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From Straight As to Series A: 5 Tips From Former College Startups ModCloth and Insomnia Cookies

March 17, 2014 - 9:00am

The former college founders of ModCloth and Insomnia Cookies offer firsthand advice for building a big business.

For most, the first job out of college is a training ground, a steppingstone in a long career. But when your first job post-graduation is running the business you launched in college, there are a lot of added pressures.

Just ask Susan Gregg Koger. In 2002, she and her then boyfriend, Eric Koger (now her husband), started selling vintage clothing out of a college dorm room when she was a freshman at Carnegie Mellon University. To get ModCloth off the ground, the pair balanced a full course load with working part time on the business. As graduation loomed closer, they realized that if they wanted to scale the business, they would need to take some critical steps.

As is true for any young founder, making the leap from college to full-time entrepreneur isn't as simple as pulling an all-nighter. From fine-tuning your business model to thinking strategically about funding, expanding a business beyond campus takes much thought and careful deliberation.

To find out the best way to make the leap, we surveyed the young founders of ModCloth and Insomnia Cookies. Here are their five key lessons that can help any fledgling startup take off:

1. Make tough (but strategic) decisions.
The summer before her senior year, Koger realized that if she was going to run ModCloth after college, she needed to be able to scale it. "Once we sat down and started doing the numbers, it became clear that we couldn’t just keep launching one-of-a-kind vintage pieces," she said.

ModCloth's traffic numbers were growing, but Susan and Eric needed to make a critical shift if they wanted to expand the business significantly. They surveyed customers to gauge whether they'd be interested in buying vintage-inspired clothes and began reaching out to independent designers. "I was so passionate about what we were doing," says Koger. "But it was really important that it was actually going to be able to support me." Today, ModCloth has 504 employees, and though it wouldn't disclose financial data for last year, in 2012, revenue reached more than $12 million.

2. Prepare to learn on the job.
Seth Berkowitz started Insomnia Cookies during his junior year at the University of Pennsylvania in 2002. The sudden growth of the business took him by surprise. After the local newspaper ran a story about his cookie delivery business, he started getting up to 30 orders a night. He had been baking, taking orders, and delivering cookies all on his own up until that point and realized he needed help in order to expand the business.

The summer after graduating, Berkowitz opened three shops around the country. But it took some time for him to come up with the best business model. At first, he tried a delivery-only model. Then he tried selling from trucks. Then ultimately, he ended up opening brick-and-mortar shops. Today, Insomnia Cookies has 46 locations across the country, with an average of two new locations opening each month. The company has 25 corporate employees and more than 800 people working in its retail shops. But it didn't happen overnight. "It took me a few years to figure out the best way to scale it," says Berkowitz. "I had no idea what I was doing. It was on-the-job training for a few years."

3. Make your first hires count.
Building a strong team from the start is one of the most important ways to transition from a college startup to a successful, growing business, says Berkowitz. "You need to surround yourself with great people," he says. "It's critical to let go of the reins and let people come in and help you."

In Koger's case, one of her first hires was a graphic designer who could take over the responsibility of graphic design from her so she could focus on other aspects of the business. "Really look at your team and what skill sets you're missing," she says.

4. Don't rush to raise capital.
Until 2008, the Kogers had bootstrapped their business with the help of small investments from friends and family. They avoided raising capital as long as possible so they would have solid numbers to show investors when they did. "It helped to be able to go out and pitch the business not just as an idea but as a concrete business," says Koger. "We tried to get as much traction as we could before going out and raising institutional capital."

5. Brace yourself for the shock of graduating.
The ups and downs of running a business can be overwhelming, particularly when you're used to the structure of college--the constant evaluation, deadlines, and praise for work well done. "As an entrepreneur, you don’t have anyone telling you you're doing a good job," says Koger. "The successes of the business can feel really great, but the failures are also on your shoulders, and that can be really intense."

Allowing yourself to adjust takes some time. But it's a natural part of the process, notes Berkowitz. "As a college student, you are very idealistic," he says. "You don’t have any idea what it takes to run a business. You have to live it and learn what it means."

Giving It the (Anti)-College Try: 5 Cool Startups From the Thiel Fellowship

March 17, 2014 - 9:00am

Ever wonder how Thiel Fellows use their $100,000 award? Here's how five companies put that cash to work.

It has been three years since PayPal co-founder Peter Thiel first announced that he wanted to pay students $100,000 to forgo college for the short term and pursue a business instead. The move naturally caused quite a stir on campuses across the U.S. "You would almost think the world was ending," Ross Gillfillan, head of communications for the Thiel Foundation says. But now, Gillfillan says, people seem more accepting of the idea that taking a gap year or two to dabble in entrepreneurship might be a good way to prepare to be an entrepreneur. The following founders prove he's right.--Laura Montini

San Francisco's Zaption is the brainchild of Charlie Stigler, 21, a software engineer who dropped out of Columbia University. His idea back in 2012 was to streamline the process for creating interactive educational video lessons. Since then, Stigler's company has grown to six employees and raised a total of $650,000 from investor Dr. Michael J. Burry and the NewSchools Venture Fund.

Maddy Maxey, 20, began interning in the fashion industry when she was 16. She co-founded CRATED, an experimental fashion and wearable tech lab with Maxey Mari Kussman. Using the facilities at the School of Visual Arts, the two hope that CRATED eventually becomes a self-sustaining lab, which will survive off of the profit generated from their products. "Eventually, we want to take on inventors [and] innovators. We'll supply the space, tools, and corporate connections to make the unthinkable," Maxey says.

REX Computing is developing new computer-processor technologies with an emphasis on energy efficiency and a lower cost of computation. Though REX co-founder Thomas Sohmers, 18, is young, his history with co-founder Kurt Keville, a Massachusetts Institute of Technology researcher, is relatively long. Keville first recruited Sohmers to work with him at MIT in 2010. REX is currently a team of three, including Paul Sebexen, a 2012 Thiel Fellow. The company unveiled its first prototype for an energy efficient computing system earlier this year.

Upon his acceptance to the Thiel Fellowship program last year, Delian Asparouhov, 20, dropped out of MIT and headed west to Mountain View, California. He co-founded Nightingale, a mobile health company that creates apps for patients and caregivers. Nightingale also offers an app for therapists who work with autism patients. Therapists can use Nightingale to record behavioral data as well as bill for sessions. The company has signed up four autism-therapy programs so far, which has generated under $10,000 in revenue.

2012 fellow Noor Siddiqui co-founded Remedy, which developed a Google Glass app for mid-level medical providers. Physician assistants and nurses can use Remedy to connect with specialists remotely. Specialists, in turn, can offer guidance and instruction while seeing through nurses' eyes as they tend to their patients. The goal is to enable all providers to respond rapidly to patients, especially during emergencies. The company has a total of six employees and plans to officially launch its product this spring.

How to Target the Coveted College Market

March 17, 2014 - 9:00am

Students have a natural in on campus: access. Here's how they've learned to overcome empty pockets, high turnover, and other challenges.

There's nothing new about college students launching businesses that appeal to their classmates. After all, seasoned entrepreneurs will often say success comes from knowing your market. And who knows college students better than college students?

But less discussed are the downsides and challenges attached to turning your classmates into customers. Ever tried sitting next to a disgruntled customer in Business Calculus? Yeah, awkward.

To find out how to both avail yourself of the benefits of campus life and steer clear of the mishaps, take a cue from fellow college startup founders. Here are their college startup pros and cons:

Pro: Marketing Made Easy

Some students say they hold certain advantages when marketing to their peers. They like being able to access the classroom, where they can pitch their wares before a professor walks in, or being allowed to send email blasts to fraternities, sororities, or other hard-to-crack groups on campus. (That latter strategy actually helped a couple of recent grads from Furman University in South Carolina attract an average of 15,000 new users each week to download their Yik Yak social networking app, they say.)

Pro: Inspiration Is Everywhere

Some students claim they hold unique insights about what's most important to their classmates today. When Charles Dall got fed up with providing microloans to his frugal roommate for beer, books, and other college essentials, he knew he wasn't alone. Fueled by frustration, the third-year student at Cooley Law School in Michigan created an expense-tracking app called Where's My Money Bro?, which sends an automatic text alert to those who fail to repay a loan after, say, a week or two, then helps transfer payments between borrowers and lenders.

"Everyone I've come across says they get really frustrated when people don’t pay them back," says Dall, who is rolling out the app now and advertising it by paying university groups like Hubbell Connections an average of $50 each semester to have student members post messages on social media and distribute flyers on campuses.

Con: Empty Pockets

But as every student knows, it's hard to get college kids to pay for anything, which could be an obstacle that Dall runs into. (He plans to charge customers $1.99 to download his app.) Still, the 30-year-old is trying to cut costs elsewhere, by partnering up with free money-transferring services like Chase QuickPay, rather than programs that sometimes charge a fee.

Con: Sour on Semesters

For others, a greater challenge has been marketing the right way and at the right time. To generate buzz for MarketOSU, an online classifieds site for Ohio State University students, Jay Clouse spent the start of his junior year in 2012 donning a cheesehead and a T-shirt with his company’s logo. He also spent a chunk of his personal cash on giving away free football tickets to entice individuals to sign up.

But he got started when the school switched to a new semester system. That meant ample course and textbook changes. "And we struggled on the book side, due to timing of the launch,” says Clouse, 22. Even today, the biggest selling item on his site--football tickets--is linked to seasonal demand. All told, he’s managed to corral only around 7,000 active users (from a student body of more than 63,000).

Con: Growing Pains

“When you are in school, you have a power. . . to reach out to peers informally,” says Mike Moyer, an entrepreneurship professor at the University of Chicago’s business school, who adds that marketers would drool over that kind of access.

But scaling up is an interminable problem, as the churn of college students is constant and owners just don't have much experience. It's possible to expand a campus-based business, he adds, “but you have to move very fast.”

To overcome this wrinkle, Sean Thorne, a 23-year-old senior at the University of Oregon, relies on the kindness of mentors. “I know nothing about law or finances, so we have a mentor in each area,” says Thorne, who is the co-founder of the 14-month-old Hallspot, a social networking site for students. "We’ve [also] never scaled a tech firm from beta to 4,000 colleges in America. . . . We're still figuring out that as we speak."

Steve Jobs's 7 Rules for Working the Media

March 17, 2014 - 9:00am

The late co-founder of Apple had a masterful way of handling reporters and editors. Here are some of the techniques he used so well.

Steve Jobs, the late Apple co-founder and CEO was a master businessman and showman. His way of combining apparent simplicity with an unrelenting demand for quality turned Apple into a giant.

He also knew how to use the media--for better or worse. Under Jobs, Apple honed the fine art of playing reporters and editors, timing information releases, and withholding stories to punish those who wouldn't cooperate. Some of these tactics were models of how to smartly work with the press. Others were ethically suspect at best. Given the well-publicized history of Good Steve/Bad Steve, the man that could alternately inspire and then terrify employees, that should be no surprise.

Here are half a dozen techniques that Apple, under Jobs, regularly used to get its message out. Whether good or bad--and sometimes it's all how you use things--each can be effective. Even if you don't want to use them all, keep your eyes open because your competitors might, and recognizing what a rival is doing can be powerful.

Be secretive.

Apple was one of the most secretive companies on the planet under Jobs. Not only was there great discipline about who was allowed to say what, but the company put into place what was described to me by some who would know as one of the most draconian and restrictive nondisclosure agreements the industry has ever seen. Apple reportedly has a Worldwide Loyalty Team that tracks down sources of unauthorized information leaks.

Forgetting the heavy-handed tactics for a moment, the impulse to keep secretive is brilliant. Much of the press thrives on breaking news, which is a relative of that little thrill most people can get telling friends something juicy they hadn't previously heard.

Now, many in the media who thrive on this sort of hard-news jones would love to think you have something that would interest their audiences (and potentially advance their careers). Being secretive without anything behind it will go nowhere. You need the right balance. An artificial air of mystery will get laughed down. On the other hand, telling everyone everything you're doing is wearing on the listeners. Try just keeping developments secret until you're ready to release the details. That way you also avoid alerting competitors.

Pick your favorites.

There were news outlets and particular reporters that Apple and Jobs liked. Walt Mossberg when he was at The Wall Street Journal, for example. John Gruber, of the blog Daring Fireball, was always another well-sourced writer. But Jobs wasn't looking for fawning from this cadre. He found smart writers who got what he was trying to do and would appreciate it, then he and the company deepened the relationships.

Not even Apple could sweet talk the entire press, but it's helpful to find sympathetic listeners who can help explain what you're trying to communicate.

There's a second type of favorite: reporters who long for insider access and the chance for scoops. They don't have the same kind of loyalty, but will likely be more sympathetic in coverage for fear of losing the insider access that, to them, is a personal competitive career advantage. Mind you, not all reporters who excel in the art of the scoop are like this. Some are just good at building relationships and will write what they want, not what you want.

Punish those who don't cooperate.

Apple and Jobs could get heavy-handed when it came to bad press, which meant stories that not only didn't emphasize the Apple song book but said things the company didn't want to be public. One weapon was to cut off access to information, which puts beat reporters at a competitive disadvantage since rival outlets would have stories first. Or Apple might release a story that would contradict a reporter and make him or her look sloppy.

This is a dangerous tactic. It takes muscle and importance to make the punishment even noticeable, and it's also a great way to make enemies that might suddenly become sympathetic to one of your competitors.

Learn how to leak.

Much of Apple's ability to push the press was through controlled leaks. A former Apple manager, John Martellaro, has written about how the company engineers a controlled leak of information. The short version is that upper management goes to a lower-level person, asks who they have good connections with in the press, and tells them to "idly mention this information and suggest that if it were published, that would be nice." Nothing goes into writing (including emails) so there's no way to track the planted story back to its source.

Planted stories can help companies judge public reaction on a feature, price point, or potential strategy; panic competitors; or even get analysts and influencers more interested in an upcoming product announcement event.

Plant disinformation.

This is the fancy term for pragmatic lying. Using a controlled leak to a favorite journalist (see how these techniques build on each other?), or even having someone in management make an outright statement, the company says something that's either blatantly untrue or highly misleading. A classic example was when Jobs declared that Apple wasn't working on a mobile phone. That statement may have put competitors at ease, giving Jobs more maneuvering room. Another example may have been the repeated rumors that Verizon would finally get the iPhone, long before it actually did, which had the effect of slowing at least some talk about Android.

Perfect your presentations.

In marketing and PR, showmanship is everything. Any presentation has to be perfect--smooth, coherent, and compelling. That's true for any presentation from a new product announcement to an onstage interview at a conference. Journalists often lose their more critical edge when things flow along without a hiccup to wake them up and get them thinking again.

Have something worth writing about.

This is the biggest trick. All of the above media techniques suggest that the press wants to talk to you. You need to give them a reason. Create products and services in hot demand from customers, and you'll find that more journalists want to talk to you.

How to Start a Startup in College (Infographic)

March 17, 2014 - 9:00am

One of the biggest lessons you can learn in school is self-reliance. What better way to achieve that goal than to start up your own business?

The prime time to launch a business is during college, when opportunities abound--and the risks are minimal.

College students might be broke, but they have time and resources at their disposal, not to mention flexible schedules. And while a textbook might not be the best place to learn what it takes to be an entrepreneur, starting a business of one’s own is an invaluable, hands-on learning experience.

The Degree Library infographic below, based, in part, on insights from Y Combinator co-founder Paul Graham, explains why college is an optimal time to start up--and how to get started.


Forget Space Camp. Kids Today Want to Follow Kevin Systrom's Footsteps

March 17, 2014 - 9:00am

Long before college, more and more young people are participating in summer startup programs (just like the Instagram founder).

Rachel Cantor is too young to drive or vote, but she knows the basics of devising a fundraising plan and value proposition--highly useful skills for any would-be entrepreneur.

Last year, while many of her contemporaries were flipping burgers and folding T-shirts, the Winnetka, Illinois high school sophomore went to Yale. The 15-year-old spent three weeks at the Ivy League institution participating in a social-entrepreneurship themed workshop called Summerfuel.

“Repairing the world is a core value of mine and also a part of my family’s,” says Cantor, whose father works in advertising. “I’m interested in making a living doing something I’m passionate about while helping others at the same time.”

It's a far cry from your typical teen’s cashier gig. But Cantor is part of an expanding pool of young people who are lining up to join pre-collegiate, entrepreneurship-focused programs.

According to the 2011 Gallup-HOPE Index, 77 percent of students in grades 5 through 12 said they wanted to be their own boss one day, 45 percent said they planned to start their own business, and 42 percent said they would invent something that would change the world.

'Me' and Entrepreneurship

“Now, there’s a focus on the self,” Marissa Bates, Summerfuel's associate director, says of today’s youth. “They take ‘selfies,’ and the individual is very important. They realize that they don’t have to be a cog in a bigger machine.”

While pre-collegiate programs are as old as summer camp itself, programs that put a focus on entrepreneurship are picking up steam across the country. In addition to imparting real-world entrepreneurship principals--from business communications tips to leadership tactics--the goal of the programs is often to give would-be founders an early taste for entrepreneurship, if not a blueprint for startup success.

Some estimates project that high school students can now access roughly 50 entrepreneurship-focused summer programs--which, like Summerfuel, are often sponsored by third-party organizations and hosted by colleges and universities.

And the number is growing, notes William Crookston, a retired professor of clinical entrepreneurship at the University of Southern California's Marshall School of Business. He adds that the uptick is due in part to universities offering their own entrepreneurship-themed summer programs.

From 2006 to 2011, Crookston, for instance, led Summer@USC's Exploring Entrepreneurship program for high school students. The four-week course for high school juniors blends theory and practice in teaching students how to run a business.

“Industry summer camps are a business like anything else,” says Jill Tipograph, founder and director of Everything Summer, a summer planning consultancy based in New York City. “They ask, ‘What is it that kids and teens are doing today, and what are the courses and curriculum that we should be offering in the summer?’”

It doesn't hurt that alums like Instagram co-founder and CEO Kevin Systrom attended a program called EXPLO 360 for five consecutive summers, and Seth Priebatsch, founder of SCVNGR and LevelUp, participated in EXPLO three times.

Still, “it’s a relatively new phenomenon,” says Crookston. He adds that no two programs are alike, so for prospective participants ought to do their homework before applying.

Picking Your Program

Launched in 2010 as “Leaders for Social Change,” what is now Summerfuel was more about social activism and grassroots organizing, notes Bates. The three-week, $5,495 program, which she revamped to cater to social entrepreneurs in 2013, welcomes a total of 150 domestic and international high school students to either Yale or Stanford Universities.

EXPLO has also adapted its offerings. It included business and entrepreneurship courses among other programming in the 1990s. Now, students in grades 8 through 10 can enroll in a two-week “Startup” program at Wellesley College.

The structure of Summerfuel's social entrepreneurship session is similar to that of most other programs. Students develop an “action plan” to solve a societal challenge through business. In teams, they conceptualize a social venture project and present it to a panel of experts.

For Cantor, the seed of social entrepreneurship was sewn well before she stumbled on to Summerfuel. She is a “huge fan” of the shoes and eyewear company TOMS, which has a socially conscious “One for One” model. Her SE group developed plans for a project that would eliminate food waste in Mumbai while feeding the hungry.

Long an entrepreneurial hotbed, Babson College has a program that claims to offer a more hands-on summer session--and the university grants transferrable college credit to the rising juniors and seniors who complete its requirements. This year, Dennis Hanno, the University's provost, expects the program (called Babson Entrepreneurial Development Experience) will host two sections of 40 students.

USC, the first college in the country to establish an entrepreneurship department in 1971 also grants units of USC credit to high schoolers participating in the program. Yet, Crookston shies away from making any claims that students will walk away with full-fledged business plans.

“We find that in the regular semester, we have to often postpone idea generation,” says Crookston, who notes that younger students typically need to work on the basics first. “But in teams of four in the summer, they have good ideas and turn them into functional concepts.”

Starting Up's Prospects

But progress is possible. Nicole Mar, who participated in the Babson summer program in 2013, pursued an idea for a children’s travel book series, Take A Trip. The then-16-year-old says she didn’t know much about entrepreneurship before her dad suggested she spend part of her summer at Babson, but she continued her work after finishing the program and is now publishing her first book through Amazon’s CreateSpace.

“If I don’t go into entrepreneurship, I think I want to do something like go to law school,” Mar says. “Law is very entrepreneurial, because you can have your own practice.”

Is Multitasking Harmful? Maybe Not

March 17, 2014 - 6:00am

The recent bias against multitasking may be misguided. New studies suggest that polychronic top-management teams facing more interruptions may actually outperform their single-tasking counterparts.

"Multitasking is dumbing us down and driving us crazy," announced The Atlantic in 2007, stating that it "messes with the brain in several ways."

Time-management expert Julie Morgenstern, author of Organizing From the Inside Out, has noted studies that show "it takes your brain four times longer to recognize and process each thing you’re working on when you switch back and forth among tasks. Think about it: If it takes you 10 minutes to get oriented to a new task every time you switch gears, and you switch gears 10 times a day, that’s over 1.5 hours of wasted time."

But perhaps that time isn’t as wasted as it seems. The "bias against multitasking may be misguided," wrote Vangelis Souitaris and B.M. Marcello Maestro in the Harvard Business Review last year. "In fact, executives who doggedly plow through each task until it’s finished may be doing their companies a disservice. Under some circumstances, top management teams perform better when they accept--even relish--interruptions."

The authors studied executives at nearly 200 new technology ventures on the London Stock Exchange. "We measured top management teams’ polychronicity--their tendency to multitask--and…found that the financial performance of companies with highly polychronic teams was significantly better."

Why? "The polychronic teams proved to be superior information brokers, absorbing and disseminating more-insightful information than their average and monochronic counterparts. As a result, they were much less apt than the other teams to bog down: They could make strategic decisions faster [which] boosted their companies’ performance."

This article originally appeared at The Build Network.

If You're Not Hiring With Your Whole Brain, You're Doing It Wrong

March 15, 2014 - 7:30am

How to avoid 50 percent of all hiring mistakes by learning to engage the analytical, creative, and emotional centers of your brain when interviewing job candidates

Over the course of 35 years and 5,000-plus interviews as a recruiter, I've developed an interviewing method that identifies superior candidates about 85 percent of the time. I call it the two-question performance-based interview (a.k.a. the Whole Brain Interview). It starts by recognizing that the brain consists of four core parts:

  • The left brain, which is more analytical and process focused
  • The right brain, which is more creative and intuitive
  • The emotional brain--limbic system--which is how we make dumb decisions, like judging someone as friend or foe within seconds of meeting them
  • The decision maker--prefrontal cortex--which takes inputs from these other three regions and makes some type of well-balanced decision, at least in theory

In practice, however, the emotional brain's friend-versus-foe response too often controls our interviewing behavior and hiring decisions. When a first impression is negative, the interviewer asks hardball questions in a vain attempt to escape the uncomfortable situation. When an initial response is positive, the interviewer asks softball questions, leans forward, and goes into sales mode. I estimate that 50 percent of all hiring errors are due to this subconscious reaction.

Interviewers are not all influenced to the same degree by this emotional response. Techies are the least affected; if you look closely, you'll see that their left brains are a bit bigger than those of most people. As a result, they tend to be conservative, they're less willing to make a decision without lots of proof, and they value experience and depth of technical skills over potential. As a result, most of their hires are rock solid, with few superstars.

Those whose heads tilt to the right (physically, not politically)--typically managers and executives--place more trust in their intuition and rely less on facts and evidence when making decisions. From a hiring standpoint, they concentrate on a too-narrow set of traits: strong communication skills, intelligence, and assertiveness. As a result, they typically hire people who excel at planning and strategy but aren't necessarily strong at building teams, executing projects, and achieving results.

Then there are those who just go with their gut reaction. Salespeople tend to fall into this category, and their hiring results are often across the board, with wide and violent swings in either direction. This is typically why sales jobs have higher turnover than most positions. The two-question performance-based interview corrects all of these problems. Here's the process:

1. Suspend Judgment

Wait 30 minutes into the interview before making any judgment about the candidate. Use that time to collect objective information about the person rather than asking biased questions. Screening candidates by phone first will help minimize the impact of first impressions.

2. Conduct a Screening Interview

At the beginning of the screening phone interview, review the candidate's work history in detail, with a focus on general fit and the Achiever Pattern. The Achiever Pattern indicates that a person is in the top 25 percent of his or her peer group. For example, a great engineer might have a bunch of patents and may have recently spoke at some major convention.

If the person possesses the Achiever Pattern, determine specific job fit by getting detailed examples of accomplishments that best compare to the actual performance requirements of the job. This is the Most Significant Accomplishment question I described in an earlier post. This is a left-brain question.

3. Gauge Problem-Solving Skills

To tap into right-brain thinking and problem-solving skills, ask the candidate how he or she would go about solving a real job-related challenge. Get into a discussion focusing on how the candidate would figure out a solution. Then, to ensure the person isn’t just a good talker, ask about a major accomplishment most comparable to the challenge being discussed.

4. Score the Talent

To further mitigate the team's tendency to make biased judgments, I suggest the use of a formal approach to sharing evidence when making the hiring decision. The worst type of evaluation is adding up a bunch of yes/no votes. There’s a talent scorecard in The Essential Guide for Hiring & Getting Hired that describes how to organize the assessment around 10 core factors we’ve seen best predict on-the-job success. Here's a link if you'd like to receive a sample copy.

Somehow, the human brain doesn't work properly when making hiring decisions. The Whole Brain performance-based interview was designed to sort through this hodgepodge of emotions, biases, and semifacts in some logical way to generate a reasonably accurate decision. According to my own experience, it works. However, I still won't formally recommend a hire without a full background verification, a rigorous reference check, a personality and style assessment, and a positive gut reaction.

13 Types of Job Applicants You Should Never Hire

March 14, 2014 - 3:40pm

Beware of candidates like the Chatterbox, the Chameleon, and the Mobile Device Maven, whose behavior during the hiring process portend the disastrous effect they could have on your company.

There are some clichés that, though old and somewhat tired, still ring true in the workplace. A company’s greatest assets do ride up and down the elevator every morning. And a few rotten apples do spoil the barrel.

As the co-founder of a 100-plus person strategic communications firm, I’ve conducted hundreds, if not thousands, of job interviews over the years. And with each passing year, I seem to get a little bit better at spotting a potentially toxic hire. So here, with the assistance of my crack intern committee managers Samantha Bruno, Jason Green, Julie Hoang, and Kristin Davie, are 13 types of interviewees you should avoid at all costs.

1. The Helicopter Millennial

This is the young lady whose mother accompanies her to the interview, waits patiently in the reception area, and then asks Buffy how it went afterward. Thanks for coming, mom, but my business needs fully formed and functioning adults.

2. The “What’s in It for Me?” Guy

He’s the man who’s more interested in vacation time, sick days, raises, titles, and promotions than in making a contribution to Peppercomm. Sorry, pal, but there’s no I in team.

3. The Sports-Analogy Asshole

For some reason, people assume I love all sports simply because I climb mountains. As a result, I receive job inquiries that use phrases such as “I can hit the ball out of the park for you” and “I’m the missing piece in Peppercomm’s Super Bowl team.” I also get emails from people who tell me they’re the “sherpa” who will “lead my business to the summit.” I don’t hire people who assume they know me when they don’t.

4. The Guilt Tripper

“Hi. My name’s Bob Smith, and I’ve been out of work for 18 months. Having read about your culture, I know I’d fit in perfectly. When can we meet?” Guilt may work in other settings, but not in the workplace. We hire winners. As for the actual meeting date, how does the 12th of never strike you, Bob?

5. The Blank Expressionist

This job applicant lacks the drive to research our firm in advance and is unable to formulate at least one intelligent question during an interview. As a result, she answers our questions but responds with a blank stare when we ask if she has questions of her own. Sorry, but we aren’t looking to hire toll booth collectors at the moment.

6. The Chatterbox

Some candidates simply never stop talking during an interview. Though we appreciate their need to highlight their skills and achievements, the chatterboxes do need to hit the Pause button every once in a while. Some will go so far off on a tangent that they’ll actually say, “I’m sorry, what was the question again?” The Chatterbox really should be interviewing for a telemarketing gig at Publishers Clearing House.

7. The Minimalist

This guy is also known as One-Word-Answer Andy. We respect good listeners. But we also appreciate a more in-depth response than, “Yup.” Prying answers out of the Minimalist is like pulling teeth. And as of today, we have no plans to expand into the oral care field.

8. The Hyperbolist

This is the woman who tends to stretch the truth just a wee bit in her résumé. It’s relatively simple to spot the Hyperbolist and even easier to out her on a purported “major accomplishment” during the interview. When pushed, she’ll always back down and confess to far more modest credentials. Braggarts belong in boxing, basketball, and inside the Beltway. Not in business.

9. The Chameleon

My firm now features many new and evolving service offerings. And that’s just fine with the Chameleon, because he’ll accept any job in any division. Though we value open-mindedness, we also tend to hire prospective employees who know exactly what they like and dislike. We don’t try to be all things to all people, and we won’t hire candidates who think that way. Chameleons need not apply.

10. The Drama Queen

This is the job applicant who just casually drops by our office without an appointment and demands an interview right on the spot! Aggressiveness is prized in public relations, but the Drama Queen is clearly desperate and looking for attention. We typically suggest she pay a visit to the corner of Hollywood and Vine instead.

11. The Improvisation King

This is the dude who just strides into an interview completely unprepared to talk about his relevant work experience. He’s also a big fan of the words um, like, and totally. When asked to elaborate on an assignment with a previous employer, he’ll sigh and say, “Yeah. Hmmm. Like, I’m not even sure why I wrote that.” Yeah, and um, like, we’re not sure you’ll ever find a job anywhere, dude.

12. The Sloppy Joe

This guy simply cannot be bothered to double-check what he writes or says. After we acquired two smaller firms recently, one Sloppy Joe sent me a note congratulating me on our “accusations.” On another occasion, a Sloppy Joe mailed me a letter saying Peppercomm was “infamous” on his campus. In person, he’ll call my firm PepperCorn or, believe it or not, LeperComm. Sloppy Joes are true rotten apples whose laziness can be contagious and, if it spreads throughout the organization, potentially fatal.

13. The Mobile-Device Maven

This woman sits down alongside me, pulls out her mobile device, and places it between the two of us. She then proceeds to check it every few minutes or so to see if anything urgent may have occurred. Something urgent occurred, all right. The Mobile-Device Maven just lost her chance at a gig with my firm. In a job interview, it’s me or the mobile device. Take your pick.

So, there you have it. My baker’s (dirty) dozen of the workplace. Have I missed identifying any other suspicious characters? If so, please let me know. After all, an entrepreneur can never have too much knowledge on any subject, especially one as critical as hiring the right (or wrong) person.

Uber Cofounder Garrett Camp Raises $50 Million From Dream Team of Investors

March 14, 2014 - 3:09pm

Investors include Google board member Ram Shriram, Virgin founder Sir Richard Branson, HP CEO Meg Whitman, Wordpress founder Matt Mullenweg, and author Tim Ferriss.

Garrett Camp, the cofounder of Uber and StumbleUpon, has raised $50 million from investors to fund the design and development of new companies. Investors include Camp himself, Google board member Ram Shriram, Virgin founder Sir Richard Branson, HP CEO Meg Whitman, Wordpress founder Matt Mullenweg, Behance founder Scott Belsky, and author Tim Ferriss.

Talk about an all-star team.

Expa, Camp's latest venture, calls itself "a startup studio that works with founders to develop and launch new products." Expa Capital--what the $50 million was raised for--is Expa's investment arm, which will initially invest between $500,000 and $1 million in seed capital in each company, focusing on mobile applications, platforms, and marketplaces.

In a short phone interview with Inc., Camp explained that $500,000 to $1 million was not necessarily a limit, just a starting point. "It will start at that, and then I'd [potentially] invest in additional rounds as well," he says.

Of course, in other cases, the initial seed money might be all a startup needs to go from idea to the marketplace. "With a lot of mobile apps, you can just hire a team and get a product out the door," he adds.

Part of Expa's overall mission involves helping startups build a path from their on-paper inception to becoming a product with actual customers. Though finding a market for your idea is obviously important, Camp is a big believer in the inspiration that comes from initially building a product for yourself.

"You're going to have that passion to build it, and you'll get excited about that," he says. "Because you, personally, will want it to exist. You'll put a lot of care into it. That's what I did with Uber. I basically created it because I couldn't get a cab.

"And now a lot of people use it."

Elon Musk: 5 Areas That Will Have the Most Important Affect on the Future of Humanity

March 6, 2014 - 5:45pm

In a video interview with VC Steve Jurvetson, Elon Musk says he outlined these business opportunities while standing in the shower.

Russia Today Anchor Quits on Air. How Did You Leave Your Last Job?

March 6, 2014 - 5:21pm

The anchor was fed up to here with her employer. That's a feeling familiar to many entrepreneurs.

Liz Wahl, an American anchor for the Kremlin-funded news outlet Russia Today, is the toast of social media this week after leaving her position live on the air. Wahl said she could no longer justify working for a propoganda outfit during the crisis in the Ukraine.

"I'm proud to be an American and believe in disseminating the truth," Wahl said, "and that is why, after this newscast, I'm resigning."

While they might not have reasons so geopolitical, the idea of quitting a day job is hardly foreign to entrepreneurs. I reached out to members of the Young Entreprenuer Council and Entrepreneurs' Organization for the stories of their "I quit" moments before they took to running their businesses full-time. The following are their lightly-edited responses. The breakups range from angry to amicable to laugh-out-loud funny.

Craig Fluty, Pinnacle Recruiting and Staffing

Prior to starting my first staffing firm, I was working for one of the nation’s giants. I got together with one of the other guys in my office and we decided to start our own firm. We talked two of our other friends into joining us, set up an LLC, and we were off.

However, I didn’t quit then. I stayed on with the company while we got the other business going. After a few months we built up enough contracts to move into our first office space, but I still didn’t quit. I managed to pull off the double dip because the nature of my position had me out in the field meeting with clients all day. So I could still hit my numbers at my first company and work with my partners to grow our new company.

One afternoon while I was sitting in my new office with my new partners reviewing a contract we were about to close, there was a knock at the office door. And then in walks one of the other reps from my other company, along with our area director, doing a cold call on our new business.

There I sat caught redhanded and we all just kind of stared at each other trying to figure out what was going on. If I was smooth I would have said that I there doing a cold call when I ran into our old colleague and had stayed to talk. Unfortunately, I was not that smooth. All I could think to do was blurt out, "Ummm hi...I quit!"

Ralph Dise, Dise & Company

I started up a new division for my employer. They were paying me on a heavily commissions-based comp plan. Once the business got up and running and I was making significant commissions, they changed my comp to a base plus a bonus that I was to share with three other people who had never sold a thing in their lives.

I was heartbroken. Before joining them, I’d worked for a similar company on straight commission for two years, so I felt that I’d sacrificed a lot to get to where I was at their firm. My wife encouraged me and threatened me to start my own business--or else. Our family calls that the "ultimate ultimatum."

Gerard Murphy, Mosaic Storage Systems

The last time I quit my job was after launching my company. I had been running my startup for a couple months while being fully employed. The balancing act was getting harder to keep up. My company was growing and needed my attention, and it was affecting my day job. I was torn. I was honestly scared to make the leap to run my business full-time but didn't like the idea of being distracted at work. So I walked into the CEO's office and told him.

I thought there was a 50/50 chance that he would politely walk me to the exit and mail me my personal items. But luckily, after he got over the initial shock, he said that I should work part-time for him for as long as I could. He wanted me around and the part-time salary would certainly ease the transition to running my own startup.

Turns out my boss's old boss did the same for him when he started his company. It certainly helped that I broke the news to him personally as opposed to him hearing it from someone else. Also, our companies were not competitive. He still checks in on me and I count him as one of my mentors.

How did you leave your last job before launching your company? Tell us in the comments.

How to Prove Your Concept Will Attract Customers

March 6, 2014 - 4:38pm

Most startups, even those helmed by experienced founders, mistakenly seek funding based on their concepts alone.

Boston's annual Lean Startup Challenge is just that: a six-week business model competition for startups based on the principles explained in The Lean Startup by Eric Ries.

The winner gets a cash prize, exposure, and connections to capital sources. I recently spoke to Tina Weber, who runs the contest. I asked: What are the most common mistakes you see every year that undermine entrants--and, likewise, what are the positive traits winners typically share?

Her answer shocked me, given that the entrants typically have business school training or previous startup experience. Most entrants make the mistake of trying to compete based on the strength of their concepts alone. The wiser path--what winners always do--is demonstrate customer demand for the concept.

How to Demonstrate Customer Demand

All of which creates a markedly important question: If you're a pre-launch startup, what steps can you take to show that your concept has viable customers? Here are two tips from Weber:

1. Before you build your prototype, build a landing page. A landing page could be as simple as a one-page web site with a "buy" button. This basic online form will allow you to quantify prospective customer interest (based on how many people push the "buy" button). You'll also be able to collect contact information from those prospects, surveying them on not only what they're willing to pay for but also what they're willing to pay. That feedback can help you build your first prototype.

You might be thinking that all of the above is obvious. Who wouldn't try to gauge customer interest, prior to building a prototype? But Weber says that the build-it-first-ask-questions-later approach happens far more often than not.

Of course, building a so-called "minimal viable prototype" or MVP is a key stage in lean startup methodology. In their haste to reach it, many entrepreneurs neglect the crucial step preceding it: Specifying the customer problem that needs to be solved. Which is to say, figuring out precisely what customers will pay for.

Weber told me about one experienced entrepreneur who'd run an online brokerage company for 10 years. "He wanted to build something else, and he said, 'I need $300,000 for the MVP,'" she recalls. He was asking for this sum of money before he performed any customer research. To Weber's mind, it was as if he was building the company before he'd even tried to gauge customer interest. That's a mistake.

Moreover, it's possible to learn from potential customers, even if you don't want to spend money building a landing page. Weber worked with one group of founders who went to colleges and stood in front of dorm rooms, interviewing a few hundred students, and persuading them to sign up to receive an email. It was old-school market research, in other words. But it was something tangible.

2. Respond to what you learn from customers. Think of this as the process of finding your niche. And embrace the notion that your initial niche will be smaller than your product's eventual niche.

For example, the winner of last year's contest, Avalanche Energy, developed a new way to collect solar energy that doesn't involve photovoltaic sells. Their device is the size of a satellite dish. Their potential niche--anyone who pays an energy bill--was massive.

Their breakthrough, after performing their customer research, was to fine-tune their offering. They recongized that the specific, most immediate problem they could solve for customers was saving them money on their home hot water heating bills. So they positioned their product as an easy-to-install roof-based device that works with existing hot water tanks.

They did this, even though their product has the potential--with an upgrade--to go one step further and generate electricity, using a slim micro-turbine. The reason? They'd discovered it was much easier to get homeowners to push "buy" on a simpler, more affordable initial investment. "They spoke to customers before going to their MVP," notes Weber.

Another way to look at this, she points out, is that patenting a product can cost upwards of $10,000, considering all of the consultations and billable hours it involves. Before spending on a patent to protect an MVP, wouldn't it be wiser to validate that MVP with potential customers? Or to have customers who've testified that they'd happily pay for such a product, once it becomes available?

The bottom line is, you can't develop your idea in a vacuum, tempting though it can be. "A lot of entrepreneurs are protective of their ideas in the beginning, and they don't want to show it to the world unless it's perfect," says Weber.

"But you really need to break it down--and shop it around--in a way that gives you proof."

How to Make the Most of the First 24 Hours of Crowdfunding

March 6, 2014 - 4:12pm

Here are three tips from companies that saw their campaigns off to a runaway start.

Ideally, you want contributions to your first crowdfunding campaign to take off like a snowball falling downhill. What's not so obvious is just how crucial the first few hours, even minutes, of the campaign are to getting that momentum going.

Scanadu, which developed a mobile health device to measure vital signs, reached its total funding goal of $100,000 within an hour of opening its campaign last year. By the time the team showed up for work at 9 am that day, they had doubled their objective. At the end of the 30 days that the campaign ran, the company raised a total of $1.6 million -- a record on the crowdfunding site Indiegogo.

"We often encourage campaign owners to raise about a third of their campaign goal in the first 24/48 hours after going live," Breanna DiGiammarino, cause director at Indiegogo, said. She spoke this week before an audience of about 100 at a local HealthTech women Meetup in San Francisco.

While Scanadu clearly had no issues meeting and then exceeding the recommendation, you're certainly in good company if you find this idea daunting.

The good news is, you're not expected to just hit "start" and automatically acquire thousands of campaign supporters. There are a variety of tactics you can use to ensure that you're off and running upon launch. Scanadu Cofounder Sam De Brouwer and other campaign organizers were on hand to share their tips at the meetup. Here's what they suggested:

1. Roundup local supporters and show them a good time. Striving to hit that one-third mark early, concierge medicine startup PlushCare threw a party the night its campaign launched.

"We had booze and food and there were people there that just started contributing -- friends, family. I think that night we hit 15 percent of our goal," PlushCare Cofounder Ryan McQuaid said.

"If people showed up the next day there was no money raised, we probably wouldn't have gotten much," McQuaid added. PlushCare's campaign, still going on now, has about $3,000 of its $25,000 goal left to raise.

2. Design perk offerings with early adopters in mind. Scanadu had the benefit of being a one and a half year old company when it launched its campaign last May. De Brouwer already knew her potential customers and what they were most likely to get excited about. She designed her perk offerings, or rewards for those who contribute a certain amount of money, with that in mind, she said.

For example, the earliest fans of the company were on Scanadu's mailing list. De Brouwer emailed them about three minutes before the campaign went live, and they received the chance claim a Scanadu Scout device for an early bird rate of $149. Within an hour the special had sold out.

Next, De Brouwer designed a package for the quantified self community. "Those are data freaks, they want to try everything," she said. As part of the perk system, she promised quantified selfers that they'd get access to new Scanadu additional features before anyone else. This perk, too, sold out.

3. Acknowledge that you're asking for help. It's not lost on De Brouwer that the well-planned perk system isn't really what generated the support from Scanadu's fans. Crowdfunding allows customers to show a company just how much they want them to succeed. And with those contributions, funders did Scanadu a huge favor to say the least.

"Never be afraid to ask for help," De Brouwer said, recalling some good advice she'd once gotten. "Because if your project, if your company is worth the help you, will get that help," she said.

A 20-Minute Exercise to Boost Your Brain Power

March 6, 2014 - 4:00pm

Take a little time out of your lunch break to do this activity and you can improve your mental function all afternoon, according to a new study.

Just this week on the Buffer blog, Belle Beth Cooper offered a list of ways to put your lunch break to better use backed by science. She offered productivity-boosting suggestions such as snacking on super foods like avocados and blueberries (and dark chocolate… yum!), napping and stepping out into nature to reset.

But maybe she missed one quick and effective way to make your lunch break work harder for you -- take a quick timeout for yoga.

The idea of engaging in a 20-minute yoga session doesn’t come from Eastern gurus or health nuts, but from a recent study out of the University of Illinois at Urbana-Champaign, and the idea isn’t aimed at staying slim, flexible or more grounded, but instead at boosting brain function afterwards.

Better Than Going for a Jog

The researchers recruited 30 volunteers for a head-to-head test comparing a quick yoga session with an equal period of moderate aerobic exercise, another frequently recommended brain booster and one also listed by Cooper. Half of the study participants engaged in one kind of activity, half in the other. When the two groups were tested for mental function afterwards, the yogis fared better.

"It appears that following yoga practice, the participants were better able to focus their mental resources, process information quickly, more accurately and also learn, hold and update pieces of information more effectively than after performing an aerobic exercise bout," lead author Neha Gothe said, according to PsyBlog.

The scientists are still unsure why yoga outperforms standard aerobic exercise, but speculate that the breathing exercises that are part of a yoga practice or the meditative nature of a session might be the key. "Meditation and breathing exercises are known to reduce anxiety and stress, which in turn can improve scores on some cognitive tests," Gothe noted.

Perhaps these effects are the reason a parade of business luminaries from Salesforce’s Mark Benioff to author Keith Ferrazzi are avowed meditators. Studies also indicate that meditation can help entrepreneurs beat biases and make sounder financial decision. Perhaps you could start accessing those benefits with just a 20-minute yoga session during your lunch break today.

Even Unsexy Products Can Strike Kickstarter Gold

March 6, 2014 - 3:48pm

The SnapRays Guidelight has taken Kickstarter by storm, drawing $12,000 in only two hours. Here's a page from their playbook.

Few things sound less exciting than watching a video about a night light. But after viewing the clip for the SnapRays Guidelight, which drew $101,000 within the first 29 hours of its Kickstarter campaign, you'll be convinced of its life-changing powers.

The campaign launched Tuesday, drawing $12,000 within its first two hours. But unlike most startups hungry for funding, Snap Power took four months to plot its crowdfunding page.

"We felt if people watched [the video] and understood the product, they would want it," Sean Watkins, a co-founder of Snap Power, the night light maker, and former car insurance salesman, tells Inc. "But we knew it could be tough to make a night light cool and not boring."

Naturally, Watkins credits his success with his stellar product. Designed to resemble and replace traditional electrical outlets, he claims it's energy efficient, safe around kids, and will turn on automatically in the dark. But the real selling point is his video, which shows the Guidelight lighting up when a woman returns home late, tucks in her daughter, or enters a dark bathroom.

Secret Ingredients

The original video "just showed applications, like a mom tucking in her daughter," says Watkins. But that wasn't enough to get the point across. "We decided to say, 'Let's get all the night lights and review them, look over the competition. Then we said, 'Let's show why ours is better, why we think it's better, and convey that to the customer.'"

The Snap Power team--that is, Watkins, lawyer Cam Robinson, and inventor Jeremy Smith--also researched other successful Kickstarter campaigns before crafting theirs. "Our goal with the page was to explain to people what the features and benefits of the product were, and to do it in as visual a way as possible," Watkins says.

After filming the video, the trio tapped Robinson's 15-year-old son, Kayden, to extract stills and use them to illustrate every facet of the product, from features to installation to applications. "None of us know what we're doing on the Web, but he's the smartest," says Watkins of his young IT guy. "A lot of the edits on the video, he did."

The FAQs on the page were derived from actual questions asked while presenting the product to prospective investors and partners. "One of the big ones was, 'Does it stay on?'" recalls Watkins. "We went through the questions and decided that we heard the most should be [included in the campaign]."

Marketing Magic

Plenty of thought was given to marketing as well. "We knew the first 48 hours is really, really important. So we sat down and created a timeline from Hour 1 to Hour 48 and said what has to happen, what has to go out, and how it's going to be shared on Facebook and Twitter," Watkins says. "We had a game plan when we launched: share on Facebook, tweet, email the press, and make phone calls."

The founders, who've bootstrapped the company for the past two years in Provo, Utah, also listed every blog and media outlet they hoped to appear in (Inc. was among them).

Though he describes the pledge levels as a "shot in the dark," Watkins also did his homework before settling on any. "Our product is very similar to hardwired guide lights," he says, "so we looked at the price of those and thought they ran anywhere between $12 and $50."

But since the Guidelight resembles a plug-in night light, they also examined those prices, which can cost anywhere between $1.50 and $12. "We tried to say, 'We're a much better option, but we want to be affordable and get our product to everybody."

With the campaign in first position on Kickstarter's "Popular" page--out of 134,679 campaigns--it seems they're off to a great start.

3 Facts About Satoshi Nakamoto, the Father of Bitcoin

March 6, 2014 - 3:12pm

After years of remaining anonymous, the inventor of the cryptocurrency was discovered living in a humble Los Angeles County home--hidden in plain sight.

The mysterious man behind Bitcoin is a 64-year-old Japanese-American who lives in Temple City, California, according to Newsweek. He is a model train enthusiast and has done classified engineering work for the U.S. military.

The man's name is Satoshi Nakamoto, the same as the name on the white paper that introduced Bitcoin, which had been widely thought to be a pseudonym for a person or a group of people. During a two-month investigation, Newsweek's Leah McGrath Goodman found that the creator was able to avoid being identified in part because he changed his name decades ago to "Dorian Prentice Satoshi Nakamoto." He now goes by "Dorian S. Nakamoto."

Nakamoto changed his name after graduating from California State Polytechnic University. He worked in a series of engineering positions on both coasts, including doing military projects and a stint for the Federal Aviation Administration in New Jersey after the September 11 terrorist attacks. Following that, he never got another stable job, leaving him free, Goodman suggests, to start working on the digital currency.

Although some Bitcoin enthusiasts, especially on Reddit, are upset that someone would unmask the person who gave them "the gift" of Bitcoin--it is the apprent end of a mystery that lasted for years. Below, read three facts about the elusive Nakamoto.

1. He won't admit it.

Goodman reports that when she finally found Nakamoto's home in Southrn California's San Bernardino foothills, he called the police on her. After two officers came, Nakamoto came outside. He didn't give her much information, but did obliquely refer to a former connection with Bitcoin. "I am no longer involved in that and I cannot discuss it," he told Goodman. "It's been turned over to other people. They are in charge of it now. I no longer have any connection."

His two brothers, Tokuo and Arthur Nakamoto, say their brother will probably never admit whether or not he is the creator of Bitcoin. "Dorian can just be paranoid. I cannot get through to him. I don't think he will answer any of these questions to his family truthfully," Tokuo tells Newsweek. "He is very meticulous in what he does, [and] he is very afraid to take himself out into the media."

2. He doesn't trust the government.

The chief scientist behind Bitcoin, Gavin Andresen, says he never met Nakamoto or even spoke with him on the phone. Still, he feels like he understood Nakamoto's motivations: "I got the impression that Satoshi was really doing it for political reasons," Andresen tells Newsweek. "He doesn't like the system we have today and wanted a different one that would be more equal. He did not like the notion of banks and bankers getting wealthy just because they hold the keys."

Nakamoto's daughter, Ilene Mitchell, 26, tells Newsweek that her father doesn't trust the government. "He is very wary of government interference in general," she says. "When I was little, there was a game we used to play. He would say, 'Pretend the government agencies are coming after you.' And I would hide in the closet."

3. His love of model trains influenced Bitcoin's creation.

Nakamoto has been collecting and building model steam trains since he was a teenager--he started after he and his mother immigrated to California from Beppu, Japan, where, according to Newsweek, he was "brought up poor in the Buddhist tradition by his mother." His second wife, Grace Mitchell, says that he buys most of his trains over the Internet from England. Goodman writes that Mitchell feels Nakamoto's initial interest in building a digital currency was borne from his "frustration with bank fees and high exchange rates when he was sending international wires to England to buy model trains."

But other factors may have influenced him to build Bitcoin as well. After being laid off twice in the 1990s, Nakamoto fell behind on mortgage payments and taxes, which resulted in his family's home being foreclosed. His daughter Ilene says that may have given rise to his suspicious attitude towards the government and banks. Today, Nakamoto reportedly is holding on to an estimated $400 million worth of Bitcoin.

Square Capital: A Sign That Merchant Cash Advances Could Get Cheaper

March 6, 2014 - 2:54pm

With Square and others getting into the business of merchant cash advances, the industry's rates--often in the triple-digits--could tumble.

The Information Payments-company Square is getting into the business of lending--giving its customers a potential new avenue for finding funding.

Square's not offering plain vanilla small business loans. With Square Capital, the San Francisco-based company is offering a more controversial product, called a merchant cash advance. In a merchant cash advance, the financier buys a portion of your future revenues--but at a discount. Technically, it's not a loan, and you're paying fees as opposed to interest. A Square spokesperson declined to comment on the specifics of the program.

Merchant cash advances have been around for a while, but they got a lot more attention after the financial crisis, when more companies started offering them. With banks reluctant to loan to small companies, merchant cash advances--along with other tools such as invoice financing and factoring--became one of the few ways small companies could get working capital.

Interest rates for merchant cash advances can be astronomical, sometimes reaching triple digits. The financing is somewhat risky, the time period of the cash advances tends to be very short, and the transactions aren't governed by usury laws.

Square's offering highlights just how tricky it is to evaluate merchant cash advances. Say you need $7,300. In an example cited by The Information, Square would require you to pay back the $7,300 plus a $1,022 fee. Yes, that $1,022 works out to 14 percent. But it's not a 14 percent annual rate, because there appears to be no fixed time period in which the loan needs to be repaid. Instead, in the example, every time you receive a credit card payment from a customer, Square will take 10 percent of it. If it takes you a year to pay back Square, then yes, you've paid a 14 percent annual interest rate.

Alternativley, say that right after you get the cash advance, your business takes off. Square is still taking 10 percent of each transaction, but now you manage to pay the loan off in only two months. That sounds great, right? But because you paid the whole thing in two months, your equivalent annual percentage rate is now more than 84 percent. That sounds horrible.

Defending the markup

At OnDeck Capital, another company that offers short-term cash to business owners, CEO Noah Breslow says that annual percentage rates average 56 percent. He says that business owners don't look at interest rates--they care about the bite each payment takes out of their cash flow. Plus, the amount his company charges is part of what allows it to make small loans in the first place.

OnDeck has built technology that helps it make loan decisions in just a few hours. Amounts under $35,000 can be approved in just a few minutes. That's something business owners care about, says Breslow, and it costs money to develop and implement those tools. Breslow says that as loan volume grows, rates will naturally come down.

Marco Lucioni, CEO of California microlender Opportunity Fund, agrees that rates are headed down. But he says it has nothing to do with loan volume. Instead, he says, it's about competition between lenders, which is increasing rapidly. Opportunity Fund has built an online lending engine too, but it doesn't make on-the-spot lending decisions. It takes about a week to get a loan (in the case of Opportunity Fund, the transaction is technically a loan), and Lucioni wants one of his lending officers to visit each business. As a nonprofit, Opportunity Fund built its technology with grant money, not venture capital. It's not under pressure to bring home tenfold returns.

Opportunity Fund is charging between 15 and 20 percent for loans through its platform. Compared to its competitors, that's low. Lucioni doesn't think he'll be that much of an outlier forever. Eventually, as the industry matures and it becomes easier for businesses to comparison shop for short-term money, he says rates will come down.

"Between 25 percent and 35 percent, including fees, is where it eventually comes in," Lucioni says. "That's doable in any state in the country. Those are rates any regulator will be able to stomach. It will take a while to get there." He declines to comment on what the range might be for a fair price on such a loan at this time. Cleverly, that's a debate Square is managing to stay out of, too--at least for now.

If Marissa Mayer's Plan Is Really Working, It's Happening Right on Schedule

March 6, 2014 - 1:40pm

Turning around any company, especially one as big as Yahoo, takes time.

A recently-hired executive might be frustrated if their initial changes aren't felt right away. Over in Silicon Valley, one high-profile company might serve as a useful case study in showing that turnarounds don't happen overnight.

Earlier this week, Yahoo CFO Ken Goldman spoke at an investor conference in San Francisco and told the audience that the company is in much better shape from a cultural and talent management perspective than it has been in some time.

"(CEO Marissa Mayer) deserves the credit relative to changing the attitude and morale and the desire, if you will, to…attract new folks as well as to retain folks we have,” Goldman said, according to Quartz. "So I think--I’m very confident. If you talk to anybody at Yahoo today you would find them, whether they’ve been here for a year or five years, they’re very, very pleased with what they see in working at Yahoo. I’m absolutely, very confident in that relative to attrition and our ability to hire all points to that."

Sorting Things Out

Goldman is biased by his position at Yahoo, of course, and his words invite even more skepticism when considering that he was speaking to an audience of investors. But let's give him the benefit of the doubt and say things are cheery at Yahoo these days.

If so, it's fitting to hear about it just over a year after Mayer's most attention-grabbing move as CEO: the day she called all employees back to the office. The business world was set alight and asunder with debate and dissent over the decision to remove telecommuting from Yahoo's employee offerings.

The policy was regarded by many as regressive and anti-parent, and by others as ignorant of the company's core issues. On the other side, people felt Yahoo had little to lose and cited company data showing telecommuting employees hadn't signed in to the company's servers in months.

Even in contempt, though, most observers agreed that the decision was a big splashy move for Mayer, who had at the time been at Yahoo's helm for just over half a year. And quick action from new leaders, previous research has shown, is key to that leader's success.

Over the course of 2013, Mayer would lead a massive acquisition spree, highlighted by its big spend for the popular blogging service Tumblr. While Tumblr remains a standalone product, most of Mayer's 37 acquisitions thus far have served to bring talented engineers on-board--an asset that has been sorely lacking from Yahoo as it went from tech industry leader to cautionary tale.

How Long Do You Get?

Now, about 20 months into Mayer's tenure, she's seeing results. If Goldman is to be believed, talent is coming into Yahoo, and more importantly it's happy and it's sticking around. If so, it's happening right on schedule.

In today's age, turnaround execs usually get about eight quarters to make their mark (a pretty drastic shift from the 16 quarters leaders were afforded in the pre-Internet era). Mayer's wrapping up her seventh (with a late start on her first, given her mid-July start date in 2012), and she clearly identified Yahoo's people issues as the one to tackle first. If she's largely erradicated them as the company turns its eyes to product and technical issues, then that's a major turnaround accomplishment.

An improved Yahoo culture might have little do with the work from home policy, or even with the acquisitions. That Yahoo still pays pretty well, and that employees seeing a better return on their stock options due to Yahoo's improved market performance, probably doesn't hurt the mood over there. No doubt, employees still much prefer the option to telecommute.

But nearly at the seven-quarter pole, Mayer appears to have solved a major problem. That only means so much if bottom line success doesn't follow. Still, the Yahoo of today is decidedly more marked by Mayer's actions, and so far those actions appear to have had a positive effect. If nothing else, that serves as a reminder that turnarounds take time--and leaders deserve that time to try and make them happen.

Why Companies Stop Innovating

March 6, 2014 - 1:28pm

Unlike with startups, larger companies' emphasis on execution often stifles innovation.

In the last few years we've recognized that a startup is not a smaller version of a large company. We're now learning that companies are not larger versions of startups.

There's been lots written about how companies need to be more innovative, but very little on what stops them from doing so. Companies looking to be innovative face a conundrum: Every policy and procedure that makes them efficient execution machines stifles innovation.

This first post will describe some of the structural problems companies have; follow-on posts will offer some solutions.

Facing continuous disruption from globalization, China, the Internet, the diminished power of brands, and the changing workforce, existing enterprises are establishing corporate innovation groups. These groups are adapting or adopting the practices of startups and accelerators--disruption and innovation rather than direct competition, customer development versus more product features, agility and speed versus lowest cost.

But paradoxically, in spite of their seemingly endless resources, innovation inside of an existing company is much harder than inside a startup. For most companies it feels like innovation can only happen by exception and heroic efforts, not by design. The question is: Why?

The Enterprise: Business Model Execution

We know that a startup is a temporary organization designed to search for a repeatable and scalable business model. The corollary for an enterprise is:

A company is a permanent organization designed to execute a repeatable and scalable business model.

Once you understand that existing companies are designed to execute, then you can see why they have a hard time with continuous and disruptive innovation.

Every large company, whether it can articulate it or not, is executing a proven business model. A business model guides an organization to create and deliver products/services and make money from them. It describes the product/service, who is it for, what channel sells/delivers it, how demand is created, how does the company make money, and so on.

Somewhere in the dim past of the company, it too was a startup searching for a business model. But now, as the business model is repeatable and scalable, most employees take the business model as a given, and instead focus on the execution of the model--what is it they are supposed to do every day when they come to work. They measure their success on metrics that reflect success in execution, and they reward execution.

It's worth looking at the tools companies have to support successful execution and explain why these same execution policies and processes have become impediments and are antithetical to continuous innovation.

20th century Management Tools for Execution

In the 20th century, business schools and consulting firms developed an amazing management stack to assist companies to execute. These tools brought clarity to corporate strategy and product line extension strategies, and made product management a repeatable process.

The Boston Consulting Group 2 x 2 growth-share matrix

For example, the Boston Consulting Group 2 x 2 growth-share matrix was an easy-to-understand strategy tool--a market selection matrix for companies looking for growth opportunities.

Strategy Maps

Strategy Maps are a visualization tool to translate strategy into specific actions and objectives, and to measure the progress of how the strategy gets implemented.

StageGate Process

Product management tools like Stage-Gate® emerged to systematically manage Waterfall product development. The product management process assumes that product/market fit is known, and the products can get spec’d and then implemented in a linear fashion.

Strategy becomes visible in a company when you draw the structure to execute the strategy. The most visible symbol of execution is the organization chart. It represents where employees fit in an execution hierarchy; showing command and control hierarchies--who's responsible, what they are responsible for, who they manage below them, and who they report to above them.

All these tools (strategy, product management, and organizational structures) have an underlying assumption. That is, that the business model--which features customers want, who the customer is, what channel sells/delivers the product or service, how demand is created, how the company makes money, etc.--is known, and that all the company needed is a systematic process for execution.

Driven by Key Performance Indicators (KPI’s) and Processes

Once the business model is known, the company organizes around that goal. It measures efforts to reach the goal, and seeks the most efficient ways to do so. This systematic process of execution needs to be repeatable and scalable throughout a large organization by employees with a range of skills and competencies. Staff functions in finance, human resources, legal departments, and business units developed Key Performance Indicators, processes, procedures, and goals to measure, control and execute.

Paradoxically, these very KPIs and processes, which make companies efficient, are the root cause of corporations' inability to be agile, responsive innovators.

This is a big idea.

Finance: The goals for public companies are driven primarily by financial Key Performance Indicators (KPI's). They include: return on net assets (RONA), return on capital deployed, internal rate of return (IRR), net/gross margins, earnings per share, marginal cost/revenue, debt/equity, EBIDA, price earning ratio, operating income, net revenue per employee, working capital, debt to equity ratio, acid test, accounts receivable/payable turnover, asset utilization, loan loss reserves, minimum acceptable rate of return, etc.

(A consequence of using corporate finance metrics like RONA and IRR is that it's a lot easier to get these numbers to look great by 1) outsourcing everything, 2) getting assets off the balance sheet, and 3) only investing in things that pay off fast. These metrics stack the deck against a company that wants to invest in long-term innovation.)

These financial performance indicators then drive the operating functions (sales, manufacturing, etc.) or business units that have their own execution KPI's (market share, quote to close ratio, sales per rep, customer acquisition/activation costs, average selling price, committed monthly recurring revenue, customer lifetime value, churn/retention, sales per square foot, inventory turns, etc.)

Corporate KPI’s, Policy and Procedures: Innovation Killers

HR Process: Historically, human resources was responsible for recruiting, retaining, and removing employees to execute known business functions with known job specs. One of the least obvious but most important HR Process issues--and ultimately the most contentious--in corporate innovation is the difference in incentives. The incentive system for a company focused on execution is driven by the goal of meeting and exceeding "the (quarterly/yearly) plan." Sales teams are commission-based; executive compensation is based on EPS, revenue, and margin; business units on revenue and margin contribution, etc.

What Does this Mean?
Every time another execution process is added, corporate innovation dies a little more. Innovation is chaotic, messy and uncertain. It needs radically different tools for measurement and control. It needs the tools and processes pioneered in Lean Startups.

While companies intellectually understand innovation, they don't really know how to build innovation into their culture, or how to measure its progress.

What to Do?
It may be that the current attempts to build corporate innovation are starting at the wrong end of the problem. While it's fashionable to build corporate incubators, there's little evidence that they deliver more than "innovation theater." Because internal culture applies execution measures/performance indicators to the output of these incubators and allocates resources to them the same way as to executing parts of company.

Corporations that want to build continuous innovation realize that innovation happens not by exception but as integral to all parts of the corporation. To do so they will realize that a company needs innovation KPIs, policies, processes and incentives. (Our Investment Readiness Level is just one of those metrics.) These enable innovation to occur as an integral and parallel process to execution. By design, not by exception.

We'll have more to say about this in future posts.

Lessons Learned

  • Innovation inside of an existing company is much harder than a startup
  • KPIs and processes are the root cause of corporations' inability to be agile and responsive innovators
  • Every time another execution process is added, corporate innovation dies a little more
  • Intellectually companies understand innovation, but they don't have the tools to put it into practice
  • Companies need different policies, procedures, and incentives designed for innovation
  • Currently the data we use for execution models the past
  • Innovation metrics need to be predictive for the future
  • These tools and practices are coming…