A Crowded Space

A Critical, but Ignored Metric for Marketplaces

In the press and on home pages across the web you see metrics like 100,000 expert freelancers or over a million sellers or “adding 3,000 new users per day.”  Those all sound great, but they are irrelevant to the health of a marketplace company.  The press and other VCs still eat them up though, and that’s why you keep seeing more of them.  There is a much more critical metric being overlooked because it’s just not as glamorous. 

That metric is the number of full timers.

What sounds better to the press and investors?  

100,000 experts or 100 full-time experts.

I’ll take the 100 full-timers, but I think most others would go for the big numbers. 

Take a look at successful marketplaces:

• eBay has power sellers.
• Etsy has the 10k club - for sellers that have sold over 10k items.
• Uber has full time drivers.
• Rev has full-time transcriptionists.

oDesk’s core user base in the beginning was a very small (about 50) number of php programmers in Russia that we quickly employed nearly full-time.  I chatted with almost all of them on a weekly basis.  When they were under-utilized, I would work my ass off to find them a new client so they could continue working full-time through oDesk.

Full timers define the health of the marketplace.  The 80/20 rule is in full effect here.  Marketplaces need a metric to indicate how many people are really heavy users of the platform.  In labor marketplaces, you can think of it as the people that are relying on the platform for their primary source of income.  Those people will be incredibly motivated to help the company, to increase their earnings, and to invest in their online reputation. In contrast, if you don’t have people that are relying on you for their primary income, you’ll have a very fickle audience.  They will not care much about their online reputation, they will not drive turnaround times lower, and they will be disintermediation risks. They won’t open your emails, they won’t participate in your community forums, they won’t give you product feedback, and they won’t be telling all their friends about the platform.

It’s the full timer who will do that. 

You can also be sure that if you ask the full timers the Sean Ellis question, “how disappointed would you be without the <marketplace>?” — you’d definitely get the answers you’re looking for.

Second, look at the issue of utilization rates.  When I was in consulting, I had to maintain an 80% billable ratio. Same goes in labor marketplaces.  But, you need to work with the supply side to help them achieve the high utilization.  Make sure you have enough demand to support your network - make sure they can spend most of their time working and earning. In many cases, you need a surprisingly small number of providers to support the demand. 

In the past couple days I’ve had chats w two successful marketplace entrepreneurs. I was amazed to see that one of them had only 12 individuals on the supply side supporting a 32k monthly business.  He knew every one of their names and new that one was having some health concerns.  They were all part of the family.  In another conversation, Chris Waldron from TakeLessons shared that he included every provider in the network in a bi-weekly town hall meeting.  They were treated just as he treats the full employees of the company.  This could only happen with a complete focus on the core full timers of the business.

To judge success, a key metric should be determined for the business - maybe it’s # of people earning more than $500 per week, or # of people working more than 30 hours per week.  I bet Uber has phenomenal metrics in this regard for their drivers.  Every driver I’ve talked to says they get all their business through the platform.  If they had instead added 1000s of drivers before they had the demand to support them - all of the suppliers would lose interest very quickly.

So, the next time a VC asks “how you are going to get the providers” - just tell him that’s the wrong question to ask.

Innovations in Customer Effort - Trader Joe’s

I love anything that lowers the customer effort.  The best companies in the world are on a constant quest to make things easier.  Trader Joe’s has made a very simple innovation to the standard Express Lane.  

What’s easier? 

a) counting the items that you’ve selected to see if you’re under the 14 item limit, and then deciding which items to put back if you’ve accidentally selected 16 items. 

b) know if you’re carrying a hand basket. 

Running an Antifragile Startup

I recently finished reading Antifragile from Nassim Nicholas Taleb.  In short - it’s amazing.  Easily makes it to my Top 10 Books Ever Read list.  Everyone should read it for business and for life.  It unifies Wall St bailouts, Silicon Valley’s success, why restaurants are good, and why the Paleo diet is best for your body. 

What does antifragile mean? - It means things that gain from disorder.

Or as wikipedia says: 

“Simply, antifragility is defined as a convex response to a stressor or source of harm (for some range of variation), leading to a positive sensitivity to increase in volatility (or variability, stress, dispersion of outcomes, or uncertainty, what is grouped under the designation “disorder cluster”). Likewise fragility is defined as a concave sensitivity to stressors, leading a negative sensitivity to increase in volatility.”

So, I’ve reflected on my time at the early days of oDesk and what we did.  I believe we were doing some practices that were antifragile, we just didn’t have a good way to describe it.  Obviously, Taleb is far more eloquent and intelligent than I am. 

We had some sayings in those early days: 

• Throw stuff against the wall and see what sticks. 
• Break sh!t. 
• Play whack-a-mole
• Fast fail. 
• Try before you buy.
• Be more experimental. 

All of these things have elements of being antifragile.  It’s also basically at the heart of the Lean Startup movement.  Embracing failure and learning by observation tends to be better than lots of theorizing about the best strategy.  

If I were in a startup now, I’d constantly be thinking about how to make the businsess antifragile.  How to make mistakes and learn from all of them.  How to make sure that all employees have “skin in the game.”  How to create a culture of rapid iteration and experimentation. How to limit downside and maximize upside potential. 

Now - go read the book and Be Antifragile. 

All Introductions are Not Created Equal

Everyone knows that the best way to approach VCs is through an introduction. Mark Suster points out 4 obvious channels for introductions: lawyers, recruiters, portfolio companies, and other entrepreneurs. There is also other VCs and angel investors. But, from a VCs perspective, all intros are not created equal.  There is a huge difference in my level of excitement for a startup based on the person that makes the intro.  

The point of going through an introduction is widely understood: VCs get tons of pitches and going through an intro is a good first-pass filter.  I take meetings with almost all introductions that are made to me (fire away). But, like I said, I place my own filter on the quality of the referrer.  

Here’s a little inside peek into the way I think about it: 

The questions are:

How good is the deal flow of the referrer? Do they hang out in elite circles? Or are they fishing from the bottom of the well.  The quality of the referrer’s network is usually proportional to the quality / success of the referrer.  If the referrer has had great success, chances are their network is damn good.  In addition, seeing a lot of deal flow tends to increase the referrer’s judgment.  As a species, we’re really good at determining relative strength and poor at determining absolute strength.  So, seeing lots of deals means that you’ve seen enough data points to understand which ones are the best, and hopefully you’re helping those companies out with introductions. This criteria is far more important than how well I know the referrer. I have some great friends that make intros, but I don’t necessarily respect their judgment about startups. 

What is the incentive of the referrer?  Introductions are the social capital of the valley.  What’s in it for the referrer?  I want purely intrinsic motivation.  If the intro is coming from an existing investor, it may be great, but they are also protecting their investment.  If it’s coming from a lawyer, they are probably on the startup’s payroll.  If it’s coming from another entrepreneur who is just a friend, the motivation is to improve social capital by making quality introductions on both sides.  I like it when intros don’t have any financial incentive attached to them. 

So, the 2 key things that matter when I assess the intro: 

1. Quality of Referrer’s Network (their deal flow)
2. Incentive

Disclaimer: I sincerely hope that nobody is offended by the following statements.  These are simply my candid observations from the past couple years.  These statements are all broad generalizations, of course there are exceptions.  I hope to continue receiving deal flow from all of these groups, so please don’t step sending intros. :)

I took a stab at charting out introduction quality on this 2x2 matrix.  The most interesting finding for me was the VC introductions.  It’s possible that the conventional wisdom about VC introductions is wrong.  (conventional wisdom is that VC intros always beg the question ‘why didn’t you invest’ and therefore are a deal-killer)  If a VC that hasn’t invested in a company refers a deal to me, I have to believe that 1) they see a lot of deals, 2) there is some reason they passed, and  3) the motivation is to strengthen future co-investor relationships.  In order to strengthen relationships, you obviously need to send quality introductions.  Therefore, I have to assume they passed because it wasn’t a fit for industry, stage, or competitive reasons, but not because they thought it was a bad business.  

Let’s look at a few categories in more detail: 

Lawyers - I value these fairly low. Lawyers are paid contractors for a startup.  If I’m paying someone and I ask for an introduction to people they know, they’re somewhat obligated to do it to preserve the paid relationship.  Also, since they don’t have the benefit of seeing a lot of the same type of company, they are not great at judging the relative quality of each one.

Bankers - these are the worst. If you hire a banker to try to help raise an early round, it’s the kiss of death.  It reeks of desperation since you can’t get intros without paid help. 

Recruiters - I rarely get these, probably because I don’t know that many recruiters.  I think they fall into the same camp as lawyers though. 

BD folks - these are interesting.  Take for example, a BD director at Salesforce working on the Force.com platform.  They see a ton of startups building apps on top of their platform.  They have inside information about how well these apps are performing in the marketplace.  They have a good instinctive sense of what their customers will adopt and what they will not. 

VCs - As I mentioned above, I think the conventional wisdom might be wrong on this one.  Of course, if everyone believes it then it doesn’t really matter.  VC intros that are looking for co-investors or follow-on investors can be really good intros.  I believe there probably should be more VC to VC intros when someone is passing on a deal and it shouldn’t carry as much of a stigma as it currently does today. 

Angel investors - depends all on how much I respect the angel investor.  Have they done good deals? Are they making the intro because it’s a deal they’ve done and it’s going south? Or because it’s a deal they’ve done that’s doing well and is a unique intro to me because of my expertise.  Is it an angel investor that’s in a ton of companies or is it an angel investor that does a few, focused investments (the latter is better). 

Entrepreneurs that we’ve passed on - We passed.  There was a reason.  These are still usually good and my second favorite source of intros, but it’s a mixed bag.  If the entrepreneur knows me well, there’s a good chance that I was quite interested in the startup and have a lot of respect for the referrer.  If I’ve only had one meeting with the entrepreneur, chances are lower that it’s a strong intro.  You could ask why we passed and that will give you a good hint of whether or not you should ask for an intro from them. Overall, these are my second favorite source of introductions, just be aware. 

Entrepreneurs that we’ve invested in - Well, this is kind of obviously the best. I saved it for last.  We clearly love the entrepreneurs because we invested.  The motivations are very “pure” - they don’t want to send poor quality introductions and will usually apply the strictest filter.  Whenever possible, try to go this route. 

So, my final thoughts: From the entrepreneurs perspective, just know how which introductions are the most powerful and act accordingly.  From my perspective, I welcome all introductions and almost always take the meetings, but the referrer does have an influence on the “starting point” for the startup.  Great introduction - I’m already excited.  Poor introduction - I still need to be convinced.  

The biggest product mistake I’ve been making

Over the last 8 years I’ve been either responsible for or involved in product management at a number of different startups. I think I’m ok at product management — hopefully I’m better at VC. I’ve made many good product decisions over the years, but I now realize the biggest mistake I’ve made over and over again.

It is summed up simply as “Let’s give consumers choice.”

It is surprisingly easy to fall into a trap of offering too much choice. When we were building out features, there would be healthy debate about which options to offer and the pros and cons of each choice. Frequently, we lacked good customer data to choose only one option so we offered both to see which one customers adopted. In other cases we thought we were doing a great job of capturing the voice of the customer. We were getting feedback like I “I love your product but I really wish you offered it in green.” So we’d say “great, let’s make it in green too.” Or we’d get a really big enterprise customer calling on us and they requested just one little change to the product… So we’d build out a custom option that would allow a different configuration by each user account. On another occasion, I’ve used a checkbox on order forms to offer premium services. It’s easy to make an argument for it — some customers specifically asked for the premium services and we could capture more revenue from them. Why wouldn’t we offer that premium service?

The paradox of choice is a pretty well-known concept, and of course I know about it too. Basically, too many options cause higher levels of inaction and stress. I recently read on Farnam Street (my favorite blog), about how the president reduces choice in his life because humans are only capable of making so many choices each day. So, he’s eliminated mundane choices in his life. He only has 2 color suits: blue and gray. Asking customers to make choices adds stress and pain to the experience. I now summarize this as: More choices = more customer effort = lower satisfaction = lower organic growth.

But, it’s not just that. Having this as a strategy causes further problems in startups that may not be as obvious initially.

1) Offering low quality. Why not just provide the best? But you might say its too hard to figure out what the best is. You might say it’s hard to tell which option is best for which consumer. I’d say too bad. Make some tough choices and pick what to focus on. If I use Yelp to pick a 4-star restaurant and it turns out to suck, I’m going to be disappointed with both the restaurant and Yelp. I will not admonish Yelp of guilt in the matter just because they are a directory. Yelp would be more useful to me if I simply never saw bad restaurants.

2) Inability to course-correct. Let’s say you offer 3 options. 60% choose option A, 25% choose option B, and 15% choose option C. Then later you decide that you’d like to focus more to provide a better experience. So, do you just cut option B and C? Not an easy decision to make. Practically speaking, there will be some discomfort with taking away an option that your valued customers have chosen. This makes it more difficult to make the right decisions for the company.

3) Less control of liquidity. For any marketplace business, you want to be able to optimize liquidity. You want your best suppliers to be busy all the time on your platform - that will create the best overall experience with your company. It’s part of a framework we’ve developed for marketplace quality: attract, screen, optimize, retain, expel. Optimize is a key step. All of the best suppliers should be able to dedicate all of their time and energy to your platform. They should not work to get jobs or sell products. Look at the App Store. The App Store is very highly curated and contains a Featured section which gets a tiny number of apps a massive number of downloads. Now look at Craigslist. It’s one of the most amazingly resilient companies I’ve ever seen, but I still think its doomed because it requires tremendous effort on the user’s part to find the best apartment / job / etc. If you’ve made a strategic decision to offer choice, it paralyzes you on the optimization step. You can’t make decisions that favor one supplier over the other even though it’s the right thing for the business and the consumer. If you’re set in your ways about giving consumers choice, you would never have a Featured section.

4) Inability to go Mobile - this concern has surfaced in the past couple years as traditionally dominant web companies try to make the move to mobile, and in many cases, fail miserably. I believe several have failed in the switch because they’ve tried to simply replicate their web experience on mobile. The problem is that the web experience had too much functionality that made the mobile app experience overly complex. This migration problem opened the door for companies like Flipboard and Instagram to storm in and create a better mobile experience because they are focused on one, and only one, use case.

Oh and one final point, who the hell wants to maintain all those options and keep them working for users? Everything gets easier when you’re focused on as few choices as possible… Marketing, development, QA, customer service. Everything.

I used to think mission statements were stupid

I was running online marketing… my main goal was user acquisition. We were doing quite well against that goal through SEM, SEO, social, and optimizing NPS for word of mouth growth.

Over the years on the marketing team, I’d end up in conversations about our mission statement or our positioning statement and I would usually groan a little bit. We’d spend hours going back and forth over existential questions like “who are we” and “why are we doing this?”.  I wanted to leave every meeting where we talked about the pros and cons of a single word for an hour. I found it to be distracting from my core goal and so I didn’t spend much time thinking about it. I didn’t see how it would help me achieve my goals.  Now that I’m in VC I have seen the real purpose of the mission statement and I never understood it back then.

A mission statement is critical for recruiting.

Maybe this is obvious to people already, but I had never fully internalized how critical it is to recruiting world-class talent. A-players have lots of options and need more than just extrinsic motivators to take a job and dedicate their life to it. They need strong intrinsic motivators as well, a strong sense of purpose. How motivated do you think Zynga employees are to copy the latest hot game and optimize the hell out of virtual pigs and goats? See Zynga’s brain drain. 

Now that I examine more companies I see the mission statement as a substantial differentiator. If a company can clearly articulate their mission, they have a huge edge on recruiting. Look at some of the statements on the  career pages below. 

Facebook - Make the world more open and connected.

Tesla Motors - Tesla’s goal is to accelerate the world’s transition to electric mobility with a full range of increasingly affordable electric vehicles. 

McKinsey - Enabled development of cutting edge vaccines. 

Votizen - Help us repair democracy. 

Inkling - We’re going to change the way an entire generation of people learns. 

Twitter -  We’re connecting people everywhere to what they find most meaningful. 

What do they have in common? They all talk about a mission that makes the world a better place.  What’s your mission statement?  Is it something that people will rally behind?  Is it a cause that will fire people up? It better be if you want to recruit the best. 

I’d love to hear your mission statements in the comments. 

PS - Just for a little contrast, it’s funny to look at NASA’s career page that begins with “Our work ranges from the everyday operating of our facilities…

Want Better Employees? Play Musical Chairs

How to get the truth from VCs

This is a followup to my last post, VCs are liars. I got a lot of interesting comments from that.  Many were outraged.  Many called me names. One commenter discussed his future plans:

after I make it bigtime and roll up in the Maserati, with a 6’ tall, red-headed supermodel with a Scottish accent on my arm… and I’d say “fuck you, dude” and then buy a round of beers and sit back and laugh about the whole thing.

Some gave me constructive feedback - thank you! And many others thanked me for the candor either publicly or privately.  It also spawned a followup post from Brad Feld called It’s Hard to Tell Someone They Suck. 

Throughout the discussion, it has become clear that people have a variety of opinions on the subject.  But all of us in the startup ecosystem agree on at least one thing: 

Candid feedback is exceptionally valuable. 

If you believe anything about what I said last week or what Brad said in his post, you may also believe that it can be hard in some situations to give candid feedback.  There are various reasons for this, but I’d like to focus this discussion on how we can all foster a more candid and open environment.  

Also, please note that this discussion is really geared toward the early meetings between VCs and founders, where we may have only spent a single hour together.  Relationships are obviously much stronger and deeper when you’re working together for a longer period. I’m really not talking about those relationships.

So, here’s what both parties should do if they’re looking for a more open environment in those early meetings.  At a high level, it’s all about improving the relationship and signaling that both parties are willing to both give and receive critical feedback. 

How to Get More Candid Feedback

1. Display quiet confidence.  Let’s go on the basic assumption that we are all good people, all relatively smart, and don’t need to brag.  Everyone I meet is impressive in some respects. Of course you want to present yourself as impressive, but there is a big difference between quiet confidence and bragging and we can all tell the difference.  The most successful people don’t shout it out - they are relaxed, humble, and confident. 
2. Eliminate idle compliments.  I don’t believe these are helpful in any way.  It sets the wrong tone.  I’ve had entrepreneurs come in and do a bit of over-zealous complimenting.  ”That slide presentation you prepared was simply amazing, changed my life!” kind of thing. There’s a balance to all of this.  It’s good to let people know that you enjoyed their work, but sucking up is unhealthy to the relationship.  It just sets a strange tone where I know things are disingenuous from the start.  Likewise when I’m trying to pursue entrepreneurs with prior successes.  I don’t believe it’s helpful to start by sucking up like crazy, “oh my god! you were the founder of oDesk! You’re amazing! I love you!”  It puts the founder on guard.  Same thing happens with celebrities.  Sucking up to them puts the relationship at a different level, treating them like regular people can lead to a more useful discussion. 
3. Ask for feedback.  Ask a question like, “What would you do if you were in my shoes?” I believe this is a really helpful question because it accomplishes several things at once; it establishes a peer relationship and opens the door for candid feedback and allows the feedback to be slightly less direct and sensitive. Even just since my post a week ago, founders have started asking me for direct feedback and they add, “Give me candid feedback, I want to hear it.”  That is a great way to signal that you won’t be overly defensive. 
4. Invest in personal relationships.  Spend some time in the beginning of the meeting talking about personal backgrounds.  Talk about the industry as a whole.  Talk about some current startup events.  Talk about sports or colleges or recent blog posts or tweets.  If an investment is made, it’s basically a 7-year commitment or more.  It’s worth investing some time in establishing common personal ground. It’s obviously nothing like the level of relationship between cofounders, but it’s one that needs to be nurtured just like everything else. 
5. Don’t lie.  (yeah, i get the irony) We all know the stats —  the vast majority of startups fail.  So please don’t pretend that there’s no risk to your startup.  I’ve asked some founders what they believe the risks to be and the answer was “the only risk is that we don’t raise enough money.”  That is kind of a funny and accurate answer, but obviously BS.  Don’t be vague when it comes to customers and partnerships that you have in place.  Be direct and honest when answering any questions.  If you answer a question with defensive dodges then it signals that the relationship cannot have complete candor.  
6. Accept feedback.  During the course of an hour long meeting, there will likely be a lot of banter back and forth including some questions and feedback.  Early on in the meeting, the feedback and questions will be about things like market and product.  If you receive feedback about some product decisions that have been made and get instantly defensive about it, there is no way that the candor will continue when it comes to team issues.  
7. Read between the lines. No matter what, as Brad says, it’s hard to tell someone they suck.  We may do it sometimes, but it’s never quite that direct.  That would just be called being an asshole.  So, we may say different things and we may do it in the classic “compliment sandwich.”  (good thing, bad thing, good thing) In order to get the most valuable feedback, make sure you’re attentive to everything someone is saying, not just the good things.  If you hear, “I love your background, I’m worried about your strategy, but I think this has a lot of potential.”  —-> what you should take away is that your strategy needs work. 

VCs are liars. And so am I.

They say it’s all about the team.  They’re not lying about that.  They’re lying because they never mention “the team” as a reason for passing… 

I started in VC about a year and a half ago.  When I was getting started, I was moving from an early-employee-business-generalist type to a VC.  My heart was still on the entrepreneur’s side, so I was looking at VC with an entrepreneur’s lens. I read a lot of entrepreneur’s blogs and reviews on TheFunded.  There was a pretty major theme I saw from a founder’s perspective: 

VCs are jerks because they don’t follow up. 

So, I thought I would change that.  I’m not a jerk (according to at least a few people I know).  I know how much time and energy went into preparing a pitch deck and trying to describe the vision for the company.  I know that a startup at the early stages is the founder’s baby.  I know that it sucks to try hard to get something only to receive… no response, no clear indication of what the investors were thinking and why.  

I decided I would change the norm.  I would reply to everyone who pitched me.  I would give clear and concise reasons for passing if I decided to pass.  I would offer to help out in other ways and I would actually mean it.  

And then I learned the first cardinal rule of VC - it’s all about the team.  Every time we receive a pitch as a group, we’ll try to convene immediately after for a very quick discussion.  Most of that discussion is about the team, then some about the product and market.   It’s about whether we like or dislike the founder.  It’s often more subtle things than people realize, things like: 

* Did you see the way he fidgeted in his chair when answering the question? 

* Did you see how vaguely he described this particular issue - seemed like there was a lot of hand-waving.

* He seemed a little agitated, he must be getting frustrated in the fundraising process. 

* He seemed a little desperate, he must be losing faith in the business. 

Now that we’ve concluded that we’re not going to invest in the team, it becomes time to let the founders know that we’re going to pass.   

And here is the dilemma: What do you tell a founder when you’re passing because of team issues? 

I mean, have you ever noticed that most early-stage VCs talk about the importance of team - but it’s almost never mentioned ever as a reason for passing on a company.  Notice anything wrong with that? 

I decided I’d test the waters a bit.  I told some founders that it was because of them.  I told some founders it was because of their co-founder.  And I’ve lied and said “you just don’t have enough traction yet.”  Here’s what happens: 

1) When the issue is with the CEO / founder.   I’ve had a handful of unpleasant conversations as a result of telling people that I don’t think they have what it takes to create a successful startup.   I honestly have the best intentions in sharing this feedback.  I think many people see the Zucks of the world and think they can start a company at any age with no experience.  And I see the flip side, people that are past the age of 50 and are trying to start a mobile, local, social startup but really have no experience creating compelling social products. This issue becomes even more difficult when the market they’re going after is huge, they have a bit of traction, and the product vision is interesting.  But, there’s a belief that the person doesn’t have what it takes to move company past a beta stage or they are a poor leader and will have trouble recruiting talent. My feedback to these folks is nothing like “you’re stupid and we’re not going to invest in you.”  It’s more about taking a different path.  

“I think you’re going to have a hard time raising VC money because you don’t have prior success  and <fill in irrelevant reason here>.” (this is just a warning) 

“I think you should get some experience at a startup or incubator before going out on your own” (this is a genuine recommendation to founders that are still ultra-early stage). 

“I think the executive team is missing these skill sets and you should first try to strengthen the overall founding team.” (this is my best recommendation to founders that have made genuine progress on their startup but have some weaknesses that someone else needs to cover). 

 Unfortunately, these conversations are not fun at all and turn tense or defensive quickly.  I’ve stopped doing this.  It’s just not worth it.  Nobody wins. 

2) When the issue is with a cofounder / executive. This is a really interesting situation.  I’ve had conversations go both ways here.  Some founders have thanked me for sharing that we’re passing because of their cofounder.  I think they were on the fence about the cofounder in the first place.  The feedback confirmed their fears and hopefully leads to a better outcome for the company.  I believe my candid feedback greatly strengthened the relationship we will have going forward as I hope to see the founder again in 12 months for their next round.  

Other conversations have turned real ugly and killed any potential long-term relationship with the founder.  I had one founder go off on a tirade about some people that he assumed I called during due diligence (I had not).  He went on to tell me how their former colleague was somewhat immature and stupid and I shouldn’t listen to his opinion (much more damning). 

3) When I lie. Listen, this is what many VCs do.  Perhaps it’s more like leaving out some details than outright lying.  Or if they don’t want to lie, they just don’t respond.   If you’re out pitching VCs and you feel like you keep getting rejection reasons that don’t really make sense to you — the harsh reality is that it’s likely a team issue.  ”We need to see more traction” is the ultimate easy-out, because you can’t argue with it.  I’ve had people followup with “how much traction do you need to see.”  And this question is an easy dodge as well — “I can’t really give you a hard number, it’s more about proving unit economics that could scale.”  I feel bad about giving bogus reasons, but the alternatives aren’t great either.  

So, is there a solution?

I think there is.  Here’s what it requires: 

* More direct soliciation of feedback.  ”Do you have any feedback for me personally?” 

* More two-way feedback.  VCs should seek feedback from entrepreneurs too. If you pitch me or know me, please give me feedback!

* Check egos.  It’s easy to get defensive… just try hard not to. 

PS - this post was in part inspired by Dan Ariely’s fantastic work on Dishonesty.  I find the subject fascinating.  

The “Desperation Line”

Every marketplace or network tries to deal with the quality problem.  There’s one line that is critical to understanding the problem, I call it the “Desperation Line.” 

Why is this relevant to quality? 

Let’s start by looking at the supply side of any labor marketplace.   The primary motivation for all of these people on the supply side is to make money.  This will be counteracted by the number of “hoops” in place.  Let’s break it down into three stages: 

Acquisition: the process of coming to the site and signing up. 

Activation: the process of going from sign up to first earning money. 

Activity: the continued engagement with the marketplace to keep making money. 

Everyone knows nowadays that the process of Acquisition should be streamlined as much as possible.  This is why things like Facebook connect are so awesome, it’s just a 1-click sign-up.  Most marketplaces have good sign up processes that are just a couple clicks.  As long as potential providers can see the benefit of making money - this step shouldn’t be a big problem.  Not many hoops here. 

Then comes Activation - and this is where things frequently go horribly wrong.  Like I said, every marketplace attempts to solve the quality problem. The employees at the marketplace are constantly brainstorming ways to address the quality problem.  I know, I’ve been in hundreds of these meetings before.  The conversation goes like this:

Someone: “We have a problem - our buyers are complaining about quality”

Someone else: “Ok, how are we going to solve the quality problem?” 

Someone else: “I know! We could do more testing and screening of the applicants. That way only the good ones will get through.” 

As a result of all these brainstorming sessions, lots of new screening tactics are typically implemented.  They look something like this: 

• Reviewing resume of providers
• Screening providers with additional tests
• Requiring work samples or trial projects
• Requiring credential verifications
• Requiring identity verifications
• Requiring video interviews
• Requiring the providers to compete with thousands of others

This is when the Desperation Line enters the equation.  Adding all of these hoops that providers need to jump through seems like a great idea, until you realize that the best providers, the ones that will make your marketplace great, refuse to jump through hoops.  They’re not desperate.  They won’t jump. 

My advice would be: “Design for the Best.” 

More to come on other ways to screen out the bad providers without hurting the experience for the best ones… or let me know ideas in the comments.