Stanford Seminar - Build The Right It

thank you thank you for coming Tina kind of oversold me but hopefully not too much because I believe the wattage is very important this is my battle cry these days failure bites bite back I'm a serial entrepreneur and I kind of got my butt kicked a few times and the last time I decided I don't want this to ever happen again to me or anyone else so my mission is to help entrepreneurs most of you here to teach you how to fight failure and win consistently but first let me tell you I'm gonna structure it very simply seven strategies in 35 minutes I don't have a lot of time but fortunately there is a book that you can buy out there that you know you can spend six hours in my company and also give you give the advice you would give to your 20 year old self so a lot of 20 year old here but regardless this advice is timeless so that whether you're 20 30 40 50 60 this entrepreneurial advice is applicable now my intrapreneurial journey as you can tell from accent I was not born here I was born in Italy and like pizza I decided to come from Italy to America for bigger and and better things and of course what you do so I landed in Silicon Valley I decided I want to join a startup and I join in 1985 a little startup called Sun Microsystems pre pre pre IPO and some of you are too young you don't even know about this company but used to be kind of like the Google of those days and had a very good run there for about 13 II thirteen years I was an engineering at the at first and then I and running ended up running a research group and the stock went great and so I thought wow this is so cool you know startups are great this is awesome I want to do my old startup so I left Sun and I started my first company will raise three million dollars in VC funding and eighteen months later we received an offer for acquisition for 100 million dollars do you think we accepted that offer how many think you were accepted no but are you full yeah of course we accepted it you accepted it you know this was 2001 that's like a billion today don't be an idiot take it right take it so it worked out very well and I thought well you know this is easy so as I thought well call my friends in Italy a Mario come to America it's good you know this is and so I spent a year at the acquiring company and then I joined another little startup pre preappeal called Google as the first engineering director and you know among other things I led the ad steam and we'll know how well Google did so I thought you know this is really easy and I'm kind of good at picking startups so if I raise three million dollars and exited with a hundred million dollar offer for its 30 million dollars I'm gonna exit at 1 billion you know the math doesn't really work like that but you know in in my mind that sounded good so my second my second startup which I founded where is 25 million dollars from the best pieces in the valley we developed this tool that people told us if you can build this software development tools everybody will flock to your doors please build it and we will buy it so we built the tool spend two years to build a very sophisticated product every we want every possible awards for technology was an amazing - so I thought wow I'm really good at this you know and I maybe the Italian Steve Jobs Stefano Stefano Joe beanie you know that sounds good it has a ring to it except that five years later bang we know we had a fire sale all those people that told us if you build it we will buy somehow disappeared even though we built exactly what they said we were going to build so this time our reaction was a little different and I created this acronym that stands for why the failure right so I I asked myself why did we why did we fail and I decided okay I want to study failure so I went back to Google as engineering director but also as innovation agitator to try to shake new new ideas out of Google and you cannot innovate without failure and failing so I became from an engineer I became an innovation agitator and always wanted a PhD and I didn't get it but I got an F D I'm a doctor of philosophy the only one in the world I don't know if anybody in the planet has studied failure more than I did and I'm here to share with you some of this idea so I only have time to give you seven strategy started with ten and then I timed it and I couldn't do it so I decided Alberto you're gonna talk fast and you're only gonna give them seven strategies first one obey the law of market failure the law comes in two parts the first one is pretty depressing most new ideas will fail in the market the second one gets even more depressing even if competently executed now if you've been around the block you know that through most new ideas most new companies most new products from existing companies will fail in the market right the data is you know you cannot fight against it but what about the second part what does it mean that we fail even if competently executed it means that even if you are in Google and you launch products that are squarely and what Google is good at the law of market failure applies to you if you search for Google failure one of the pages you'll come up with is called the Google graveyard apparently put together by a Microsoft product manager who was kind of upset at Google at the time and but it illustrates that even large companies fail a lot ask my students take a piece of paper write all the Google products you know of and then I show them the list of the failures that I know of and the ratio is usually five or ten to one by the way the Google Google didn't like what Microsoft did to us so we created the Microsoft morgue which has even more failed products right so this is pretty much par for the course you know the law of failure applies to everybody but then I started to say ok no failure is true I'm gonna obey but why do most new ideas fail in the market so I did my research look at thousands of failure and basically put them into three major buckets with a convenient acronym flop failure due to launch operation or premise failure due to launch means that the market doesn't know about your ID or cannot reach your idea so essentially kind of a failure of marketing people don't know about it failure due to operation means the product doesn't work right the app crashes or maybe it's a restaurant and the food sucks failure due to premise means that even if you are well even if it works well people simply do not care about your new product idea which one do you think is the most common source of failure well I'll hold the suspense it's the last one most new ideas failed because the market simply does not care and as we'll see even if they tell you yes yes build it we will buy it that's not the case most new ideas fail because they are not what I call the right it which happens to be the title of my new book what is the right it well I'll explain it in a second but first the second important strategy make sure you're building the right it before you build it right because all of my research and anybody that's been around will confirm it companies do not fail because they really cannot build what they set out to build I mean it happens but it's rare most of the time you fail because you built the wrong product so they write it I define it as follows it's an idea that if competently executed will succeed in the market and it has an evil twin the wrong it and at the end that even if competently executed will fail in the market it means that if your ideas bad doesn't matter how much marketing fireworks or engineering brilliance you put into it it will fail in the market let me give some examples of the right it in the wrong gate Big Mac for McDonnell they write it other arch deluxe or the Mac hula a burger with a slice of pineapple in the middle not the right it right coca-cola the right it New Coke after millions of dollars in research and launched an advertising failed not the right it everybody here has probably seen the movie star wars how many saw the movie Howard the Duck not a lot yeah this is just a few and you know what those two movies have in common Steven Spielberg Howard the Duck believe it or not is a movie the Steven Spielberg decided to do after Star Wars and it had ten times the budget and on top of it it had ducks and everybody loves duck right Donald Duck Daffy Duck that cool orange ducks are cool and yet it failed miserably Gmail how many people here have Gmail account good how many people here had a Google Wave account just pure hands yes sir how many Google waves did you write none right so you should actually you're better the moment people said to write so good Google Wave was supposed to be the follow-up to email a new paradigm lots of marketing developed by the same people that did Google Maps greet him and yet it failed and yet you see it has the same Google call or the same Google great engineer the free massager the free lunches all the Google benefits and yet it failed Ford Mustang success for that so not so much right so all of this what all of this example what they have in common is that these are companies that are successful with other products and they're launching products that are exactly what they do like cars you know electronic things movies and yet they fail because you cannot fight the law of failure if you take competent execution plus an idea that is the wrong it you're guaranteed failure 100% of the time the law of failure is blind so you don't want to bring out an idea that is the wrong gate and you ask yourself well how do I know if I'm an idea is they write it well do not ask and what I mean by that is that if all you have is an idea and you tell other people your idea the most you can get back are questions and this is a very dangerous thing to do why because ideas live in a place are called thought land so in total you have an idea hey here's my brilliant idea you tell it to other people or what do you get back this is a bunch of opinions oops I over clicked a bunch of opinions and opinions are subjective they are biased you know you filter them through your own preferences and beliefs I for example I thought that uber was a terrible idea strangers picking up strangers from strange places and driving them to spend the night at a stranger's house on the couch that's another startup idea Airbnb which I thought was terrible right so you need to these ideas to horrible things happen in thotland the first one is if you have an idea and people think is the greatest thing ever one of my favorite example is the Segway transporter you know those little scooters that you used to see few years ago when this was about to be launched everybody talked about it right everybody thought best idea ever it was in the cover of magazines that some of the best pieces in the valley architects said cities will be redesigned so everybody's going around in a scooter right so and then they launched it and who do you see riding segways mall cups and lazy tourists that's about it right so and clearly it's not because a failure due to marketing people knew about it in fact it was talked all over it's not a failure due to operation because you work well I don't know why things fail right I just know that most of them fail so and these are called an example of a false positive people tell you best idea ever you launch it and it fails how common are false positive the most common thing that people launch so everything in the Google graveyard in the mattress of morgue in the Amazon ambulance etcetera etcetera all of these are ideas that at some point people thought best ideas ever and then they launched it and it failed why because you know what doesn't fail the law of market failure right most new ideas will fail even in market if competently executed so first bad thing that happens people give you the thumbs up you spend a lot of money you launch idea it feels miserably the opposite can happen you have an idea and people think is the worst idea ever honestly I felt that way about Twitter the first time I heard about it what hundred forty characters people can follow everyone can follow anyone sounds terrible and yet for better or worse we know the twitter has changed the way that we you know converse as a species so this is an example of a false negative people tell you it's a terrible idea and then it succeeds so here's your dilemma right if all you have is an idea you cannot depend on people's opinion you cannot just ask them would you want it would you buy what would you do with it so what can you depend on any ideas okay well I'll tell you I'll jump ahead cause we don't have a lot of time you depend on data and as you can see you trust your opinion trusts data and not just any data your own data records gonna tell people you know you need data bits opinion and you need to collect your data people think okay yeah well this looks like data I mean it's in a spreadsheet so it must be data no right this two types of data OPD and Yoda OPD stands for other people's data can you guess what your the stands for thank you you guys are smart okay you're great yes your own data and these two are as different in my book literally as apples and oranges in fact rotten apples and fresh oranges OPD is the worst possible thing you can collect right so OPD is market data collected by other people at all the time for other products with other methods with other filters etc etc it may or may not apply to you and most of the time it does not apply to you it's dangerous because just because other ideas similar to yours are failed doesn't mean that yours will fail imagine if Elon Musk thinking of Tesla thought well let me see how other car companies did with electric cars you know zero of them succeed I said well okay forget this desert I think I'm gonna go and do something else right so just because other companies failed with the n idea doesn't mean that you will fail the opposite is true just because other have succeeded in the past with your idea doesn't mean that yours will succeed Apple succeeded with the iPhone Google succeeded with Android and Samsung did Amazon succeed with the fire phone no right so OPD is very dangerous so I urge all my intrapreneurs to collect your own market data firsthand fresh local recent recently collected and most importantly your data needs to have skin in the game what do I mean by skin in the game if I asked you what do you think of my idea and you tell me Oh Albert is good I said should I leave my job to pursue it as a sure go go for it right you have nothing at risk skin in the game means that as an intrapreneur you're putting your risking right you're risking your time your reputation your money to go and start a new venture you're putting your own skin in the game you want to get skin in the game back from the market right in skinning the game can be the market's time money commitment information repetition something of value at risk let me give you a very simple example Susie came up with a great idea a smart hammer so you you hit the nail instead of hitting your fingers she goes and ask people hey and I'm thinking of this hammer would you buy it and some people said yes good idea other people say bad idea does this count us data no right this is opinions now in another scenario she says well I'm planning to build a summer and if you give me $50 deposit I will make sure that you get one of the first one so some people say it's a lame idea they're dead to me you know just like in short time you're dead to me but the other people say instead of saying it's a good idea if they actually open their wallet and give you some money you have the first indication that the market really is interested in your idea right you fix an asymmetry before you put in your skin in the game but quitting your job or getting VC funding get some from the market so that's what we call Yoda you can quote me on this it's much easier to get people to open their mouth than to open their wallet the hardest thing an entrepreneur can do is to get companies and people to open their wallet I've been told so many times Alberto it's a fantastic idea go build it and then when I went to sell it to them say well yeah not to not we're having a bad quarter forget about it right so it's very important you need to change the way you approach market research from this traditional model of doing market surveys or asking people this question if we build it will you buy it which is how most market research is done by the way right you you ask these questionnaires you flip it around completely 180 degrees think about this if you buy it we will build it now this seems very counterintuitive but I will give you example of how exactly how to do it because now you're asking well don't have to have a product built before I can see if people want to buy and the answer is no you don't build it you pretotype it this is not a topper this is a word I invented pretotype it because it had to be invented so strategy number five is pretotype it what is the pretotype well it's the simplest artifact or technique you can use to collect yura very quickly and very inexpensively so there is a big range between having an at the end the final product this could be years months you know a millions of dollars and the way I said pretotype come very very early if pretotype is something that you can build in minutes hours maybe a couple of days and it should cost anywhere from zero to maybe a couple of hundred bucks if you really feel like splurging right a prototype is something that actually works can do something and can take a couple of days couple weeks couple of months I've worked on prototypes for software development tools that took a year and a half just to prove that the thing would actually work and of course the products take a long time so printer types are things that you can build very very quickly literally in a couple of hours let me give you an example of pretotyping something they actually got my thinking about this process about 34 years ago IBM wanted to everybody to have personal computers but you know four years ago most people didn't know how to type right those of us that were around there you remember this how people tap so this figured no way that people can use computers they have to learn how to type who types programmers writers and secretaries right nobody else knows how to type nobody wants to take typing lessons but they wanted to know well if we solve this problem of speech-to-text right so you can just speak to a computer will people actually buy our product so they did something very clever an experiment they brought people in the room they giving them at a microphone a monitor no keyboard until the look speaking to this computer we have a prototype of speech-to-text and people spoke into it and magically the computer did whatever people told them to do of course this was not possible those days even the fastest computer couldn't handle this so what was happening well in a room next door one of those amazing people that can tap as fast as you can talk was actually transcribing everything that was being heard through the computer and I tell you as an engineer this example kind of really messed up with my mind because if you go in how many engineers here yeah I mean the use soldering iron etcetera so if you come to an engineer said Alberto we need to build a prototype I said great fire up the compiler or the soldering error right I thought this is not a prototype they're just pretending that they have something to work so in fact that created this first word pretend o-type because I knew this is not a prototype is not like IBM was planning to breed a race of small type is that they fit inside boxes and you feed them cheese and crackers through the floppy drive right so it's not a prototype this is something completely different from the end product and then I Shrunk the world to pretotype because it's easier to pronounce but remember pretotype means before a prototype but also use your imagination to pretend so what IBM learned is that before the prototype tests a lot of people thought of course we want a speech-to-text computer now if you try to actually use a speech-to-text computer all day with our keyboard your throat gets sore the room gets very loud and you cannot dictate or work on confidential things like fire Bob oh sorry Bob didn't know you were around here right so in toplin speech-to-text was a sure winner when people actually tried it realize it was not so this is an example of what I call a Mechanical Turk prototype you know in disease everybody's talking about robotics and AI before you spend four years and 40 million dollars to create some automated pizza maker or something something else you can use human beings to simulate that behavior it doesn't scale but you can learn if people would actually use it a prototype we don't know it's something you usually typically build to figure out can we build it how long will the battery last how will it work etc etc it basically asks the question how do we build it right and here's the secret most of the time you can build it now if you tell me I have an idea for a time machine you know I call the guys with the white coats and tell you you probably cannot build it but most of the ideas people have are buildable a prototype asks different question it asked you should we build it you know will I use it what will I use it for in other words pretotype asked the idea it asked is this idea the right it something that if I built competently will succeed in the market now there are several prototyping techniques is a cheat sheet from a class the honour of teaching with Tina let me give you just a few more example the facade Prototype cars Dirac wanted to know at the beginning of the internet with people buy used cars online so what did they do did the buy cars that have a bit complicated website now that a very simple website with just a few cars no cars in inventory they advertise it and miraculously the first two days the sold for car so immediately the shut down the website they bought four cars are retailed they sold them at retail so the lost a few hundred dollars on each car but what did the gain know that right Yoda nothing is more valuable than a check right a check tells you that people really want your product I'd rather have a one-page business plan an outline with four checks staple to it then a 30 page highly detailed business plan with all kinds of charts another example of pretotyping is this from Ikea this team in San Francisco came up with a really simple protocol the wall hub it's a piece of plastic where you put your keys and your mail they wanted to know would people buy them you know should we have ten thousand built so that then idea they thought well where would people buy this IKEA so they did something very clever they went on eBay that you they bought they use a kia employee sure so they could pretend remember pretended happy that they were an IKEA employee then they created a fake label for their product of course had to change it to a Nakia name like Val hub and they put this label and then instead of shoplifting they entered the Nakia store and place their product on some free shelf space and then they watch to see if anybody would actually stop and buy it and lo and behold you can watch the video I put the link there people actually took it put it in their cart and everything worked fine until they got to the cashier because things got a little confusing but would you agree that if I have two valve hubs in my cart is that opinion know that other people didn't oh that's Yura that's the most valuable thing you can have another example of pretotyping called the impersonator you can take an existing product put a wrapper around it and very quickly come up with a new idea and then you can use that to collect data my favorite example for this is what Elon Musk did with the original Tesla Roadster you took a Lotus Elise ripped off the the gasoline engine put an electric engine and then went you know built this one-off model and then gave people rides in this car it's amazing zero to 60 in three seconds so let's assume I gave you for a ride did you like it quickly quickly did you like yes pretty fast and sex okay it's going to cost $120,000 and you have to wait two years and you have to put it to the big charge in your garage would you buy it okay so two years and two no so the nose are dead to me now but the yes have not given me any skin in the game so what Ilyn muster to which was brilliant to say remember if you buy it I will build it so I'm gonna ask you well you know it's not that I don't trust you guys but you know if you give me a check for $5,000 out putting them in the list you're number 31 you're number 32 nothing is it easier to say yes or to write a check for $5,000 to a guy that never built a car company before right and yet 300 people did that into these days you cannot buy a Tesla without putting a deposit so if you think that my idea if you buy it we will build it is crazy Tesla is a perfect example of that in action you want to do this because you want to fail fast and cheap people talk a lot about failing fast but as you can tell from how fast I speak that's not fast enough for me right I tell tell them I want you to fail very fast and Fiat chip sorry fear right so because remember most new ideas will fail in the market which means that you have to test a lot of ideas and if you take six months to test and ideas good luck right unless your luck is going to take forever so pretotyping allows you to test very quickly more importantly you're not going to experience painful failure records you spend $20 to do an expert to do a a preview path test it's an experiment right it doesn't hurt definitely doesn't hurt after as much as spending three years and twenty five million dollars to build the product that that that people do not want so strategy number six say it with numbers entrepreneurs and probably most of you when the oven idea you come to me and you you express it very vaguely so here's an idea from some of your fellow students maybe five six years ago second a sushi here's the idea right packet sushi is kind of expensive so they thought you know what if we buy sushi that's about to expire right it's only good for an extra eight hours before it kills you we can buy for twenty-five cents on the dollars and sell it at fifty cents on the dollars and since students are young and have a strong stomach we can handle it so I said okay I'm not gonna give my opinion on your idea but but I'm asking them so this is how they articulated right people lots of them will buy not super fresh sushi if it's cheap enough that's pretty much how the expresses it look who are these people how many is lost and what is cheap enough so I I was in a room actually outside there you know just outside this auditorium and somebody left a formulas you know calculus class or electrical engineering class on the on the wall and I thought okay tell you what write it like this X percent of Y we'll see I call this the X Y Z hypothesis right so it forces you to write your idea in numbers so in this case they translate it into number twenty percent of packaged sushi buyers will buy second the sushi if it's half the price of fresher sushi how do you know if those numbers are right you don't it's a hypothesis right but at least it articulates and puts into number what your ideas are and what is the job of a hypothesis a hypothesis exists to be tested and pretotyping or tool to test hypothesis last point test think global test local maybe the second a sushi team is planning to take over the market right every supermarket is going to have second a sushi but you need to start to test your ideas very quickly you want to minimize this metrics that are explained in my book called time today that dollars to data distance to data if peoples have this great at the end and it's six months two million dollars and I need to fly to Hawaii to do my research I said well no you're gonna do it here you're going to do it for twenty dollars and I want the results by tomorrow right and a technique for doing that is called hypo zooming so you take this big hypothesis twenty percent of packaged sushi buyers and you zoom in you know you know those documentaries where you see or those videos where you see the Earth from space and then it zooms in to a you know to a town and then to a particular place and then to a building I want you to do that in your mind right so you take the big XYZ hypothesis and hyper zoom to something you can test here and now I'm gonna say here and now I mean it literally here and now right so where are we now North America right we're in North America Silicon Valley we're in Silicon Valley Stanford University we're in Stanford University building y2e - and then ask you is there a place in this building or nearby that sells sushi yes there is absurd right Cooper cafes just said great so you're gonna hypo zoom you can you have your market it small sample of your market is there so you can go from the big xoc hypothesis to the small XYZ hypothesis 20% of students buying sushi Cooper cafe - that dinner will buy secondly sushi right and do you believe that this is actually testable can I do this test absolutely in fact we did it we even did a little video why would some of my friends there is where are you guys yes we did it here we we filmed it we went we created little labels that said second a sushi half off and we slapped them on fresh sushi right it's an impersonator pretotype and then we try to sell them in fact if you're there that's outside the stvp offices now how many people do you think bought our second a sushi zero is right right because they ain't on the typical thing is well you know I don't want to get sick so doesn't mean that second the sushi has no chance it just means that you need to do some more tests but frankly your your that doesn't look very good right so these are just seven strategies there's a lot more but I cannot possibly talk any faster and our time is limited so there is more yes a lot more there is a book I see some of you already bought it thank you so much if you haven't voted go to Amazon and buy it now I'm not done yes it's it's a great book thank you but there is more but because the question you have to ask is hey Alberto do you practice what you teach say you better do not because I don't want to be a hypocrite because what I teach works all the techniques are I'm an engineer I'm not in marketing I'm not in sale I'm an engineer if it doesn't work I wouldn't talk about it right so three toe-tapping techniques cannot not work any more that the quadratic formula can not work right you plug in the numbers unless you scrub it does work so I thought most books fail in the market they don't even find the publisher so before doing that I spent a few days less than a week writing a pretotype book called pretotyping I printed in PDF I made it available I stapled some copies myself soon tens of thousands of people started to download it translated into a dozen languages so I thought I was able to find a publisher they said okay this looks promising so I actually went from the prototype to a prototype which in the case of a book is a first draft and then it finally became the product so very one of the many examples of me practicing what I preach with that I think we'll just write good on time and thank you so much [Applause]

Channel: Stanford Online

Views: 41,349

Keywords: Stanford Online, seminar, MS&E472, Alberto Savoia, Google, Innovation Agitator, pretotyping

Id: 3sUozPcH4fY

Length: 31min 34sec (1894 seconds)

Published: Wed Mar 13 2019