Stephen Fanjoy

Resources, Reflections and Refractions  

Irrational Decisions – Anchoring and Arbitrary Coherence

This is the second in a series of articles about our irrational decision making and based upon a book  by Dan Ariely called Predictably Irrational.

Professor Ariely describes some experiments which demonstrated something he calls “arbitrary coherence”.  Basically it means that once you contemplate a decision or actually make a decision, it will heavily influence your subsequent decisions.  That’s the coherence part.  Your brain will try to keep your decisions consistent with previous decisions you have made.  I’ve read about that many times before, but what was surprising in this book was the the “arbitrary” part.  The initial anchoring factor can be totally arbitrary, but it will still heavily influence your subsequent decisions.

 

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Irrational Decisions – Relativity

From The Rat Race Trap:

Dain Ariely wrote a bestselling book last year called Predictably Irrational in which he described various irrational decision making behaviors that we crazy human beings engage in.  The “predictable” part comes in because these irrational behaviors are consistent and predictable.  We are irrational in truly predictable ways.  I’m going to share some of them with you in a series of articles...

One of the behaviors he described really fascinates me.  We humans seem to make choices by comparison shopping.  We have a hard time choosing between dissimilar alternatives, but throw in something to compare one of the choices with, and all of a sudden the decision becomes easy.  Watch out for this one because it affects your purchasing decisions!

Professor Ariely conducted a fascinating experiment with photos of good looking people.  He first collected data on which photos were judged as the most attractive.  Then he picked a couple of evenly rated photos of men who did not look similar to one another and asked people to pick the most attractive of the two choices – A or B.  The results split about evenly.  People had no obvious basis on which to judge one of them more attractive than the other.

Now here is where it gets really interesting.  He “uglycized” one of the photos on his computer and included this less attractive version in the set of alternatives.  People were asked to choose the most attractive from among the original A and B and the less attractive version of A.  Now, the overwhelming majority of people chose A as the most attractive of the three.

From a rational and objective perspective this makes no sense.  Nobody is going to pick ugly A as the most attractive, but the pictures of the original A and B remained unchanged.  A is objectively no more attractive than he was before, but with someone similar to compare him to, he seems to get a lot more attractive than B.  When the photo of ugly B was used instead of ugly A, most people chose B as the most attractive.  

Marketers will use this trick to influence your buying decisions.  It’s called a decoy and it dramatically affects the decisions you will make.  Professor Ariely conducted another experiment based upon a real advertisement.  He saw an advertisement for a subscription to the Economist that had the following three choices:

  1. Online version only – $59
  2. Print version only – $125
  3. Print and online version both – $125

Of course nobody is going to pick the print version only when they can get both for the same price so why include it?  Well it turns out that you include it because it drives most people to pick the most expensive third option.  When Professor Ariely studied the choices people make with these options, 84% chose option 3.  Why?  Because it is an obviously much more attractive $125 choice than option 2.  Irrational maybe, but it works.

What happened when he removed option 2 and presented the following choices?

  1. Online version only – $59
  2. Print and online version both – $125

Without the decoy option, 68% chose the least expensive online only option.  That’s an amazingly significant difference in behavior.

It seems we are wired to compare things that are easily comparable while avoiding trying to compare things that are not.  It takes a lot of thinking to decide between two good looking but dissimilar looking men, but easy to decide between two who share similar characteristics.  The inclusion of a less attractive alternative increases the absolute attractiveness of a similar choice.   Our brains take the easy way out.

via ratracetrap.com

 

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Peter Diamandis: "The Best Way to Predict the Future is to Invent it Yourself!"

http://www.q2cfestival.com/play.php?lecture_id=8029

This talk explains how to incentivize breakthroughs. Traditional thinking, risk-aversion and incrementalism will cause the demise of companies unable to cope with the coming decades of disruptive innovation, while the rapid growth of key exponential technologies (Nano, Info, Bio) are empowering individuals and companies to do what only governments were able to achieve in past decades. Such technologies will drive a period of significant disruption and opportunity.

Dr. Peter Diamandis is the Chairman and CEO of the X PRIZE Foundation, a non-profit initiative focused on designing and launching large incentive prizes, such as the Google Lunar X PRIZE, to drive radical breakthroughs for the benefit of humanity.

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Myth: Entrepreneurship Will Make You Rich

Wise words from Eric Ries:

One of the unfortunate side effects of all the publicity and hype surrounding startups is the idea that entrepreneurship is a guaranteed path to fame and riches. It isn’t. Building a startup is incredibly hard, stressful, chaotic and –- more often than not –- results in failure. That doesn’t mean it’s not a worthwhile thing to do, just that it’s not a good way to make money.

A more rational career path for money-making is one that rewards effort, in the form of promotions, increased security, salary and status. Startups, unfortunately, punish effort that doesn’t yield results. In fact, the biggest source of waste in a startup is building something nobody wants. While in an academic R&D lab, creation for creation’s sake will often get you praise, in a startup, it will often put you out of business.

So why become an entrepreneur instead of developing technology in an R&D lab? Three reasons: change the world, make customers’ lives better and create an organization of lasting value. If you only want to do one of these things, there are better options. But only startups combine all three.

Read more at gigaom.com

 

Filed under  //   Entrepreneurship  

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Guy Kawasaki's 10/20/30 Rule of PowerPoint

To prevent an epidemic of Ménière’s in the venture capital community, I am evangelizing the 10/20/30 Rule of PowerPoint. It’s quite simple: a PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points. While I’m in the venture capital business, this rule is applicable for any presentation to reach agreement: for example, raising capital, making a sale, forming a partnership, etc.The ten topics that a venture capitalist cares about are:

  1. Problem
  2. Your solution
  3. Business model
  4. Underlying magic/technology
  5. Marketing and sales
  6. Competition
  7. Team
  8. Projections and milestones
  9. Status and timeline


Read more: http://blog.guykawasaki.com/2005/12/the_102030_rule.html#ixzz0Td8fD7a2

Filed under  //   Entrepreneurship  

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Garr Reynolds on Presentation Zen

Here are key excerpts from Guy Kawasaki's interview with Garr Reynold on his book: Presentation Zen: Simple Ideas on Presentation Design and Delivery

At its heart Presentation Zen is about restraint, simplicity, and a natural approach to presentations that is appropriate for an age in which design-thinking, storytelling, and “right-brain thinking” are crucial complements to analysis, logic, and argument.

... True, the templates and wizards of the past probably took most of us—who didn’t know any better anyway—down a road to “really bad PowerPoint” as Seth Godin calls it. But today we know better, and we can make effective presentations with even older versions of PowerPoint—often by ignoring most of the features. Ultimately it comes down to us and our skills and our content. Each case is different, and some of the best presentations include not a single slide. In the end it is about knowing your material deeply and designing visuals that augment and amplify your spoken message.

... If you want to know how to make better presentations, buy Made to Stick by Chip Heath and Dan Heath. The Heath brothers found that sticky, compelling, and memorable messages and ideas share six common attributes: Simplicity, Unexpectedness, Concreteness, Credibility, Emotions, and Stories. Ask yourself how your presentations rate for these elements, and you are on your way to crafting presentations that stick.

... Steve Jobs makes it look easy. He’s comfortable and relaxed. This in turn makes the audience feel relaxed. Steve also speaks in a manner that is conversational, and even though he practices a lot before the event, his words never sound scripted. Steve uses the slides to help him tell a story, and he interacts with them in a natural way, rarely turning his back on the audience because monitors in front show the same onscreen image as well as the next slide. Steve uses visuals, his own words, and a natural presence to tell his story. His visuals do not overpower him, but they are an important component of the talk. Steve also demos his own software.

... The presentation should have about ten slides, last no more than twenty minutes, and contain no font smaller than about thirty points. I especially like the twenty-minute limitation of this method. However, the audience should have no idea how many slides you have. Once they start counting slides all is lost. As far as text goes, I say as little as possible on slides, but when text does appear it should be large and serve to complement your words. People did not come to read; they came to hear. Any speaker can read bullet points. The audience wants to hear your story not read it.

... It’s good that PowerPoint and Keynote have many transition options, but people need to exercise restraint and use a very few effects. I suggest using no more than two to three different types of transition effects per presentation and not use transition effects for every slide. I use a fade to black between the major sections of a talk to communicate closure of one section and the opening of the next one. I often use a smooth dissolve to gently move from one visual to the next as I continue speaking. Using no transition effects is also often appropriate. When you watch a film or a TV show you are not usually aware of the transition effects from one scene to another--that would be distracting. Audiences should not notice the effects we employ between slides too.

... You should rehearse at least three to four times all the way through and rehearse the first three minutes at least ten times or more. You also need to do a formal dress rehearsal in front of a real audience such as coworkers who can give you constructive criticism. In some ways good presenting is like good writing, you’ve got to pare it down and dump the superfluous and the non-essential. But since we are so close to the material it is hard for us to see what works and what does not, or what is repetitive, etc. This is why you cannot only rehearse alone. You’ve got to rehearse in front of others so that you can experience the nerves, the blank stares, etc. The more you rehearse the more the fear of the unknown is removed. The more the fear is removed, the more confident you will become. As you become more confident you will feel more relaxed and your confidence will shine through. The thing about confidence is that it’s impossible to fake, but with practice you will indeed become a confident speaker. And yes, it is possible to rehearse too much. You want it to sound natural and fresh, not mechancial and memorized. Usually three to four full rehearsals will get you there.

... The problem with most presentations is that people try to include too much. You can go deep or you can go wide, but you can’t really do both. What is the core message? This time “off the grid” with paper and pencil or a white board is where you can clarify your ideas and then get them on paper visually. After your ideas and basic structure are clear, then you can open up the software and start laying out the story in the slide sorter view.

... I have pointed to many (great presenters) on my site over the years such as Seth Godin, Steve Jobs, you, Al Gore, Lawrence Lessig, Tom Peters, Hans Rosling, and many more. Recently I have come to think that US senator Barack Obama is an amazing speech maker as well. But more than anything, I point people to TED where they can see some really good presentations and speeches by some very smart and creative people who are all trying to change the world in their own way. Each case is different, but really, if you’re not trying to change the world, what is the point of making a presentation?

Read the full interview at: http://blog.guykawasaki.com/2008/01/ten-questions-w.html#ixzz0Td0yuxLw

Filed under  //   Entrepreneurship  

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Guy Kawasaki's Rules for Bootstrapping

  • Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it's queen and prince too for a bootstrapper.
  • Forecast from the bottom up. Most entrepreneurs do a top-down forecast: “There are 150 million cars in America. It sure seems reasonable that we can get a mere 1% of car owners to install our satellite radio systems. That's 1.5 million systems in the first year.” The bottom-up forecast goes like this: “We can open up ten installation facilities in the first year. On an average day, they can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. 24,000 is a long way from the conservative 1.5 million systems in the top-down approach. Guess which number is more likely to happen.
  • Ship, then test. I can feel the comments coming in already: How can you recommend shipping stuff that isn't perfect? Blah blah blah. ”Perfect“ is the enemy of ”good enough.“ When your product or service is ”good enough,“ get it out because cash flows when you start shipping. Besides perfection doesn't necessarily come with time--more unwanted features do. By shipping, you'll also learn what your customers truly want you to fix. It's definitely a tradeoff: your reputation versus cash flow, so you can't ship pure crap. But you can't wait for perfection either. (Nota bene: life science companies, please ignore this recommendation.)
  • Forget the ”proven“ team. Proven teams are over-rated--especially when most people define proven teams as people who worked for a billion dollar company for the past ten years. These folks are accustomed to a certain lifestyle, and it's not the bootstrapping lifestyle. Hire young, cheap, and hungry people. People with fast chips, but not necessarily a fully functional instruction set. Once you achieve significant cash flow, you can hire adult supervision. Until then, hire what you can afford and make them into great employees.
  • Start as a service business. Let's say that you ultimately want to be a software company: people download your software or you send them CDs, and they pay you. That's a nice, clean business with a proven business model. However, until you finish the software, you could provide consulting and services based on your work-in-process software. This has two advantages: immediate revenue and true customer testing of your software. Once the software is field-tested and battle-hardened, flip the switch and become a product company.
  • Focus on function, not form. Mea culpa: I love good ”form.“ MacBooks. Audis. Graf skates. Bauer sticks. Breitling watches. You name it. But bootstrappers focus on function, not form, when they are buying things. The function is computing, getting from point A to point B, skating, shooting, and knowing the time of day. These functions do not require the more expensive form that I like. All the chair has to do is hold your butt. It doesn't have to look like it belongs in the Museum of Modern Art. Design great stuff, but buy cheap stuff.
  • Pick your battles. Bootstrappers pick their battles. They don't fight on all fronts because they cannot afford to fight on all fronts. If you were starting a new church, do you really need the $100,000 multimedia audio visual system? Or just a great message from the pulpit? If you're creating a content web site based on the advertising model, do you have to write your own customer ad-serving software? I don't think so.
  • Understaff. Many entrepreneurs staff up for what could happen, best case. ”Our conservative (albeit top-down) forecast for first year satellite radio sales is 1.5 million units. We'd better create a 24 x 7 customer support center to handle this. Guess what? You sell no where near 1.5 million units, but you do have 200 people hired, trained, and sitting in a 50,000 square foot telemarketing center. Bootstrappers understaff knowing that all hell might break loose. But this would be, as we say in Silicon Valley, a “high quality problem.” Trust me, every venture capitalist fantasizes about an entrepreneur calling up and asking for additional capital because sales are exploding. Also trust me when I tell you that fantasies are fantasies because they seldom happen.
  • Go direct. The optimal number of mouths (or hands) between a bootstrapper and her customer is zero. Sure, stores provide great customer reach, and wholesalers provide distribution. But God invented ecommerce so that you could sell direct and reap greater margins. And God was doubly smart because She knew that by going direct, you'd also learn more about your customer's needs. Stores and wholesalers fill demand, they don't create it. If you create enough demand, you can always get other organizations to fill it later. If you don't create demand, all the distribution in the world will get you bupkis.
  • Position against the leader. Don't have the money to explain your story starting from scratch? Then don't try. Instead position against the leader. Toyota introduced Lexus as good as a Mercedes but at half the price--Toyota didn't have to explain what “good as a Mercedes” meant. How much do you think that saved them? “Cheap iPod” and “poor man's Bose noise-cancelling headphones,” would work too.
  • Take the “red pill.”This refers to the choice that Neo made in The Matrix. The red pill led to learning the whole truth. The blue pill meant waking up wondering if you had a bad dream. Bootstrappers don't have the luxury to take the blue pill. They take the red pill--everyday--to find out how deep the rabbit hole really is. And the deepest rabbit hole for a bootstrapper is a simple calculation: Amount of cash divided by cash burn per month because this will tell you how much longer you can live. And as my friend Craig Johnson likes to say, “The leading cause of failure of startups is death, and death happens when you run out of money.” As long as you have money, you're still in the game.
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    Clusters of Entrepreneurship — HBS Working Knowledge

    Clusters of Entrepreneurship

    Executive Summary:

    Economic growth is highly correlated with an abundance of small, entrepreneurial firms. This relationship is even stronger looking across industries within cities, and has been taken as evidence for competition spurring technological progress, product cycles where growth is faster at earlier stages, and the importance of entrepreneurship for area success. Any of these interpretations is possible, however, and the only thing that we can be sure of is that entrepreneurial clusters exist in some areas but not in others. This paper first documents systematically some basic facts about average establishment size and new employment growth through entrepreneurship, then analyzes entry and industrial structures at the region and the city levels using the Longitudinal Business Database. Key concepts include:

    • There is a remarkably strong correlation between smaller average firm size and subsequent employment growth due to start-ups.
    • Evidence does not support the view that regional differences in demand for entrepreneurship are responsible for these entrepreneurial clusters.
    • Instead, the evidence suggests that spatial differences in the fixed costs of entrepreneurship and/or in the supply of entrepreneurs best explain cluster formation.

    Filed under  //   Entrepreneurship   Innovation   Politics  

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    Our Pale Blue Dot

    I miss Carl Sagan and the wonder, the sanity and the humanity he stood for:

    Filed under  //   Ethics   Philosophy   Politics  

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    12 Facts About Entrepreneurs

    The Kauffman Foundation  published a report titled “The Anatomy of an Entrepreneur”  based on a survey of 549 company founders across a variety of industries. Here are some of their findings:

    1. The average and median age of company founders when they started their current companies was 40

    2. 95.1 percent of respondents themselves had earned bachelor’s degrees, and 47 percent had more advanced degrees

    3. Less than 1 percent came from extremely rich or extremely poor backgrounds

    4. 15.2% of founders had a sibling that previously started a business

    5. 69.9 percent of respondents indicated they were married when they launched their first business. An additional 5.2 percent were divorced, separated, or widowed

    6. 59.7 percent of respondents indicated they had at least one child when they launched their first business, and 43.5 percent had two or more children

    7. The majority of the entrepreneurs in the sample were serial entrepreneurs. The average number of businesses launched by respondents was approximately 2.3

    8. 74.8 percent indicated desire to build wealth as an important motivation in becoming an entrepreneur

    9. Only 4.5 percent said the inability to find traditional employment was an important factor in starting a business

    10. Entrepreneurs are usually better educated than their parents

    11. Entrepreneurship doesn’t always run in the family. More than half (51.9 percent) of respondents were the first in their families to launch a business

    12. The majority of respondents (75.4 percent) had worked as employees at other companies for more than six years before launching their own companies

     

    Filed under  //   Entrepreneurship  

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