Looking For The Faint Signal of Opportunity In An Avalanche of Noise

Effectuation is not magic, but it is magical. It is a dance between constraints and means.

Instead of trying to bend our environment to conform to an arbitrary objective, Effectuation teaches us to develop a particular sensitivity. Focus on detecting the faint signal of opportunity in an avalanche of noise, and act quickly to maximize its potential. You will get a result which is more sustainable, resilient, even anti-fragile. The bonus is that the end-state is better aligned with who you really are. 

The Effectuation Process

The Effectuation Process (Source: https://www.effectuation.org/?page_id=207)

 

 Here is a brief video explaining effectuation:

For more information: effectuation.org

A Few Answers About Me

Cooperathon2018I will be mentoring at this year’s Coopérathon 2018 (Finance). As part of the mentor process, they sent me a short profile survey. Thought I would share it here, too:

Qu’est-ce que vous faites dans la vie ?/ What makes you jump out of bed in the morning ?(what motivates you in life/ what do you do in life)

Fondateur du “The Scaleup Project” – une communauté de passionnés qui aident les innovateurs à bâtir des entreprises d’impact et de conséquence dont ils peuvent être fiers.
// Founder of “The Scaleup Project” – a community helping innovators to build businesses with impact and consequence of which they can be proud.

Qu’est-ce qui vous tient éveillé tard le soir ? / What keeps you up at night? ( what are your current challenges)

J’écris un livre pour communiquer une nouvelle approche à la croissance des entreprises innovantes
// I’m writing a book which explores a fresh approach to scaling innovative ventures.

Qu’est-ce que le Coopérathon peut apporter à notre communauté? / What can Cooperathon bring to our community?

Le Coopérathon est un appel aux armes pour encourager les innovateurs, autant les novices que les chevronnés, à passer à l’action dès aujourd’hui.
// The Coopérathon is a call to arms for all innovators, be they novice or experienced, so that they move into action, today.

Quelle ambition as-tu pour le monde de ”demain”? / which ambition do you have for tomorrow’s world?

Les solutions pour les grands défis auxquels nous faisons face ne viendront pas de nos leaders politiques ni des PDG de la vieille garde… C’est au tour aux citoyens-entrepreneurs de créer l’avenir dont ils rêvent.
// The solutions to our huge challenges will not come from politicians or the old-guard CEOs. It’s time for citizen-entrepreneurs to get moving and build the future they dream of.

Quel conseil donneriez-vous à quelqu’un souhaitant lancer son projet ? / What would be your advice to someone launching a new innovative project today?

Tombez en amour avec ce que votre utilisateur essaie de faire. Comment pouvez-vous l’aider à vivre un impact positif et mesurable qui touche même son entourage et au-delà?
// Fall in love with your user’s “job-to-be-done”. How can you empower your them to experience a positive and measurable impact which even goes beyond their circle and out to the community?

Qu’est-ce que ça signifie pour vous , ”entreprendre” ? / what does it means for you to ”start up” ?

Entreprendre c’est un engagement à changer l’avenir. Il faut le prendre au sérieux.
// Entrepreneurship is a commitment to change the future. Don’t take it lightly.

Link to Coopérathon main website:
cooperathon.com

95% of VC funds aren’t profitable. Why? (TechCrunch)

Startup entrepreneurs are trained (brainwashed?) to pitch to VCs or their seed fund proxies as soon as possible.

Why?

The short answer is that this is the pattern established by the original Y-Combinator program by Paul Graham in 2005 to prepare startups to be presented to potential investors.

But the answer behind the answer is that VC funds are like trawlers: they need to cast a wide net to find that one-in-a-thousand startup with the potential to become a billion-dollar exit.

The search for that elusive unicorn exit is the main reason why most VC funds are not profitable.

I like this detailed overview of the VC business model as described from an entrepreneur perspective, by Tomer Dean on TechCrunch:

https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/

Premature Synchronization Is The Root Of All Evil (Venkatesh Rao)

Premature Synchronization (Venkatesh Rao)

As I am building The Scaleup Project, I’m struggling with the reality that TSP is more than a business.

I guess it’s my ego which imagines me wearing Colonel slipons as the CEO of a tightly disciplined team, each one saluting me with a jaunty “Yes, Sir!” at my every instruction.

But this 1960’s view of business cannot work as we warp-speed towards the 2020s. I’m dealing with a group of talented adults, each offering a unique experience and skill set. People float in and out of the team according to their needs, our needs and the needs of the entrepreneurs we serve. They are as busy making their impact in the world as I am in making mine.

Traditional org charts cannot work in an agile economy

During my EMBA I applied four times to senior management positions related to entrepreneurship or economic development. I know I brought a fantastic life experience to each organization. I wanted to throw my whole self into each project, to make a difference and leave a legacy.  But at each interview I felt as if I had to leave part of me at the door to fit into the job requirement. I was a round peg that could not fit into a square hole. And interestingly enough, three of those four organizations disappeared within a year…

If I don’t fit into an org chart, why am I trying to build one for my own venture?

This is not a trivial concern. It leads to a whole list of questions about how to design this community:

  • Do I incorporate? If so, with who? how?
  • What about shareholder agreements? Compensation?
  • How to develop standards, share information, come to a consensus?
  • How to share the value we create as a team in a flexible way which reflects what people contribute (beyond just time)?

I’m concerned about encoding too much structure at this early stage because I know that as we scale from preparation to beachhead, there are many unknowns unknowns which will pop up.

The value of desynchronization in time and space

As Venkatesh Rao explores in his post:

10/ Humans are of very low value as cogs in a machine doing identical things in interchangeable ways, on the same clock, on the basis of identical kinds of training to graded levels. That’s for robots.

 

11/ Humans are most valuable when they have high autonomy, and able to play to their unique strengths and histories, particular sensitivities, op-tempos, and patterns of privileged information

 

12/ The idea of “wisdom of the crowds” in fact rests on humans having diverse, unique private knowledge bases (foxy!). The madness of crowds kicks in with synchronization and imitation (hedgehoggy!)

 

13/ Why desynchronize in space? If you are marching in a straight line on a road, and your buddy is clambering over rooftops roughly parallel to you, should he try to move in strictly parallel ways? That would be dumb.

 

14/ Why desynchronize in time? Different kinds of work have different time constants and generate actionable information at different tempos. Different people are in different emotional states at the same clock time.

 

15/ Synchronized communication follows from synchronized work: reports on a forced identical tempo. Mandatory meetings. Mandatory annual reviews that must happen in December.

Instead of synchronization, use focused (what he calls “laser-beam”) coordination only when the situation demands it. Laser-beam coordination is expensive in energy and lost opportunity. It is most useful to use when dealing with an urgent issue.

(Not sure where I’m going with this but it’s where I am at this point…)

 

Redefining Dilution (Eric Paley)

Quote

Raising more capital is not necessarily dilution. It’s what you do with the money after raising it.

Eric Paley (Founder Collective) describes a novel distinction between accretion and dilution:

When you accept a new investor, everyone’s piece of the pie gets smaller because the pie is fixed but the number of shares issued have increased. So your share of the company may go from 20% to 15% because of the new investor.

However, if the shares are priced correctly, the value of each share should go up because more equity has been sold. So your total 15% after the round should be worth more than your 20% before the round. This is accretion, or increase in value. The important thing is to look at your worth, not your percentage.

Now if you take the money and use it on things that do not add value to the company, such as features that customers don’t want which cause your sales to fall, then you have lost money and the value of your company decreases. This is the real dilution.

“Dilution is a function of your burn rate relative to your accretion of value. It is often measured in financing events, but it actually plays out every day in the choices the startup makes and the work the startup accomplishes. Simply put, if you are accreting more value than you burn, there is no dilution. If you’re burning more cash than you’re accreting value, then there is dilution.

Put another way, you’re not being diluted because a VC decrees it; you’re being diluted because you spent money building features that your customers didn’t want, instead of the ones that they need. You’re being diluted because you kept scaling up an ineffective sales process because you didn’t want growth to slow.

Each financing event is more of a check-in point on the value of the company than a true dilutive or accretive event. It’s the time between the financings, when the company was burning cash to build additional value, that was truly the accretive or dilutive journey. In other words, the company isn’t worth $20 million because someone bought stock in a day. Its valuation increased from $10 million to $20 million because of the work that was done to increase the value of the company that greatly outpaced the cost of creating that value. If the cost outpaced the value of the work, that would have been dilutive, as demonstrated by a down round.”

In summary, ensure that each dollar you spend adds value to your business.

Quote: “Businesses serve needs, not markets”

Quote

“When identifying new market opportunities, it’s critical that you begin with a focus on the customer’s job to be done, rather than on your company’s capabilities. It’s tempting to look at your capabilities as the starting point for any expansion, but capabilities are of no use without a job for them. (…) To Corning, businesses serve needs, not markets, and as technological or market shifts occur, the company continues to grow by remaining focused on the need, which we call the job.”

— Clayton M. Christensen, Thomas Bartman, and Derek van Bever, The Hard Truth About Business Model Innovation (MIT Sloan Management Review, Fall 2016 Issue)