Graham explains why, “The best way to increase a startup’s growth rate is to make the product so good people recommend it to their friends.”
The point is: The first and most essential step of a perennial seller is creating something truly great. As my mentor Robert Greene put it, “It starts by wanting to create a classic.” If you’re sitting down to make something and thinking about how famous it’s going to make you, how rich you’re going to get, how fun it’s going to be, or all the people you’re going to prove wrong, you are thinking about the wrong thing.
Frank Darabont, the director and writer of The Shawshank Redemption, was offered $2.5 million to sell the rights so that Harrison Ford and Tom Cruise could be cast as the stars. He turned it down because he felt this was his “chance to do something really great” with his screenplay and the actors of his choosing. Turning down that kind of money couldn’t have been easy, but that’s the difference between what might have been a forgettable mid-level blockbuster to one of the most enduring and popular movies of all time.
Darabont’s decision probably seemed crazy at the time. Hollywood says “We want to give you a bunch of money to put these two movie stars in your film,” and he rejects it? Why? He didn’t want to make a movie dependent on big names. He wanted to make a movie that captured the essences of Stephen King’s book, a movie that wasn’t about flash and marketing but rooted in something deeper.
Consider Amazon, now arguably the most valuable company in the world. Jeff Bezos’ dictum to his employees is not to focus on what will make the most money right now, he’s not rushing to capture every fad or opportunity. Instead, he has this surprising command: “Focus on the things that don’t change.”
Bezos isn’t rushed, and he is thinking long term. He knows that customers will, always prefer cheap prices, fast shipping and reliable service. That’s what he is optimizing for, not what’s trendy right now. The great writer Stefan Zweig once recounted a youthful conversation with an older and wiser friend. The friend was encouraging him to travel, believing that the experience would broaden and deepen Zweig’s writing. Zweig believed he had to write right now and he needed to finish his book as quickly as possible. “Literature is a wonderful profession,” the friend explained patiently, “because haste is no part of it. Whether a really good book is finished a year earlier or a year later makes no difference.”
It doesn’t make a difference because really good stuff is timeless. It doesn’t need to be rushed.
Who was rushed? All the people who started “businesses” right before the first dot-com bust, or apps for Myspace pages. Or Groupon clones. Or QR codes. Or gourmet cupcakes. Or published adult coloring books. Or people selling fidget spinners.
Take the Star Wars franchise. In one sense, the films were undoubtedly futuristic and took advantage of then cutting-edge special effects. But George Lucas borrowed far and wide…and new and old. He acknowledged that his initial conception of the movie was for a modern take on the Flash Gordon franchise, going as far as trying to buy the rights in order to do so. He also borrowed heavily from the 1958 Japanese movie The Hidden Fortress for the bickering relationship between R2‑D2 and C‑3PO. Yet for all these contemporary influences, Lucas’s most profound source material was the work of a then relatively obscure mythologist named Joseph Campbell and his concept of a “hero’s journey.” Despite the special effects, the story of Luke Skywalker is rooted in the same epic principles of Gilgamesh, of Homer, even the story of Jesus Christ. Lucas has referred to Campbell as “my Yoda” for the way he helped him tell “an old myth in a new way.” When you think about it, it’s those epic themes of humanity that are left when the newness of the special effects fall away. Why else would ten-year-olds—who weren’t even born when the second set of three movies were made, let alone the original trilogy—still be captivated by these films?
As Rick Rubin said on Tim’s podcast, he urges his bands not to listen to the radio while producing an album. He doesn’t want them thinking about what’s popular right now. “If you listen to the greatest music ever made, that would be a better way,” he says, “to find your own voice to matter today than listening to what’s on the radio and thinking: ‘I want to compete with this.’ It’s stepping back and looking at a bigger picture than what’s going on at the moment.” He also urges them not to constrain themselves simply to their medium for inspiration—you might be better off drawing inspiration from the world’s greatest museums than, say, finding it in the current Billboard charts.
As you are deciding what to make, it’s essential that you root it in what is timeless. Otherwise, it doesn’t matter how great it is in the moment—it won’t last.
Creators gravitate towards competition because it seems safe. If pop punk is popular, they re-tool their band because they think that’s what labels and fans are looking for. If venture capitalists are funding VR or drones, that’s the company they start. Unfortunately, this makes it harder to break through the noise.
As famed investor Peter Thiel has said, “competition is for losers.”
An essential part of making perennial, lasting work is making sure that you’re pursuing the best of your ideas and that they are ideas that only you can have (otherwise, you’re dealing with a commodity and not a classic). Not only will this process be more creatively satisfying, it will be better for business. In 2005, business professors W. Chan Kim and Renée Mauborgne described a new concept that they called Blue Ocean Strategy. Instead of battling numerous competitors in a contested “red ocean,” their studies revealed that it was far better to seek fresh, uncontested “blue” water. Can you redefine or create a category, rather than compete in one?
To tell another Rick Rubin story: In 1986, he was signed on to produce the first major label album for Slayer, then a notoriously heavy but obscure metal band. The natural impulse for many would be to help the band make something more mainstream, more accessible. But Rubin knew that would be a bad choice both artistically and commercially. Instead, he helped them create their heaviest album ever—maybe one of the heaviest albums of all time: Reign in Blood.
As he recounted later, “I didn’t want to water down. The idea of watering things down for a mainstream audience, I don’t think it applies. People want things that are really passionate. Often the best version is not for everybody. The best art divides the audience. If you put out a record and half the people who hear it absolutely love it and half the people who hear it absolutely hate it, you’ve done well. Because it is pushing that boundary.”
In the short term, this choice almost certainly cost them some radio play. But when Rubin says that the best art divides the audience, he means that it divides the audience between people who don’t like it and people who really like it. Ultimately, it was the polarizing approach that turned Reign in Blood into a metal classic—an underground album that spent eighteen weeks on the charts and has sold well over two million copies to date.
When I decided to write a modern book that relied heavily on Stoic philosophy, I knew I didn’t want it to be like other books on the subject. First off, the originals like Seneca and Marcus Aurelius are so good that they are essentially impossible to beat. It would have been suicide to compete with them. Many of the subsequent books about stoicism seemed to be content to retread what these great thinkers had said and thus only reached a small niche of hardcore philosophy fans. I decided to take a different route entirely—I would illustrate Stoic principles through historical and business stories. This has angered many fundamentalists in the academic Stoic community—but that’s OK. They weren’t who I was trying to reach anyway. By creating something fresh and new I was able to find an audience that had never considered philosophy.
In the last three years, The Obstacle is the Way has sold more than 300,000 copies and is translated in more than a dozen languages. It sold more copies in 2017 than it did in 2016, and more in 2016 than it did in 2015 and 2014. That’s what can happen when you sidestep competition and create something new—while still basing it on timeless principles and ideas.
It’s important to “scratch your own itch” as the saying does, but are you actually sure people share your itch? I know you’re not going to be satisfied selling just one copy. Whatever you’re making is not for “everyone” either—not even the Bible is for everyone.
Paul Graham of startup incubator Y Combinator, which has funded over a thousand startups including Dropbox, Airbnb, and Reddit, says that “having no specific user in mind” is one of the eighteen major mistakes that kills startups: “A surprising number of founders seem willing to assume that someone—they’re not sure exactly who—will want what they’re building. Do the founders want it? No, they’re not the target market. Who is? Teenagers. People interested in local events (that one is a perennial tar pit). Or ‘business’ users. What business users? Gas stations? Movie studios? Defense contractors?”
It pays to be specific.
Think of Herb Kelleher of Southwest Airlines, who has an incredibly clear mission statement illustrated via one question: Will this help us be the lowest-cost airline? As he put it, “I can teach you the secret to running this airline in thirty seconds. This is it: We are THE low-cost airline. Once you understand that fact, you can make any decision about this company`s future as well as I can.” Because of this, his employees knew who their customers were and what those customers needed.
What to Expect When You’re Expecting is for soon-to-be parents. The person who sat down to write the song Happy Birthday was creating something for people at birthday parties (and created an incredibly valuable copyright in the process). When Susan Cain published her book about introversion, she had a very specific audience in mind: introverts. (Which has since sold over a million copies and launched a massive TED talk.) The Left Behind series is obviously for Christians. Its films, novels, graphic novels, video games, and albums are preaching with a very specific choir in mind.
The famous music promoter and later movie producer Jerry Weintraub (The Karate Kid and the Ocean’s series) has a good story in his memoir When I Stop Talking, You’ll Know I’m Dead. He once proposed renting out Yankee Stadium for a celebrity softball game with Elvis. On a day the stadium wasn’t in use, the owner of the Yankees took Weintraub out onto the field and forced him to look at all the empty seats—each one symbolizing someone who would have to be marketed to, sold, and serviced. It was a formative lesson, he said. “Whenever I am considering an idea, I picture the seats rising from second base at Yankee Stadium. Can I sell that many tickets? Half that many? Twice that many?”
What if you can identify a perennial problem and solve it? If you can create something for an audience that renews itself each year (like college grads or people turning 50)? Then you’ll have something that can last and sell by word of mouth.
The more important and perennial a problem (or, in the case of art, the more clearly it expresses some essential part of the human experience), the better chance the products that address it will be important and perennial. As Albert Brooks put it, “The subject of dying and getting old never gets old.” The filmmaker Jon Favreau, who created Swingers and Elf and directed Iron Man, has said that he aims to touch upon timeless problems and myths for specific groups of people in his work, and that all great filmmakers do as well. “The ones who get the closest to it,” he said, “last the longest.”
Let’s stipulate that you have made something amazing. In some ways, now you have an even harder job ahead of you—because now you have to make people care. Art is a kind of a marathon where, when you cross the finish line, instead of a getting a medal placed around your neck, the volunteers roughly grab you by the shoulders and walk you over to the starting line of another marathon: marketing.
In a recent interview, the novelist Ian McEwan complained lightheartedly about what it was like to go out and market a book after spending all that time creating it: “I feel like the wretched employee of my former self. My former self, being the happily engaged novelist who now sends me, a kind of brush salesman or double glazing salesman, out on the road to hawk this book. He got all the fun writing it. I’m the poor bastard who has to go sell it.”
Fortunately, this is a learnable skill, and there is a process that greatly increases your likelihood of success. I’ve used this process with dozens of New York Times bestsellers, musicians whose work has been downloaded millions of times, and products and brands that have grossed hundreds of millions in sales.
Now, the bad news: no one “trick” will do the job. Marketing isn’t about hacks.
As renowned venture capitalist Ben Horowitz says: “There is no silver bullet. We’re going to have to use a whole lot of lead ones.”
The first thing you should do at the launch of any product is to sit down and look at your assets, and ask: What are we working with here? The first thing anyone planning a launch has to do is sit down and take inventory of everything they have at their disposal that might be used to get this product in people’s hands.
This asset assessment can also be used to make great products, and the process is similar, so let’s begin with an example. This was director Robert Rodriguez’s approach—now famous as the “Rodriguez List” approach—to making his award-winning movie El Mariachi. As he told Tim on their podcast together, “I just took stock of what I had. My friend Carlos, he’s got a ranch in Mexico. Okay, that’ll be where the bad guy is. His cousin owns a bar. The bar is where there’s going to be the first, initial shootout. It’s where all the bad guys hang out. His other cousin owns a bus line. Okay, there will be an action scene with the bus at some point, just a big action scene in the middle of the movie with a bus. He’s got a pitbull. Okay, he’s in the movie. His other friend had a turtle he found. Okay, the turtle’s in the movie because people will think we had an animal wrangler, and that will suddenly raise production value. I wrote everything around what we had, so you never had to go search, and you never had to spend anything on the movie. The movie cost, really, nothing.”
The point is: Not every launch is the same and every launch should be tailored around your specific needs. For instance, when we launched The 4-Hour Chef, Tim was looking at a tough retail situation because the book was published with Amazon. We put our heads together and thought about who we knew who could help. Matt Mason, then the CMO of Bittorrent was an old friend of mine. I connected him with Tim and bam—the first Bittorrent author bundle was born and was downloaded more than 2 million times. (Also see the “free” section below for more on this kind of approach.)
Without that brainstorming, one of the single best marketing strategies of that campaign never would have come together. So kick things off by doing a deep dive into:
It is essential to take the time to sit down and make a list of everything you have and are willing to bring to bear on the marketing of a project.
Aside from racking your own brain, one of my favorite strategies to kick off this process is simply: ask your world. I call this the “Call to Arms”—a summons to your fans and friends to prepare for action (see Platform, later in this post). I create a quick online form and I post it on my blog as well as on my personal Facebook page and other social media accounts. In a previous era, different tools would have been used (a physical Rolodex?), just as there will doubtlessly be newer, different tools in the future. Regardless of the tools used, though, what you’re saying is the same:
“Hey, as many of you know I have been working on ______ for a long time. It’s a ______ that does ______ for ______. I could really use your help. If you’re in the media or have an audience or you have any ideas or connections or assets that might be valuable when I launch this thing, I would be eternally grateful. Just tell me who you are, what you’re willing to offer, what it might be good for, and how to be in touch.”
Eric Barker, author of Barking Up The Wrong Tree, sent a similar note to his 300,000 person email list prior to his launch. He replied to each offer to help—but there was so many he actually got temporarily blocked from his his own gmail account! Yet this process unearthed a number of podcasts, book clubs, speaking opportunities and interviews that helped the book debut on the national bestseller list. Depending on the size of your platform, the number of messages you get might range from a few dozen to a few thousand, but there will almost always be something of use in there.
How much does the thing you’re selling cost? Twenty dollars? Fifty dollars? A thousand dollars? Whatever the price, that is not the full price. In addition to the actual dollar cost, there’s also the cost of buyers’ time to consume the product—there are all the things they’re missing out on by choosing to consume your product (what economists call opportunity costs). I can’t ever get two hours of my life back if the movie isn’t good. Life is short, and we can read only so many books—by choosing one, I’m choosing explicitly to not read another. That weighs heavy on consumers.
There’s another cost that creators tend to miss too: How much does it cost for people to find your work? To read the reviews or read an article about it? How much time does it cost to download, wait for it to arrive, or set up? These costs—discovery and transaction costs—exist even when your work is free! Think of the free concerts you haven’t attended, the samples you didn’t bother to walk over and try, the products you didn’t buy even though they were 100 percent risk-free, love it or get your money back, no money down. When you think about it this way, it’s really amazing that people buy or try anything at all!
Tim has posed an interesting related question: “If TED charged for their videos from the beginning, where would they be now?” The answer is probably closer to “obscurity” than ubiquity—they’ve racked up billions and billions of views since the first videos went up. Why should our work be any different?
When we say, “Hey, check this out,” we’re really asking for a lot from people (time, attention, opportunity costs,etc.). Especially when we are first-time creators. Hugh Howey, author of the wildly popular Wool series and one of the first big creators in the self-publishing era, has said that it’s essential for debut authors to give away at least some of their material, even if only temporarily. “They’ve gotta do something to get an audience,” he’s said. “Free and cheap helps.” So does making the entire process as easy and seamless as possible. The more you reduce the cost of consumption, the more people will be likely to try your product. Which means price, distribution, and other variables are essential marketing decisions.
Why do you think Steven Pressfield gave away nearly 20,000 copies of a special edition of his book The Warrior Ethos to soldiers? Because he knew they were his target audience and he knew that if a small percentage of the millions of vets and soldiers in the US Army read his book, it would spread by word of mouth from there (first month it sold 37 copies, five months in it was selling 500 copies per month and now it sells 1,000-1,500 copies per month five years post launch.)
Sure, free is an easier strategy for some products than others. The indie musician Derek Vincent Smith aka Pretty Lights did this so often and so prolifically, it not only built him a huge audience for live shows, but also earned him a Grammy nomination. Starting with his first album in 2006, Pretty Lights has given all eight of his albums and EPs away for free on his website. “I knew I’d probably have to support myself and my music through live performance, so I wanted to get it through as many speakers as possible,” he told Fast Company.
Starting in 2008, his music was available for paid download on iTunes and Amazon, while still being free for anyone to download from his website. This gave his fans a choice of supporting him financially while still growing his audience through free downloads. By 2014, Smith was averaging, per month, 3,000 paid album downloads, 21,500 single downloads, and three million paid streams on platforms like Spotify. His album A Color Map of the Sun was nominated for a Grammy in 2014, after being downloaded free more than a hundred thousand times in its first week of release.
Of course, you don’t have to do “free” to succeed, but it’s worth considering how you would if you had to.
When the New York Times profiled me and my book The Daily Stoic, it took the book to about #1,500 on Amazon. When Tim posted a picture of the first page of The Daily Stoic on January 1st on his Instagram, it took the book to #44. Below is a chart of The Daily Stoic’s weekly book sales:
When he shared a photo of the “memento mori” coin that DailyStoic.com produced, we were seeing orders come in practically every minute for most of the day. When a real person, a real human being that many others trust says, “This is good,” it has an effect that no brand, no ad, no faceless institution can match.
Marc Ecko built his clothing brand Ecko Unltd into a billion-dollar company and a staple of streetwear and music by perfecting what he called the “swag bomb”—a perfectly tailored and targeted package to the person he was trying to impress. His first influencer was a popular New York City DJ named Kool DJ Red Alert. Marc was addicted to his weekly show, which often featured the latest and coolest trends in hip-hop. To get attention for his company, Marc would camp out in Kinko’s and fax in special drawings he made to Red Alert’s station fax machine. Then he started sending airbrushed hats and jackets and T‑shirts. He never asked for anything—he just made great work and sent it to select influencers he knew might appreciate it. Eventually, he got his first shout-out on the air, and the brand was officially born.
Marc wasn’t just sending out random stuff to random people—he knew who mattered and he knew what they liked. When Spike Lee directed the movie Malcolm X, Marc “sent him a sweatshirt with a meticulously painted portrait of Malcolm X on it.” The sweatshirt took two days of work to make—even though there was no guarantee Spike would even see it. It turned out that Spike loved the gift and sent Marc back a signed letter. Two decades later, Spike Lee and Marc Ecko are still working together.
The story of John Fante, one of my favorite writers, is a heartbreaking one. A great novelist’s career was partly ruined by Hitler—and the world was deprived of many great books. Yet there is another wrinkle in that story that gives it a somewhat happy ending. After fifty years of languishing in obscurity, Ask the Dust was discovered in the Los Angeles Public Library by the writer Charles Bukowski. Bukowski was blown away and began to rave about Fante to everyone he knew—including his editor. What ensued was a resurgence of Fante’s work. He spent his dying days finishing one last novel, and today there is a public square in downtown Los Angeles named after him—a man who was nearly forgotten by history.
I heard about Fante from another one of his champions, the writer Neil Strauss, who had called Ask the Dust his favorite novel in an interview. I picked it up because of that recommendation. In turn, I have become a champion of Fante and helped sell thousands of copies of his work to my own fans. I tell this story to illustrate the power of champions—it can bring art back from the dead.
Some networking strategies from I’ve learned from Tim that I think help with influencer relationships:
Never dismiss anyone — You never know who might help you one day with your work. Tim’s rule was to treat everyone like they could put you on the front page of The New York Times . . . because someday you might meet that person.
Play the long game — It’s not about finding someone who can help you right this second. It’s about establishing a relationship that can one day benefit both of you.
Focus on “pre-VIPs” — The people who aren’t well known but should be and will be. It’s not about who has the biggest megaphone. A great example for me was meeting Tim in early 2007 before The 4-Hour Workweek was published. He hadn’t sold millions of books then and didn’t have a huge platform. Now he does and I am writing this post.
In my experience, one of the most effective use of influencer attention is not simply in driving people to check you out, but instead as a display of social proof. A blurb on the back of a book isn’t bringing new fans to the book; it’s there to convince an interested reader, “Hey, this thing is legit.” Katz’s Deli has photos of the owner with all the celebrities who’ve eaten there—but they’re hanging inside the restaurant. It’s to reaffirm to the customers: You’re in a special place. Special people eat here. In the middle of the restaurant there’s also a sign hanging from the ceiling that reads, Where Harry Met Sally . . . Hope You Have What She Had!
Social proof sells. The perennial seller acquires it by being legit, and then comes up with interesting ways to use it to their advantage.
Fun Ways To Get Media Attention
One of my previous guest posts on Tim’s site dealt with the process of getting media so I won’t repeat it all here, but I do want to give some some high level thoughts on the subject:
Now, I’ll now touch on two other things: paid media (advertising) and publicity stunts.
The most important thing to remember if you have a budget for your work: Advertising can add fuel to a fire, but rarely is it sufficient to start one. F. Scott Fitzgerald’s editor Maxwell Perkins once wrote to one of his authors the following, comparing advertising a product to a man attempting to move a car,
“If he can get it to move, the more he pushes the faster it will move and the more easily. But if he cannot get it to move, he can push till he drops dead and it will stand still.”
That’s how you should think about advertising. It’s not how you launch your product—it’s how you keep it going once it has already broken through. Ian Fleming, the commercially minded creator of the James Bond franchise, advised his publisher to advertise for his books after they’d begun to sell well, not only offering to share the costs (£60 for every £140 the publisher put in), but even submitting some of his own ad copy:
Ian Fleming has written 4 books in 4 years. They have sold over one million copies in the English language. They have been translated into a dozen languages, including Chinese and URDU. No. 5 is called FROM RUSSIA WITH LOVE.
As for getting media attention, my strategy is this: If you want to be in the news, make news. Reporters sit around all day hoping to find good stuff, anxious to beat their (many) competitors in getting to it. In this way, the modern media is really a seller’s market. Reporters want stuff, but you have to catch their attention.
A fun example: I was working with a band called Zeds Dead and I saw an article about a woman who had worn a Fitbit while having sex. The article blew up online. So we had Zeds Dead put heart rate monitors on their fans during a show. The subsequent piece from BoingBoing, the biggest blog in the world, did great. One of the things we did when James Altucher launched Choose Yourself! was to announce that James was accepting Bitcoin payments for the book. He was one of the first authors to do it, and even though James only had about ten readers actually take him up on offer, the stunt got him on CNBC to talk about that and the book itself. This certainly moved a lot more units. But again, neither of these stunts would have mattered without a great product to back them up.
There are lots of cool stunts you can do with advertising even. Look at Tim’s decisions to buy actual billboards featuring answers to his famous podcast question: “What would you put on a billboard?” It resulted in a video that did close to 80,000 views and all sorts of social media impact. Neil Strauss bought a billboard on the Sunset Strip for his book The Truth that said, “ON BEHALF OF ALL MEN, I APOLOGIZE.” American Apparel’s controversial advertising got it all sorts of publicity, and that publicity, in turn, introduced lots of people to the brand.
If you’re interesting and provocative enough, the pitch is easy: just email reporters and tell them what you’re doing.
Keep Your Platform in Mind
After the comedian Kevin Hart experienced several disappointing career failures in a row, he was at a crossroads. The movies he’d expected to make him a star hadn’t hit; his television deal hadn’t panned out. So he did what comedians do best—he hit the road. But unlike many successful comedians, he didn’t just go to the cities where he could sell the most seats. Instead, he went everywhere—often deliberately performing in small clubs in cities where he did not have a large fan base. At each and every show, an assistant would put a business card on each seat at every table that said, “Kevin Hart needs to know who you are,” and asked for their e‑mail address. After the show, his team would collect the cards and enter the names into a spreadsheet organized by location. For four years he toured the country this way, building an enormous database of loyal fans and drawing more and more people to every subsequent show.
As his name grew, Hart began to take television gigs that he thought would allow him to grow his platform. In 2011, he hosted the MTV Music Awards and snagged, by his count, more than 250,000 Twitter followers in one swoop. Across social media and e‑mail, Hart’s fan-by-fan ground game—in his words, “years of me building and building and building and reaching out to my fans on the personal level”—built up a platform of more than fifty million people, people he can launch each of his products too.
The problem is people want to have a platform, they don’t want to build one. How many bestselling books came out in 2007? Many, but few took the time to build a blog around their book, featuring other writers no less, but it was Tim’s decision to do that that was instrumental in the book continuing to sell over time.
You’re probably familiar with Kevin Kelly’s theory of 1,000 True Fans: “A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author—in other words, anyone producing works of art—needs to acquire only 1,000 True Fans to make a living.”
Look at a band like Iron Maiden—they haven’t been on the radio in decades, but they built a platform of loyal fans. As Bruce Dickinson, their lead singer, would say, “we have our field and we’ve got to plough it and that’s it. What’s going on in the next field is of no interest to us; we can only plough one field at a time. We are unashamedly a niche band. Admittedly our niche is quite big.”
With one thousand true fans—people “who will purchase anything and everything you produce”—you’re more or less guaranteed a livable income provided that you continue to produce consistently great work. It’s a small empire and one that must be kept up, but an empire nonetheless.
And if I could give a prospective creative only one piece of advice, it would be this: Build a list.
Specifically, an e-mail list. It’s the most durable of platforms and it’s the most direct. Sure, that could change, but I think email (over four decades old) is a safer bet than Facebook or Twitter (just one decade old). With my book The Daily Stoic, we built a 40,000 person email list by sending out one additional free meditation every single morning. This is an incredible amount of work—basically, one additional book written per year—and I do it totally free. BUT—it helped the book spend 5 weeks on the Wall Street Journal list and without really any other marketing, the book now sells 1,000-1,200 copies per week.
Launches Matter But Keep Going Past Them
History shows that good work eventually finds its audience, but, as John Maynard Keynes so accurately expressed it, the market “can remain irrational longer than you can remain solvent.” If an artist starves to death before the world comes around to appreciating her genius, it doesn’t help the artist much. Launches are about getting attention sooner rather than later. Robert Greene’s 48 Laws of Power took a decade to start to hit bestseller lists, but with some slight shifts in his approach, we were able to get Mastery to debut at #1 on New York Times (and 4 years later it is regularly ranked sub-1000 on Amazon.)
Record labels know that the more times you hear a song, the more likely it is to be a hit. That’s why they hold tracks back until they get a threshold number of stations committed to playing it. It’s the same thing with the marketing of any product. You’re doing the work in advance so that to the public it feels like you’re suddenly everywhere.
At the same time, it’s worth remembering that Star Wars was beaten at the box office by Smokey and the Bandit. A launch is important, but we must bear in mind what Kafka’s publisher wrote to his author after poor sales: “You and we know that it is generally just the best and most valuable things that do not find their echo immediately.” In other words, it is far better to measure your campaign over a period of years, not months. If you don’t have the patience for that, at least months over weeks or days. I’ve seen this play out with my own launches. Looking at my 5 previous books, all have sold more than 90% of their total sales in the weeks AFTER launch week. For my most successful book, The Obstacle Is The Way, over 98% of sales have happened since launch week.
I remember early on I asked my agent Stephen Hanselman what separated his bestselling clients from his smaller ones. He said, “Ryan, success almost always requires an unstoppable author.” Throughout my career, I’ve seen this played out not just in books but in all products.
As I see it, not everyone who publishes a book is an author. They’re just someone who has published a book. The best way to become an author is to write more books, just as a true entrepreneur starts more than one business. The best way to become a true comedian, filmmaker, designer, or entrepreneur is to never stop, to keep going. They hustle, they keep creating. Very few of us can afford to abandoning our gift after our first attempt, convinced that our legacy is secured. Nor should we. We should prove to the world and to ourselves that we do it again…and again.
I’ll leave you with one last thought related to that and it’s from Craig Newmark. I asked him what it felt like to know that he had created something used by millions of people, something that’s still going strong after twenty years, his answer was the perfect note to end this post on: “It feels nice for a moment, then surreal, then back to work.”
Three unbelievably cool things happened to me this week. On Monday, my publisher sent me the first hardcover copies of my new book, Work Rules! It’s a real thing now! On Tuesday, the CEO of a major company told me he’d been following my interviews with Tom Friedman about how to get a job at Google, or anywhere. He asked how his company could adopt some of those same practices. Someone is listening!
And on Wednesday, a new Googler stopped me in one of our on-campus cafes. He told me, “I read every one of your articles about resumes and what Google looks for, did what you said, and just started at Google last week. I just want to thank you for helping me get hired by Google.” That was the coolest moment — more than anything I want all of us to have meaningful jobs in workplaces where we feel like owners, not replaceable cogs in a machine.
So first, my thanks to the millions who have read my advice. Thanks for the tens of thousands of posts, and for sharing your success stories with me and one another. I can’t wait to hear more of them!
Let’s assume, like my Noogler friend (new + Googler), you’ve got an awesome resume. You’ve avoided the errors that plague almost 60% of resumes, nailed the right keywords, and your accomplishments burst from the page. (And if your resume isn’t awesome – yet! – read my earlier articles about getting it right here and avoiding getting it wrong here and here.)
Now you’ve got the interview. How do you convince the person on the other side of the table to hire you? How do you win the interview?
You use the fact that most of us aren’t very good at interviewing to your advantage.
I write about hiring in Work Rules!, but here’s an abridged preview from the book:
You never get a second chance to make a first impression” was the tagline for a Head & Shoulders shampoo ad campaign in the 1980s. (A couple of cringe-worthy examples are here and here.) This unfortunately encapsulates how most interviews work. Tricia Pricket and Neha Gada-Jain, two psychology students at the University of Toledo, collaborated with their professor Frank Berieri to report in a 2000 study that judgments made in the first 10 seconds of an interview could predict the outcome of the interview. They videotaped interviews, and then showed thinner and thinner “slices” of the tape to college students. For 9 of the 11 variables they tested — like intelligence, ambition, and trustworthiness — they found that observers made the same assessments as the interviewers. Even without meeting the candidates. Even when shown a clip as short as 10 seconds. Even with the sound turned off.
In other words, most of what we think is “interviewing” is actually the pursuit of confirmation bias. Most interviews are a waste of time because 99.4 percent of the time is spent trying to confirm whatever impression the interviewer formed in the first ten seconds. “Tell me about yourself.” “What is your greatest weakness?” “What is your greatest strength?” Worthless.
There’s much more in the book demonstrating that, on average, we’re pretty crummy at assessing candidates. I write about how to get better. And how at Google we’ve applied 100 years of science to radically upgrade the quality of our assessments (still not perfect, though!).
But if you’re a job seeker (and who isn’t?), the fact that most of us don’t know how to interview well is a huge opportunity. Because that weakness lets you control the encounter. It lets you win. Here’s how:
Everyone deserves an amazing job. I hope this helps you get one.
Disclaimer: nothing on this site is legal advice, and I am not an investing expert.
This post is continued from Part I.
Part I explained how, instead of getting an MBA, I invested the tuition dollars into angel investing. To recap, my current stats for the two-year “Tim Ferriss Fund” look like this:
15 or so total investments
2 successful “exits”, or sales (including my own company)
If we look at the value of my remaining start-ups on paper, based on subsequent funding and valuations, the portfolio is probably up well over 4x. This means nothing (remember Webvan?), but it’s fun to look at the spreadsheet.
This post will look at how I’ve found deals, how I filter deals, and the rules I’ve set for myself. The latter can teach broader business lessons, even if angel investing never enters your life…
Before we get started: you almost always need to be an “accredited investor” to angel invest. If you aren’t comfortable lighting your money on fire, you shouldn’t invest in start-ups–period. That doesn’t mean, however, that you can’t learn a few things from the sidelines.
Before we get started – part deux: angel investing can be complicated. I’ll be using some fuzzy math and simple examples to get the point across. This is intended as a primer, not as a guide to the intricacies of investing.
Last but not least, I’ll use a gender-neutral “he” for the sake of simplicity instead of “he or she”, which is cumbersome. Both sexes can play well in this game (check out Esther Dyson), and both can screw it up equally badly.
For those who want some resources upfront, here are a few:
If you want to be an angel investor:
Read – How to Be an Angel Investor
Read – Is it Time for You to Earn or to Learn? by Mark Suster – this is a must-read reality-check that takes into account dilution and other nasties. Though written for people thinking of joining start-ups as employees, it applies to angels.
If you want to recruit/be an advisor:
Read – Everything you ever wanted to know about advisors, Part 1
Read – the above Suster piece if you think advising a few start-ups will make you rich. Run the numbers first.
If you want to find angel investors:
AngelList (go here to pitch me or anyone else in their roster)
Consider applying to a “seed accelerator” program that will cultivate you. For a complete list of such programs and upcoming application deadlines, visit Kaljundi’s site. Here are few well-known examples:
As exciting as I find the start-up game in Silicon Valley, it can also be depressing.
I see capable first-time entrepreneurs, full of piss and vinegar, run into fundraising and get their asses kicked by seasoned venture capitalists (often affectionately called “vulture capitalists”). Two or three years later, their start-up baby is either dead or their ownership has dwindled to the point where their enthusiasm is gone.
Here are some questions and warnings that might help avoid this:
1) Why do you need funding?
If you can bootstrap to profitability and one of your goals is to work for yourself, I’d suggest thinking twice. If you take a few million dollars, you will–on some level–be working for investors. If you make a mistake and allow investors to have board control, which can happen if you spend funding faster than expected, you no longer run your start-up. 😦
2) Avoid angel investors with few or no prior start-up investments.
The family dentist wants to put in $50,000 and will give you whatever terms you want? Sounds great! Don’t do it. Ditto for the successful CEO who’s never done angel investing, as seductive as it will be.
One good friend just had her start-up implode (after millions of investment) because her primary investor, a former tech CEO, didn’t have the stomach for start-up investing. He panicked when things deviated from the business plan (um, welcome to start-up land), and began doling out funding in two-week increments and insisting on near-weekly board meetings. He became the micromanager from hell. No longer was the real start-up CEO able to make CEO decisions, and the company was doomed.
Only take investment from people who have invested in a few start-ups. Having run a start-up doesn’t qualify one as risk-tolerant enough for start-up investing.
3) Don’t take a ton of money just because the valuation is sexy, or because you give up less ownership.
This problem is more common with venture capital (VC), but it worth learning early: it’s a bad idea to take money from someone simply because they offer a high valuation. Let’s say two investors want to be your lead investor. Investor A thinks your start-up is worth $3 million and offers to buy 33% of the company for $1 million — to fund you with $1 million. Investor B thinks you’re worth $10 million and offers to also give you $1 million, but you’ll only give up 10% of the company!
Go with Investor B, right? Well, not so fast. If you come out of the gates with very little to show but a $10 million valuation, things can blow up in your face a few ways:
– Your exit options become fewer. If Investor B needs a 10x return for his portfolio and has the ability to block your sale for less, this means you have to sell for at least $100 million. If you’re a first-time founder, putting $1-2 million in your pocket with an early sale for $10 million could have changed your life forever and given you “f**k you” money to do anything you wanted. Now it’s home run or nothing.
– You run the real risk of a “down round”. If you don’t make it to profitability with that $1-million round, you’ll need to raise more money later. If you haven’t made a ton of progress, including a ton of new customers, the fundraising community will be skeptical and probably insist your $10-million valuation was too high, or that you’ve lost value since that round. Now you’ll need to do what’s called a “down round” (some examples here). In most cases, this spells the end for your start-up.
OK, with those warning out of my system, let’s look at some definitions and how I’ve done things so far.
When dealing with tech start-ups, the following terms are important to understand. Below are some very general definitions, keeping in mind that almost everything is negotiated and on a case-by-case basis:
“Seed” or “Series-A” = two early rounds of financing common in the start-up world. “Seed” is first, and often either family and friends or $100,000-$1,000,000 from angels. “Series-A” might be around $1,000,000-$5,000,000 and comprise primarily angels and perhaps 1-2 venture capitalists from larger firms that could later participate in larger “Series-B” or “Series-C” rounds, if needed for profitability or to compete. These “B” or “C” rounds usually involve many millions of dollars, which few angels will put up as individuals.
“Dilution” = Having your percentage ownership lowered when new investors come in. If, for example, you own 1% of a start-up at seed stage, if there are any future rounds of financing, your portion of the pie will almost always shrink–you will be diluted. This is critical to keep in mind when calculating potential outcomes as an investor or advisor.
“Investor” = someone who writes checks in exchange for equity (a certain % ownership) in the start-up.
“Advisor” = someone who advises a start-up in exchange for equity over time. “Advising” can include key introductions (to customers, partners, important hires), “syndicating” financing (getting other investors on board), developing/improving the product, helping with PR/marketing/customer-acquisition, or anything else a start-up might need.
So what percentage do advisors get? For someone who’s just doing a few intro’s, or whose name you’re using to get investors, it might be 0.10 – 0.25%. For someone who’s investing real time and helping to build the company, or someone whose involvement could make the difference between success and failure, it could be as high as 2%… or even more. There are start-ups who think giving more than 0.25% is ridiculous, and there are start-ups who find 2% a steal if they can get the right person.
Advisors generally receive their equity over a period of time, often 12-24 months.
This means that if an advisor signs an agreement for 1% that “vests” over 12 months, he would get 1/12 of one percent each month, and the start-up can cancel the deal at any time. If the start-up gets fed up with this advisor after six months, it means he gets the 0.5 percent that vested, but no more.
Different strokes for different folks, but all-star advisors generally = better investors, better investment terms, and faster outcomes. To me, that’s a legitimate no-brainer.
If I were to found a tech start-up and aim for the fences (IPO or sale), I would do what several successful tech CEOs I know are doing right now: give 3-5 bad-ass advisors 1-2% each, depending on time required, and self-fund until you hit break-even or profitability. Then, go out to raise $500-750,000 from key angels who can open doors to potential acquirers and help you get to “scale”. “Scale”, in this context, meaning the point at which you can go big, as in millions of users or nationwide, with the simple addition of money: the costs and revenues of your customer acquisition are predictable. Money in = more money out.
Last, you go to potential acquirers (often potential competitors) to see if they’d like to discuss “partnerships” or funding you; both approaches are used to start conversations that hopefully end with “why don’t we just buy you instead?” from their side.
If that doesn’t work, you get more funding, grow a lean monster, and eat their lunch.
Here are the start-ups I’m involved with, whether as an investor or advisor, in no particular order:
[TIM UPDATE FROM 2013: OK, three years later, here is a more current list. Hilarious that Uber was called “UberCab” back in the day!]
Twitter (investor) – micro-blogging platform
Digg (investor) – see what’s most popular on the web
StumbleUpon (advisor) – Pandora for the coolest content on the web (this is how I find much of my most popular Twitter material)
Evernote (advisor) – capture anything in the world you want to remember
Posterous (investor, advisor) – the simplest blogging platform in the world
CrowdFlower (advisor) – crowd-source just about anything for pennies; 500,000 workers in 70+ countries.
SimpleGeo (investor) – on-demand geodata infrastructure
Graphic.ly (advisor) – the next (gorgeous) evolution of comic books
Foodzie (investor, advisor) – find and buy incredible artisinal food in the US (my favorite cookies in the world are here)
Shopify (advisor) – beautiful and easy e-commerce for selling anything
RescueTime (investor, advisor) – time and productivity tracking
ReputationDefender (investor) – monitor and repair your reputation online
TaskRabbit (advisor) – get any task done, from dry cleaning to research (use code “FERRISS10” for $10 off your first task)
UberCab (advisor) – Fully automated car dispatch with built-in reputation system – ride like a European diplomat.
Badongo, DocumentHosting.com (investor) – file and document hosting/sharing
DailyBurn (investor, advisor) – exercise and diet tracking
iMarket Services (advisor) – creating hubs for niche markets like stand-up comedy
Samasource (not-for-profit – advisor) – outsource your tasks to those most in need (refugees, etc.)
Donorschoose.org (not-for-profit – advisor) – eBay for helping public school children in need of basic supplies.
“Deal flow” refers to how you find the start-ups you invest in, or how they find you. All of the companies except DonorsChoose.org and iMarket Services (respectively: have known the CEO for ages, chance meeting at SuperBowl party) were found through:
– Referrals from friends who are angels and tech CEOs
– Y-Combinator (Posterous, RescueTime)
– TechStars (DailyBurn, Foodzie, Graphic.ly)
– Facebook Fund (fbFund) (TaskRabbit, Samasource)
– Twitter DMs from me to the founders (Evernote, Shopify)
What makes me interested in a start-up… or rules them out?
These are the considerations I run through when looking at start-ups, but it doesn’t mean that all of the companies in the portfolio passed all of the criteria.
In no particular order, and written as a stream of consciousness:
– If my readers won’t shut up about them, I listen (this led me to reach out to Evernote and Shopify)
– I generally look for these questions to be answered via email, but I now much prefer to have them answered through the AngelList form. If you don’t know the terms (“deck”, “traction”, etc.), you need to learn them before pitching Silicon Valley types.
– Does it offer the possibility of at least a 5x return? Good angel investors in Silicon Valley do not invest in lifestyle businesses or profit shares–they want to turn their $100,000 into millions. 5x return potential is just the entry point for working with decent angels at the seed or Series-A level. Many will be filtering for 20-30x potential, depending on the size of their fund.
– If it’s a single founder, the founder must be technical. Two technical co-founders are ideal.
– Have the founders ever had crappy service jobs, like waitering or bussing at restaurants? If so, they tend to stay grounded for longer. Less entitlement and megalomania usually means better decisions and better drinking company.
– I must be eager to use the product myself. This rules out many great companies, but I want a verified market I understand.
– I must understand their customers and be able to recruit, in military terms, HVTs–High Value Targets.
– Do the founders actually test some of what I’m recommending? My data is based on 15+ start-ups and more than $1M in direct response advertising–there are a few things I understand very well, sign-up conversion being one example. I will usually suggest 1-2 elements for testing in an initial meeting, well before investing, and if at least one element isn’t tested within a week, they’re out. If the product (usually a website) isn’t split tested or “iterated” fast enough, it usually foreshadows death for tech start-up. Speed is often the only competitive advantage smaller guys have.
– They need to understand the eco-system in which they play. What recent companies have sold for what amounts? Who are the most likely acquirers? Who are the most formidable competitors, and what types of funding (even investors) and resources do they anticipate needing to compete? It it a winner-takes-all market where only one company will reign supreme (e.g. businesses dependent on network effects), or can many large profitable companies co-exist?
– Founders must pass the “mall test”: if you were to see them in a mall, would you walk in a different direction, would you walk over to say “hi” and move on, or would you invite them to join you for coffee or whatever you’re doing next? If the founders don’t fall in the last group, don’t invest. This is a close cousin of the simpler “would you invite them out for beers just to catch up” test.
– Am I following my rules, but are other investors turning them down? These days, I take this as a positive sign. Mike Maples explained this to me: breaking your rules to co-invest with well-known investors is usually a bad idea, but following your rules when others reject a start-up can work out extremely well. DailyBurn, my only exit to date, was a mild example of this. They hit my checklist boxes, but the majority of the investors (but not all) I asked to participate declined. It thrills me that this start-up–from Alabama!–has so far outpaced most in Silicon Valley. Bravo.
Now the rules that require a little explanation:
1. Don’t do it solely for the money, but know your minimums.
Investing in start-ups has to be, on some level, a labor love. You need to love helping entrepreneurs. That said, don’t actively waste your money and life by failing to do basic math.
Set a minimum threshold for each start-up investment. The minimums could be what a success should cover, or a minimum dollar amount. For example:
A. Each start-up, if it exits at 5x its current valuation, should be able to cover 2/3 of your total fund.
Most entrepreneurs think their start-up will be the next Google, but you can’t base your investment strategy on the assumption that each company has the potential to exit for a billion dollars. Look at comparables (similar companies) that have sold, and their average purchase prices. If you want to keep it simple, you might use 5x at Series A round as your assumed “success” multiple.
What this means:
Let’s say a company is raising $500,000 in a Series A. Investors decide it is currently worth $1,000,000, so–after receiving the $500,000 infusion–it will have a $1,500,000 “post-money” valuation. (For sake of simplicity, we assume that Investors don’t require an option pool for new employees to be set aside in the pre-money valuation. For more on that, read this) Let’s also say that you put in $15,000, so you “own” 1% of the company post-money.
Remember the rule of the header: “Each start-up, if it exits at 5x its current valuation, should be able to cover 2/3 of your portfolio.”
Most of your start-ups will fail, so the successes need to make up for losses.
If we’re using the “2/3” rule, and your fund (like mine from 2007-2009) is $120,000, you shouldn’t invest $15,000 in this start-up, as 15K x 5 = $75,000. 2/3 of $120,000 is $80,000, so you’d either have to invest slightly more, lower the valuation, or add in advising and get more equity in return. This isn’t even accounting for dilution, which is likely in most cases.
B. Each start-up, if it exits at 3x its current valuation, should allow you to walk away with $300,000.
This is one of my preferred methods for qualifying or disqualifying a start-up.
As much as I might love them, I’m not going to take another part-time job for 1-3 years for a $50,000 pay-off. This is where first-time entrepreneurs who refuse to give advisors more than 0.25% often lose the forest for the trees.
Let’s say a start-up ends up with a 3-million (3M) post-money valuation. If I help them more than triple the value of their company to 10M, how much do I walk away with if there are no more rounds of funding? If they offer me 0.5%, I walk away with $50,000. If, considering the time invested, I could earn 5x that doing other things, it makes no sense to do the deal if this is my rule.
Woe is the angel who bases his or her decisions on all start-ups having the potential for a billion-dollar exit. Rule #1 in angel investing is, as far as I’m concerned, the same as Warren Buffett’s first two rules of investing:
Rule #1: Don’t lose money.
Rule #2: Don’t forget Rule #1.
2. Move from investor –> investor/advisor –> advisor
Let’s assume you have committed to spending $60,000 per year on angel investments, just as I did. This means two things:
– You aren’t going to be able to satisfy the above rule of “2/3” or the $200,000 minimum for many companies. At best, you’ll have 1-3 investments.
– 1-3 investments doesn’t work in angel investing, where most pros would agree that 9 out of 10 (on a good day) will fail.
– It’s therefore impossible for you to get a good statistical spread with $60,000 per year. The math just doesn’t work.
The math especially doesn’t work if you f*ck it up like I did (see Part I) by getting over-excited and dropping $50,000 on your first investment. Oops!
Here’s how I dealt with this problem:
First, I invested very small amounts in a few select start-ups, ideally those in close-knit “seed accelerator” (formerly called “incubator”) networks like Y-Combinator and TechStars. Then I did my best to deliver above and beyond the value of my investment. In other words, I wanted the founders to ask themselves “Why the hell is this guy helping us so much for a ridiculously small number of options?” This was critical for establishing a reputation as a major value-add, someone who helped a lot for very little.
Second, leaning on this burgeoning reputation, I began negotiating blended agreements with start-ups involving some investment, but additional advisory equity as a requirement.
Third and last, I made the jump to pure advising. Since the end of the first year of the “Tim Ferriss Fund,” more than 70% of my start-up “investments” have been with time rather than cash. In the last 6 months, I have written only one check for a start-up. The goal is still the same as in the first phase: deliver above and beyond the current value of my potential equity (if fully vested) as quickly as possible. The next post this week will give an example of this.
Comment from a proofreader and experienced angel, Naval Ravikant, who was also a co-founder at Genoa Corp (acquired by Finisar), Epinions.com (IPO via Shopping.com), and Vast.com (largest white-label classifieds marketplace):
One thought – if someone really wants to invest $200K as an angel investor, you’re right in that they can’t spread it across enough companies to diversify it or have it be worth their time. In that case, they could do advisory work as you suggest – or they could fork it over to a super-angel fund. They’d end up paying a 15% in management fees and 20%+ of the profits in carry, but most of the super-angels have pretty good returns and they would get startup exposure for basically a $30K + 20% of the profits cost, and their time is surely worth more than that…
Moving gradually from pure investing to pure advising allowed me to reduce the total amount of capital invested, increase equity percentages, and make the $120,000 work, despite my early slip-ups. This also, I believe, produced better results for the start-ups.
The reason for the better results is related to a common objection.
Some counsel against pure advisors, the belief being that pure advisors have no “skin in the game.” To address this, start-ups might insist on an investment before advising can be discussed. The logic isn’t bad–that an advisor will do more if they have something to lose–but this argument has never compelled me, and I don’t know many good advisors who are compelled by it.
I feel more compelled to help companies that I have pure advising relationships with for two reasons.
First, if I’ve given a start-up capital, I’ve already given some value. If it’s pure advising, I need to prove my value within the small world of start-up investing or my reputation goes downhill. Second, because my reputation is at stake, I do more due diligence than with pure investments to ensure an excellent fit (their needs + my capabilities) before signing up. Just as important: before offering real equity for advising, a start-up will do likewise, and our marriage–if we get to that point–ends up better as a result.
The start-ups that aren’t great fits, those who haven’t mapped my strengths and weaknesses to their own, look at me, laugh, and ask themselves: “Tim Ferriss wants what?!?”
They’re right, I’m not a good fit. If their desire for me as an advisor is contingent upon an investment, they probably haven’t thought enough about how I’d be able to help (or not help). Either I really can’t help much, in which case I shouldn’t be offered advisor equity at all, or I can really help, in which case they should get me on board with a compelling arrangement for everyone. Start-ups often forgot that the advisor equity vests monthly–advisors still have to earn it or they can be fired.
It’s a hell of a lot of fun advising start-ups with good product and personality fit, even if the companies don’t become the next Google.
But, I do miss a lot of great opportunities by focusing on advising and tight fit. This doesn’t bother me. I haven’t yet lost any money. Rule #1.
Let’s be clear on one point: if you don’t deliver real results for your start-ups, you do not deserve to be an advisor. If you can’t point to a track record of some sort, you haven’t earned the right to ask for advising equity. Pull out the checkbook and pay your dues.
It’s fun to think about getting an MBA.
They’re attractive for many reasons: developing new business skills, developing a better business network, or — most often — taking what is effectively a two-year vacation that looks good on a resume.
In 2001, and again in 2004, I wanted to do all three things.
This post is the first of two that will share my experience with MBA programs and how I created my own…
In the process, it’s my hope that these writings will make you think about real-world experiments vs. theoretical training, untested assumptions (especially about risk tolerance), and the good game of business as a whole. There is no need to spend $60,000 per year to apply the principles I’ll be discussing.
Last caveat: nothing here is intended to portray me as an investing expert, which I most certainly am not.
Stanford University Graduate School of Business (GSB). Ah, Stanford, with its palm tree-lined avenues and red terra cotta roofing, always held a unique place in my mind.
But my fantasies of attending GSB reached a fever pitch when I sat in on a class called “Entrepreneurship and Venture Capital,” taught by Peter Wendell, who had led early-stage investments in companies such as Intuit. The class is now co-taught by Eric Schmidt, CEO of Google, and Andy Rachleff, founding general partner of Benchmark Capital.
Within 30 minutes, Pete had taught me more about the real-world inside baseball of venture capital than all of the books I’d read on the subject.
I was ecstatic and ready to apply to GSB. Who wouldn’t be?
So I enthusiastically began a process I would repeat twice: downloading the application to get started, taking the full campus tour, and sitting in on other classes.
It was the other classes that got my panties in a twist. Some were incredible, taught by all-stars who’d done it all, but others — many others — were taught by PhD theoreticians who used big words and lots of PowerPoint slides. One teacher spent 45 minutes on slide after slide of equations that could be summed up with “If you build a crappy product, people won’t buy it.” No one needed to prove that to me with differential calculus.
At the end of that class, I turned to my student guide for the tour and asked him how it compared to other classes. He answered: “Oh, this is easily my favorite.”
That was the death of business school for me.
By 2005, I was done chasing my tail with business school, but I still ached to learn more.
Then, in 2007, I started having more frequent lunches with the brilliant Mike Maples, a co-founder of Motive Communications (IPO to $260,000,000 market cap) and a founding executive of Tivoli (sold to IBM for $750,000,000).
Our conversations usually bounced between a few topics, including physical performance, marketing campaigns (I’d just launched The 4-Hour Workweek), and his latest focus: angel investing.
“Angel investing” involves putting relatively small amounts of money — often from $15,000 to $100,000 — into early-stage start-ups. In Mike’s world, “early-stage” could mean two engineers with a prototype for a website, or it could mean a successful serial entrepreneur with a new idea. The angels usually have relevant business experience and are considered “smart money” — their advice and introductions are just as valuable as the money they put in.
After several lunches with Mike, I’d found my business school.
I decided to make (in my mind) a two-year “Tim Ferriss Fund” that would replace Stanford business school.
Stanford GSB isn’t cheap. I rounded it down to $60,000 a year, for a total of $120,000 over two years (these days, it’s $80,000+ per year).
For the “Tim Ferriss Fund,” I would aim to intelligently spend $120,000 over two years on angel investing in $10-20,000 chunks, so 6-12 companies in total. The goal of this “business school” would be to learn as much as possible about start-up finance, deal structuring, rapid product design, initiating acquisition conversations, etc. as possible.
The curriculum could be thought of as “The Start-up Lifecycle from Birth to Acquisition/IPO or Death.” But curriculum was just part of business school; the other part was getting to know the “students,” preferably the most astute movers and shakers in the start-up investing world. Business school = curriculum + network.
The most important characteristic of my personal MBA: I planned on “losing” $120,000.
I went into the “Tim Ferriss Fund” viewing the $120,000 as sunk tuition costs, but also expecting that the lessons learned, and people met, would be worth that $120,000 investment. The two-year plan was to methodically spend $120,000 for the learning experience, not for the ROI.
I would not suggest mimicking this approach:
1) Unless you have a clear informational advantage — insider access — that gives you a competitive advantage. I live in the nexus of Silicon Valley and know many top CEOs and investors, so I have better sources of information than the vast majority of the world. I don’t invest in public companies precisely because I know that professionals have better access to information than I do.
2) Unless you are 100% comfortable losing your “MBA” funds. You should only gamble with what you’re very comfortable losing. If financial loss drives you to even mild desperation or depression, you shouldn’t do it.
3) Unless you have started and/or managed successful businesses in the past.
4) Unless you limit angel investment funds to 10% or less of your liquid assets. I subscribe to the Nassim Taleb school of investment, with 90% in conservative asset classes like AAA bonds and the remaining 10% in speculative investments that can capitalize on positive “black swans”.
The problem is often that, even if the above criteria are met, people overestimate their risk tolerance. From my previous post, ‘Rethinking Investing: Common-Sense Rules for Uncommon Times’:
I’ve come to realize that the questions most investment advisers (and investors) ask are the wrong questions, or incomplete. Even if you have only $100 to invest, this is important to explore.
Most advice and decisions center on one question: what is your risk tolerance?
I had one wealth manager ask me this, and I answered honestly: “I have no idea.” It threw him off.
I then asked him for the average of his clients’ responses. The answer:
“Most answer that they would not panic, up to 20% down in one quarter.”
My follow-up question was: when do most panic and start selling low? His answer:
“When they’re down 5% in one quarter.”
Unless you’ve lost 20% in a quarter, it’s hard—neigh, impossible—to predict your response.
It’s not dissimilar from a common boxing maxim: everyone has a plan until they get punched in the face.
To would-be angel investors, I suggest the following: go to a casino or racetrack and don’t leave until you’ve spent 1/5 of a typical investment and watched it disappear.
Let’s say you’re planning on making $25,000 investments.
I’d ask you to then purposefully lose $5,000 over the course of at least three hours, and certainly not all at once. It’s important that you slowly bleed losses as you attempt to learn the game, to exert some control over something you can’t control. If you can remain unaffected after slowly losing your $5,000 (or 1/5 of your planned typical investment), consider making your first angel investment.
But proceed with caution.
Even among brilliant people in the start-up world, there is an expression: “If you want to make a small fortune, start with a large fortune and angel invest.”
So what did I do? I immediately went out and broke my own rules.
There was a very promising start-up which, based on comparables using Alexa ranking correlations to valuations, was more than 5x undervalued! If it hit even a “base hit” like a $25,000,000 exit, I could easily recoup my planned $120,000!
I got very excited — it’s the next Google! — and cut a check for $50,000. “That’s a bit aggressive for a first deal, don’t you think?” asked one of my mentors over coffee. Not a chance. My intuition was loud and clear. I was convinced, based on other investors and all of the excitement surrounding the deal, that this company was on the cusp of exploding.
Two years later, it still hasn’t popped.
[TIM UPDATE, 2013: This start-up is now dead, so I lost that $50K.]
Lesson #1: If you’ve formulated intelligent rules, follow your own f*cking rules.
I learned many more important lessons over the following two years, most of which I’ll share in the next post. Thus far, following the rules, the stats look something like this:
15 total investments (some of which are listed here)
1 successful exit
The one successful exit thus far, DailyBurn, guarantees that I will not lose money on my two-year fund. But, as they say, “Once you’re lucky. Twice you’re good.” I’m still not convinced I know what I’m doing.
My hope, and that of most angels, is that each start-up will “exit”, or be bought within 3-5 years. I’ll therefore have a more complete view of the “Tim Ferriss Fund” two-year portfolio by 2013 or 2014. There will be fatalities, no doubt.
[TIM UPDATE, SEPT. 2013: Now, I’m in 20+ investments, and I’ve made (cash in bank account) about 3-5x back what I invested. I have several million dollars on paper with investments like Twitter, Uber, Evernote, and others. If half of them pan out, I will make more in angel investing than all of my books combined. Only time will tell. Still plenty that could go wrong. Oh, and there have been more startups “deaths,” too. It’s a full-contact sport.]
But recall that the learning was my main reason for doing all of this.
I had one other exit: my own company. Using what I learned about acquisition deal structures through angel investing, I became less intimidated by the idea of “selling” a company. It need not be complicated, as I learned, and BrainQUICKEN was sold in late 2009. This means the ROI on my personal MBA is, so far, well over 2x and could end up more than 10x.
How might you create your own MBA or graduate program? Here are three examples with hypothetical costs, which obviously depend on the program:
Master of Arts in Creative Writing – $12,000/year
How could you spend (or sacrifice) $12,000 a year to become a world-class creative writer? If you make $50,000 per year, this could mean that you join a writers’ group and negotiate Mondays off work (to focus on drafting a novel or screenplay) in exchange for a $10-15,000 salary cut.
Masters in Political Science – (same cost)
Use the same approach to dedicate one day per week to volunteering or working on a political campaign. Decide to read one book per week from the Georgetown PoliSci department’s required first-year curriculum.
MBA – $30,000 per year
Commit to spending $2,500 per month on testing different “muses” intended to be sources of automated income. For an example of such, see “How I Did It: From $7 an Hour to Coaching Major League Baseball MVPs.”
If you’re interested in experimenting with angel investing, whether as an angel or as a start-up, here are a few of my favorite resources:
Commit–within financial reason–to action instead of theory. Learn to confront the realities and rewards of the real world, rather than resort to the protective womb of academia.
Question of the day (QOD): what would you like to learn specifically about start-ups, angel investing, or start-up financing? Please let me know in the comments with “QOD”.