Brian K Balfour

5 Steps To Choose Your Customer Acquisition Channel

Tue, 21 May 2013 13:17:00 -0400

SEO, SEM, Facebook Ads, content marketing, affiliates, partnerships, email marketing, app stores…the list goes on.

With so many marketing channels to choose from, a common question is “where do I start?” or “what channel should we use next?” I get it. The information is overwhelming but there is a better way than picking pieces of paper out of a hat.

Here is a step by step guide that should help you go through the exercise of comparing, contrasting, and choosing the right marketing channel for your company. I have used my last company, Boundless, as an example to help illustrate some of the steps. For context, Boundless provides a free digital alternative to college students’ crazy expensive textbooks.

Step 1: What Are You Optimizing For?

The first question to ask within your user acquisition efforts is “What am I optimizing for?” In addition, why? This question will help set the broader context for your acquisition efforts.

Different times call for optimizing different things. But here are the most common possibilities you might be choosing between:

Learning - You might be trying to learn something specific about engagement, interest among a certain target audience, monetization ,etc. Learning is typically the priority when your startup is pre product-market fit or when you are expanding to a new target audience.

Volume - There will be a time in your business when you will want to prove that you can go from a certain base amount of customers, to moving the needle in a meaningful way. Volume may also be the priority if you need a minimum amount of users/data to reach some broader goal.

Cost - Optimizing your CPA to get more out of your budget.

Want to optimize for all of them at once? When you focus on everything, you have no focus. Not having a focus will lead to mediocre results. Make the tough decision about what is most important.

At the beginning of Boundless, we had a lot more questions than we had answers. Would students ditch their assigned textbook and use a digital alternative? How often did they use their textbook?

These questions challenged the fundamental assumptions about the business. Those questions could be translated to questions about engagement, retention, referral….things deep in the user funnel.

It was clear to us that the most important thing to optimize for was learning. Knowing that we were able to work back how much volume we needed to get data around our questions, and what we were willing to spend to get those answers. If we were trying to choose what initiatives we were going to spend our time and resources on, would could easily decide by asking ourselves “What is going to help us learn the most?”

Step 2: What are your constraints?

The second question to ask is, “What are my constraints?” Your constraints will differ depending on the product, stage, funding, industry, etc. The most common constraints will be:

Time - Do you have a specific optimal window to reach your audience? Do you only have 3 months of cash left?

Money - Are you well funded, or bootstrapping? Do you need to extend your runway?

Target Audience - Do you need to reach someone really specific?

Legal - Are you taking on an old industry with litigious stalwarts? (i.e. Uber, Music Industry, etc)

At Boundless we were well funded (yet diligent with our money) and as a result money was not our largest constraint. Our constraints came in target audience and timing. We were trying to reach college students in very specific classes (Intro courses for Biology, Economics, and Psychology) within a two week optimal window (the beginning of the semester).

Step 3: Setup Your Channel Matrix

With so many different marketing channels it can be hard to weigh the pros and the cons of each. My solution to this is to to build a channel matrix. Building a channel matrix helps give you three things:

1. A methodical process to evaluate each channel

2. A way to compare each channel on the same attributes

3. A visual organization of the information for each channel

Here are three sub-steps to setup your channel matrix:

Step 3.1 - Open your favorite spreadsheet tool (google docs, excel, numbers)

Step 3.2 - List Out All Potential Channels In The Header Column

SEO, SEM, viral, display, social, Facebook ads, mobile ads, affiliates, content Marketing, sales, etc. List all of the possibilities in the header column. (for simplification I have only listed a few below). Don’t forget about all of the alternative channels out there. StumbleUpon, Reddit, Twitter Ads, email sponsorships, podcast sponsorships, blog sponsorships, PR, app stores, etc. While these channels don’t provide scale, they may provide opportunity to help you get traction.

For The More Advanced…

Certain channels can be broken down into more detailed tactics. For example, content marketing could be broken down into blogging, guest blogging, info graphics, webinars, ebook, etc. SEO can be broken down into head, mid tail, long tail. I like to get as specific as possible. Start with the high level channel, and then break down the tactics as you get to steps 4 and 5 when you are narrowing down your options.

3.3 List Out Channel Defining Attributes In The Header Row

In the header row fill in the attributes of each channel that you are comparing. At a minimum, there are 6 attributes you should have:

Targeting - The depth of ability to target different audiences.

Cost - The upfront and ongoing cost to acquire users in this channel.

Input Time - The upfront time required to start running experiments with this channel.

Output Time - The time it takes to start getting data around your experiments.

Control - The control you have over turning the channel on/off at will.

Scale - The size/reach of the channel.

Step 4: Fill In Values Of Channel Matrix With Low, Med, High

The next step is to research each channel so you can fill in each cell with “low”, “med”, or “high” values. You aren’t trying to predict exact values. Get enough information to make educated comparisons of each channel relative to each other.

The matrix looks very different for different companies. For example, “Low” will mean different things to different companies (i.e. A enterprise SaaS company with a high LTV vs a consumer mobile app monetizing with ads).

In addition to the meaning of each value being different between companies, the cell values for a given channel + attribute will be different. Example…

A help desk SaaS tool may have the value of “low” in the “Scale + Google Adwords” cell. There are a small amount of head terms that get limited traffic. But for a a travel review site, the cell “Scale - Google Adwords” might be high because there is a large amount of long tail terms which collectively have a huge amount of traffic.

This is a mini version of what your channel matrix will look like afterwards:

Here are some questions to help you explore the value for each channel/attribute combination:

Targeting

Does the channel have the type of targeting you need? How close to your exact target audience can you get with this channel? How many different ways to target users are there? Generally speaking a channel like Facebook ads is “high” while a channel like PR is “low.”

Cost

Are there upfront costs? Minimum spends? Pay as you go? Incremental cost (i.e. expected CPC’s or CPM’s)? For example, a blog sponsorship might cost $1000 upfront before you get any results. Where as Facebook Ads you can get started with as little as $10.

Input Time

How much time is required to get to the first experiment? How much time to run each additional experiment? Is there any technical work involved to get started? Creative/content creation? A channel like Google Adwords has a really low input time. No tech involved. Keyword research, ad creation, and landing page creation can be done in less than a day. Compare this to content marketing where creation of one high quality piece of content and finding a way to distribute from a cold start could take much longer.

Output Time

How much time will it take to start getting results? How many experiments do we have to run to get meaningful data? Once again, something like Google Adwords has a really low output time. You start getting results immediately.

Control

Can you turn the channel on and off at will? Is there a middleman between you and the knobs you can turn? For example, PR is really low control. You can’t just turn it on and off at will. A lot is in the hands of others (the writers). Where as Facebook Ads you can turn on and off whenever you want. More control means it is easier and faster to run experiments.

Scale

How large is the channel in overall volume? How scaleable is it in terms of your time/resources?

So how do you answer these questions? Research. I tend to be able to fill out a matrix using three very basic research methods:

1. Channel Specific Tools

Most major channels have research tools dedicated to them. Google Keyword Tool (SEM), SEMrush (all PPC), SEOmoz (SEO), MixRank (Display), just to name a few. In addition use the tools provided by channels (i.e. Facebook Ad Tool, LinkedIN Ad Tool) to help estimate things like cost/scale.

2. Talk To Others

I get some of my best information just by talking to others that have experimented with the channel. All it requires is a 10 minute conversation and the right questions to uncover information that can help educate you on the channel.

3. Google

For channels like blog sponsorships, use Google to search for how many blogs there are for your target audience, how big they are, if they already do sponsorships, and if they have publicly available ad rates.

Step 5: Choose 1 - 2 Channels As Hypotheses

In a perfect world you want channels with the following values:

Targeting - High, Cost - Low, Input Time - Low, Output Time - Low, Control - High, Scale - High

You will rarely get a channel that fits those values perfectly so the question is how do you prioritize? This is where the work you put into Step 1 and Step 2 come in. Sort your channels using your constraints as a guide. If your biggest constraint is money, then look at channels that have a low cost as first priority and come closest to the ideal values for the other attributes.

Lets revisit the Boundless example. Our constraints were time and targeting and we were optimizing for learning. As a result we looked for channels that were high in targeting, low in input/output time, and provided just enough scale to get us the data we needed.

Ultimately we settled on Google Adwords. While we knew the cost was going to be higher than other channels, it offered the exact targeting we needed (students searching for class materials for the specific classes that we were targeting) and the low input/output time that allowed us to setup, test, and change quickly during our two week optimal window. We knew we wouldn’t scale the company with Adwords, but it provided enough volume to reach the level of data we needed to learn about some of the fundamental assumptions around our businesses.

This is only the beginning. At this point you have a hypothesis about a a customer acquisition channel. You need to set up and run a number of experiments to prove out the viability of the channel in relation to your goals. In a future blog post I will tell you how to brainstorm, setup, and run these experiments to optimize your success.

I hope you found this post helpful. Subscribe to my email list to get early access to my posts. Or follow me on Twitter to get articles I’m reading about Growth. I’ll be answering comments here on hacker news.

How We Got Through The "Trough Of Sorrow"

Wed, 30 Jan 2013 16:27:00 -0500

A special thanks to Russ Glass (@glassruss) and Sean Lindsay (@rseanlindsay) for helping inspire and review this post.

—

Spring 2009 is a time period that I hope to never experience again, yet it yielded some of the biggest lessons I’ve learned in my professional career. Those were the early days in the launch of the iOS platform and social gaming on Facebook. Viximo, the virtual goods and social gaming company I had co-founded, was right in the middle of this craze.

In a time with so many exciting opportunities we had scaled the team from 10 to over 30 in the course of 6 months. We had “promises” from Apple on being featured in the App store, enthusiastic conversations with our investors about raising a $10M round of funding, and plenty of Techcrunch coverage. Everything was going well. Or at least we thought it was.

When the numbers started coming back the picture was more grim Engagement was low, user growth was minimal, and there was no revenue. We were out of money, none of our products were working, and as a result Viximo incurred the dreaded down round of financing. The grueling year of work we had put into the company started to seem like it was a waste.

In the course of a couple of weeks my co-founder, Sean Lindsay, and I had to let go over half of the team; the team that we had personally recruited and convinced to trust us. Included was one of my best friends while he was on vacation…Ouch. (We’re still friends, but he doesn’t let me forget!)

We were officially, deep, in the Trough of Sorrow.

The Trough Of Sorrow

Paul Graham previously wrote one of his timeless pieces depicting the startup curve (see below). One of the most important pieces discussed is the “Trough of Sorrow,” the long and seemingly never-ending time period after the excitement of the initial launch wears off and reality sets in. Many startups don’t make it through this time period. I certainly had my moments at Viximo where I didn’t think we were going to make it but we did, and here is why.

Culture

The “Trough of Sorrow” for Viximo lasted about one full year and there were two amazing things that came out of that time period. First, not a single member of our amazing core team that remained after the lay offs left the company. Second, the general sentiment and outlook among the team somehow remained positive and confident. These two things allowed me and the executive team to re-focus the company on building a social game distribution platform that ultimately got traction and started generating meaningful revenue.

There is only one thing that got us through the “Trough of Sorrow”: Company Culture. A year and half after those layoffs I asked almost every one of those core team members why they had stayed. Every single one of them, in some way, shape or form, answered because of the company culture. They simply didn’t want to work anywhere else.

The Most Important Point

While Culture helps get you through the “Trough of Sorrow”, it is built at the beginning of the startup curve (see below). The “Trough of Sorrow” is a true test of the culture you have built and once it hits, it is too late to start making culture a priority. You need to focus on Culture when it doesn’t seem immediately important. It is this quality that partially makes building a great culture so difficult.

Sean and I had made culture the priority before we had even decided to work together. We discussed in detail the type of company we wanted to create, not from a product and market stand point, but from an environment, people, and values view. The most important thing we did was stick to our guns throughout the history of the company.

Never Compromise

Your company’s culture is the blueprint to everything that is important about the startup process — hiring, work ethic, iteration process, how you deal with challenges, how you celebrate success, everything. There will be numerous temptations to compromise culture whether it is pressure from your investors, to desperately needing another engineering hire to hit a deadline.

If I had one recommendation to founders it is this - never compromise, sacrifice, or dilute your culture. Culture is the lifeblood of your company and as a founder it is your job to define it, build it, and most importantly, defend it.

—

I’ll be responding to questions and comments here on Hacker News. Get my posts via email or follow me on twitter (@bbalfour).

"So go find a frontier and go for it. Choose to do something important and different. Don’t be..."

Mon, 18 Jun 2012 10:00:07 -0400

“So go find a frontier and go for it. Choose to do something important and different. Don’t be deterred by notions of luck, impossibility, or futility. Use your power to shape your own life and go and do new things.”

- Peter Thiel - Stanford CS183 Class 19

Achieving The Network Effect: Solving The Chicken Or The Egg

Wed, 13 Jun 2012 12:37:00 -0400

One of the most defensible positions for a startup is if you can achieve the network effect. The network effect is so strong that it has kept large companies in business for a long time, despite bad products and numerous competitors. Craigslist is a perfect example. It is only recently that a new wave of startups like AirBNB, TaskRabbit, and RentJuice have started to chip away at the Craigslist stronghold, but it took over 10 years.

The network effect has also defended companies like Facebook from an onslaught of competitor attempts. I remember in the early days of Facebook that almost every campus had at least a few local startups that tried to over take it, but once Facebook took a stronghold in a campus, it was impossible to unseat it. Facebook has also been in the sight of numerous international players, yet the only areas that have seemed to hold ground are Russia and parts of Asia.

Achieving the network effect is no easy feat. It comes with a huge hurdle: The chicken or the egg problem.

Two Versions of Chicken or The Egg

There are two versions of the chicken or the egg problem that warrant important distinctions because each have a different solution.

Type #1: Platforms/Marketplaces – Chicken or the egg version #1 is when your product connects two different types of groups. Most people who call themselves platforms or marketplaces fit in this category. Think eBay connecting buyers and sellers of goods or AirBNB connecting home/apt owners with vacation renters. My last company, Viximo, was in this category. We connected social games with social networks.

In this case, the value to each group of users is dependent on the use of the other group. No renters would use AirBNB if no home/apt owners were listing on the site, just as no home/apt owners would use the site if no renters were coming to it.

Type #2: Communities/Social Networks - The second version of the chicken or the egg is when your product connects people of similar type to create broader value. Online communities and social networks such as LinkedIn, Facebook, and Match.com are examples. The value to each individual user grows the more users in the overall community.

When a community or social network is in its infancy, there is a huge chicken or the egg problem. With a small number of people on the platform, the value to each individual user is small, so how do you get more users to join?

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Solving Platforms and Marketplace Issues

To solve version one of the chicken or the egg problem, create value for one group of users that is not dependent on the other group of users. With Viximo, we internally created and licensed our own apps and games. With a couple apps/games it allowed us to offer value to our first few distribution partners without depending on signing third party game developers. Once we had the first few distribution partners we were then able to sign our first third party game developers. We eventually killed the apps/games we built internally once we had the network going, but the point is at the beginning we manually created value for one group of customers.

Another great example is Craiglist. Craig Newmark (founder of Craigslist) curated his own set of events that he thought people would be interested in and emailed them out to friends. Eventually his distribution list grew large enough that others started submitting their own events and items and the network became self-sustaining. Users would likely have not submitted their own items, if Craig had not built the initial distribution list by manually submitting items himself.

In other words, you have to be an app before you can be a platform (or marketplace).

Solving For Communities and Social Network Issues

In communities and social networks the value to each individual user comes from the density of the network. Would you use Facebook if the majority of your friends weren’t on it? Would you use LinkedIn if the majority of the professionals you meet weren’t using it? Probably not.

So how do you get network density in the earliest stages? Decrease the size of your target audience in order to make it easier to get density. The best example of this is Facebook’s launch. Rather than opening to all college students at once, Facebook was restricted to just Harvard’s campus. Getting network density among an audience of 6500 (Harvard’s undergrad student population) is exponentially easier than getting network density among an audience of 20 Million (US college student population). LinkedIN successfully decreased target audience to get network density by focusing initially on the professional audience solely in Silicon Valley.

A target audience for a community is most commonly decreased by geography, but there are different ways to slice it. One of my investments, GrabCad, has focused their audience on a single profession, mechanical engineers. MySpace found its early traction by focusing their target audience to the music industry. The online dating industry has probably sliced it every way you can imagine. One can find dating sites for all different races and religions, “big and beautiful,” and even those that enjoy a cougar or sugar daddy every now and then.

Don’t Be Afraid Of Brute Force

In today’s startup environment where the “product is everything” mantra is pervasive, many entrepreneurs get discouraged when they build it, and the users don’t flock naturally. Peter Thiel put it best:

“They [Entrepreneurs] tend to overlook it [distribution]…Even if you have an incredibly fantastic product, you still have to get it out to people. The engineering bias blinds people to this simple fact. The conventional thinking is that great products sell themselves; if you have great product, it will inevitably reach consumers. But nothing is further from the truth.”

No matter which chicken or the egg problem you are solving for, don’t be afraid of brute force. Some companies get adoption naturally, but more often there is someone behind the scenes pulling strings. Yelp paid reviewers in the early days while Myspace spammed the hell out of an email list from an earlier company. At Viximo we paid out guarantees to our earliest partners.

The point is, solving the chicken or the egg problem is extremely tough. Avoid the common mistakes of user acquisition and have a plan that involves brute force. If you want to reach the network effect don’t leave it to luck, make it happen yourself.

Have comments or questions? Discuss them on Hacker News, or leave them in the comments below.

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5 Tips On Finding Scalable Customer Acquisition

Wed, 02 May 2012 15:12:00 -0400

I wrote a post over at Onstartups -5 tips about finding scalable customer acquisition. Some of the things I talk about:

Why testing multiple customer acquisition channels at once is a bad idea
How most companies are built off of 1 or 2 channels, not a diverse set
Why paying for users is ok in the early stages
The three essential tools you need to start testing customer acquisition channels
What you should be focusing your A/B testing on

Jump over to Onstartups to read the full post. Follow me on twitter or subscribe to my email list to get more strategy advice on customer acquisition.

The One "Process" Every Startup Should Have

Wed, 22 Jun 2011 13:32:00 -0400

Most young entrepreneurs (including myself) have an allergic reaction to anything with the word “process” in it. So before you break out in hives and curl up in ball with cold sweats, take a Benadryl and hear me out. There is one area that every startup, no matter what stage you are at, should have a process for. Hiring. Why?

Time - Hiring is one of the most time consuming tasks for you and your team. With out a well-structured process, hiring can be chaotic and drastically increase the “time suck” while decreasing the results.
Evaluation – Properly evaluating candidates is about more then asking the right questions. A great hiring process will help you evaluate candidates better and make more confident decisions.
Impression – Hiring is an opportunity to leave a killer impression of your company, regardless if you hire a candidate. The startup community is small. Candidates talk and word spreads fast. If your hiring process seems unorganized, chaotic, and executed poorly to the candidate, they will walk away with a negative opinion of your company.

The often overlooked details between sourcing a candidate and issuing an offer are critical to hiring successfully. Here are some keys to a killer hiring process…

Sell, Sell, Sell

Many managers think a thorough evaluation is the key to a great hiring process. In a startup the most important element is to SELL. The best candidates will always have many opportunities to choose from. If you don’t convince a candidate that your company is the best opportunity, you won’t have a shot at them in the first place.

When you sell your startup, don’t lead with your product or vision. Most candidates don’t make their employment decisions on the product. Studies have shown the two most important factors people consider when deciding on a place of employment are actually Team, and Culture (work environment). Always sell your team first, your culture second, and your product and vision last.

Be Efficient

A widely accepted startup mantra is “Hire Slow, Fire Fast,” This has never made sense to me. Just because you’re “hiring slow” doesn’t mean you are making better decisions. A slow hiring process creates more problems then it solves. Great candidates will have plenty of job opportunities. The longer you take with your process, the greater the chance that they will go somewhere else. Just like you, they don’t want to waste time. A fast-paced process garners respect as you demonstrate an ideology that your own and their time.

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Make It Thorough and Challenging

Being efficient doesn’t mean cutting corners. While it can be tempting to skip parts of your process in order to save time, you run the risk of leaving a negative impression on the candidate. Great candidates want to be in an environment where they feel challenged, are learning and being pushed by talented peers. Your hiring process should represent that. Knowing a candidates weaknesses are just as important as knowing their strengths when constructing a team that compliments each other. You will never find a person’s weaknesses unless you challenge them.

Be Consistent

More than likely, you’ll have dozens of candidates coming through your doors for a single position. The only way to compare apples to apples is to be consistent. Every candidate should go through similar set of base steps, questions, and people. Additionally, current team members want to see everyone run a similar gauntlet that they did. Even if you have known someone since birth, be wary of giving special treatment to select candidates.

Involve The Team, Infuse Your Culture

Involve various team members including other managers and individual contributors. Involving your team will help sell them to the candidate, and yield a broader set of perspectives about the candidate. Involving your team will also help you infuse your culture into the hiring experience. People will often make large trade offs to be part of a work environment that they feel they will enjoy.

One Decision Maker

Although team participation is vital to the hiring process, a democratic decision will lead to decision paralysis. The team is there to provide feedback to one decision maker for an open position, the hiring manager. You need one person with an over-arching view of the team to make a proper decision about if/how/where a candidate fits. The hiring manager should be the driver of the process, making sure that everything is always moving forward.

Make It Personal

When you’re interviewing a lot of people at once, it’s easy to treat them like pieces of data to sort. Don’t make a candidate feel like a number. A personal touch makes them feel important. Take the time to answer their questions about the company, the team, and the role at every step of the process. Offer them something to drink and eat when they come in. Make sure everyone knows how to pronounce his or her name correctly. You’d be surprised how often the little things make a difference. I once asked a phenomenal Rails engineer ho he chose his last company among numerous offers from several high-caliber startups. His answer: ”They were the nicest and gave me my favorite cookies.”

Be Transparent and Brutally Honest

Don’t be a black box. Candidates want to know what your hiring process is, how long each step is, when they should hear back, and how soon you are looking to fill the role. More importantly, give them honest feedback at each step of the process. Tell them why they aren’t a fit or where they fell short. If you are honest with them, candidates usually respond in one of three ways.

1. They respect your honesty and move on with a positive impression. The really good ones will ask for guidance on how they can improve their weak areas.

2. They make an effort to change your perception. You will then need to decide if it’s a good idea to give them another shot.

3. They take offense to your honest feedback. While many hiring managers are afraid of this scenario, I have found it to occur the least. If a candidate does take offense, I take it as confirmation that I made the right choice (a word of advice to candidates: you gain nothing from this scenario).

Document The Process

Document everything. The candidate’s background, where/how you found them, what stage of the process they made it to, their strengths, their negatives, and any other relevant information. While a person may not be a fit for the current role at the current time, there could always be future opportunities. Getting into a habit of document everything will also keep the process organized, efficient, and result in easy-to-do status reports.

Train Your Employees to use Your Process

Your process is useless unless you train the entire team to use it. Train your team not only how to interview, but also how to sell the team, culture and vision. The message should be consistent and compelling.

Beyond The Offer Letter

The offer acceptance is the middle of the hiring process, not the end. Hiring also includes how you integrate new hires into the rest of the company. The first 30 days is an important time that will set the tone for that person’s employment. It’s an opportunity to ensure that a new hire can start contributing quickly and meld with the team. Outlining a clear on-boarding process (including performance evaluation milestones) will help you execute a hire fast, fire fast process.

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Core Peer Groups: How I Found a Co-Founder, Built a Prototype, and Raised $5M in Less Than 4 Weeks

Tue, 18 Jan 2011 13:37:00 -0500

The $5M Keg

In 2007 I was 23 years old, working full time as a product manager at ZoomInfo while moonlighting on a number of entrepreneurial side projects. I had previously started a few companies with angel funding and a couple small exits, but certainly nothing of scale. In a whirlwind of a month, all of that changed based on an inebriated conversation while standing over a keg of beer. As the title of this posts suggests, this random keg conversation transformed into finding an amazing technical co-founder [1], building a prototype, and raising $5M dollars in VC funding. These major events that typically take months (sometimes years), happened in less than 4 weeks. [2]

While I don’t consider these items as the definition of startup “success,” [3] it does represent a period of my life where I made a giant leap in progress on my professional career and passion. Consequently, I have invested a considerable amount of time thinking about what caused this leap of progress and if they can be recreated. What I found isn’t a short answer, quick fix, or a hack to starting a company and raising money. Rather an answer that if we invest the time in, will lead to progress in our personal and professional goals that is unachievable through other common avenues.

Following Success

Many entrepreneurs (including myself) spend time following and reading other successful entrepreneurs. Whether it’s countless business books, blogs, or Quora, there never seems to be a shortage of content of someone telling their success story and how they got there. We try to emulate aspects of these success stories in our own life. However, most success stories are told in hindsight with a predefined ending in mind. In an effort to tell a good story, they often gloss over the real learning experiences, such as near death experiences, failures, and moments of luck. We can find great inspiration in stories like these, but we will never find the answers to our entrepreneurial challenges.

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Workaholics

While some have their head in a book, others just have their head down. It is easy to think that the more hours you put in the more progress you will make, but this leads us to incremental and linear progress, when we need to be on an exponential path. Ultimately, the progress produced by working harder is limited by the hours in the day and the capacity of the human body. The entrepreneurs who brag of 100+ hour work weeks, are also the entrepreneurs that burn out the fastest.

Networking

For every entrepreneur with their head down, there is another competing in an endless of game of “Who can collect the most business cards.” It’s not what you know. It’s who you know. Right? While it is great to have a large rolodex, these types of relationships are extremely limited. You may get introductions and other light help from these relationships, but when you or your business faces real challenges and problems, are these going to be the people that are able to help? Most likely not. As a result, a large network of light relationships leaves us feeling like something is missing.

Mentors

In addition to a large network, every successful entrepreneur has great mentors in their life, but this is even limited. A mentor relationship is typically one sided. The flow and balance of knowledge and experience is heavily weighted in one direction and we become limited to the Mentor’s available time and generosity.

Linear Progress vs “Scale”

The startup world talks about how startups and their business models need to “scale.” “Scale” is depicted by the typical “up and to the right graph” where the return on investment is exponential, not linear. Similarly, our path to success requires exponential personal progress where every unit of investment we put in, we are getting more then one unit of return. All of the activities described above share the same limitation. They lead to linear progress, not exponential.

“By Our Powers Combined…”

If all of these avenues are limited, what was it that lead to my whirlwind of 4 weeks in 2007? Six months before starting Viximo I was lucky enough be one of the original members of Betahouse, the first ever co-working space for technology entrepreneurs in Boston [4]. It was a diverse group of individuals who were each working on our own projects, but there was no hesitation to collaborate and overcome problems on each others projects. We were invested in seeing each other succeed. Everything that happened in the early days of Viximo I can credit to Betahouse. The original idea was formed by Greg Gibson, another Viximo co-founder, and myself. Betahouse member, Dan Choi, built the early prototype of Viximo, and my technical co-founder, Sean Lindsay, was introduced to me by another Betahouse member. The funding came from VC’s within the network of Betahouse members. Oh, and that famous keg conversation? It was at a Betahouse party. It wasn’t the skills, network, mentors, or great beer selection from Betahouse that was the catalyst to this leap in progress. The catalyst was the relationships between members of the group. At the time, Betahouse was the beginning of my first Core Peer Group.

Core groups are composed of a small set of exclusive relationships that provide unfiltered, honest, and deeply invested relationships. Core groups become so invested in each other that a positive feedback loop occurs. As one-person gains success, so do the others. They build off of each other’s knowledge, networks, and brands, leading to exponential progress. As a result, Core groups can help achieve things that an entrepreneur can’t on his own, producing results unattainable with the largest network or list of mentors.

One of the most widely known examples of a core group is the “Paypal Mafia.” These early members of Paypal have continually invested in and alongside each other. Post PayPal they have gone on to found (with each others help) companies like YouTube, LinkedIn, Slide, and Yelp. Most attribute the ongoing success of the PayPal Mafia to the success of PayPal; however, the reason they are successful in the first place is because of each other.

Changing The Economics For Entrepreneurs and a Tech Community

The concept of core groups for personal growth isn’t new. Multiple books have been written about the subject including “Who’s Got Your Back” by Keith Ferrazzi, “Vital Friends” by Tom Rath, and “Think and Grow Rich” by Napoleon Hill. I am realizing the impact that these types of groups can have for early stage entrepreneurs, and furthermore, a startup community as a whole. Yet, core groups don’t get as much attention as they should.

The books about core groups discuss high level effects such as personal accountability, motivation, and achieving your life goals. Betahouse and other experiences have shown me that core groups also have very practical effects for early stage startups. They help raise funding faster, find co-founders and early employees, and acquire your early customers. These are often considered the toughest items in starting a company. As core groups help you increase these components, it can increase the probability of success, and therefore the economics of entrepreneurship.

As exemplified by the PayPal Mafia, the effects of core groups impact more than just individuals of the group. The benefits created overflow and become a cornerstone of a successful community. As the PayPal Mafia continues to invest in each other, their success helps fuel the entire technology community; creating a new breed of entrepreneurs, angel investors, and ultimately core groups.

Core groups have substantial impact, but they aren’t easy to build. They require a significant time investment. The people, elements, and expectations are a unique combination of four principles that form an unstoppable force:

Deep Relationships

Core groups can’t exist without deep relationships between each of its members. These are relationships that go well beyond your average professional relationship or even friendship. It’s a unified bond with one common goal: Excellence.

These relationships aren’t built over coffee, lunch, or networking events. They are built over repeated interactions with each other within, and well outside of the professional context. They take time and investment in each other.

When interacting with people in our network, we often discuss what we want to achieve. In core groups, the conversation is focused on why we want to achieve these goals. Knowing why requires understanding someone’s motivations, personal history, family background, and impactful life events. Knowing why leads to a deeper sense of investment in each other and paves a clearer path to actually achieving those goals.

Any path to great achievement isn’t easy as it faces great challenges and failures along the way. While it is difficult to discuss these things, they contain the largest opportunity for progress. With deep relationships, we can openly admit our challenges, weaknesses, and failures and quickly get on the road to growth.

Brutal Honesty

Oddly, we tend to lie to ourselves more than anyone else in our lives. It is extremely difficult to be brutally honest with ourselves. Much of the time what we think is the truth is just emotional rationalizations. We’re human. Everything we do, especially in startups, contains components of emotional investment. But, emotional investment is not rational investment.

One of the golden rules in sports gambling is to never bet on your favorite teams. You know the most about that team so theory should have it you have the best chance of winning with that team. But too often the emotional stake skews your decision making ability. We also see this in romantic relationships. We’ve all had that “friend” in a detrimental relationship who ends up rationalizing the relationship for longer then they should. Emotional investment once again skews are ability to see the truth.

Furthermore, the people that we typically go to for advice in our lives aren’t able to provide us with brutal honesty. Parents, siblings, friends, advisors, investors. Most of the time they aren’t knowledgeable enough about our specific goals to truly help. Even if they are, their opinions and advice are biased with their personal incentives. While they have good intentions, then subconsciously push you in the right direction for them, not the right directions for you. [5]

We avoid brutal honesty with ourselves and others because it’s uncomfortable. But the truth isn’t going anywhere. If you turn your back to it, it will bite you in the ass. Avoid it, and it will surface eventually. Accept the truth, and you can start to move forward.

The deep relationships between members of core group allow us to be brutally honest with each other. We can remove the filter that prevents us from saying what we really think because we can challenge each other with out fear of alienating others. With brutal honesty, interactions become more blunt and genuine. We can get to the core of issues much quicker and focus on solutions. We push each other to the max and keep each other on course for what truly matters. As a result, real progress is made quicker then you could ever make it before.

Peers

As you search for your core group, it is easy to become engrossed with brand name individuals or those that have had more success. Most assume a positive correlation between how successful a person has been and how much they can help you.

However, success is a large misleading indicator of one’s ability to help you. In hindsight, people tend to take more credit for success than is actually due. There are a lot of factors that go into being successful, one of them being luck, whether they admit or not. Most commonly, those that have been successful in the past aren’t in touch with the current challenges you will face in today’s rapidly changing market.

We underestimate what we can learn from our peers. The path to success is one giant obstacle course. Just like an obstacle course, those that are at a similar point on the obstacle course are in a much better position to help you than those already at the end. The power of core groups is when members can all help and challenge each other as equals; it leads to deeper investment and relationships in each other.

When we see previously successful people achieve something new we tend to attribute this achievement to something we don’t have ourselves. But when you see a peer who is on the same playing field as you overcome a challenge and achieve something, we have no excuses for why we can’t do the same. It makes us more aware of what is possible and motivates us forward.

Diversity

We naturally gravitate towards building deep relationships with those that are similar to ourselves. We do this because it’s easier. While its easier, these aren’t the relationships that will challenge us the most. We end up doing the same things, having the same conversations, and getting opinions too close to our own. Einstein summed the result of this by saying, “Insanity is doing the same thing over and over, and expecting different results.”

Core groups thrive on diversity of skill sets between its members. It isn’t about surrounding ourselves with people smarter than us, it is about finding people who are smarter than us in different areas. This gives us the opportunity to invest in our own strengths, yet fill holes where we are weak. Trying to be strong in every skill set on our own just leads to mediocrity.

Those with different skill sets have a different perspective of the world. They analyze and approach problems from a very different direction then we do; as a result, they often end up at a solution that we would never come to on our own. We typically attribute this to someone “thinking outside of the box,” but in reality a person is just approaching a problem from the same lens they always do. It is just different from our own.

I have benefited from having a great professional network and personal mentors through out my professional path, but as I wrote this post, I discovered that I could tie every period where I made giant leaps in progress, to the fundamentals of Core groups. As for what happened after that 4 weeks, Viximo quickly out grew the space available at Betahouse so we had to move out. Viximo is now about 30 employees and one of the premier publishers in the social game industry. Nevertheless we have never forgotten our roots, and as a result have housed numerous startups within our office space. Betahouse lived on for a few years and went through various evolutions through the leadership of Jon Pierce, but is currently on hiatus.

Beyond Betahouse I have continued to facilitate the strengths of core groups through organizations such as PopSignal[6] and ReCatalyze[7]. I truly believe the next great companies and entrepreneurs will be born from core groups. The closer we are to having the deep, honest and diverse peer group relationships, the closer we are to building the most successful and innovative companies of our time.

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Thanks to members of my own core group for reviewing and inspiring this post. Specifically Ariel Diaz and David Kadavy. Also, a special thanks to Antonio Rodriguez for contributing his thoughts to the subject.

—————-Footnotes—————-

[1] That amazing technical co-founder is Sean Lindsay, who beyond Viximo, has also established Founders Mentors.

[2] Success will only be determined over the long term of the company.

[3] Raising that much money, that early is something I don’t recommend to other entrepreneurs. Another day, another blog post.

[4] Other original members included Jon Pierce, Greg Gibson, Brian Del Vechio, Dan Choi, and more. Betahouse back then was very different to what has become the norm for co-working spaces today: non collaborative desk filling environments.

[5] Parenthood is a perfect example of this. So many kids end up being exact replicas of their parents, rather then their own person.

[6] PopSignal is an invite only networking group created by myself and Jay Meattle. Every couple months we invite a group of core members who all get +1’s. This core group acts as a signal to noise ratio. The events have lead to co-founders finding each other, companies being funded, quality partnerships, and numerous relationships built.

[7] ReCatalyze is still in the experimentation phase, but details will be released soon.

New Blog - BrianBalfour.com

Tue, 14 Dec 2010 20:20:00 -0500

I have written off and on for the past 6 years, mostly at my personal blog SocialDegree and the Viximo blog. I originally started SocialDegree before the boom days of social networking, virtual goods, and social gaming. SocialDegree has served me well in the past but I felt like it was time for a change. As a result I am laying SocialDegree to rest, and emerging with BrianBalfour.com. I’m interested in writing about a lot of things from the past few years, so I am unsure what direction this blog will take. Thank you to my readers of SocialDegree in the past. I hope you enjoy the new blog. Expect new posts soon.