# Derivatives

## Financial Derivatives

In finance, a derivative is a contract whose value is based on the performance of another underlying asset.

An option, for example, is an agreement to purchase a stock at some date in the future for a pre-agreed price. The option makes a profit or loss depending on whether the actual price on that future date is above or below the pre-agreed price. Once in place that option becomes something which can be valued and in some cases even traded independently of the underlying asset – although their prospects are inextricably linked, at least in one direction, because without the underlying company there is no option.

While some people have become famously rich as a result of derivatives, many are very critical of them – e.g. Warren Buffett called them “financial weapons of mass destruction” in 2002. A few years later a form of derivatives called Collateralised Debt Obligations (or CDOs) were one of the causes of the global financial crisis.

## Mathematical Derivatives

In calculus, a derivative measures how much one value changes in response to changes in some other value.

For example, as an object moves we can measure its speed (the first derivative of its movement) and its acceleration (the second derivative of its movement).

Or, when measuring the revenues of a business we can consider the amount in dollars, the percentage revenue growth (the first derivative) or the acceleration in revenue growth (the second derivative). See: Size vs Growth vs Acceleration

Again, without the underlying objects, there are no derivatives.

## Startup Derivatives

I’d like to propose some new types of derivatives for start-ups: all of the other people and organisations who depend on the founder/s and their ventures.

Active investors are first derivative founders. They are the tender not the engine, although many acting in this role think of themselves in opposite terms. Passive investors, or anybody investing indirectly via a group or fund, are second derivative founders, since they are two steps removed from the underlying venture.

Incubators and accelerators are first derivative ventures, since ultimately the success of an incubator or accelerator is a function of the ventures they work with.

Government grants are first derivative capital, in the hands of the founder. Allocated funding for government grants is second derivative capital, in the hands of the development agency. When the government funds a development agency to fund an incubator to fund ventures … well, I start to lose count of how derivative that is.

Mentors and consultants and advisors are first derivative team members (ref: this great tweet – most first derivative team members mistakenly believe that others ideas are more worthy than their own).

A shared working space is a first derivative office.

## How does this help?

There are a lot of people who would like to see a bigger more vibrant and more successful ecosystem of startup ventures in New Zealand.

In order to achieve this more people need to realise that what we’re missing are more impressive underlying ventures. Until we have that we can layer on as many start-up derivatives as we like and it will make little difference.

Contrary to popular opinion, the derivatives are not pre-requisites, it’s the other way around.

Of course, not everybody can be a founder – indeed that would be an undesirable mess. But, if you are currently involved in a first, second or even third derivative capacity, my advice to you is to think about how you move up the chain, because that is how you will make a bigger impact.

# Enough?

### 2013 Annual Report

Never has a full year report been more accurately named. I tried to squeeze a lot in.

There were lots of exhausting but invigorating adventures…

I completed three of the Great Walks, without putting on tramping boots. We paddled the Whanganui River in the rain in January, I rode both the Queen Charlotte and Heaphy Tracks during winter, and then in September I ran the Abel Tasman Coastal Track (in 4h 44m).

I was a regular visitor to the Kaiteriteri MTB park and also completed a couple of rides over the Copper Mine track. I managed one night ride, and look forward to more next winter.

In spring I took our oldest on his first overnight tramp – from Caanan to Castle Rocks Hut on the Abel Tasman Inland Track via Moa Park.

We visited friends in Boulder Colorado and while there walked to the continental divide at the Rocky Mountain National Park.

There were also some less wet and muddy trips…

I spent two weeks in Singapore, on a return visit to the Joyful Frog Digital Incubator.

In Autumn, we spent a week in a camper van trip through central Otago, including my first trip over the Lindis Pass.

We soaked up some heat in Bali in July and I enjoyed some time in the snow (both cross-county and downhill varieties) in Queenstown in August.

We were delighted to attend a couple of family weddings – Josie & Lo in Stinson Beach California and Cam & Michelle in Auckland.

I saw some live sport, including both the All Blacks (v Australia) and the All Whites (v Mexico) in Wellington.

But without question the highlight was the Americas Cup in San Francisco in September (unfortunately we couldn’t stay for the whole thing, but left feeling pretty confident about the outcome, with the score at 4-1).

There was no shortage of work either…

It was my first full year on the Powershop board. I’m learning a lot.

I spent quite a bit of time in Wellington with the team at Southgate.

Early in the year we launched Triage. The critical response to that was overwhelming and flattering and unexpected. We briefly topped the productivity category and were featured in the US app store during the first week. However, we discovered in the process that financial success doesn’t necessarily follow from that any more. It was, in the first instance, a selfish project and it’s still the first app I use every morning.

We worked with Glen on Company Box, and later in the year we launched Rabble. We continue our search for the next big thing.

It was also a huge year for Vend.

We worked hard during the first part of the year to raise additional capital to continue to fuel our growth. In the course of just a few days in May it was exciting to announce the successful completion of that \$8m round, welcoming some awesome new investors into the mix as part of that, and then to be recognised at the Hi-Tech Awards dinner in Auckland where we picked up awards for both Innovative Hi-Tech Service Product and the Hi-Tech Exporter of the Year (under \$5M revenues)

Startups are squiggly, and unfortunately people mostly only tend to talk about the clean and easy bits. Vend is no different. Over the last year we’ve more than doubled the size of the team and the business has grown even faster. That creates some chewy challenges for those of us lucky enough to be working on it. It’s been excellent to be part of the story so far. Stand by for what we have planned for 2014!

In June I made a new investment, in Timely, and have enjoyed working with them too as they have started to build their team and hit their straps. I have high hopes.

It was an unbelievable year for Xero, which masks a bunch of other poorer decisions when you look further down the list of companies I’ve invested in over the last few years. It already seems nostalgic to look back on old tweets celebrating the day it passed a \$1B valuation, way back in March.

I enjoyed Webstock in February, where I also MC’d at the Startup Alley and got to chat on stage with Derek Sivers.

As I look around there are no shortage of opportunities. It’s definitely an exciting time to be involved in early-stage technology companies in New Zealand.

I spent way too much time in my inbox. I received 13,653 messages and sent just over 6,000. That’s about the same volume as for the last few years, but having eliminated nearly all of the noise it subjectively felt like more of these required consideration than in the past. Even if I assume just one minute per message that still accounts for over five and a half full working weeks.

tweeted, probably more than I should have. And blogged, much less than I could have.

I spent 168 days away from home (taking 95 flights, visiting 20 cities in 6 countries and travelling over 82,000km, according to TripIt). That’s nearly half again more than the 113 days away I reported just two years ago, which I already thought was too many then. Not all of that was work, but I doubt that distinction matters to a 9 year old and 6 year old.

And, even when I was at home, there was always a lot going on there too…

We finally officially warmed our new house in March, complete with jenga, fireworks and feijoas. The lasting legacy of that weekend is a new haircut (inspired by Andre Agassi) and a street sign (inspired by a flippant comment on twitter).

I kept mostly fit and healthy. It’s now four years since I first dipped under 80kg and I haven’t been back since. But this is the third year in a row that I’ve ended slightly heavier than I started, so it would be nice to break that trend in the coming year.

There was some downtime, including a disconnected week in June. But, not nearly enough.

I started the year aspiring to focus, and failed miserably. All of the things listed above combined to mean I spent big chunks of the year red lining, feeling more anxious than vital.

I did a little experiment during the year – giving myself five points every day (roughly equivalent to one point for every three hours awake) as a way to track how I was actually spending my time. It made for some slightly uncomfortable pauses when I was asked what I was up to – I knew exactly, but didn’t always want to admit it. Various work commitments soaked up just over 800 of the 1820 points for the year (~44%), which is difficult to justify in retrospect. I did manage to carve out a decent chunk of time for myself (~16%) and family and friends (~28%), although both of those were significantly lower in the first part of the year (thanks, Observer Effect!)

Perhaps in 2014 I’ll be a bit more selfish?

Previous Annual Reports:

For my own record, some tweets worth keeping from 2013:

# Team Size != Success

DJ: How tremendous is Fatboy Slim?
Brad: The band of the 90′s, if you want to call it a band because it’s a one man name.

It’s easy to get seduced by the idea that in order to be successful you have to be big.

Maybe that was true in the past, but it’s not necessarily true now. And it makes it much harder to tell from the outside who is winning.

One of the exciting ventures I’m involved with at the moment is Vend. The team photos from the last few years shows that the team is growing quickly:

Christmas 2011

Christmas 2012

When we re-created the photo from 2011 with the much larger team in 2012, in the same location and same t-shirts, the comments on Twitter were interesting. Many of those sending their congratulations seemed to assume that big team = big success. Actually, the formula for companies in this situation in the short-term is more like big team = big payroll. The success comes later. Sometimes.

Luckily at Vend our underlying business has grown at an even faster rate than our headcount. Or, maybe it’s not luck?

It’s great to see that as the group gets bigger so does the potential to do something really impressive. Here is the 2013 team photo, taken last week, complete with colleagues who have joined us from the new offices in Melbourne, Toronto and San Francisco.

Christmas 2013

I can’t wait to see the 2014 version!

Another example.

Earlier this year Hawkes Bay based Majic Jungle Software launched an awesome iPhone/iPad game called The Blockheads. We were honoured to be part of the group helping to beta test it prior to launch, and it was great to see it develop over that time into a delightful and engaging game. It was no huge surprise to see it go on to top the iTunes downloads charts and create the third big success from this developer (1).

Again, it was interesting to see some of the reaction on Twitter:

As it turns out the “team” in this case is just Dave Frampton (2).

He’s the band of the 90′s, despite the one man name.

Maybe rather than celebrating raw number of people employed by our companies we should use the revenue per employee measure that Paul Callaghan used to talk about in his “Beyond the Farm and Theme Park” presentation:

I was fortunate to see Paul give that presentation in person a couple of times, and one of the numbers that really sticks with me is that there are only about 1.3m FTE jobs in NZ. The challenge we collectively have is to make as much from each of them as we can. Everybody from big companies through to individuals working by themselves both have a role to play.

It’s easy to complicate business, but actually the rules are very simple: in the long run you win by making stuff which is so great that people will pay you more for it than it costs you.

There are lots of different ways that you can organise yourself to achieve that outcome.

(1) Here in NZ we get very excited when our singers are top of the Billboard charts, or our movie makers are successful at the box office, but often overlook the equivalent regular successes notched up by local mobile application developers
(2) Dave was, of course, assisted by his lovely wife Emma

# But, what do you do?

We’re excited to see the number of companies and people listed on Rabble growing.

We’re now up to 360 companies and 558 people in the directory.

If your company isn’t listed you can add it right now using the Add a Company button in the top right.

If your company is listed, please check to make sure that all of the people associated are also listed. It’s excellent to see some companies with their extended management team, investors and advisors all listed – e.g. Vend, Parrot Analytics and Timely. We’d love to see more!

Anybody already associated with the company can add the names and details of others who should also be listed, or you can click the “+ Add me to this company” link.

One of the things we’re very keen to encourage is a short and succinct description of each company, so that anybody browsing the directory can get a quick idea of what you do and if that is something they are interested in.

As it says on the form:

“Please no marketing bullshit! This should be a plain-English, no nonsense description of your product or service from a customer’s perspective.”

When we were putting together the initial list of companies we added the descriptions ourselves – generally starting with the description from the companies websites. It was amazing how often we would read all of the words (sometimes hundreds of words!) on the home page and still be left with the questions “But, what do you actually do?” and “Who is this for?”.

The best descriptions, in my opinion, have this form:

So simple!

And, some have done a great job of this:

(especially Acutecrew – rules are made to be broken!)

And, last but not least, my current favourite:

But, many seem to struggle. It’s amazing to see otherwise intelligent people suddenly develop verbal diarrhoea when they come to try and describe their business.

We reserve the right to edit descriptions, to keep the site looking clean and usable.

The first thing we do is remove the company name, which just about everybody starts with. The cards already display the company name in a big bold font, there is no need to use up precious space in your description by repeating that. Likewise, we don’t need full legal names so you can leave off the “Limited”/”Ltd”.

Next we try and remove the nonsense words. It’s staggering how many people describe their service as “an online blah” or “cloud-based blah website” (really, as opposed to the non-cloud based websites also providing blah?) We also see lots of “world class this” or “unrivalled that” or the ever popular “beautiful and simple to use whatever” (interestingly, nobody ever describes their product as ugly or complicated).

Finally we edit anything which is written from the companies perspective rather than from the customers. We want these descriptions to appeal to people who might buy your stuff, or to those who might want to work with you or invest in you.

We all just want to know what you do, so please help us out and make it easy!

Enjoy! :-)

PS we still have a small number of orphan companies from the initial list please let us know if you can identify the correct people to be associated with any of those and we will link them up.

# World Class

I love watching elite sports people competing under pressure.

This photo is taken from the London Olympics 10,000m final. The expressions on the three medalists’ faces tell the story…

First: WTF, did that really happen?
Second: OMG, I’m a white dude winning a medal in a long-distance race at the Olympics!
Third: FML

The bronze medalist on this occasion was Kenenisa Bekele from Ethopia. The reason he’s looking a bit glum is that he was, and still is, the world record holder for this event, so no doubt was expecting more of himself on that evening.

(Interestingly, according to research, bronze medalists are usually happier than silver medalists – one possible explanation for this is that silver medalists compare themselves to the gold medal winner and wonder what could have been, where as bronze medalists compare themselves to the lower place getters and are happy to have a medal at all – success is all relative!)

## Pace

It’s nearly impossible for the average person, watching on TV, to appreciate the speed that world class long distance runners run.

Bekele’s 10,000m world record is 27 min 17 sec, which is the equivalent of 100 consecutive 15.8 second 100m races. I doubt many people reading this could run a single 100m at that pace, if sprinting.

He ran the final kilometre of that race in 2 min 32 sec. Again, probably twice as fast as the average runner could go at full speed starting fresh, and he had already run 9km at world record pace before then!

There are only a handful of people on the planet who can sustain that sort of pace. If you watch any of the elite marathons you’ll see the leading group contains some designated pacemakers for the first 20 or 30km. They are themselves very, very good athletes, running at an eye watering pace, but they peel away eventually unable to stick with that speed over the critical final third of the race.

It’s difficult to find words to describe the gap between these guys and you and me.

The most obvious difference is genetic. Mo Farrah, the gold medalist above, is 1.75m (my height) but 58kg (somewhat less than my weight!) The world record holder, Bekele, is 54kg. That physiological difference is telling. Fewer than 40 people have ever run sub-27 mins for the 10,000m, and Chris Solinsky, at 74kg, is the only one heavier than 65kg.

But, of course, it’s much more than that. There are plenty of people born with the same genetics as those guys who never go on to athletic greatness. It takes half a lifetime of hard work to get to the start line capable of running at that pace. The media loves stories about people who come from nowhere to win, but these days those sort of performances are more than likely to attract suspicion rather than admiration. Most champions are well signposted, with a long history of improving performances from a very young age.

For example, Usain Bolt ran the 200m in 21.81sec in 2001, when he was 15, seven years before setting the world record of 19.30sec at the Beijing Olympics in 2008, with small but consistent improvement every year in between.

Or, consider Tiger Woods as a 2 year old:

Then a 14 year old (already a junior world champion, and scratch handicapper):

Then a 30 year old:

According to the video title this is the best shot ever played, which is a big claim, but possibly true – it was the 16th hole, in the final round of a major tournament and in an amazing setting. Imagine being Tom DiMarco who had to putt immediately after this! As it happened, he missed his gettable birdie putt and when on to lose to Tiger in a playoff.

## Confidence

Standing on the breakwater, in front of the Golden Gate Yacht Club in San Francisco, on the morning of 7th September earlier this year waiting for race one of the Americas Cup to start, my heart rate was noticeably higher than it normally is. It’s hard to comprehend how the team themselves must have felt, given what they had personally invested in the whole event. Up close the fragility and bespoke-ness of the boat is much more obvious. They are designed and constructed to sail right on the limits.

Somehow those on board continue to operate and hold it all together despite those nerves. The very best actually seem to thrive on the pressure.

And, it wasn’t just physical. There was an amazing moment in the press conference after day four of racing. Team NZ were dominating the event at that stage, winning both races that day, and leading 6 to 1 overall in the first to 9 series (actually 6 to -1, as Oracle didn’t get to count their first two wins due to a penalty). Oracle skipper Jimmy Spithill is asked how he was dealing with the pressure, and replies:

“I think the question is: imagine if these guys lost from here. What an upset that would be. They’ve almost got it in the bag. So, that’s my motivation. That would be one hell of a story, one hell of a comeback. And that’s the kind of thing that I’d like to be a part of. I’ve been involved in some big fight backs, with some big challenges, facing a lot of adversity. That would be the kind of thing I’d love to be involved in.”

You can see it starting around 21mins into this video:

Huge words, and with the benefit of hindsight quite prophetic. That’s a remarkable level of self-confidence bordering on cockiness. And it was a deliberate strategy. I’d love to know how much he actually believed himself deep down, that day.

Watch the video and imagine yourself in Dean Barker’s position, and wonder how you would respond to that sort of comment – not just immediately, but lying in bed trying to get to sleep that night and then looking across the water on the start-line the next day with him smiling back at you.

## Executing the Basics

If you get a chance to go to an All Blacks game be sure to get there early and watch the team warming up. Take some binoculars and just follow one player. If you’re anything like me, you’ll find it mesmerising to watch them run though a very methodical set of exercises as they prepare for the game.

There are hundreds of thousands of kids who grow up dreaming of being an All Black. There are thousands who play at 1st XV level, and every year there are a couple of hundred who play professionally and are eligible for selection. The breadth of that pyramid and the competition for places and desire to be part of the team that results probably goes a long way to explaining why the level of performance is so high at the very top.

It’s tempting to imagine that those who are picked have something magical that sets them apart from mere mortals. But, actually it’s not magic.

It was fascinating last year to work with some of the All Blacks and see them describe some of their roles in their own words, and understand the thinking and preparation that goes into the performances we all get to watch and enjoy (and heavily criticise when things, occasionally, don’t fall their way):

They are talking about the same skills that any weekend warrior has – passing, tackling, kicking – but these guys are able to perform those skills consistently under extreme pressure of time and space.

Or, as eloquently put by the NZ Herald after the Bledisloe Cup match in Wellington earlier this year:

“They are the rugby equivalent of the great Dutch football team of the 1970s, seemingly full of genius ploys when really, their whole game is about supreme execution of the basics.”
http://mobile.nzherald.co.nz/sport/news/article.php?c_id=4&objectid=11113971

It’s very easy to talk about executing the basics. But, actually, just doing that consistently and despite all that is happening around you is enough to set you apart from nearly everybody else in the world.

## Are you really?

The expression “world class” gets casually thrown around, like a frisbee at the beach on a sunny afternoon. But most people who use it actually have no concept.

In sport there is an obvious and massive gap between the elite few and everybody else. It’s tempting to bridge that gap in your mind and imagine that you could be a contender, but that doesn’t often stand up to much scrutiny.

It seems so possible to start a company and dream big. Anybody could do it, right? I have a great idea for an app, if only I could find a developer to build it for me. Or, I’ve built this amazing dingus and just need to find some way to sell it (or even more delusionaly, I just need to get it out there and it will sell itself).

It is worth taking the time to ask yourself at the outset if you can be world class.

Do you have the desire to put in the years of hard slog and dedicated focus, to be able to push yourself to match the performance of the very best out there (keeping in mind that every founder thinks they can do in two years what always takes at least five, often seven, sometime even longer)?

Can you look your competitors in the eye and confidently know that you are mentally stronger and able to execute better when it counts? And, even if you don’t believe that, are you able to talk it up anyway, so at least they believe you do?

Are the basics so ingrained, due to consistent and repeated execution over time, that you’re able to repeat them almost mindlessly, even when time and other constraints are working against you?

Are you world class? Really?

Of course you can be world class. Don’t let me convince you otherwise.

But, you don’t achieve that by calling yourself world class.

You achieve that by competing with, and beating, the best in the world.

# The cake is a lie!

## Busy Busy

Here is a little thought experiment…

How do you feel about somebody who fills their house to overflowing with stuff, shuffling clutter from one room to another just in time as each space is needed during the day, leaving no spare room to take in anything new?

How do you feel about somebody who manages their finances right on the edge, spending every last cent of their credit card limit, transferring money from one account to another just in time to cover repayments, never quite sure if their next purchase will tip them into the red?

Neither of those sound ideal, right?

What about somebody who manages their time like this – i.e. fills their days with work, constantly juggles their to-do list as urgent tasks come and go, and leaves no spare time to do things well?

That’s also not great.

So, why do we romanticise our busyness?

Them: How have you been?
Us (said with pride): Oh, you know, busy busy!

I’ve caught myself replying like that a lot, over the last few months especially. I’ve been keeping an unsustainable number of plates spinning, and often finding myself lacking the time to do as good a job as I can and should on any one plate without exhausting myself. And, it’s clearly irrational when I put it like that, but people are generally impressed when I explain how I fill my days, rather than asking why I would possibly want or need so many plates.

Why do we do that?

Maybe it’s what we expect each other to say? Like the exhausted and knowing nods exchanged between two parents of newborns, safe in the knowledge that neither is getting enough sleep, perhaps we take comfort from connecting with others in the same situation.

Maybe it’s just easier to measure inputs, than to look for evidence of outputs? It’s easy to assume that if lots of work is being done then lots of things must be getting completed and completed well. It’s even easier to confuse activity for progress.

But, the cake is a lie.

Doing a good job nearly always means focus, and focus means saying no.

What do you choose?

# Rabble Rousing

A couple of months ago we launched Rabble, the directory of kiwi technology companies.

We were blown away by the response. We started with just over 100 companies, from our own networks, and I had a small wager with the team that we would eventually be able to double this number. We ended up doing that within the first few days as many companies that were not listed were quick to get in touch as ask us to add them to the site. We now have just under 300 companies listed.

So, this week, we’re pleased to release the next version of the site. This adds a number of new things, which we think starts to make it really interesting for everybody:

## People

First and foremost, we’ve added people, the most important thing in the world.

You can now join, create a profile and link to the company or companies that you are associated with.

For example, this is my profile:

http://www.rabble.co.nz/profiles/2-rowan-simpson

If you are already associated with a company on Rabble you should have received an email from us with instructions for completing your profile. Once you’ve done that you can add others to that company too. We will get in touch with anybody you add who is not already listed to ask them to join and create a profile.

We’d love to see every company on Rabble with a full list of founders, team members, investors, directors, advisors, etc.

One of the big advantages we have in New Zealand is that we’re all no more than one or two degrees of separation removed from anybody else. But, for some reason there is still sometimes a perception that it is difficult to get in touch with those within the industry who might be able to help you with your business. It’s really not, or at least doesn’t have to be. We hope that having this directory of companies and people available and searchable will make it even easier for everybody who is listed on the site to find the right connections when needed.

Unfortunately there are a few companies from the original list which currently don’t have any people associated:

http://www.rabble.co.nz/companies/orphans

If you can recommend the right people for us to add to these orphans to get them started that would be much appreciated – let us know at rabble@southgatelabs.com

## New Categories

We originally launched with four categories: Software, SaaS, Marketplace and E-Commerce. We’ve now added three new categories: Mobile App, Hardware and Services.

If you have a company in any of these seven categories then you can now add yourself directly to the directory – look out for the blue “Add Company” button on the top right of the page. And, if you’d like to suggest other categories for us to add then please get in touch.

As well, we also allow each company to nominate the stage they are at: Pre-launch, Start-up, Growth or Established, and people searching on Rabble can filter the list of companies by category, stage and location to quickly find the companies they are interested in.

## Jobs

The biggest constraint for just about all of the good startups we know is finding good people to join the team and help them grow the business.

It’s depressing to see many otherwise smart people working in boring jobs with large corporates while there are so many great opportunities open at local technology companies.

So, every company listed on Rabble can now include details of current vacancies on their company profile, and we’ve added a new Jobs section which summarises all of the jobs listed on the site.

## Investment Opportunities

Despite mounting evidence to the contrary, there is still a perception that there is a shortage of capital for growing technology companies in New Zealand.

However, that’s not to say that it is always easy to make the connection between the right company and the right investor.

So, we now allow any company listed on Rabble to indicate if they are currently seeking investment. Those that do will be listed on a new Investments section. Current rules mean we can only display this information to those who have confirmed they are eligible investors – there are instructions on the Investments section page which can help those who are eligible get setup with access.

There are still many investors who wait for opportunities to come to them, often unaware that this means they miss out on all of the best deals. Hopefully Rabble can allow those investors who are willing to cut out the middle man to connect and talk directly with companies who are seeking help.

## Featured Companies

Each week we will feature remarkable companies on the Rabble homepage.

We’ve started with six companies with global ambitions, nominated by John Holt from the Kiwi Landing Pad in San Francisco:

• BIMStop - the building information management marketplace
• Biomatters – bioinformatics software to speed up and simplify research for molecular biologists and biochemists
• BookTrack – soundtracks for books
• IndieReign - the independent film marketplace
• Vend – retail point-of-sale software and inventory management
• vWorkApp – dispatch and scheduling software

In the first two months we’ve had thousands of people use the site – so we hope that the exposure to qualified people we can give to companies in this spot will be valuable to them.

If you’re interested in being featured, or in choosing a list of featured companies for us, please get in touch.

There is heaps more we’d like to do with this. We’ve already spoken to a few different people with ideas for how the data that is captured in Rabble can be used to deliver value back to all of the companies listed. So, look out for some further developments over the coming weeks and months. And, if you can see some potential, we’d love to talk to you too.

But, for now, we mostly need your help to spread the word and in add more companies and people to the site.

If you’re not yet listed add yourself today. And, if you know of anybody we’re missing please tell them about us.

# Diworsification

Investing in early-stage companies is risky, due to the massive disparity of possible outcomes.

There is a good chance you will lose all of the money you invest in any given venture, and a very small chance that the company will go on to become very valuable and make you look like a genius in the process for choosing to back them in the beginning.

It’s nearly impossible to tell for sure in advance which opportunities are the likely winners.

In response to this many would-be investors make the mistake of believing that they can reduce their exposure to this risk via diversification. That is, spread the money they invest across a portfolio of start-up companies, hoping that one of them will be a winner and offset the losses from the others. Or, more colloquially: “don’t put all of your eggs in one basket”.

The general theory is sound, and probably makes a lot of sense when investing in larger public companies.

“By diversifying, one loses the chance of having invested solely in the single asset that comes out best, but one also avoids having invested solely in the asset that comes out worst. That is the role of diversification: it narrows the range of possible outcomes.”

But, remember, the lower end of that range for private early-stage companies is still “you lose all your money”.

## What does diversification cost?

Let’s say you have \$10,000 to invest.

You could diversify by investing \$1,000 into ten different ventures and hoping that at least one of them does well. Or, you could focus by investing the full \$10,000 into a single venture and hoping that it does well.

Now let’s consider the extreme ends of the return spectrum for these two alternatives.

Remember, the odds of picking a winner in either case are very low, but the reward if you do can be spectacular – for the sake of this example let’s assume that each \$1 invested could, just a few years later, be worth \$3,000 or more (this is, very roughly, the return on the original \$100,000 which was invested in Trade Me in 1999 when the company was sold to Fairfax in 2006).

What happens in our two scenarios in the best case (i.e. you pick a winner)?

If you diversified, you lose your money on nine of the ventures, but the \$1,000 invested in the winner becomes \$3 million. That’s not a bad result by any measure. However, in the second case, the \$10,000 invested becomes \$30 million!

What happens in the worst case (i.e. if you don’t pick a winner – remember, this is by far the most likely outcome)?

This is easy. In both cases you lose all of your money.

So, while a portfolio approach gives you more chances to pick a winner, the opportunity price you pay for that is a ten fold reduction in the best-case return, without any improvement on the worst-case outcome. And, the bigger the portfolio the lower the best-case return.

Of course, those are only the two extremes. What about the possible outcomes in between? It’s tempting to think these would be more common, by assuming that the possible returns from an early-stage investment are a normal distribution with the median being positive. But, that’s not the reality.

This graph shows the distribution of returns for a sample of early-stage investments. This is UK data, but it feels about right, from my experience. On a percentage basis, most early-stage investments result in the investor losing their money. The big wins are the very rare exception.

Source: Angel Investing – Promising Outcomes & Effective Strategies, by Robert E Wiltbank (pg 14)

If you assume no selection bias and a large enough portfolio, then the overall expected return is a little over \$2 for every \$1 invested.

But, in practice, the outcome for any individual investor is much more binary than most who take this approach realise.

Each investment you make is a discrete event – a separate spin of the roulette wheel, if you like. You can bet on the same number all night, and it doesn’t matter how many times you spin the wheel it doesn’t make it any more or less likely that you will hit the jackpot.

If you do pick a winner then your return is a simple function of how many other companies you have in your portfolio (more companies = lower return). If you don’t pick a winner then the number of losers is irrelevant.

## How do you choose?

The common mythology says that one in ten start-up investments is a big winner. So, all you have to do is randomly pick ten companies and then sit back and wait for one of them to win, right?

There were two big assumptions in the logic above that we just brushed over, and which don’t stand up to much scrutiny when you look at the individual portfolio of any given early-stage investor.

The first, and more difficult, is the “no selection bias” assumption.

Are all of the companies you’re choosing to invest in potential big winners? Or, do you have a blind spot, which means that each investment is possibly flawed in the same way?

One common but often overlooked source of selection bias is your source of investments – what some investors call “deal flow”.

When you’re looking at public companies, you can buy shares in any company you choose to invest in, if you’re so inclined. But, with private early-stage companies it’s not so simple. The best companies (i.e. those most likely to be big winners) are generally able to pick their investors. If you’re waiting for companies to pitch to you, or insist on harsh investor-friendly terms, or want to invest passively from the sidelines rather than taking an active role in helping, then you probably have a selection bias – i.e. you only invest in more desperate companies.

This is one of the reasons why I advocate a founder-centric approach.

Those who take a portfolio approach often invest via syndicates. In that scenario it is very common, in my observation, for everybody in the syndicate to assume that somebody else has done the work to validate the potential of the investment, meaning actually nobody has.

It only takes a small amount of poor judgement to introduce a potentially fatal selection bias to a portfolio.

The second, and more easily dismissed, is the “large enough portfolio” assumption.

Perhaps if you could build up a portfolio of hundreds or thousands of early-stage companies then your return might be what the theory suggests it should be.

But, that’s not practical for most early-stage funds, let alone individual investors. We continue to believe, despite lots of evidence to the contrary, that there is a shortage of capital in New Zealand, when the reality is there are simply not that many investment-ready companies.

And, in either case, as we saw above, the larger the portfolio the lower the return if you do happen to pick a winner. Those building really big portfolios are backing themselves to pick multiple big winners, or one really big winner (aka “a moon shot”). You need to be fishing in a very large pool for this to be feasible.

## Diversification == Lack of Focus

The last thing to consider is much more subjective.

For most ventures, removing a capital constraint only uncovers an execution constraint. The best early-stage investors understand that the money they invest is important as a ticket to the game, but the advice they give and the work they do to help the founders progress the business is much more impactful.

So the question then is not only how much money you’re willing to invest in early-stage companies, but also how much time. For most investors I know that quickly becomes the limiting factor.

Taking a portfolio approach means that both time and money are spread more thinly and much less likely to contribute to the success of the ventures. As Steve Jobs famously said, “focus means saying ‘no’”.

So, my advice to those thinking about investing in early-stage companies, for what it is worth, is put all of your eggs in one carefully selected basket and keep a close eye on it.

You may or may not pick a winner – remember these are start-ups we’re talking about so the odds of success are massively stacked against you either way. But if you’re going to take that sort of risk, you may as well set yourself up to enjoy the full up-side if you do get lucky.

Note: Credit to Peter Lynch for coining the term ‘Diworsification‘. He used it to describe the situation where risk is already very low, so adding additional assets to a portfolio doesn’t help. I’m arguing that the same logic applies when risk is already very high.

# Rabble

## Those most likely to create the future

Today we’re pleased to launch Rabble, a directory of kiwi technology companies.

We’ve created this in response to a few problems that we’ve seen startup companies struggle with first hand.

We hope to help people who want to work on startups find a great place to work. The biggest constraint for just about all of the good startups we know is finding good people to join the team – and meanwhile, smart people continue to work for big, boring companies. We want to liberate a few from corporate slavery.

We hope to help investors to find better places to put their money to work. We despair to see people joining clubs in the pursuit of deal flow, unaware that the best opportunities are never going to come to them there. We know you have to work to be an investor of choice, but we also know that great companies are out there desperate to find the capital they need to get to the next stage. We want to make the connection.

Last but by no means least, we hope to help startups find the right advice and the things they need to get them moving faster – whether that is a clueful lawyer to assist with a shareholders’ agreement or a printer to help create the perfect t-shirt. We know that startups can be demanding but very rewarding clients, so if we can help those who want to help startups then that would be great.

But, to start with we just want to make a list. We’re putting the M back in MVP. We realise that a list by itself doesn’t really do any of the above very effectively, but we hope it’s a foundation to build on.

Check it out here: http://rabble.co.nz

We’ve focussed initially on four categories of companies:

1. Those who sell desktop or mobile application software
2. Those who sell hosted software on subscription (SaaS)
3. Those who sell things online (eCommerce)
4. Those who provide a software platform or marketplace

We’ll hopefully add more categories soon – we’re interested to hear what others you think we should add next.

We’ve added about 100 companies that we know of from our own networks and who have been mentioned in the media recently.

Of course, this is by no means an exhaustive list. If you would like us to include your company, or one that you know we’ve missed, please send the details to rabble@southgatelabs.com.

And, even if we already have your company listed we’d like to hear from you too, so we can make sure we have the right people associated with each listing. If you’d like us to update any details we may have incorrect, or even just add a better logo, get in touch and we can sort it out.

But, at this stage, we mostly need your help in spreading the word, on Twitter or Facebook or wherever. Please tell anybody you know who might be interested – perhaps they are potential employees looking for a job, perhaps they are investors wondering where to start, or perhaps they are suppliers who would like to work with startups. Either way, we hope that Rabble can help them.

Please let us know what you think. At this early stage any feedback is useful and appreciated.

# Unavailable

A while back I made myself unavailable for a week. That is, I was still connected and online, but I turned off all of the various services which make me visible and available to others.

This was a bit of an experiment, and these were the three things I learned:

1. I was much more available than I realised

I made a list of the various apps that needed to be disabled, and was slightly shocked by how many things I had given permission to interrupt me:

• Phone (even in a normal week I normally only answer calls from people in my address book, but in this week I decided to turn my phone off completely for most of the time)
• Email (I use Triage, which makes it easier to disconnect, but if you have push mail setup on your iPhone you’ll need to turn that off, and turn off the unread count badges if you didn’t already – I also set an out of office auto-responder, so anybody who did email me would at least know I wasn’t paying attention)
• Calendar
• Twitter (I took the slightly extreme step of deleting the app from my phone, so I wouldn’t be tempted to check in during downtimes)
• iMessage (if you have this setup on multiple devices you’ll need to disable each independently – on OSX you’ll need to delete the account from iMessage completely otherwise you’ll still get notifications)
• Skype (if you have the Skype app on your iPhone/iPad make sure it’s not running in the background)
• Google Chat/Talk/Hangout, or whatever it is they are calling it at the moment (I had this installed and logged in to both of my Google accounts on both my phone and laptop browser)
• Dropbox/Google Drive (I disabled the notifications which pop-up when others update files in shared folders)
• WhatsApp

There were a bunch of others which I no longer use, but which were still setup for notifications – including Facebook. LinkedIn, Trade Me, Game Center (which I only ever really used for LetterPress), MessageMe, and Podcasts.

I also made an effort to contact everybody who was likely to try and get in touch during the week in advance, so they wouldn’t be frustrated by my unavailability, and left an out-of-office notification on my email accounts suggesting people call if it was urgent (I only got one call during the week).

2. The withdrawal symptoms were worse than I expected

I intentionally did some properly offline jobs the first day and a long run the second morning, to give myself a clean break from staring at a screen and all of its tempting distractions.

But, even then I was surprised how often I would reach for my phone to quickly check emails or tweets, including first thing in the morning and when I was in the middle of a conversation with people physically present. That’s not good behaviour, but useful to have that habit highlighted and hopefully now broken.

3. It wasn’t an entirely positive experience

It was lovely to be able to focus and be without distraction for a while, although in most cases I only made a minor dent in things which have languished on my to-do list for ages. At the end of the week they were quickly replaced again by more pressing things.

The main thing I discovered from the week is that very little of what I normally fill my days with is actually urgent and nearly everything that I defer is important.

That’s a little depressing…

# Timely

Occasionally it’s fun to try and draw a narrative arc through the various investments I’ve made or products I’ve been involved in building. It would seem nice to be able to talk to the theme or thesis that explains them.

But, it’s mostly futile. Actually the vast majority, including the successes you’ve all heard about and the less successful ones I don’t talk about so much, have been opportunistic – a function of being in a particular place at a particular time with something particular to offer which is attractive for whatever particular reason.

Early last year I got an email from Ryan and Andrew.

They were the guys behind BookIt, which in 2010 was acquired by Trade Me.  They were starting to wind down their involvement there and talk to a few people about the next thing they were working on: Timely.

Unlike so many others that contact me, they were already heads down and doing the hard yards. They weren’t wasting time chasing investment too soon. They were very focussed on making a great product and getting some early customers on-board.

A year later I got another call.

They had nailed their plans for the first year and were looking further ahead. They already didn’t need money.

If you really want to catch the attention of potential investors then not needing them is a good strategy. I’ve said it before, smart investors look for scrappy execution. And, scrappy execution is just like the famous quote about pornography – it’s hard to define but you know it when you see it.

They had a decision to make about continuing on the organic growth path they were on, or trying to accelerate.

We put together a simple cash flow model, so we could play with some assumptions – what if they hired more people sooner?; what is the potential for improving the key metrics: revenue per customer, conversion rates, funnel growth, etc?; how much extra capital is needed to fund a more aggressive growth path?

Unusually they were also willing to put a rational valuation on what they had built to this point, which gave me an opportunity to get involved. We agreed the details over the course of a few Skype calls while I was in Singapore.

This is exactly the sort of business that we can do well from New Zealand. We’ve seen it with Xero. We’ve seen it with Vend. And, in my opinion at least, Timely has a great opportunity to be the next big software success story to emerge from here.

They already have hundreds of customers using the software. They are exporting bits to paying customers in 14 countries already. And those numbers are growing quickly.

The idea itself is not especially novel. No MBAs or PhDs were harmed in the making. No staff in white coats are required. No patents will be filed. I couldn’t be happier.

But Timely does have one very exciting thing going for it: providing huge value to the customers who use it at a very attractive price. As I said in my tweet, If you take appointments in your business and still use an ugly old ’80s system to manage it all, it’s time to switch.

In my experience it’s much more rewarding to work on something that is actually used and loved than something which is technically complex or innovative, although as a new system it obviously has the advantage of being built using latest web technologies and that’s also not to underestimate the development challenges in building and scaling a system to support thousands of customers around the world or the design and usability challenges of creating something which is functionally rich but still slap-you-in-the-face obvious and intuitive to use, or the business development challenge of getting customers on board in a competitive space as the platform is still being built around you. Are you up for it?

It’s always slightly humorous to see people congratulated for raising capital. It’s like clapping the pilot of a plane for successfully refuelling before take-off. As Andrew and Ryan are the first to admit, the thing that will make this successful is how they execute from here and whether they can overcome their relative obscurity. I hope to help them with that as much as I can.

They’re looking for others to work with them on this next phase, and there are some big chunky roles to fill. Opportunities to get involved at an early stage don’t come along too often. If you’ve been looking for this sort of chance, don’t miss it.

I’m very excited they’ve agreed to have me along for the ride.

# Triage

The fairy tale version of coming up with a new product idea is the eureka moment. But, real life is not always a straight line. Sometimes you stumble across an idea in quite an indirect and seemingly random way.

Once upon a time …

One of my favourite apps, back in the day, was FavIt by Tim Haines. It would display a single tweet at a time (based on top-ranking favourites from the FavStar.fm site). You could flick left and right to navigate through the list or pull down to reveal more information about the tweet and its author.

It was a delightful and tactile app, and I would often find myself soaking up the odd spare moment I had when out and about during the course of a day to be entertained by some funny tweets.

Sadly, it didn’t survive the transition to the new Twitter API, and eventually stopped working altogether.

Mourning its demise, we got to talking about what other types of app would work better with a scroll view rather than a table list view.

One idea was dating, and that turned into a bit of a rabbit hole that we went down for a while. However, as I’ve written about previously, the best things to work on are things you care about, have authority in and are prepared to take responsibility for, and that particular idea didn’t really chin any of those three bars for us.

So, we kept looking.

Then one day Koz suggested email. Genius!

We seem to spend a lot of time fighting our inboxes.

That’s certainly something we’d care to fix.

“Imagine if there was an app that let me use a spare 5 minutes here and there to quickly filter out all of the emails which I can just read and delete, so that when I get back to my desk I only have to deal with the messages which require a bit more thought and attention”.

“Wouldn’t it be better if the inbox on your phone was just the new messages which have arrived since the last time you checked.”

“What I really need is something which forces me to do something with each message one at a time, rather than presenting an overwhelming list of unread messages, that I just end up scrolling back and forth through without ever really dealing to at all.”

You really should pay attention to sentences that start with “imagine if…” or “wouldn’t it be better if…” or “what I really need is …”. There is gold in them there hills.

We didn’t, of course. At least not immediately. That idea just sat there ruminating. Anyway, who would be stupid enough to build an email client, that sounded like a lot of work…!

But, like all good ideas, it kept coming back and demanding some more attention.

Amnon took that the original idea, and came up with the concept of a stack of cards, one for each newly arrived email message, which you could quickly and easily flick up to archive or flick down to keep for later.

This was an early black-and-white wireframe:

When he showed it to us we were both immediately angry that it didn’t already exist.

Koz meanwhile had decided that building an email client wasn’t that hard (!) and had started working on that.

Before too long we had a rough prototype. Very rough. For example, when you got to the bottom of the stack it simply displayed this message, which was elegant in its direct simplicity, if nothing else:

We decided to share it with some friends anyway. There were some early hiccups (“Archive” can be interpreted to mean “Delete” in some circumstances, right Karl?) Overall the feedback was really mixed. It didn’t fit with the way that everybody used email, and not everybody had the problem we were solving, but those that liked it loved it, which was really encouraging (note: if you’re testing something and don’t hate it, be sure to tell the developer that, your feedback will likely be much more positive than you realise).

It seemed that this was a thing that some people might want. Ideas like that don’t come around everyday, so we continued on.

“You know what this is like… it’s like triage in an emergency room”.

And so we had a name for the app. Triage. It’s first aid for your inbox. Perfect.

After a few months and a lot of work, and a bunch more beta testers, and a bit more feedback, and some minor tweaks to the original concept, it eventually got to the point where we weren’t horribly embarrassed by it anymore. And what’s more we were using it ourselves all the time – I’d long since relegated the old Mail app to the folder on the last page along with Maps, Compass and Voice Memos, with Triage taking its spot in the dock.

We pitched it to some of the speakers at Webstock, who couldn’t have come to Wellington at a better time in this process. We were flattered when they loved it and offered to introduce us to others in their network who might be interested.

The last piece of the puzzle was an icon. We wanted something that would belong on the homepage of your phone, and after a lot of work from Amanda, heaps of different concepts and some help from our friend Bryan in the US we eventually came up with something that we all liked.

All that was left were some final improvements to animations, and some additional fun features such as the achievement stamp for getting to the bottom of the stack  and the card wiggle if you tap on one of the arrows, plus a one-page marketing site, and we were ready to submit and now today, make it available for sale.

(the team were very kind to include an unflattering message from me as the official screenshot, complete with spelling mistake!)

And so…

I’m sitting here trying to come up with a succinct myth to describe how we got to this point for a blog post, and I’m thinking that the reality, far too long and not easily compressed into a soundbite, is actually much more interesting.  Perhaps you won’t mind?

I hope lots of you will be tempted to buy it and use it. We’re hopeful that sales will justify the time we’ve invested in it, of course. But, mostly we’re just excited that people will get to enjoy something that we’ve made with pride and will find it useful.

If you do, it would make us happy to hear from you and even happier if you would tell your friends.

And, if you don’t, let us know too, so we can maybe make it better in the future, or at least be amused by your witty one-star review.

Either way, Triage: Email First Aid is available now. Go get it.

UPDATE (20-April):

Here are a couple of early screen casts that Koz sent me, which capture some of the UI under development:

# Being Spartan With Ideas

How do you handle new ideas?

Maybe you treat them mean?

There is an unsettling scene at the beginning of the movie 300 which describes how Sparta treats young boys, once they reach a certain age, and in the process teaches them to be fierce fighters:

“At age 7, as is customary in Sparta the boy was taken from his mother and plunged into a world of violence.  Manufactured by 300 years of Spartan warrior society to create the finest soldiers the world has ever known. The agoge, as it’s called, forces the boy to fight. Starves them, forces them to steal and if necessary, to kill. By rod and lash the boy was punished taught to show no pain, no mercy. Constantly tested, tossed into the wild. Left to pit his wits and will against nature’s fury. It was his initiation his time in the wild for he would return to his people a Spartan or not at all.”

At some point your idea is going to have to stand up to the world and at that point either it’s good enough or it’s not. You can hide it away or put it in a safe place, but that only defers the inevitable. Isn’t it better to find out sooner rather than later, so if it’s not going to be a winner you can move onto the next idea?

On the other hand…

Consider this, from Jony Ive’s eulogy to Steve Jobs:

“Steve used to say to me (and he used to say this a lot), “Hey Jony, here’s a dopey idea.” And sometimes they were — really dopey. Sometimes they were truly dreadful. But sometimes they took the air from the room, and they left us both completely silent. Bold, crazy, magnificent ideas. Or quiet, simple ones which, in their subtlety, their detail, were utterly profound.

And just as Steve loved ideas, and loved making stuff, he treated the process of creativity with a rare and a wonderful reverence. I think he, better than anyone, understood that while ideas ultimately can be so powerful, they begin as fragile, barely formed thoughts, so easily missed, so easily compromised, so easily just squished.”

Isn’t it a little bit amazing to imagine the iPod or iPhone as a dopey half formed idea, and think about the conversation that day in their lab as they teased it out and allowed it to take shape.

The reason people are often so nervous about sharing their own ideas is that they are uncertain themselves, and embarrassed that others will think them silly, or shoot them down, or just be generally unimpressed.

If you’re going to be part of a team that generates ideas you need to actively organise yourself so that ideas are treated as if they were new born babies, rather than something to be quickly judged or dismissed, something new to be given a bit of time to form while everybody is still being gentle.

But then, before ideas get too comfortable, you need to flip into Spartan mode and treat them with a harsh unsentimental brutality so that only the fittest survive and you don’t waste too many cycles otherwise.

Finding this balance and choosing the right time to make that switch is probably the difference between a really great product team and the rest of us mere mortals.

Sadly I don’t have a magic formula for you to follow, other than doing it, getting it wrong a few times and then adjusting the next time based on those scars.

Related Previous Posts:

Credit to Koz for first making the Spartan childhood link, at least to me.

# Product Management

If you say you are a ‘Software Developer’ or even a ‘Development Manager’, then most people working in technology will know what that means.

But, I’m not sure I’ve ever heard a succinct definition of what makes a ‘Product Manager’. In fact, I’m not even sure I’ve heard a succinct definition of a product, in this context.

I thought it might be useful to try and describe, at least as I’ve experienced it, for those who might be interested in this sort of role.

Some long time readers (there are a few of you left, right?) and a handful of former Trade Me employees may recognise this old diagram:

I used this as part of the induction of new employees into the development team at Trade Me, to try and describe the broader product management process that we were part of.

There are six links in the infinite loop, so let’s go through them.

Actually it’s two somewhat separate loops: the smaller software development loop and the larger product development loop.

The work involved in the smaller loop is pretty well understood, I think, and widely documented elsewhere, so I won’t spend much time on that here.

Let’s pick it up at the point where you are ready to deploy a new feature out into the wild…

## Release

The first important thing to realise about a release it that it’s not an end point. It’s just another link in an infinite loop.

This can be tough to understand for technical people who have predominantly worked in a project environment, for example as you would commonly experience in a consulting business. In that world projects have a defined beginning and end and then everybody moves on to the next project, and the software moves into “business-as-usual” mode.

In product management there is only business-as-usual. You are never “finished”.

This has a number of consequences, not the least being the importance of pacing yourself. Managing a product is a never ending marathon, not a sprint.

The second important thing to realise about the release cycle is how you win.

It’s tempting to think that you win by doing a good job and getting everything “right”. But, remember, I just said that you will never be finished. There is no such thing as “right”.

However, there is such a thing as late. The trade off between right and late is what makes product management more art than science. The best product managers typically have a bias to roll the dice and just try stuff - “If you’re not prepared to be wrong you’ll never come up with anything original”, “if you launch and you’re not a little embarrassed then you launched too late”, etc etc.

In other words, the challenge is not to necessarily navigate your way flawlessly once around this loop, but to navigate your way around this loop as many times as you can, getting a little bit better each time.

In order to achieve that you need to make sure that the release process is baked into your tools and process. You should be able to deploy and roll-back often and easily, ideally with one click.

I’m also a fan of a bit of release theatre, so that everybody is aware when changes are deployed and can celebrate the progress that represents.

## Measure

As soon as changes are released, the next challenge is to create a feedback loop.

This is where you get to listen to what people do rather than what they say. If you can start to understand how people are really using your product then it helps you to cut through debate in the next two steps of the process with facts rather than feelings. It’s how you build confidence in your theory of what users will respond to (which doesn’t always mean what users will love, by the way – often it’s a product managers job to do what is best for the system as a whole, rather than for individual users).

I think it’s really important that everybody in the team understands how the business wins. It’s the product managers job to make sure that all of the developers and testers know what the key metrics are – for example, with a big screen on the wall showing these values and trends. But, more than that, they should be able to articulate how the features they are working on will positively impact on those numbers.

## Prioritise

Broadly speaking the first job of a product manager is to keep lists.

You have to be able to take inputs from lots of different and often competing sources and constantly organise these so that the important stuff bubbles to the top, while at the same time not drowning in the long tail of less important stuff.

I recommend a “Now / Next / Later” approach.

Firstly, you need to be aware of all of the things that are underway, ideally with some idea for when they should be completed so you can keep a schedule in mind.

Secondly, and most importantly, you need to have a strong focus on what’s next. You should be able to list the next top three, four or five projects from memory, so you can stay focussed on those.

There will constantly be competing suggestions, of course. In that situation, provided you can list off the current priority projects, the question is simply: “which of these existing projects gets bumped by this new suggestion?” That usually puts new ideas in their place (on the later list).

It’s really powerful if you can have consensus from the whole team on what the next priority projects are. A useful technique for getting to that is to organise a prioritisation session where everybody is asked to bring their top two or three project to the table and advocate for them, then as a group rank them in terms of bang (i.e. expected impact on key metrics) vs buck (i.e. expected cost to implement), then pick the ideas which have the best ratio. Ideally nobody leaves until everybody has agreed what those are.

Finally, you need somewhere to dump everything else. It may be that you don’t even need to write these things down – if you’re prepared to assume that the good ideas will keep coming up. Or, maybe having a long shopping list is handy to have, so that you can fill any gaps that come up with something useful. Either way, the key is to ensure that these don’t become a constant distraction or an overwhelming background fear (remember you’ll never be finished, so getting to the end of the list isn’t the goal).

Once you have priorities agreed you also need to consider the order. There are two different approaches to scheduling projects that I’ve seen used effectively:

### The Riverstone Model

Think of your schedule as a riverbed, and your job is to cover it in river stones. You’ll start by placing the big stones, picking the most important big projects to go first. Then you fill in the gaps between the big stones with some medium stones, again picking the highest priority medium projects first. Finally, in all of the little gaps between the medium stones you scatter some little pebbles – you probably don’t have to pay too much attention to which of these go first, it could be a simple as first in first out, or whatever else works. Or, you can live with the gaps and leave some slack in the system, which is often not a bad thing.

This model is recommended if you have more priority projects than development capacity.

### The Train Carriage Model

Think of your schedule as a series of train carriages. On a regular timetable one will leave the station. Your job is to make sure that all of the seats on the carriage are filled. When a new project is agreed you also pick a carriage to target for release and reserve a seat in that carriage. Once a carriage is full you need to pick the next one available. And, if a carriage leaves the station with empty seats then that is a missed opportunity, so you always need to be thinking ahead to make sure that doesn’t happen – if there are no big projects ready to fill the space available then put some medium or smaller projects in there.

This model is recommended if you have more development capacity than prioritised projects.

## Scope & Design

This is where a product manager will probably end up investing most of their time.

Everything should start with the user experience. I recommend having designers in the team, so you can be constantly working on this, starting with wireframes and high-level designs and later moving onto more detailed mocks which demonstrate the intent of the user interface.

There is always going to be a blurry line between design and development in any product team, and it’s important that there is a good working relationship between them. I’ve seen examples where this breaks down and developers treat the designs they have been given as a broad direction rather than a detailed specification. It’s better if the designers are responsible for the design, and developers are responsible for the code, but with a lot of communication in both directions – the developers need to loop back regularly with designers to make sure that what is implemented is as intended, and designers need to be constantly talking to developers so that specifications take into account development constraints.

I recommend putting together a project team at the very beginning of the scoping stage. This should include designers, developers and operations people as well as testers and/or support team members who bring an understanding of the current business rules and likely pot holes from dealing more directly with end users.

One of the important questions for this group to consider is: what change are we expecting, and how are we going to measure that? As we discussed above this creates a feedback loop after the feature is released, where you can confirm that the work you’ve done has had the intended impact, or not, and learn from that for future scoping and design work. If you can’t clearly articulate what the intended change or benefit is, then you probably need to go back and think about the feature some more before you start designing the user experience or cutting code.

As scope and design bleeds into development and testing the product manager will hand over to a development manager to make sure that the build runs smoothly, and will likely become a “customer” in that process. In a smaller team the product manager and development manager are often the same person, so it’s important for them to realise the two competing roles they fill in that situation.

## Everything & Nothing

To do all of these things well demands a varied and interesting set of skills from a product manager, including a lot of soft skills that are not always easy to find in technical people – you need to be able to put yourself in the shoes of an end user and have empathy for who they are, how they think about your product and how they are likely to respond in different situations; you need to be able to think analytically – you’ll probably spend more time looking at spreadsheets than looking at code; but, on the other hand, you need an aesthetic judgement, a sense of style and an understanding of design trade-offs; you need to be able to write authentically and succinctly (writing is a muscle and one of the main reasons why I maintain this blog); you need to think like a marketer, because making things that people will love is hard; you need to be able to work with a variety of different people, both technical and non-technical; and, last but not least, you need to understand that you can achieve a lot in this sort of role provided you don’t need to take all of the credit for it.

In my experience the best product managers are heads-up developers who can code but don’t want to anymore.

If that sounds like you then think about how you can get involved in some of the areas that I’ve described above within your team, so you can build your skills and over time move from a software development role into taking responsibility for product management.

I’m interested in your thoughts, especially from those who have been a product manager or worked with one. What are the other jobs of a product manager that I’m missing?

Of course, the problem with an infinite loop like this is that there is no obvious beginning. This all assumes that there is an existing product that needs to be managed and developed. It doesn’t talk at all to where the idea for the product comes from in the first place, so maybe that’s where we’ll turn out attention next…