Dedication
To the Beast of Failure.
You taught me a few lessons, now it’s my turn.
Epigraph
It waits. Patient.
Confident that it will soon get its prey—it always does.
Few escape its bite, none its tentacles.
One way or another, the Beast of Failure gets us all.
Contents
Cover
Title Page
Dedication
Epigraph
Prelude
Book Overview
Part I: Hard Facts
1: The Law of Market Failure
Failure Is Not an Option—Not!
The Law of Market Failure
Market Failure and Success Defined
Market Failure Statistics
The Success Equation
Too Smart to Fail?
Failophobia
FLOP
2: The Right It
The Wrong It
Thoughtland
Hocus-Pocus Focus Groups
The Four Trolls of Thoughtland
Thoughtland and False Positives
Thoughtland and False Negatives
Escape from Thoughtland
3: Data Beats Opinions
Other People’s Data
You Must Get Your Own DAta
Quick Recap
Part II: Sharp Tools
4: Thinking Tools
Market Engagement Hypothesis
Say It with Numbers
Hypozooming
5: Pretotyping Tools
The IBM Speech-to-Text Example
Pretotyping
In Search of Pretotypes
The Mechanical Turk Pretotype
The Pinocchio Pretotype
The Fake Door Pretotype
The Facade Pretotype
The YouTube Pretotype
The One-Night Stand Pretotype
The Infiltrator Pretotype
The Relabel Pretotype
Pretotyping Variations and Combinations
What Makes a Pretotype a Pretotype
6: Analysis Tools
The Skin-in-the-Game Caliper
The TRI Meter
Part III: Plastic Tactics
7: Tactics Toolkit
Tactic 1: Think Globally, Test Locally
Tactic 2: Testing Now Beats Testing Later
Tactic 3: Think Cheap, Cheaper, Cheapest
Tactic 4: Tweak It and Flip It Before You Quit It
8: Complete Example: BusU
Thinking Clearly About Our Idea
Time to Test
Analyzing and Iterating
A Lucky Break
A Few Notes About the BusU Example
9: Final Words
The Right It: A Recap
What to Build?
Acknowledgments
Glossary
About the Author
Copyright
About the Publisher
Prelude
It was 3 a.m., but I was too agitated to fall asleep. In six hours I would be sitting in the final board meeting for the company I had cofounded. After five years of hard work and several attempts to make our business work, we had no options but to accept a fire-sale offer—pennies on the dollar—for our award-winning technology and assets. Dozens of people I had hired, people who had put their trust in me and my vision, would be out of a job. The three world-class venture capitalists who had entrusted us with not only a $25 million investment but also their time, connections, and advice would be staring angrily at me, my cofounder, and our executive team. I had been bitten by the Beast of Failure, and it hurt like hell.
What hurt the most was that I could not figure out where I had gone wrong. Failure was something that only affected other people: less experienced, less competent, and less well-prepared people. Until then I had a perfect record with startups and entrepreneurship. I was an early employee and had a great career at two fledgling companies that eventually became industry giants (Sun Microsystems and Google). I had also cofounded a venture capital–backed company that managed to turn a $3 million investment into a $100 million acquisition in eighteen months. My record was a perfect 3 and 0, and I was sure that win number 4 was just a matter of time. The formula was easy: identify an idea for a new product or service that solves a big problem, assemble a strong team, get venture funding, build the idea, launch it, and then go public or—worst case—get acquired for a pile of money.
And we had done all that. We had an ambitious idea for a product that addressed a major software engineering problem in a very innovative way. All our due diligence and market research confirmed that companies needed, wanted, and would buy our product for their developers. We had assembled a team of amazing people who worked incredibly hard for five years. We had a great business plan and plenty of funding from the best venture capitalists (VCs) in the world to execute it—and we executed it, just as planned.
So, WTF? Why The Failure? Where did we go wrong?
Unable to sleep, I got out of bed and stared out the window thinking of all the other people who were, had been, or would soon be in a similar predicament. It was a sobering thought.
At this very moment, millions of people around the world are working hard to bring to life new ideas that, when launched, will be successful. Some of these ideas will turn out to be stunning successes that will have a major impact on our world and our culture: the next Google, the next polio vaccine, the next Harry Potter series, the next Red Cross, the next Ford Mustang. Others will be smaller, more personal, but no less meaningful successes: a little restaurant that becomes a neighborhood favorite, a biography that does not make the bestseller list but tells an important story, a local nonprofit that cares for abandoned pets.
At this very same moment, many other people are working equally hard to develop new ideas that, when launched, will fail. Some of them will fail spectacularly and publicly: like New Coke, the movie John Carter, or the Ford Edsel. Others will be smaller, more private, but no less painful failures: a home-based business that never takes off, a children’s book that neither publishers nor children have any interest in, a charity for a cause that too few people care enough about.
If you are currently working to develop a new idea, whether on your own or as part of a team, which group are you in? Or if at this moment you are still only thinking about investing to develop a new idea, which group will you be in?
Most people believe that they either are or will be in the first group—the group whose ideas will be successful. All they have to do is work hard and execute well. Unfortunately, we know that this cannot be the case. Most new products, services, businesses, and initiatives will fail soon after they are launched—regardless of how promising they sound, how much their developers commit to them, or how well they execute them.
This is a hard fact to accept. We believe that other people fail, because they don’t know what they are doing. They are losers who have no business being in that business. Somehow, we believe that this does not apply to us and to our idea—especially if we’ve experienced victories in the past: “I am a winner. I was successful before. I will be successful again—just watch me!”
That is how I used to think. And I believed I had good reasons for my smugness, because I had experienced a string of successes with only a few relatively minor setbacks. Failure was something that only affected other people.
And then, just as I had reached new heights of confidence and hubris, the Beast of Failure wrapped its tentacles around me and bit me in the ass. A good, hard-to-ignore, and impossible-to-forget bite on that smart, competent, and well-prepared ass of mine.
I could lick my wounds or bite back. I decided to bite back.
Failure became my nemesis
. Defeating it, my obsession. Teaching others how to defeat it, my mission.
This book is part of that mission.
Book Overview
I am a practical guy, and this is a practical book. I believe that the best way to accomplish goals, deal with challenges, and solve problems is to approach them with the proper combination of facts, tools, and tactics. And that’s exactly how this book is organized.
Part I: Hard Facts
The initial set of chapters is my version of “the birds and the bees” talk you may have had to endure when you were a child. But instead of explaining how babies are born (and other facts of life), I will explain how new product ideas are hatched—and what fate awaits them—using my own set of metaphors.
To begin with, we take an unflinching look at the Law of Market Failure in Chapter 1. It won’t be a pretty sight. The gauntlet that awaits most new ideas might remind you of one of those hard-to-watch scenes in nature documentaries, like the one where they show hundreds of newly hatched sea turtles race from the beach to the surf, while all sorts of predators pick them off, one by one, like mini-quiches at a buffet. Only a few lucky baby turtles make it to the water, and even fewer reach maturity. Mother Nature is brutal—and so is the market. Before we can consistently beat failure, we need to study it and understand it.
In Chapter 2, you will learn that our only chance to beat the Law of Market Failure is to have an idea that is The Right It. I introduce The Right It and its evil twin, The Wrong It (an idea destined to fail in the market), and explain how and why we so often end up investing in ideas that are The Wrong It. You will also learn why I have a low opinion of opinions.
Data! How do I love thee, let me count the ways. Chapter 3 is dedicated to my passion for data—especially market data. But you will also learn that I don’t love all data equally. In fact, I am very, very picky about my data. The goal of this chapter is to make you love (or at least appreciate) data as much as I do and to be as choosy with it as I am.
Part II: Sharp Tools
You’ve probably heard the expressions “You need the right tool for the job” and “You are only as good as your tools.” Well, we have one heck of a job to do, and we have no chance of succeeding without the right tools. Part II: Sharp Tools is our toolbox. In it, I introduce you to a set of powerful tools that will give you a significant advantage in fighting failure.
The root cause of most failures can be traced back to muddy, fuzzy, undisciplined thinking. Unless and until we can articulate our new product idea clearly and thoroughly, our odds of market success will not improve. In Chapter 4 you will learn a surprisingly simple but incredibly effective set of tools designed to turn your thinking from fuzzy to razor sharp.
In Chapter 5, I introduce the concept of pretotyping, point out how pretotyping differs from prototyping, and explain why that single vowel makes all the difference in our quest for The Right It. Then I share with you a powerful collection of pretotyping techniques along with many examples of how to use pretotypes to test how the market responds to your new product idea.
Pretotyping experiments give you a lot of great fresh firsthand market data. But having great data is not enough. In order to make the right decisions, the data has to be analyzed and interpreted rigorously and objectively. In Chapter 6, you will get the tools to do just that.
Part III: Plastic Tactics
In the final part of the book, I share with you my thoughts on the best ways to put your newfound knowledge and tools into action. Chapter 7 is where you will learn four powerful tactics to help you organize and execute your market validation tests in the most efficient way possible. In Chapter 8, I’ll walk you through a realistic scenario of what happens to an idea for a new business when we apply the tools and tactics that we’ve learned.
The first eight chapters of the book are fact-oriented and practical—mostly nuts-and-bolts and how-to stuff. In the final chapter, Chapter 9, I raise the level of our discourse and get a bit more abstract and philosophical. The tools and tactics you’ve learned will give you new power and a significant advantage against the Beast of Failure. What will you use that newfound power and advantage for? What kind of new products, services, or businesses would you tackle if you knew that the odds for success were greatly in your favor? I will encourage you to think bigger and aim higher.
Tall Tales and Short Stories
I’ve included many real-world stories in this book. I chose each story based on how well it illustrates a point, technique, or moral. But as you read them, keep in mind that they are just that, stories. And, as with all stories, different people see things differently, remember things differently, and draw different conclusions. On top of that, many of these stories have enough complexity and interesting lessons that each could be the worthy subject for an entire book, but here I may summarize them in a paragraph or two.
For example, you will read about Webvan, a company that failed spectacularly after investing nearly $1 billion based on a vision for a grocery home-delivery company. It’s a huge story with lots of interesting subplots and lessons and a cast of thousands from venture capitalists, to the CEO, to hundreds of employees in all sorts of functions (managers, warehouse workers, accountants, truck drivers, etc.). Each of them was involved with, was affected by, and saw the company’s failure in different and often contradictory ways. The Webvan investors’ story is going to be different from the CEO’s story, which is going to be different from that of one of the company’s truck drivers or accountants.
In Akira Kurosawa’s classic movie Rashomon, four witnesses describe the same murder in four mutually contradictory ways. When a new product or company fails, there are as many stories as there are witnesses. The Rashomon Effect is in full swing. Even my own stories and examples—the ones I witnessed firsthand and participated in—are bound to be distorted by my unique perspective, my own biases, and my imperfect memory.
Aiming for 100% accuracy and thoroughness is an impossible task, given the myriad of complex and hard-to-quantify factors that can cause a new product or company to succeed or fail. But we can still extract valuable lessons and rules of thumb that might work for us.
Bottom line: I have selected and summarized examples with the goal of maximum usefulness, impact, and memorability. I took a lot of “to the best of my recollection” stories and case studies and translated them into a form optimized for your recollection and benefit. Besides, even if I were somehow able to give a perfect account of each example, I would still warn you to consider it nothing more than anecdotal evidence from other people, at other times, and in different circumstances—what later in the book I introduce as OPD, Other People’s Data.
So take each story you read with several grains of salt.
Terminology
The tools and tactics described in this book apply to all sorts of ideas: ideas for new products (or for new features to be added to existing products); ideas for new services (or for new offerings to be added to existing services); and ideas for new businesses or organizations of all types (for profit, not for profit, commercial, political, philosophical). However, since I don’t care to continually write, and I’m sure you don’t care to endlessly read, “idea for a new product, service, business, or organization,” most of the time I will simply use the word product (or It, capitalized, as in The Right It). In the context of this book, the terms product and It can refer to a new musical instrument, a mobile app, an innovative diaper-delivery service, a social-media startup (as if we need another one of those), a video game, a genetically engineered hypoallergenic hamster, a new college course or academic discipline (Failure Science?), a charitable organization, a new religion or cult (no, please!), and so on.
Similarly, the term market as used in the book doesn’t necessarily mean people with wallets, but any group you think will want, use, adopt, or somehow engage with your idea. If you are planning to design and launch a new high-school class, your market is the students. If you are thinking of enacting a new law to reg
ulate, say, speeding bicyclists in your town, your market is pedaling citizens.
In other words, the tools and tactics covered in the book apply to any undertaking in any market that involves:
a nontrivial investment,
a high probability of failure, and
the desire to avoid that failure.
And that accounts for pretty much all major human endeavors.
Credit Where Credit Is Due
I want to be up front about the fact that my role, and the purpose of this book, is not to present previously unknown facts and completely original ideas. Some of the tools and techniques I share with you have been around for centuries—but they never got the visibility and attention they deserved, nor were they ever given a name. I dug them out, dusted them off, polished them a bit, and put them on display. Think of me as a collector, curator, and guide to these ideas.
Many of the inspirations, examples, and scenarios are source materials I’ve collected over the past few years as I dedicated myself to developing, practicing, and teaching these tools and techniques to anyone who’d listen. Thanks to Google and Stanford University, I have had the opportunity to give hundreds of talks, seminars, and workshops and to participate in countless hands-on coaching sessions in which I’ve applied these techniques to real-world projects side by side with students, entrepreneurs, and even Fortune 500 CEOs. These people and organizations not only put these ideas into practice, but suggested new tools and many improvements. They also provided me with relevant stories and accounts from many different industries. So whatever product, service, or business you are planning to pursue, you will find help here.
I Practice What I Teach
Do I practice what I teach? You bet! I practice it not because it would look bad if I didn’t, but because what I teach works and has been working amazingly well for me and for my students and clients. In fact, the tools and techniques you’ll learn in this book cannot not work because, as you will discover, they are grounded in proven facts and based on simple logic. Master them, put them to use, and you will flip the odds for market success in your favor and win most battles with the Beast of Failure.
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