Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.

Who Should Read This

Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:

• You’d like to grow your business faster and understand the highest-leverage areas to focus on
• You’d like to evaluate performance of your marketing
• You’re raising a new round and want to be ready for the questions VCs are going to ask

So, let’s dive right in.

What We’ll Cover

Last time we focused on user growth. We looked into acquisition, retention, and virality metrics, as well as interactions among these three. Today, we’ll assess the dollar impact one user has on our business. To do it, we’ll learn to calculate and use another metric: customer lifetime value.

Summary (TL;DR)

• Customer Lifetime Value (CLV) = dollar value a company can earn from serving one customer.
• Retention ↑ => CLV ↑
• Price ↑ => CLV ↑
• Discount rate ↑ => CLV↓

Customer Lifetime Value

Understanding how changes in acquisition, retention, and virality impact the number of active users is a great start. Now, let’s look at one of the ways we can assess the impact of user growth on profits. One of the best ways to assess this impact is to estimate customer lifetime value (usually abbreviated as CLV or LTV).

CLV is simply dollar value a company can earn from serving one customer.

When we know this number, we can decide exactly how much we can spend on the acquisition of an average user and still break even.

It’s important to understand how CLV of a business compares to customer acquisition cost, abbreviated as CAC.

• If CAC is higher than CLV, the amount of money we need to spend to acquire one user than the amount of money we can earn from serving this user. This is a bad business to be in unless we can either increase CLV or decrease CAC in the future.
• If, on the other hand, if CLV>CAC, our marketing investment is justified: we can invest in acquiring new users because the return on investment is positive.

CLV Formula

So how is CLV derived?

In some industries, calculating this number is super easy and straightforward, but sometimes it is moderately, or even extremely, complicated. The most generic formula looks like this:

Where:

• “GC” = yearly gross contribution per customer = Sales minus Cost of Goods Sold
  For example, the annual subscription to a service minus the cost of providing this marginal subscription (which is often close to zero for some tech companies).
• “M” = retention costs per customer per year, if relevant. Often, M=0.
• “n” is the horizon (in years)
  It depends on how comfortable we are as a company extrapolating far into the future, based on the historical data that we have. So it’s a very arbitrary number. Using “infinity” makes mathematical sense, but we can also start with something more conservative, for example, three or five years.
• “r” is the yearly retention rate
  This is a critical component. The longer customers stick with us, the higher their CLV because we can expect to receive payments for a longer time. This is why it is so important to build a product that customers want and like to use.
• “d” is the yearly discount rate
  The discount rate is a financial term that might deserve a separate chapter. But for our purposes, we can assume that d = the interest rate we need to pay to raise capital. In other words, if we finance our business by getting a bank loan at 4%, our d = 4%.
• “i” means a certain year, i=1 means year number one and i=n means year number n

Some might think that this is unnecessarily complicated. If you do, here is a simpler, more intuitive way to think about customer lifetime value:

1. Subtract the cost associated with serving one marginal customer for a year from the price that a customer pays for a subscription per year.
2. Multiply this number by the number of years you expect an average customer to keep using the service.

For example:

• Annual subscription = $69.99
• Annual cost to serve one more customer = $5 (for example, incremental hosting costs)
• An average customer uses our service for two years

CLV = ($69.99 – $5) * 2 = $129.98

Of course, we can also use days or months instead of years.

I’ve included built a CLV calculator on the second worksheet in the same Google Spreadsheet.

Using CLV for Business Decisions

Now we can estimate the dollar impact of improvements in acquisition, retention or virality metrics by multiplying the number of users by CLV of each individual user.

Remember how we planned to improve retention from 40% to 70% because 70% was the industry average? We expected this improvement to increase anticipated user count by week 26 from 333 to 1,166. In other words, we expected 833 incremental users.

If each user is worth $129.98, our expected incremental profit is $129.98 * 833 = $108,273. Another way to interpret this number is that we can spend up to $108,273 to improve retention and still break even as long we get to at least 70%.

Advanced Uses of CLV

CLV is even more powerful when calculated for distinct customer segments. For example, a SaaS business might find out that CLV of its enterprise clients is higher than CLV of SMB clients. At the same CAC can also be higher for enterprise clients.

CLV and CAC metrics also vary by marketing channel. In other words, it might be more expensive to acquire users through paid search advertising but these users might also have higher CLV that would justify the cost.

Having visibility into these granular metrics can help companies make strategic decisions, such as deciding what segments to target or what marketing channels to double down on.

What We Learned

• There are multiple variables that will define business growth dynamics
• Main ones are acquisition rate, retention rate, virality coefficient, customer lifetime value, and customer acquisition cost
• Customer lifetime value is primarily determined by how much you charge and how long you retain users
• At any given time you might choose to prioritize some of these metrics over others
• This decision will depend on the business strategy, available resources, customer feedback, stage of the product lifecycle, and hundreds of other factors
• Models like the one shown here can assist you in making better decisions by letting you see where your business will be at in the future under different scenarios

More on Growth

• Rahul Vohra’s “How to Model Viral Growth”
• Andrew Chen’s “Facebook Viral Marketing“ and “What’s your viral loop?“
• Key Metrics for Popular Growth Models
• Facebook Growth – Y’Combinator Startup School
• Book: Viral Loop: From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves by Adam Penenberg
• Book: Growth Hacker Marketing by Ryan Holiday

I wrote this blog post as part of blog series on growth and marketing 101. See more here: Growth Map: The Missing Guide That Connects Marketing Strategy, Research, and Campaigns.

Like blog posts like this one? Subscribe to my monthly email newsletter!

Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.

Who Should Read This

Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:

• You’d like to grow your business faster and understand the highest-leverage areas to focus on
• You’d like to evaluate performance of your marketing
• You’re raising a new round and want to be ready for the questions VCs are going to ask

So, let’s dive right in.

What We’ll Cover

First, we’ll focus on user growth. Here we’ll look into acquisition, retention, and virality metrics, as well as interactions among these three.

Second, we’ll focus on the monetary value associated with users. Here we’ll look into customer lifetime value and customer acquisition cost.

Summary (TL;DR)

• There are multiple variables that will define business growth dynamics
• Main ones are acquisition rate, retention rate, and virality coefficient
• At any given time you might choose to prioritize some of these metrics over others
• This decision will depend on the business strategy, available resources, customer feedback, stage of the product lifecycle, and hundreds of other factors
• Models like the one shown here can assist you in making better decisions by letting you see where your business will be at in the future under different scenarios

Basic Metrics: Acquisition, Retention, and Virality

• Acquisition = the number of users you acquire during a certain time period
• Retention rate = the percentage of users that you retain during a certain time period
• Churn rate = the percentage of users that churn during a certain time period = 100% minus retention rate
• Virality coefficient = how many additional users you acquire for free via word of mouth per one user acquired

You may have an intuitive understanding that you want to acquire as many users as you can, retain as many users as you can, and have the highest possible virality coefficient. What you might not be so sure about is the relative importance of these three factors. So to address the former issue, let’s model several scenarios and visualize the results.

Growth Model

Here is the spreadsheet I built to illustrate the growth dynamics. Feel free to download it or save a copy to the Google Drive and play with it. Of course, the reality is much more complex than this oversimplified model but it will suffice for our purposes of illustrating key patterns.

Let’s run a few scenarios to get an intuitive grasp of the interplay of these metrics.

Example #1: Acquire 100 users each week and retain all of them

Let’s start with the simplest scenario and assume that we can only acquire 100 users per week. This limitation might be due to our budget constraints or the number of friends we have.

Let’s also assume that our product is not viral at all, i.e., virality coefficient = 0. In other words, nobody recommends our product or nobody sufficiently trusts these recommendations to sign-up.

Now, let’s analyze churn. The first scenario is ideal: we retain 100% of users we acquire. This is how our ½-year growth chart looks:

We end up with 2,600 users by week 26. Not quite a hockey stick, but a solid linear growth rate.

Example #2: Acquire 100 users per week and retain 80%

Now, let’s suppose that our weekly churn rate is 20%. In other words, we lose 20% of our users each week and retain the remaining 80%. With this type of churn, we will only have 399 users by the end of week 26 instead of 2,600, even though we acquire them at the same rate:

Example #3: Acquire 100 users per week and retain 90%

What if we could improve our churn rate? Let’s say we can get it down to 10%. In other words, we will still lose 10% of users each week but will retain 90%. In this case, we will end up with 842 users by the end of week 26. It’s much better than 100 but nowhere close to 2,600:

Example #4: Acquire 100 users per week and retain 80% with a virality coef. of 0.4

How about viral growth? You might have read stories about Facebook, Twitter, and Hotmail growing this way. So let’s see how this variable can impact our growth prospects.

Let’s still assume that we lose 10% of our users. But let’s also assume a virality coefficient of 0.4. This means that when we acquire 100 users via our regular customer acquisition efforts, we get additional 40 more through the viral loop.

Under this scenario, we will have 1,395 users by the end of week 26:

Example #5: Acquire 100 users per week and retain 80% with a virality coef. of 1.0

Now, what if we could create a truly remarkable product experience leading to a virality coefficient of 1.0? In other words, for each acquired user, we would get another one “for free”.

Whoa, we’ll have 15,823 users by the end of week 26 with the same acquisition rate of 100 users per week and with the same churn rate of 10%!

Example #6: Acquire 100 users per week and retain 80% with a virality coef. of 1.2

What if could get our virality coefficient above 1? Let’s say we could achieve 1.2. Here is how it might work: each user sends an email to five friends and, on average, 1.2 out of five sign up.

Still assuming the same churn rate of 10%, we will end up with 201,730 users by the end of week 26.

Now, this is much more exciting, isn’t it?

Marketing professionals have been talking about “word-of-mouth marketing” for decades to refer to marketing that your customers do for you. In a way, the “viral loop” is simply re-branded “word-of-mouth marketing” with more emphasis on deliberately designed product features that reinforce virality.

Of course, achieving this type of virality would require an outstanding product and remarkable marketing. In fact, very few companies were able to achieve this kind of growth.

The practical takeaway is that product experience and marketing and highly interrelated. When users love the product, marketing campaigns become much more effective as acquired users stick around and bring even more users in.

Setting The Right Goals

How do we decide on which metrics to focus on? One way to do it is to benchmark our metrics against market-averages.

Here is just one example. Let’s say we find ourselves in this situation:

As you can see our retention is lagging behind the competition. Let’s estimate how it impacts our business by plugging these numbers into the spreadsheet.

An average competitor can expect 23,105 users by week 26.

We can expect only 10,207 even though we acquire users at a higher rate.

What if we could improve our retention rate from 70% to the industry standard of 90% while keeping all other metrics at the same levels?

In this case, we could expect 36,758 users – more than 3x the original number.

So would we be able to confidently set the goal of improving retention rate in this case?

This, of course, depends on the context. Here are some questions you might ask:

• What’s the root cause of the low retention rate? E.g. the product itself, the quality of onboarding materials and customer support, the pricing strategy or marketing effectiveness.
• What exactly are customers unhappy about?
• How much investment is required to improve retention?
• How is the market evolving – will this still be important in the future?

Practical Takeaways

Improving retention and virality coefficients can have a substantial effect on growth, independent of customer acquisition. But it doesn’t mean that acquisition numbers are irrelevant. On the contrary, the rate at which you acquire users will often be the number one factor determining future success.

How so? Here are some possibilities:

• Certain companies might be unable to improve the churn rate in the short-term because of certain fundamental issues with the product that would take months to address.
• Certain teams can substantially improve the acquisition rate but be limited in how much they can affect churn rates and virality.

In other words, the answer is “it depends”. So, the most important takeaway is that modeling your specific situation will allow you to make much better decisions.

What We Learned

• There are multiple variables that will define business growth dynamics
• Main ones are acquisition rate, retention rate, and virality coefficient
• At any given time you might choose to prioritize some of these metrics over others
• This decision will depend on the business strategy, available resources, customer feedback, stage of the product lifecycle, and hundreds of other factors
• Models like the one shown here can assist you in making better decisions by letting you see where your business will be at in the future under different scenarios

What’s Next

Today we discussed how changes in acquisition, retention, and virality metrics impact the number of active users. Next time, we’ll assess the dollar impact one user makes on our business. To do it, we’ll learn to calculate and use another metric: customer lifetime value. Keep reading.

I wrote this blog post as part of blog series on growth and marketing 101. See more here: Growth Map: The Missing Guide That Connects Marketing Strategy, Research, and Campaigns.

Like blog posts like this one? Subscribe to my monthly email newsletter!

Here are some less than obvious insights I noted. What did you find interesting?

• Ads
  • Ads vary significantly in how much they annoy customers: mobile pop-ups are the worst
• Social Media
  • Unexpected popularity of weird YouTube channels, e.g. people who record themselves unboxing stuff
• Delivery / On-Demand Economy
  • Trending up across the board: from Amazon to Doordash
  • Amazon eating the world with Amazon Basics brand
• Gaming and VR
  • Gamer’s average age: 35
  • More weird entertainment: the # of people watching other people play games keeps growing
  • Games have higher engagement in minutes/day than Facebook (per active user)
  • VR and gamification of the real world: Stanford Football, Peloton and all kinds of mobile apps
  • Virtual world simulations: Improbable
  • eSports growth
• Media
  • Continued growth of the subscription model and personalization: Spotify and Netflix dominate
• Enterprise Software
  • Interfaces become more humane as reflected in growing designer/developer ratios
• China
  • On-demand bike sharing
  • AliPay + WeChat
• Macro Trends
  • US Deficit
  • 60% of most valued companies started by 1st or 2nd generation immigrants
  • 50% of most valued companies started by 1st generation immigrants

Some screenshots:

Think carefully about each of these four elements:

• Incentives are a basic element of doing good work. People should be paid fairly and competitively for their roles, and increases in compensation should be a predictable process. In addition to pay, the culture should work to reward results generated versus hours worked. Employees shouldn’t feel anxious about how visible they are in the office or on projects, and strict timekeeping can create a sense of mistrust between teams and management. Lastly, and this is something we care about a lot, good failure should not result in career suicide.
• Context and rules will determine what rituals and processes allow people to do great work. If initiative is punished instead of rewarded, people will feel less compelled to push new ideas internally. The ability to make quick judgment calls and move decisions forward will outpace any lengthy or cumbersome internal approvals process. The same goes for autonomy and flexibility—do you trust your teams to lead while you get out of the way? Are teams allowed to participate in flexible work options that encourage their productivity? Your teams need the right tools and resources to do their job—are they spending more time fighting for what they need? If access to those resources is limited, individuals will be less inclined to take part in initiatives with so many blockers in front of them.
• People are the core of a great organization and the processes and systems you use to hire, promote, and reward them can be both enablers and blockers. Bob Sutton’s famous “no asshole rule” is an important factor when hiring people for your company, especially if they’re “star performers”. Sutton believes that star performers who are demeaning can wreak havoc on organizations. You just can’t compromise your business on people like that.
• Leadership has to play a role in the culture if the whole organization is to transform. And leading by example is a pivotal component of management enablers (and blockers: leadership can lead by poor example as well, of course). If leadership exhibits the behaviors expected of teams and individuals, then people in the organization will follow suit.

“About 13.5 billion years ago, matter, energy, time and space came into being in what is known as the Big Bang. The story of these fundamental features of our universe is called physics.

About 300,000 years after their appearance, matter and energy started to coalesce into complex structures, called atoms, which then combined into molecules. The story of atoms, molecules and their interactions is called chemistry.

About 3.8. billion years ago, on a planet called Earth, certain molecules combined to form particularly large and intricate structures called organisms. The story of organisms is called biology.

About 70,000 years ago, organisms belonging to the species Homo sapiens started to form even more elaborate structures called cultures. The subsequent development of these human cultures is called history.

Three important revolutions shaped the course of history: the Cognitive Revolution kick-started history about 70,000 years ago. The Agricultural Revolution sped it up about 12,000 years ago. The Scientific Revolution, which got under way only 500 years ago, may well end history and start something completely different. This book tells the story of how these three revolutions have affected humans and their fellow organisms.”

Pro-top: To maximize impact per dollar, pick a charity from this list of top performing ones.

I’d definitely recommend this one if you’re interested in the application of the scientific mindset to forecasting of future events.

1. Electronic music, mostly medium to fast tempo, 862 songs.
2. Electronic music, mostly slow to medium tempo, 892 songs.
3. Electronic drone music – super slow, for very occasional use when deep focus is needed or everything else seems too distracting. 199 songs.
4. Jazz music with no vocals or saxophone, 196 songs.

I’ll also embed them here:

Here is a quote on math behind Facebook growth, for example:

“The reality is that Facebook has been so successful, it’s actually running out of humans on the planet. Ponder the numbers: there are about three billion people on the Internet, where the latter is broadly defined as any sort of networked data, texts, browser, social media, whatever. Of these people, six hundred million are Chinese, and therefore effectively unreachable by Facebook. In Russia, thanks to Vkontakte and other copycat social networks, Facebook’s share of the country’s ninety million Internet users is also small, though it may yet win that fight.

That leaves about 2.35 billion people ripe for the Facebook plucking. While Facebook seems ubiquitous to the plugged-in, chattering classes, its usage is not universal among even entrenched Internet users. In the United States, for example, by far the company’s most established and sticky market, only three-quarters of Internet users are actively on FB. That ratio of FB to Internet user is worse in other countries, so even full FB saturation in a given market doesn’t imply total Facebook adoption. Let’s (very) optimistically assume full US-level penetration for any market. Without China and Russia, and taking a 25 percent haircut of people who’ll never join or stay (as is the case in the United States), that leaves around 1.8 billion potential Facebook users globally. That’s it. In the first quarter of 2015, Facebook announced it had 1.44 billion users. Based on its public 2014 numbers, FB is growing at around 13 percent a year, and that pace is slowing. Even assuming it maintains that growth into 2016, that means it’s got one year of user growth left in it, and then that’s it: Facebook has run out of humans on the Internet.

The company can solve this by either making more humans (hard even for Facebook), or connecting what humans there are left on the planet. This is why Internet.org exists, a vaguely public-spirited, and somewhat controversial, campaign by Facebook to wire all of India with free Internet, with regions like Brazil and Africa soon to follow. In early 2014 Facebook acquired a British aerospace firm, Ascenta, which specialized in solar-powered unmanned aerial vehicles. Facebook plans on flying a Wi-Fi-enabled air force of such craft over the developing world, giving them Internet. Just picture ultralight carbon-fiber aircraft buzzing over African savannas constantly, while locals check their Facebook feeds as they watch over their herds.”

“Kurzweil then takes things a huge leap further. He believes that artificial materials will be integrated into the body more and more as time goes on. First, organs could be replaced by super-advanced machine versions that would run forever and never fail. Then he believes we could begin to redesign the body—things like replacing red blood cells with perfected red blood cell nanobots who could power their own movement, eliminating the need for a heart at all. He even gets to the brain and believes we’ll enhance our brain activities to the point where humans will be able to think billions of times faster than they do now and access outside information because the artificial additions to the brain will be able to communicate with all the info in the cloud.”

1. BerkeleyHaas applications songs
Applicants to BerkeleyHaas used to be asked for an essay on this topic: “If you could choose one song that expresses who you are, what is it and why?” This is a collection of songs used by classes ’13, ’15 and ’16. Totally optimistic, daring, reflective and sometimes surprising. Highly recommended. Total songs: 381.

2. All Aerostat (a popular music podcast) songs: episodes 1-522
Hand-picked by Boris Grebenshchikov, full of beautiful gems from all eras. Total songs: 2,881 (actually 5,212 but Spotify doesn’t have all)

“Our conventional sense of self is an illusion; positive emotions, such as compassion and patience, are teachable skills; and the way we think directly influences our experience of the world.”

“There is now little question that how one uses one’s attention, moment to moment, largely determines what kind of person one becomes. Our minds—and lives—are largely shaped by how we use them.”

“My mind begins to seem like a video game: I can either play it intelligently, learning more in each round, or I can be killed in the same spot by the same monster, again and again.”

“How we pay attention to the present moment largely determines the character of our experience and, therefore, the quality of our lives. Mystics and contemplatives have made this claim for ages—but a growing body of scientific research now bears it out.”

“Imagine, for instance, that someone has made you very angry—and just as this mental state seems to have fully taken possession of your mind, you receive an important phone call that requires you to put on your best social face. Most people know what it’s like to suddenly drop their negative state of mind and begin functioning in another mode. Of course, most then helplessly grow entangled with their negative emotions again at the next opportunity.
Become sensitive to these interruptions in the continuity of your mental states. You are depressed, say, but are suddenly moved to laughter by something you read. You are bored and impatient while sitting in traffic, but then are cheered by a phone call from a close friend. These are natural experiments in shifting mood. Notice that suddenly paying attention to something else—something that no longer supports your current emotion—allows for a new state of mind. ”

“There is nothing passive about mindfulness. One might even say that it expresses a specific kind of passion—a passion for discerning what is subjectively real in every moment. It is a mode of cognition that is, above all, undistracted, accepting, and (ultimately) nonconceptual. Being mindful is not a matter of thinking more clearly about experience; it is the act of experiencing more clearly, including the arising of thoughts themselves. Mindfulness is a vivid awareness of whatever is appearing in one’s mind or body—thoughts, sensations, moods—without grasping at the pleasant or recoiling from the unpleasant.”

“It isn’t enough to know, in the abstract, that thoughts continually arise or that one is thinking at this moment, for such knowledge is itself mediated by thoughts that are arising unrecognized. It is the identification with these thoughts—that is, the failure to recognize them as they spontaneously appear in consciousness—that produces the feeling of “I.” One must be able to pay attention closely enough to glimpse what consciousness is like between thoughts—that is, prior to the arising of the next one. Consciousness does not feel like a self. Once one realizes this, the status of thoughts themselves, as transient expressions of consciousness, can be understood.”

“If, like many people, you tend to be vaguely unhappy much of the time, it can be very helpful to manufacture a feeling of gratitude by simply contemplating all the terrible things that have not happened to you, or to think of how many people would consider their prayers answered if they could only live as you are now. The mere fact that you have the leisure to read this book puts you in very rarefied company. Many people on earth at this moment can’t even imagine the freedom that you currently take for granted.”

“As we have seen, the split-brain phenomenon puts pressure on the very idea of personal identity. But things can get even worse. In a now famous thought experiment, the philosopher Derek Parfit asks us to imagine a teleportation device that can beam a person from Earth to Mars. Rather than travel for many months on a spaceship, you need only enter a small chamber close to home and push a green button, and all the information in your brain and body will be sent to a similar station on Mars, where you will be reassembled down to the last atom.
Imagine that several of your friends have already traveled to Mars this way and seem none the worse for it. They describe the experience as being one of instantaneous relocation: You push the green button and find yourself standing on Mars—where your most recent memory is of pushing the green button on Earth and wondering if anything would happen.
So you decide to travel to Mars yourself. However, it raises the following concern: While your double is beginning his day on Mars with all your memories, goals, and prejudices intact, you will be standing in the teleportation chamber on Earth, just staring at the green button. Imagine a voice coming over the intercom to congratulate you for arriving safely at your destination; in a few moments, you are told, your Earth body will be smashed to atoms. How would this be any different from simply being killed?”

“How to Meditate
1. Sit comfortably, with your spine erect, either in a chair or cross-legged on a cushion.
2. Close your eyes, take a few deep breaths, and feel the points of contact between your body and the chair or the floor. Notice the sensations associated with sitting—feelings of pressure, warmth, tingling, vibration, etc.
3. Gradually become aware of the process of breathing. Pay attention to wherever you feel the breath most distinctly—either at your nostrils or in the rising and falling of your abdomen.
4. Allow your attention to rest in the mere sensation of breathing. (You don’t have to control your breath. Just let it come and go naturally.)
5. Every time your mind wanders in thought, gently return it to the breath.
6. As you focus on the process of breathing, you will also perceive sounds, bodily sensations, or emotions. Simply observe these phenomena as they appear in consciousness and then return to the breath.
7. The moment you notice that you have been lost in thought, observe the present thought itself as an object of consciousness. Then return your attention to the breath—or to any sounds or sensations arising in the next moment.
8. Continue in this way until you can merely witness all objects of consciousness—sights, sounds, sensations, emotions, even thoughts themselves—as they arise, change, and pass away.”

If you enjoyed these quotes, you might enjoy the book, as well as Sam’s blog and podcast. I would especially recommend a recent episode with Paul Bloom and another one with Dan Carlin.

Milgram told his forty male volunteer research subjects that they were participating in a study about the effects of punishment on learning. He assigned each of the subjects to the role of teacher. Each subject was told that his task was to help another subject like himself learn a list of word pairs. Each time the learner made a mistake, the teacher was to give the learner an electric shock by flipping a switch. The teacher was told to increase the shock level each time the learner made a mistake, until a dangerous shock level was reached.

Throughout the course of the experiment, the experimenter firmly commanded the teachers to follow the instructions they had been given. In reality, the learner was not an experiment subject but Milgram’s accomplice, and he never actually received an electric shock. However, he pretended to be in pain when shocks were administered.

Prior to the study, forty psychiatrists that Milgram consulted told him that fewer than 1 percent of subjects would administer what they thought were dangerous shocks to the learner. However, Milgram found that two-thirds of the teachers did administer even the highest level of shock, despite believing that the learner was suffering great pain and distress. Milgram believed that the teachers had acted in this way because they were pressured to do so by an authority figure.

Factors That Increase Obedience

• Milgram found that subjects were more likely to obey in some circumstances than others. Obedience was highest when:
• Commands were given by an authority figure rather than another volunteer
• The experiments were done at a prestigious institution
• The authority figure was present in the room with the subject
• The learner was in another room
• The subject did not see other subjects disobeying commands

Implications and conclusions are almost endless. From insights into  reasons why throughout history ordinary people “just doing their job” could do so much evil to potential implications on how to foster independent thinking and prevent groupthink by creating proper organizational structures and corporate culture in work environment.

via mi3ch

Portrait of California 2014-2015

California Well-being Report 2013

Download mp3.

On smart creatives:

“And who, exactly, is this smart creative? A smart creative has deep technical knowledge in how to use the tools of her trade and plenty of hands-on experience. In our industry, that means she is most likely a computer scientist, or at least understands the tenets and structure of the systems behind the magic you see on your screens every day. But in other industries she may be a doctor, designer, scientist, filmmaker, engineer, chef, or mathematician. She is an expert in doing. She doesn’t just design concepts, she builds prototypes. She is analytically smart. She is comfortable with data and can use it to make decisions. She also understands its fallacies and is wary of endless analysis. Let data decide, she believes, but don’t let it take over.

She is business smart. She sees a direct line from technical expertise to product excellence to business success, and understands the value of all three. She is competitive smart. Her stock-in-trade starts with innovation, but it also includes a lot of work. She is driven to be great, and that doesn’t happen 9-to-5. She is user smart. No matter the industry, she understands her “get it right the next time around. She is self-directed creative. She doesn’t wait to be told what to do and sometimes ignores direction if she doesn’t agree with it. She takes action based on her own initiative, which is considerable.

She is open creative. She freely collaborates, and judges ideas and analyses on their merits and not their provenance. If she were into needlepoint, she would sew a pillow that said, “If I give you a penny, then you’re a penny richer and I’m a penny poorer, but if I give you an idea, then you will have a new idea but I’ll have it too.” Then she would figure out a way to make the pillow fly around the room and shoot lasers.

She is thorough creative. She is always on and can recite the details, not because she studies and memorizes, but because she knows them. They are her details. She is communicative creative. She is funny and expresses herself with flair and even charisma, either one-to-one or one-to-many.”

HIPPOs:

“Hippopotamuses are among the deadliest animals, faster than you think and capable of crushing (or biting in half) any enemy in their path. Hippos are dangerous in companies too, where they take the form of the Highest-Paid Person’s Opinion. When it comes to the quality of decision-making, pay level is intrinsically irrelevant and experience is valuable only if it is used to frame a winning argument. Unfortunately, in most companies experience is the winning argument. We call these places “tenurocracies,” because power derives from tenure, not merit. It reminds us of our favorite quote from Jim Barksdale, erstwhile CEO of Netscape: “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.”

When you stop listening to the hippos, you start creating a meritocracy, which our colleague Shona Brown concisely describes as a place where “it is the quality of the idea that matters, not who suggests it.” Sounds easy, but of course it isn’t. Creating a meritocracy requires equal participation by both the hippo, who could rule the day by fiat, and the brave smart creative, who risks getting trampled as she stands up for quality and merit.”

On technical insights as a driver of innovation:

“Bet on technical insights, not market research. Product leaders create product plans, but those product plans often (usually!) lack the most important component: What is the technical insight upon which those new features, products, or platforms will be built? A technical insight is a new way of applying technology or design that either drives down the cost or increases the functions and usability of the product by a significant factor. The result is something that is better than the competition in a fundamental way. The improvement is often obvious; it doesn’t take a lot of marketing for customers to figure out that this product is different from everything else.

For example, at that time Google was experimenting in applying some of our expertise from online advertising to other advertising markets, including print, radio, and TV. These were clever efforts, supported by smart people, but they lacked that fundamental technical insight that would shift the cost-performance curve non-incrementally and provide significant differentiation. All three ultimately failed. And when we look back at other Google products that didn’t make it (iGoogle, Desktop, Notebook, Sidewiki, Knol, Health, even the popular Reader), they all either lacked underlying technical insights from the outset, or the insights upon which they were based became dated as the Internet evolved.”

On importance of hiring:

“For a manager, the right answer to the question “What is the single most important thing you do at work?” is hiring.

…

The passionate person will often talk at length, aka ramble, about his pursuits. This pursuit can be professional. In our world, “perfecting search” is a great example of something people can spend an entire career on and still find challenging and engaging every day. But it can also be a hobby. Andy Rubin, who started Android, loves robots (and is now spearheading Google’s nascent efforts in that area). Wayne Rosing, Google’s first head of engineering, loves telescopes. Captain Eric loves planes and flying (and telling stories of flying planes).

….

Once they start, listen very carefully. Pay attention to how they are passionate. For example, athletes can be quite passionate, but do you want the triathlete or ultra-marathoner who pursues his craft all alone, or someone who trains with a group? Is the athlete solo or social, exclusive or inclusive? When people are talking about their professional experience, they know the right answers to these questions—most people don’t like a loner in the work environment. But when you get people talking about their passions, the guard usually comes down and you gain more insight into their personalities.

…

You probably know someone whose résumé is truly exceptional: someone who climbed K2, is an Olympic-class hockey player, published a critically acclaimed novel, worked her way through college and finished cum laude, just had an art exhibit, started a (real) nonprofit, speaks four languages, owns three patents, codes top-100 apps for fun, plays lead guitar in a band, and once danced onstage with Bruno Mars. If you know at least one person like that, then it stands to reason that everyone you work with knows one of them too. Then why do you let only recruiters handle recruiting? If everyone knows someone great, why isn’t it everyone’s job to recruit that great person?

…

When asking about a candidate’s background, you want to ask questions that, rather than offering her a chance to regurgitate her experiences, allow her to express what insights she gained from them. Get her to show off her thinking, not just her résumé. “What surprised you about…?” is one good way to approach this, as it is just different enough to surprise a candidate, so you don’t get rehearsed responses, and forces her to think about her experiences from a slightly different perspective. “How did you pay for college?” is another good one, as is “If I were to look at the web history section of your browser, what would I learn about you that isn’t on your résumé?” Both of these can lead to a far better understanding of the candidate. They are also quite specific, which helps you gauge how well someone listens and parses questions.

Scenario questions are often helpful, but more so when interviewing more senior people, because they can reveal how a person will use or trust their own staff. For example, “When you are in a crisis, or need to make an important decision, how do you do it?” will often reveal if a candidate is of the “if you want something done, do it yourself” ilk, or if they will rely on the people around them. The former is more likely to get frustrated with the people who work for them and thus hang on to control, the latter more likely to hire great people and have faith in them. Generic answers to these questions indicate someone who lacks insight on issues. You want the answers to be interesting or at least specific. If the answers you get are cut and pasted from marketing claims, or are simply the reflection of commonly held wisdom, then you have a generic candidate, one who will not be adept at thinking deeply about things.”

Career advice:

“Think about your ideal job, not today but five years from now. Where do you want to be? What do you want to do? How much do you want to make? Write down the job description: If you saw this job on a website, what would the posting look like? Now fast forward four or five years and assume you are in that job. What does your five-years-from-now résumé look like? What’s the path you took from now to then to get to your best place?

Keep thinking about that ideal job, and assess your strengths and weaknesses in light of it. What do you need to improve to get there? This step requires external input, so talk to your manager or peers and get their take on it. Finally, how will you get there? What training do you need? What work experience? By the way, if your conclusion is that you are ready for your ideal job today, then you aren’t thinking big enough. Start over and make that ideal job a stretch, not a gimme.

When people are right out of school, they tend to prioritize company first, then job, then industry. But at this point in their career that is exactly the wrong order. The right industry is paramount, because while you will likely switch companies several times in your career, it is much harder to switch industries. Think of the industry as the place you surf (in Northern California the most rad waves are at Mavericks, dude) and the company as the wave you catch. You always want to be in the place with the biggest and best waves.”

On dealing with email effectively:

“When writing an email, every word matters, and useless prose doesn’t. Be crisp in your delivery. If you are describing a problem, define it clearly. Doing this well requires more time, not less. You have to write a draft then go through it and eliminate any words that aren’t necessary.
…
“Clean out your inbox constantly. How much time do you spend looking at your inbox, just trying to decide which email to answer next? How much time do you spend opening and reading emails that you have already read? Any time you spend thinking about which items in your inbox you should attack next is a waste of time. Same with any time you spend rereading a message that you have already read (and failed to act upon).
When you open a new message, you have a few options: Read enough of it to realize that you don’t need to read it, read it and act right away, read it and act later, or read it later (worth reading but not urgent and too long to read at the moment). Choose among these options right away, with a strong bias toward the first two. Remember the old OHIO acronym: Only Hold It Once. If you read the note and know what needs doing, do it right away. Otherwise you are dooming yourself to rereading it, which is 100 percent wasted time. If you do this well, then your inbox becomes a to-do list of only the complex issue. To make sure that the bloat doesn’t simply transfer from your inbox to your “take action” folder, you must clean out the action items every day. This is a good evening activity. Zero items is the goal, but anything less than five is reasonable. Otherwise you will waste time later trying to figure out which of the long list of things to look at.”

…

Handle email in LIFO order (Last In First Out). Sometimes the older stuff gets taken care of by someone else.

…

Make it easy to follow up on requests. When you send a note to someone with an action item that you want to track, copy yourself, then label the note “follow up.” That makes it easy to find and follow up on the things that haven’t been done; just resend the original note with a new intro asking “Is this done?”

…

“Help your future self search for stuff. If you get something you think you may want to recall later, forward it to yourself along with a few keywords that describe its content. Think to yourself, How will I search for this later? Then, when you search for it later, you’ll probably use those same search terms. This isn’t just handy for emails, but important documents too. Jonathan scans his family’s passports, licenses, and health insurance cards and emails them to himself along with descriptive keywords. Should any of those things go missing during a trip, the copies are easy to retrieve from any browser.

 

On how sometimes it makes sense to launch products without a clear monetization strategy:

“About eight months later, Google Earth, which was based on Keyhole technology, launched. It was an immediate hit with users, and also generated millions of dollars. How could that be, since there were no ads on the app and it was free? Not long after we launched it, one of our smart creatives, Sundar Pichai, realized that all those people who were downloading and installing Google Earth might be interested in Google Toolbar as well. Toolbar was a simple utility that integrated with the browser. It had a lot of interesting features for users, one of which was a little Google search box that constantly resided in the browser’s interface. People with Toolbar could initiate a Google search without going to Google.com, so they tended to conduct more searches, click on more ads, and generate more revenue. Sundar’s idea met some resistance, but, with a push from Urs Hölzle, it was quickly implemented. This simple insight—that people downloading Earth might be interested in getting Toolbar as well—increased Toolbar’s user base significantly and generated lots of revenue.”

On transparency of everyone’s goals:

“OKRs are another great example of transparency. These are an individual’s Objectives (the strategic goals to accomplish) and Key Results (the way in which progress toward that goal is measured). Every employee updates and posts his OKRs company-wide every quarter, making it easy for anyone to quickly find anyone else’s priorities. When you meet someone at Google and want to learn more about what they do, you go on Moma and read their OKRs. This isn’t just a job title and description of the role, it’s their first-person account of the stuff they are working on and care about. It’s the fastest way to figure out what motivates them.”

On a better way to conduct a Q&A session:

“Another example is TGIF. The weekly company-wide meeting that Larry and Sergey host has always featured a no-holds-barred Q&A session, but as the company grew, this got harder and harder to manage. So we developed a system called Dory. People who can’t (or don’t want to) ask a question in person can submit it to Dory (named after the memory-challenged fish in Finding Nemo, though, like Dory herself, we can’t recall why), and when they do, others get to vote on whether it’s a good question or not. The more thumbs-up votes a question receives, the higher it goes in the queue, and the tougher questions tend to get a lot of thumbs-up. At TGIF the Dory queue is put on the screen, so as Larry and Sergey go through the questions they can’t cherry-pick which ones they want to answer. They just go down the list, top to bottom, tough questions and easy. Dory lets anyone directly ask the CEO and his team the toughest questions, while the crowdsourcing aspect of it keeps the lame questions to a minimum. Lame answers, on the other hand, are judged in a much lower-tech fashion: TGIF attendees are equipped with red and green paddles and encouraged to wave the red paddles if they don’t feel the questions are fully addressed.”

How “coopetition” or “frenemy” type of relationship calls for good old diplomacy:

“To build platforms and successful product ecosystems, companies must work with partners. This often creates interesting situations (and bastardized words: “coopetition,” “frenemy”) where the two companies may be competing in some realms but collaborating in others. The key to success in these situations lies in one of the oldest of the communications arts: diplomacy. In many ways, complex business partnerships are similar to the realpolitik style of diplomacy between countries, which holds that relations should be managed based on pragmatic, not ideological principles. Countries can have a long list of grievances with each other, but it is in their mutual best interests to figure out a way to work together. The alternative—a lack of a relationship, or war—is destructive for everyone. For example, China and the United States have lots of issues, but there is so much trade between the two countries that we must find ways to maintain and build our relationship in spite of our differences.”

Budgeting investment in core business, emerging products and new opportunities:

“About 70 percent of the projects were related to the core businesses of search and search advertising, about 20 percent were related to emerging products that had achieved some early success, and about 10 percent involved completely new things that had a high risk of failure but a big payoff if successful. That started a lengthy discussion, the end result of which was that 70/20/10 became our rule for resource allocation: 70 percent of resources dedicated to the core business, 20 percent on emerging, and 10 percent on new.”

Lectures

Readings

• 9/23/14, Lecture 1, Sam Altman and Dustin Moskovitz – Ideas and Products; Why to Start a Startup
  • #1: Advice for Ambitious 19 year olds by Sam Altman
  • #2: Good and Bad Reasons to Become an Entrepreneur by Dustin Moskovitz
• 9/25/14, Lecture 2, Sam Altman – Teams and Execution
  • #3: Stupid Apps and Changing the World by Sam Altman
  • #4: Do things that Don’t Scale by Paul Graham
• 9/30/14, Lecture 3, Paul Graham – Before the Startup
  • #5: How to Get Startup Ideas by Paul Graham
  • #6: Excerpt from Steve Jobs’s 1995 interview with Computerworld’s Oral History Project – watch from 1:10:53 onwards
• 10/2/14, Lecture 4, Adora Cheung – Building Product, Talking to Users, and Growing
  • #7: From Failure to $37M in Funding with Adora Chueng
  • #8: Why Startups Need to Focus on Sales, Not Marketing by Jessica Livingston
• 10/7/14, Lecture 5, Peter Thiel – Business Strategy and Monopoly Theory
  • #9: Chapter 3-5 of Zero to One by Peter Thiel
• 10/9/14, Lecture 6, Alex Schultz – Growth
  • #10: How we put Facebook on the path to 1 billion users – Chamath Palihapitiya; (user-provided transcript)
  • #11: Does Slow Growth Equal Slow Death? by Joel Spolsky
  • #12: A Recipe for Growth – Adding Layers to the Cake by Jeff Jordan
  • #13: Mark Zuckerberg on Facebook’s Early Days by Mike Isaac
  • #14: The Secret Behind Pinterest’s Growth Was Marketing, Not Engineering by Liz Gannes
  • #15: Growth Accounting & Triangle Heatmap Explanation by Danny Ferante
  • #16: Startup = Growth by Paul Graham
  • #17: Chasing Facebook’s Next Billion Users by Douglas MacMillan
  • #18: Ready to Grow Breakout Session at f8
• 10/14/14, Lecture 7, Kevin Hale – How to Build Products Users Love
  • #19: Your App Makes Me Fat by Kathy Sierra
  • #20: What Makes a Design Intuitive by Jared Spool
  • #21: Creative mornings with Ben Chestnut; (user-provided transcript)
  • #22: What Makes Marriages Work by John Gottman, Nan Silver
  • Bonus Material
    • BJ Fogg’s Behavior Model
    • Customer Intimacy and Other Value Disciplines, Harvard Business Review
    • The Sanctity of Marriage, This American Life
    • Creating Passionate Users
• 10/16/14, Lecture 8, Walker Williams, Justin Kan, Stanley Tang – Doing Things that Don’t Scale, PR, How to Get Started
  • #23: The Press is a Tool by Alexia Tsotsis
• 10/21/14, Lecture 9, Marc Andreessen, Ron Conway, Parker Conrad – How to Raise Money
  • #24: Why Software is Eating the World by Marc Andreessen
  • #25: How to Convince Investors by Paul Graham
  • #26: How to Raise Money by Paul Graham
  • #27: Linkedin’s Series B Pitch to Greylock by Reid Hoffman
  • Ron Conway’s Recommended Reading List
• 10/23/14, Lecture 10, Alfred Lin and Brian Chesky – Hiring and Culture, Part I
  • #28: The Happiness Culture: Zappos isn’t a Company — it’s a Mission, Fast Company
  • #29: Don’t Fuck Up the Culture by Brian Chesky
• 10/28/14, Lecture 11, Patrick Collison, John Collison, Ben Silbermann – Hiring and Culture, Part II
  • #30: What’s It Like to Work for Stripe by Alex Maccaw
  • #31: How to Hire by Sam Altman
• 10/30/14, Lecture 12, Aaron Levie – Building for the Enterprise
  • #32: The Continuous Productivity of Aaron Levie, MIT Technology Review
  • #33: Robert Cialdini’s six principles of influence
  • #34: Marc Andreessen on the Future of Enterprise by Alexia Tsotsis
• 11/4/14, Lecture 13, Reid Hoffman – How to Be a Great Founder
  • #35: The Information Age to the Networked Age: Are you Network Literate? by Reid Hoffman
  • #36: The Alliance: A Visual Summary by Reid Hoffman
  • #37: What I Wish I Knew Before Pitching LinkedIn to VCs by Reid Hoffman
  • #38: If, Why, and How Founders Should Hire a “Professional” CEO by Reid Hoffman
  • #39: The 18 Mistakes That Kill Startups by Paul Graham
• 11/6/14, Lecture 14, Keith Rabois – How to Operate
  • #40: Bill Walsh, The Score Takes Care of Itself, pp. 2-31, 137-146, 202-203
  • #41: Andy Grove, High Output Management, Chapters 3 (optional), 4, 9, 11, 13, 14
• 11/11/14, Lecture 15, Ben Horowitz – How to Manage
  • #42: Making Yourself a CEO by Ben Horowitz
  • #43: A Good Place to Work by Ben Horowitz
  • #44: How to Minimize Politics in Your Company by Ben Horowitz
• 11/18/14, Lecture 17, Hosain Rahman – How to Design Hardware Products
  • #45: Hosain Rahman at Startup School 2014
• 11/20/14, Lecture 18, Carolynn Levy, Kirsty Nathoo – Legal and Accounting Basics for Startups
  • #46: How to Work with Lawyers at a Startup by Mark Suster
  • #47: Startup Company Lawyer by Yokum Taku
• 12/2/14, Lecture 19, Tyler Bosmeny, Michael Seibel, Dalton Caldwell, Qasar Younis – Sales and Marketing, How to Pitch, Investor Meeting Roleplaying
  • #48: SaaStr – From-the-trenches sales advice by Jason Lemkin, founder of EchoSign
  • #49: How I Raised Myself From Failure to Success In Selling by Frank Bettger (1949)
  • #50: Five ways to build a $100 million business by Cristoph Janz
  • #51: Pitching Hacks! How to pitch startups to investors by Venture Hacks

Videos

Here is the full version found on khoslaventures.com worth looking at: