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Disproved: I can just react to everything and have a productive culture

February 26, 2020 by Luke Szyrmer Leave a Comment

Most people are familiar with the 4×4 matrix of urgency and importance that Steven Covey popularized. (Or actually misappropriated from President Eisenhower).

Filed Under: innovation, manage risks, release planning, velocity Tagged With: planning, proactiveness, Steven Covey

What Your Product Messaging is Up Against

November 26, 2015 by LaunchTomorrow Leave a Comment

Since Apple was founded, a number of big changes have swept the technology world. Your clients live in a very different world. As a result, you market in a different environment. If you’re a technology entrepreneur, you need to be very clear on exactly how you are addressing the following:

1. Shortening Attention Windows: If you want to sell something, you need to attract and hold your prospect’s attention. As time goes on, the consumers you want to reach are awash in marketing messages, for products new and old.

In 2000, the average attention span was 12 seconds. Today, it’s 8 seconds. Less than the 9 second attention span of a goldfish. 1

Considering that the ancient part of our brain, i.e. the one we share with lizards, is responsible for attention, your message is up against an increasingly tougher competitive environment. This “wetware” evolved over millennia to cope with hunting for bugs and occasionally running away from tigers. It wasn’t “designed” for viewing hundreds of ads per day or checking your email every 3 minutes.

Within each niche, it becomes increasingly important to differentiate in order to grab attention…yet most messaging looks exactly like everyone else’s.

On the web, you have a few seconds to make an impression, according to various UX experts. In person, it’s pretty much the same. That first impression comes from one phrase or sentence said to the right person at the right time, in order to make a promise. It isn’t physically linked to anything about your product, service, or widget. It doesn’t even require a product, or writing a single line of code. If you figure out what your customers want, it’s much easier to deliver it to them.

2. Global Competition for Psychographic Segments: If you are selling online, for many product types your ideal consumer can live anywhere…from Alabama to Antarctica. Geographic location tends to be less important than unfulfilled psychological needs. Location doesn’t matter as much as it used to.

Particular if you are selling software or anything online, it’s better to group people together into common unfulfilled needs. In fact, online communities have arisen naturally around this. If you look at popular niche blogs, you’ll often see an entire community of people following that company or person. They usually share one or a handful of common needs, and find it helpful to share war stories with others.

While this started in the early days of the web, as time goes on, these are becoming increasingly fragmented. Based on feedback loops, where like attracts like, it’s critical to engage with the specific niches based on their interests. It’s much easier to sell something, if it’s already something that group of people want to buy.

For example, marketing psychologist Dr. Glenn Livingston did studies showing a person searching for “guinea pig health” and “guinea pig vets” are looking for vastly different things and are at different levels in the buying cycle. Glenn explains, “When you do a marketing information segmentation, you might find that people talking about guinea pig health and guinea pig vets are actually two different kinds of people that don’t really belong in the same group. People that are talking about guinea pig health might be people who really don’t own a guinea pig yet.” 2 This distinction is critical for your success as an entrepreneur, much more so than your physical address.

Moreover, the cost of buying or reaching targeted traffic is slowing rising over time. As demand for advertising increases, the cost of reaching a particular keyword–once you know how it works–tends to increase over time. It’s similar to inflation. The “price” of acquiring the same type of prospect goes up.

The same principle holds across other sources of traffic. For example, if you’re going after “free” traffic sources, you’re up against the same dynamic. Instead of paying for the advertising, you need to spend even more time and effort to make a dent.

3. Unmet Long Tail Demand: In his ground-breaking book “The Long Tail”, former Wired editor Chris Anderson picked up on a peculiar pattern in sales across a number of industries. Because the cost of distribution has gone to (nearly) zero online, most industries have a large number of sales in a handful of products and a large number of products with a small number of sales.

Previously, the second group of products was completely ignored. Who cares if you like both Reggae and Jazz, when you should be buying the latest boy-band’s album? The focus was on the mass market. By going after what the average user wanted in a large group, businesses maximized their profits. The cost of distributing the other options was prohibitive.

Now, the opposite is true. I found a number of great albums combining Jazz and Reggae online in the late 1990s, without visiting Jamaica. In fact, the genre is called Rocksteady.

By catering to this explosion of niches, you can take advantage of the improved economics of distribution. Now you can buy Rocksteady albums online. You aren’t limited to a few massive record stores in New York City to get selection. Neither are the customers in any niche you choose.

4. The Mimicry Epidemic: The dark side of copy-paste? It’s way too easy to just copy something without actually thinking. In internet slang, copypasta means “derogatory term for forum posts which contain a direct or nearly direct copy-and-paste of memes, posts from older forum discussions, or other material, often accompanied by an attempt to pass off the contents as new and original.” 3

At some point, all of this information overload has turned off our brains. It’s not original, and it doesn’t move the ball forward–either for you or who you want to serve.

In a wonderful Facebook rant titled the mimicry epidemic4, Srinivas Rao notes: “We settle for the guarantee of a mediocre replica over taking the risk of something that could blow up in our face, or make us stand out from the crowd.”

Copying someone else means you avoid taking a risk. Without taking a risk, you won’t make an impact. You’re also much less likely to make a profit.


  1. https://www.statisticbrain.com/attention-span-statistics/ ↩
  2. https://www.howtodoubleyourbusiness.com/ThrowingOutInformationG.pdf ↩
  3. https://www.urbandictionary.com/define.php?term=copypasta ↩
  4. https://www.facebook.com/srinirao/posts/10152041225144605 ↩
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Filed Under: manage risks, marketing

The Best Lean Startup Tool In My Experience

June 22, 2014 by LaunchTomorrow

tools

What Exactly Are Financial Options Then?

April 21, 2014 by LaunchTomorrow

In order to understand real options, you need to understand financial options. Financial options are the biggest tectonic shift in finance of the 20th century. The main concept behind financial options is simple. In non-financial terms, an option gives you the right, but not the obligation, to buy or sell something at a pre-specified price, only up until a pre-specified time.

Options give you many new opportunities to make money and customize exactly which risks you want to bear. You can:

  1. position for a large market move upwards, with a much lower level of exposure to risk.
  2. minimize your future losses if you expect the market will go south.
  3. prepare to buy something for a lower price, if you predict certain conditions will arise.
  4. lock in a cash flow stream, without being exposed to market risk.
  5. allow for a core exposure to market risk, while still dabbling in various options on the side.
  6. conserve capital via limiting risk, so that there is more cash available for future investment.

In short, options allow you to assemble the exact financial risks you want to bear while discard those you don’t. As a result, you customize your risk profile in a more powerful (and accurate) way than investors who don’t use options. This high granularity will clearly make you more profitable in a highly volatile environment.

Types of Options

When you initially buy an option, you aren’t sure what will happen. Instead, you have a hunch that it will. You are betting on a particular event happening in the future, without bearing the full risk of it happening. With financial options, this typically refers to how the price of the something in the market changes.

There are two main types of options: puts and calls. From the point of view of an option buyer, a put prevents a big loss, but costs a bit up front. It’s the option to sell something at a pre-agreed price.

A call is the opposite. It enables you to get a big gain, but it also costs a bit up front. It allows you to buy something in the future at a pre-agreed price.

In both cases, when you exercise the option, you already know what happened. You know why you want to use it-when you do.

Underlying

The asset an option gives you the right to buy or sell is called an underlying. It’s the “what” of an option. What are you betting about?

What can be an underlying?

The price of the option is actually different than that of the underlying itself. It’s independent. This is because of the unique characteristics of each option.

Time

Every option has a couple of characteristics which affect its price, not just the underlying, i.e. the pre-specified price & time at which you can buy the underlying.

For example, consider these two bets (options):
1. betting that Poland will win the world cup at the next world cup
2. betting that Poland will win the world cup at least once in the next 100 years

If Poland does win the next world cup, you would win both of these bets. They have the same underlying. Simultaneously, they have different pre-specified expiry dates. Because of this difference, each bet will have a different value, even though the underlying is the same.

If you look at a variety of options for the same underlying but expiring on different dates, you can see this pattern. As you go further out in time, typically the later option will be more expensive. It compensates or charges you for the value of time. a bank also compensates or charges you for holding your savings with them or taking out a loan for the same reason.

 Strike Price

Assuming you have the same underlying, as the strike price (the pre-specified price) is lower on a put, the cheaper it is. Everyone thinks it’s unlikely the option will ever need to be used. There is less demand for each option where the strike price is further away from the current market price of the underlying.

Conversely, as the strike price gets lower on a call, the more expensive it is. Remember that as it gives you the ability to buy the underlying at a lower price. If it’s compared to the underlying, and the strike price is much lower than the underlying price, then you can buy the option and exercise it.

How options are different than stocks

Unlike stocks, all of the money you invest into an option will disappear when the option expires; this is the worst case scenario. Stocks have no predetermined lifetime, as they represent a claim on a company that is expected to be around forever. Accountants call such a company a “going concern”. In contrast, options always have a date by which they expire. It’s a necessary part of the option. Having the option to do something by next month or by the end of next year, even if it’s the same thing, will not cost the same amount. By holding an option, you might lose everything you invest, or you stand to gain a very large amount relative to the amount invested if the foreseen scenario happens.

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Filed Under: manage risks, priorities Tagged With: options, underlier

What Exactly Are Real Options?

April 3, 2014 by LaunchTomorrow

Unsurprising confession: when I was a scrappy young bachelor, I’d hit the clubs with friends. In a nightclub, anything can happen. I’ve started relationships, albeit not very healthy ones. Lots of Schwarzenegger bodies without Schwarzenegger minds emit intimidating body language. Even the roof can collapse (even though it’s unlikely).

By combining vodka and Red Bull, these muscleheads got the best of both worlds. Lots of energy, complete loss of inhibition, and a sense of being invincible came with this highly exotic cocktail. That combination, while it might have been great in a night club, in reality was a pretty dreadful combination elsewhere.

See, just because it may have been a good idea at the time, it doesn’t mean that the next day would have been so pleasant. The hangovers were terrible the following day.

They craved the loss of inhibition. I suspect some of these guys regretted doing things the next day. Saying things. Because they had alcohol, they had an excuse, in case somebody would hold them accountable, including themselves.

I like being in tune with my id as much as the next guy. I just don’t want to feel the need to explain myself to my conscience. The next day. Vodka and Red Bull was the easy way out. No need to think.

Effective planning requires that same level of conscientiousness. Time is precious. If you haven’t thought through what you’re trying to achieve, you are almost guaranteed to be wasting time. At least some.

Making sure that you’re moving towards your objectives, particularly in an uncertain environment, gives you much greater certainty.

Let’s say you want to make a decision among a couple of strategic alternatives. Each one has certain pros and cons. Each has consequences. Each constrains what you can do later. You’re also not sure how your competitors will react to each alternative. As a result, it’s not immediately clear which one would actually be the best choice. Each one has risk. Not choosing an option is also a risky option.
Enter real options analysis.

Real options help analyze the “big issues” for a company and its existence. They have to do with big milestones. In a corporate setting, having strategic clarity means that the whole company will find it much easier to execute. Everyone is “on the same page”. A strategic decision touches everyone. All stakeholders are affected.

This is analogous to the big milestones in a person’s life: birth, coming of age, marriage, death. All major religions and primitive cultures celebrate these milestones for people. They are important to everyone who knows that person. The community acts together.

Given that a corporation is a legal person created to maximize wealth and profits, real options help decide whether to take a specific path and when to do it.

According to Sick and Gamba:

Properly managed options create value and reduce risk for the organizations that own them. They arise because of the interplay of 4 things:
1. Real assets: financial options are generally redundant and hence do not create of destroy shareholder value. Real options cannot be replicated by stakeholders and generally create
value.
2. Risk: volatility and risk-return relationships.
3. Leverage: variable costs and benefits work against either fixed costs and benefits or imperfectly correlated costs and benefits.
4. Flexibility: to manage the risk and leverage by accepting upside risk potential and reducing downside risk.

As a decision-making tool, real options help you “cut to the chase” at any given moment. They estimate a financial value on each strategic choice, without forcing you to spend anything. Based on a few things you know or you can estimate, you can easily calculate an implied financial value for each choice. As a result, if you have a limited amount of resources, you create a metric that makes the choices comparable. You can compare $ to $.

You can also compare that value to the cost of choosing (buying) that option. Because both are denominated in financial terms, it’s easy to compare what you expect to get from making a particular decision, to the cost of choosing it.

Net Profit (Real Option) = E(Value) – E(Price)

At any given moment, you only exercise those options, where you expect to get the greatest net profit. If the value generated by an option exceeds how much it costs you to do what it represents, then you do it. As a result, you make money.

Because you have limited resources, you only choose to buy the real options you can afford at that moment. Naturally, you only choose to buy options that are independent of one another at that moment. You can also sort your options based on the attractiveness of their valuation relative to their cost.

If you choose one option, then a number of related options become worthless. For example, if you choose to become a red raincoat specialist, you won’t be attractive to an army purchaser who want their soldiers to be camouflaged. Ouch.

As the environment changes, you can recalculate the values of each option. Note that the value of an option may increase or decrease because of factors completely beyond your control, such as a disruptive technical innovation. Volatility is an input into calculating the value of a real option, so it’s taken into account as your environment changes.

This is a crucial insight into what real options give you. By nature, people prefer to be wrong than to be uncertain. This human tendency screws up many decisions. It forces decisions which aren’t needed yet. It’s better to keep track of options until either they are worthless, or you are certain that they will generate net profit profit.

non.alcoholic.vodka

non.alcoholic.vodka

Real options prevent “vodka and red bull” thinking, often arising during tense strategic negotiations, as they help you wait until it’s pretty clear that a particular alternative is the best one possible.

Thanks to real options, anyone in your company can use a bit of spreadsheet magic, based on numbers which other people in their company know, and determine the best possible strategy. All information is embedded into the assumptions which feed data into the formulas. Of course, this information needs to be shared across departments. Like many analytic exercises, calculating strategic real option values helps build bridges across departmental boundaries.

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Filed Under: experiments, manage risks Tagged With: real options

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    Luke Szyrmer is an innovation and remote work expert. He’s the bestselling author of #1 bestseller Launch Tomorrow. He mentors early stage tech founders and innovators in established companies. Read More…

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