Experience. It’s something everybody wants and one of the few things that can’t be bought or it given. It has to be earned. Anders Ericsson’s theory of 10,000 hours to be an expert, made popular by Malcolm Gladwell, is probably the ultimate example of the power of experience. If you truly want to be great at something you have to gain experience.
But there is no shortcut to experience, right? If you want to be successful in a startup you have to have 10,000 hours of experience working in a startup. Ten thousand hours of doing things right in a startup.
But how do you know the right thing to do? Doesn’t it become a catch 22? By definition a startup is an unproven business model. How can you have 10,000 hours of experience doing something no one has done before?
War (until recently) provided a very similar problem. How were you supposed to effectively develop officers that would be successful combat leaders when they couldn’t exactly go pick up hours of experience in their spare time. Then there is the added problem that war is always an environment of uncertainty. Every engagement is different. Your 10,000 hours are multiplied by all of the different scenarios that may arise.
How do you overcome this? You hack your way to 10,000 hours.
Every Marine Corps officer goes through training at the The Basic School in Quantico, VA (I spent 7 years in the Marine Corps as an infantry officer). A key tenant of officer training is the tactical decision game, or TDG. TDGs are pretty simple:
- Take a battle from the past.
- Tweak the details a bit so it is not readily identifiable.
- Then serve it up as a problem to the students and ask them to come up with solutions.
For anybody who has been unlucky enough to get an MBA or go to law school (I have to cop to the MBA, too) this sounds a lot like a case study, right? Which means you now take a week and spend hours doing in-depth analytics and put together a 50 page report filled with stunning diagrams.
Not exactly the quickest way to get your 10,000 hours.
Which is why the case study is a complete waste of time.
TDGs and Startups
The TDG on the other hand will get you to 10,000 hours before you know it. After you serve up the problem the students have 15 minutes to solve it. Then each student gives a one minute summary of their solution. The rest of the students critique and then the actual actions and results are briefed. This process is repeated at least daily (and perhaps multiple times a day).
Every TDG gives the student a taste of the experience of actually going through the event. Is it 100%? Of course not. But it is something. And if you have a high enough volume then you can start to leverage years of experience. Throw in additional study of the experiences of other startups through reading or discussion and you only accelerate the process.
Nothing beats experience, but if you don’t have the option of waiting to accumulate 10,000 hours? Then hack your way by doing your own TDGs. Look at what other startups have faced. Take that environment and put together what you would do. Then look at what was done and what the results were. Compare and learn. Don’t worry about what happens a year down the road. Everyone eventually stumbles. Learn from the moment and be able to apply those lessons when you find yourself in a similar situation.
To get you in the right mindset, here’s an Example Startup TDG:
Pick your Pricing Model
As an API-focused startup, two months ago you have rolled out your API with transactional pricing of $0.03 per call. This matches the pricing models of other companies in your industry. You provide a free API with 1,000 free calls.
You have had 2,000 developers sign up for free API keys and around 200 enter payment information. Less than 10% of those accounts incur a monthly bill.
A small number of customers have offered to pay monthly subscriptions for a fixed amount of calls if they can get a significant discount (50%).
Your contribution margin for the API is 90%.
The first month you had $1,000 in revenue from 5 paying customers. The second month you had $5,000 in revenue from 10 paying customers ($2,000 of this was from an experimental subscription plan for 150k calls).
You have no dedicated sales team. You rely on content and SEO to drive traffic to your website.
You have three goals (in order of importance):
- Predictable revenue stream,
- Maximize conversion to paying customer (you believe regular usage of the API will minimize churn),
- Maximize revenue growth.
Determine your pricing structure. Do you keep it the same or modify it? Provide your pricing sheet.
You have 5 minutes to complete.
What Actually Happened:
This scenario came from FullContact’s past. About a year ago we decided we needed to make major changes to our API pricing to increase our conversion rates. Here’s the blog about it.
Result? We made up the lost revenue in less than a month and our conversion from free to paid went from around 2% to 10%. And we had a much better idea of what our revenue was going to be each month.
Remember, there isn’t a right or wrong answer to a TDG. It’s about the thought process you go through to get to your answer.
Next up we’ll talk about why this is so effective in dynamic environments like startups.
What startups would make great TDGs?