People who want to be big sometimes think they have to immediately reach the largest possible audience — but the best way to produce things that take off is to produce small things. To become a small expert. To become the best person on the Internet at understanding the application of Medicaid to minority children, or something like that.

Paradox of scale

If you go to Tokyo, you'll see there are all sorts of really strange shops. There'll be a shop for 1970's vinyl, 1980's whisky, and so on. That doesn't make any sense if it's a shop in a Des Moines suburb. In a Des Moines suburb, to exist, you have to be Subway; you have to hit the mass-market immediately.But in Tokyo, where there's 30-40 million people within a train ride of a city, then your market is 40 million. And within that 40 million there's definitely a couple thousand people who love 1970's music and 1980's whisky.The Internet is Tokyo. The Internet allows you to be niche at scale.

The Internet is like Tokyo

This was intended as advice for people interested in writing articles and books, but it applies to anything you want to build on the Internet. It's similar to the startup way of starting with and dominating a niche market

Startups

The Internet Let's You be Niche at Scale

In 1996, McDonald's believed that the Arch Deluxe hamburger was the solution to their growth that had flatlined. The burger appealed to a new, older demographic. Extensive focus groups showed adults liked the burger, so the company invested a lot of money in rolling the burger out nationwide. But the burger proved to be unsuccessful. It cost more than the Big Mac and Quarter Pounder and failed to lure more adults. Within a year, the company started phasing it out.

The (actual) Museum of Failure

According to economist John List, the focus groups that teed up McDonald's decision to spend a fortune on launching the burger were flawed. The people who participated were McDonald's diehards and not representative of customers at large. Instead, the company should have vetted whether the burger would actually be popular with their adult demographic on a smaller scale. The launch of the Arch Deluxe is a good example of scaling. Scaling is the process of rolling out something on a large scale.

Why the Arch Deluxe failed

There are five vital signs to consider when thinking about whether an idea, policy or product can scale. <ol><li>Watch out for false positives.</li><li>Consider if you're misjudging the representativeness of the demographic.</li><li>Understand the constraints you will have at scale before you scale it.</li><li>Watch for unintended consequences.</li><li>Consider the business side and costs of scaling.</li></ol>

Five signs to look out for when scaling

An idea may look promising at first, but when it is rigorously tested, the results may fail to replicate. If you find a good result in one area, it doesn't mean you should roll it out everywhere. First replicate it in that area to ensure it's a true result, then try it out in other markets. It means you should constantly prod at your idea to ensure it's a valid result.

False positives

McDonald's erroneously used a focus group to convince themselves to roll out the Arch Deluxe. It was indeed popular with a small group of loyal customers, but that was not the future target of the company.

Misjudging the representativeness

It is vital to evaluate if your initial success depends on unscalable ingredients. For example, it would be a mistake to use ample resources to hire the best preschool teachers, then expect that their positive results would be replicated when the curricula they use was scaled nationwide. Understand the constraints you're going to have at scale before you scale it.

Unscalable ingredients

When Uber attempted to raise the incomes of its drivers by increasing its base fares, it worked at first, but within six weeks, earnings fell back down to what they were. The reason is that the opportunity of making more money on the app drew more people to drive for Uber, resulting in each driver getting fewer trips overall. At scale, the well-intended policy didn't work as intended.

Spillovers and unintended consequences

Identify if your product has economies of scale. When you scale your operation, does it get cheaper to produce it? For example, building a factory costs money up front, and the first couple of devices will reflect that. But, over time, it will become cheaper to produce because the cost of the building is spread out more.

The costs of scaling

A new book develops a science of scaling.

Stashed ideas

How to roll out big ideas and avoid the Museum of Failure

Culture is a living organism that can be stronger at 1,000 employees than it was at a few, provided it has the right ingredients and foundation.
A good way to create a company culture that stays fresh and relevant through growth is to create the foundation with a shared mission and values, but also offer freedom for individual expressions.

Creating a company culture that grows with you

65% of CEOs agree that culture is vital to their company's performance, yet only 16% are satisfied with its strength. Values are critical to company culture. When the road ahead is uncertain or needs a difficult decision, values will give clarity. There are two types of culture.<ul><li>Aspirational values are about how you want to show up.</li><li>Foundational values are about who you already are. It can unite your team from the moment of hiring.</li></ul>

Build a culture that's foundational, not aspirational

Company growth is not just about products and services but also people and teams. That means creating space for subcultures to emerge. For example, your sales team may have a different working style than your product team.
Leaders may view subcultures as a threat, but embracing them can help the larger teams thrive because of their differences. For example, one team can have a stronger bias toward urgency that expresses their passion for speed and dedication to the customer.

Subcultures have different principles, not different values

Promoting individual expression and subcultures doesn't mean free for all. Everyone should still enjoy it in the end. CEOs should encourage projects or ideas that align with company values. A CEO should communicate what works and what doesn't. When the boundaries for culture and subculture are clear, it boils down to patience. A strong culture will be self-monitoring. But if something or someone doesn't mix well with the company values, it is easily seen in conflict or problems.

Reinforce what resonates with cultural values

If your culture is foundational, it can withstand different working styles, says the CEO of one of the best-performing stocks of 2021.


Subcultures inside your company is critical to scaling your business

<ul>
<li>The hero myth - What does it take to be a successful entrepreneur? We all hear the same list of qualities: passion, determination and vision. But the same qualities that are heralded as traits of the successful may lead to your startup’s demise.</li>
<li>The process myth - The conventional, "build it and then sell it" process doesn't work because entrepreneurs start out with a guess.</li>
<li>The money myth - More money isn't necessarily better. Investment removes the constraint of entrepreneurs needing to focus obsessively on what customers want. it enables you to pursue flawed business plans.</li>
</ul>

The Three Myths of Entrepreneurship

<ul>
<li>Get out into the field - Get out of the building, outside the company, outside your circle of friends... validate assumptions like scientists. Don't be attached to your vision.</li>
<li>Fail fast and embrace change - Do not waste time pursuing an idea that's not a true opportunity; fail fast. Be dispassionate enough to let go and move on.</li>
<li>Adopt the attitude of learning - The attitude of learning will enable you to successfully discover real opportunities.</li>
<li>Test your guesses with rapid, inexpensive, simple experiments - Don't start building without testing your guesses.</li>
</ul>

Core Principles of NISI (Nail It Then Scale It)

It is the ability to recognize new information and then change the way you view the world. It can help you be more agile and beat out your competitors who are stuck in the old way of doing business.

Cognitive flexibility

Sunk cost leads to irrational decision-making. when entrepreneurs stake their hopes and dreams on a startup, the resulting motivation can make it all but impossible for them to learn in an intellectually honest way - overconfidence trap: research shows experienced individuals tend to be overconfident in their judgement and ability to control the uncontrollable. stay determined but be humble along the way.

Motivation Trap

Recognize our weaknesses and blind spots. We tend to try and reuse ideas from other settings that may not be appropriate.  For example, A CEO with a marketing background may see the world through the lens of the "go big" marketing blitz strategy.

Familiarity Trap

<ul><li>Become an "expert-novice": hold knowledge and confidence, but always maintain a seed of doubt and thirst for more knowledge.</li><li>Reframe your startup's purpose: reframe the purpose of your venture to be learning about what the market wants, rather than proving that your idea works. this mental trick helps you avoid learning traps and focuses you on learning. </li><li>Seek a high volume of feedback: feedback helps correct overconfidence, increase pattern recognition, and help us see the truth.</li><li>Be data-driven: don't rely on beliefs and gut feelings. base decisions on data — even if it's limited data.</li></ul>

Tips For Starting Out

The goal of this phase is to clearly define and understand the customer pain and determine whether the customer pain is a market opportunity.The test of nailing the pain is whether customers return your cold calls. In this first step, we want to answer the question "Is this a pain worth solving?" No pain, no business.

Phase 1: Nail the Customer Pain

<ul>
<li>Write down a monetizable pain statement - A monetizable pain represents a pain that customers recognize, have money to pay for, and are overly interested and eager to solve.</li>
<li>Write down a big idea hypothesis - An idea for a solution to the pain you observed, specific to the customer group, and why it is different from existing solutions.</li>
<li>Test your hypotheses - Be quick about it.</li>
</ul>

Steps To Nail Customer Pain

If 50% of customers return your call, you have found the monetizable pain and a potential beachhead for your product.If it is less than 50%, the low response rate may mean that you just haven't found the right customer niche or the right words to describe the pain to the customer. By talking to the customers who do respond, you can find clues about where to find the real monetizable pain.

The 50 Percent Rule

Once you've validated a customer pain, it's time to ask yourself "how big is the pain I'm trying to solve and is it worth it?"Many entrepreneurs we have talked to discover a customer pain, build a solution for the pain and then realize after the fact that they are actually tackling a rather small market.Evaluate:<ul><li>Market Size</li><li>Market Growth - A rising tide lifts all ships.</li><li>Competition - What differentiates you?</li><li>Laws & regulation</li><li>Sales cycle</li></ul>

Evaluating The Pain

In this stage, you cultivate a minimum feature set that you develop iteratively while validating with customers.As you iterate, in addition to refining the solution based on customer feedback, you should be improving your understanding of the market and defining the best segment for an initial beachhead. As much as possible, you should try to find new samples of customers to gain fresh, unbiased perspectives.

Phase 2: Nail the Solution

Write down a MFS HypothesisThe minimum feature set represents the smallest, most focused set of features that will drive a customer purchase.  There are a few tests that can be conducted:<ul><li>Test 1: The Virtual Prototype Test</li><li>Test 2: The Prototype Test</li><li>Test 3: Solution Test</li></ul>

Steps To Nail The Solution

"Since only one in every five to ten ideas works out, the strategy of limiting the time we have to prove that an idea works allows us to try out more ideas, increasing our odds of success."

Detach yourself from your biases, get on the customer's side of the table, look at the problem from their perspective, and make them feel that you truly want to learn how they feel about this problem and potential solutionsDo you have this problem? Does this solution solve your problem? What would the solution need to have, for you to purchase it?

Discuss potential solutions with customers

<ul><li>Develop an inexpensive, rapid prototype — something your customers can use and give them a picture of the solution you are proposing. </li><li>Be resourceful — ask suppliers for samples. Find partners. Avoid investment.</li><li>Prototype Road Show - Test your prototype in front of full buying panels of customers.</li><li>$100 game - ask yourself if you had $100 to invest in any features of this product, what features would you invest your money in</li></ul>

The Prototype Test

The price your customers are willing to pay is the measure of the degree to which you have nailed the solution.Breakthrough questions:<ol><li>"How much would you expect to pay or a solution like this?"</li><li>"Would you be willing to prepay for this product?"</li><li>"Would you be willing to purchase this today?"</li><li>"If I gave this to you for free, would you install it today system-wide?"</li></ol>

Testing The Price Point

Partner with your customers, usually through a pilot program, to take your solution through a final round of iteration to refine it into the solution customers want. At this point, your customers should be willing to begin paying for the product. You should begin closing paid pilots or be selling your product.If customers won't pay now, they probably won't pay later. While it's natural to shy away from or defer asking for payment, we're only avoiding the truth and doing ourselves harm.

Solution Test

The goal is to understand the process by which customers find out about and decide to purchase our product and to use our findings to develop a repeatable sales model and optimize our marketing and sales strategy. We should be continuing to explore and validate price points while closing paid pilots, nurturing early-stage customers, and turning them into evangelists. We should validate our go-to-market assumptions with paying customers.

Phase 3: Nail the Go-To-Market Strategy

The customer buying process is the map of your customers' activities from the moment they find out about your product through the purchase and use to the ultimate disposal of your product. It is defined by the job your customer is trying to get done and all the relevant activities that surround that job. To uncover this, ask customers about how they accomplish or try to complete that "job" with any relevant solutions, from beginning to end.

Map the customer-buying process

Look for leverage points within the buying process at which you can influence customers' purchase decisions.Example: Apple didn't just revolutionalize the sale of MP3 players by making a better MP3 player. They also reinvented the entire buying process for digital music, which before iTunes was difficult and overwhelming. This opened up a segment of customers who previously had shied away from purchasing digital music and MP3 players.

Develop a Sales Model

<ul><li>Map the key categories of the market infrastructure</li><li>Identify the top three partnerships in each category</li><li>Understand the motivations and needs of each player</li><li>Create measurable and time-bound objectives for each potential partner and a strategy to leverage the infrastructure based on your interactions with customers</li><li>Assign an owner to each partner</li></ul>

Defining a Market Infrastructure Strategy

Close and launch paid pilot-customer relationships and utilize them to refine the product, go-to-market strategy, and serve as references.If you properly nurture reference customers, at the end of the pilot you will have a robust solution, a deep understanding of your go-to-market strategy, and a reference for future sales.

Pilot-Customer Development

<ul>
<li>Your business model is the map of how you create value and deliver it to customers. In this phase, we will conduct financial analysis to verify business viability, launch your product and go-to-market strategy, and then develop a dashboard to monitor your progress forward.</li>
<li>Predict Business Model with Customer Data: Ask questions like "how would you want to buy something like this?" direct, distributor, partner. What would they need to feel comfortable making the purchase? What would a potential deal look like?</li>
<li>Validate Financial Model: Evaluate margins, fixed costs and variable costs.</li>
</ul>

Phase 4: Nail the Business Model

The very process of growing will change your company in fundamental ways that will make what you did in the early days obsolete in the later days.The process of "nailing it" is recursive.As startups grow, the nature of how they operate begins to change. As a company grows, a shift occurs from facing an unknown problem/solution at the onset, which required radical exploration, to facing a known problem/solution that requires execution. As a company gets bigger, the nature of what it has to do to be successful changes.

Phase 5: Scale It

New markets are created by a disruptive technology that serves new customers or an opportunity that was previously unnoticed or underserved. Whether or not it is a new market doesn't necessarily depend on your technology or product, but rather how the technology or product is applied. For example, a 1.3-inch hard drive in the PDA market (established market) vs the video-game market (new market).New markets are high-risk, high-reward. They are dangerous for startups because you are exploring uncharted territory, defining a new category, educating consumers, and trying to change behaviours.

New Markets

Established markets are markets where products exist and where you intend to compete by offering a product that serves a niche within the existing market or is a complement to an existing product.Consider attacking the low end of the market first. Customers at the top of the market aren't willing to risk their business on an unproven startup. In contrast, customers who are fighting the big players in the industry are constantly looking for an edge and are more willing to work with a startup that could give them an advantage.

Established Markets

Many investors and entrepreneurs will admit that most successful companies faced a crisis before they succeeded.The value of a good crisis is that it forces you to focus and renew your commitment to make the time to really nail the product and reshape the company.

Crisis And Focus

<ul>
<li>Models - intelligent, well-spoken, credentialed. pays lip service to the process but under the surface believe they already have the answer.</li>
<li>Packrats - chases down and tries to satisfy every last customer. unable to fire the customers that distract from the real value proposition.</li>
<li>Junkies - focus all of their energy on pleasing investors and bankers instead of focusing on the customer and building real value.</li>
</ul>

Avoid becoming a Model, Packrat, or Junkie

When it comes to the image you create as a startup, once you start selling, go big or stay home within the niche you have targeted. This doesn’t mean you have to burn all your capital, but you do want to communicate that you are established and reliable when you start trying to capture the early majority. For my time at Knowlix, this meant spending the money to obtain a moderately central space at the tradeshow their customers attended, creating a professional booth, and then pulling out all the stops to establish buzz around the booth.

Branding

This book will teach you how to create your own startup, nail the problem it solves, and scale it.

Why do most new businesses fail, yet a few entrepreneurs have a habit of winning over and over again? The shocking discovery of years of research and trial is that most startups fail by doing the "right things," but doing them out of order. In other words, human nature combined with our entrepreneurial drive puts us on autopilot to become part of the 70% to 90% of ventures that fail. From Thomas Edison to Steve Jobs, the Nail It Then Scale It method is based on pattern recognition of the timeless principles and key practices used by successful entrepreneurs to repeatedly innovate.

Nail it Then Scale it

<ul>
<li>As a young manager, observe and do everything to learn various aspects.</li>
<li>The first 10 years of your career is too crucial & that’s where you learn all the stuff. Thus it’s important that you focus on getting the right kind of learning.</li>
<li>To make a better decision, keep asking yourself “What should be happening in your career/start-up in the next 5 years”. </li>
<li>This might sound like a theory to you or you probably have heard from yogis to practice living in the moment. But that doesn’t mean you should not try to foresee or plan where you want to go and how you can probably reach out there.</li>
</ul>

Advice For Young Managers

Outsiders should understand that it’s not their company. This means to avoid being the face of the company or getting media coverage. That’s what Eric did when he was leading Google and Larry Page, Sergey Brin. He focused on running the company & making it profitable leaving Larry & Sergey to be the face of it.

A CEO Who Is Not A Founder But An Outsider

The way you build great products is by building a small team, working really hard, pushing the team & getting the product out which just barely works.  Example: The original iPod just barely worked initially. From there, Apple improved it before it was taken to the mass market. As a founder, you have to have a judgment when your product & start-up is ready to scale.

Building Great Products Is A Long Game

Great products are built from self-use. As a founder, you know whether your product really works or not. And if you don’t know, get the data from your initial set of customers and analyze it. Making sure your product works before you take VC money and start expanding in all directions.

Self Usage: Eating Your Own Dog Food

<ul><li>Hire intelligence over experience.</li><li>Take your time to hire the right guys. And if things are not working with new hires even after doing multiple interventions, fire them fast.</li><li>Sell your dream to prospective candidates. Hire those to whom it makes sense. .</li><li>Hire ordinary people who have done extraordinary things.</li><li>Hire people who can work better in teams. Give a person an exception to be an individual contributor if she is an exceptional talent.</li><li>On the finance side, hire CFOs who have gone bankrupt because they have seen what should not be done to become bankrupt.</li></ul>

Hiring Tips From Eric Schmidt

Next generation of successful programmers will be those who can write programs such that software themselves can learn how to solve a problem. This is also called machine learning.

Machine Learning

In every successful company, you have got a core team with following qualities:<ul><li>The one who has very good product sense.</li><li>The one who has emotional intelligence for all the stakeholders.</li><li>And the one who knows who to make people move fast.</li></ul>

A Successful Company

Three pointers for entrepreneurs who want to build a great company: <ul><li>Have an incredible founding team & right founders to address right kind of problem</li><li>You need to have some luck</li><li>Passion, lots of hard work and hiring awesome people</li></ul>

Advice To Entrepreneurs

Advice to Young Managers and Leaders By Eric Schmidt

This is session 8 of Technology-enabled Blitzscaling, a Stanford University class taught by Reid Hoffman, John Lilly, Allen Blue, and Chris Yeh. This class features Reid Hoffman interviewing Eric Schmidt, the Executive Chairman of Alphabet Inc. (formerly Google).

The Internet Let's You be Niche at Scale

How to roll out big ideas and avoid the Museum of Failure

Subcultures inside your company is critical to scaling your business

Nail it Then Scale it

Eric Schmidt on Structuring Teams and Scaling Google | Blitzscaling 08

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