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How Serial Entrepreneurs Avoid Risks

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Many collaborative entrepreneurs wonder if there is a silver bullet that would help them get their company to work right now.

And there is a truth that every serial entrepreneur knows. There is a way to “succeed” systematically, and there is a way to “struggle” systematically.

It’s a mindset difference.

Those who struggle always build a product before making sure people will buy it.

Those who succeed, make sure others really want and buy their new products before they exist.

By selling their product or service before it’s ready, when time comes to build, they know that they’ll create a product or service that people really want.

To see what I mean, these are three examples of this mindset applied to entrepreneurial celebrities in their beginnings:

  • Before creating an airline, Richard Branson got his flight to Puerto Rico cancelled which left him and a few others stranded on an island. He figured he had a problem and went to find a solution. He picked up the phone to find out how much a charter would cost. But instead of paying a whole charter on his own, he divided the price of the charter among the number of passengers and charged them $39 to rebook their seats. He offered the other passengers to pay and they were glad someone took care of it. This pre-sale Branson’s first experience in the airline industry, and the one who led him to create Virgin Airlines.
  • Before building a company, Steve Jobs also  started selling blue boxes that allowed users to get free phone services illegally. First it was a hobby invention by his friend Wozniak. When he realized people were ready to pay for it, he knew he was in business. Then someone tried to rob him at gunpoint (a story for another tab) and he decided to try selling computers, which ended up being another pretty good business for him.
  • Before Starting Paypal, Tesla and Space X, Elon Musk learned how to run a business and pay his rent by hosting epic night-parties. He first rented a house and threw parties that attracted thousands of college students. Once he knew how to make money with his projects and was comfortable with a business, he either sold it or moved on to something harder and more complex.
  • In 2005 before turning Arduino into a company, the Arduino founders created micro-controllers to teach their students programming and prototyping with electronics. When they realized people were asking in droves how to buy it, this is when they realized it was time to turn it into a business.

Can you see what’s going on here?

They all looked for people interested in what they were offering before they had anything to sell or made any significant investment. They avoided any risk.

If you are a budding entrepreneur, you might think that you can skip this step. You know in your gut that everybody wants your idea.

But from my experience, as we mentioned in the previous post, this is an excuse that helps us hide from the fear of being rejected or being stolen by others.

In this previous post you also learned how to come up with a pretty big list of things to sell. In this post we’ll take the idea you want to do most, and validate if it has the potential of becoming a business.

When you validate, you have to do it one idea at a time.

“Perfect” ideas don’t exist.

OpenROV started with a “simple” underwater robot for submarine exploration and have improved it over time to a much more polished and refined Underwater drone.

Open Source  Ecology started with a Brick Press to create building materials. Once they validated people needed it, they went on to develop the rest of the Global Village Construction Set to create a new open and ecological civilization from nothing.

So don’t worry if your idea doesn’t have a 20 year plan to change the world and a huge community behind it.

First things first. You have found a few ideas. Congrats. Not everyone takes the time to lay them down.

Now, if you want to turn them into reality, you must find if people want it enough to pay for your idea.

This is hard and challenging. People might not be interested at first. You’ll have to tweak your idea or accept that it’s not a priority to others around you. You might even have to leave your idea and pick another one you had.

But you will eventually start to see that your idea can help and have an actual impact on others. And this will be incredibly exciting and rewarding.

The community and the 20 year plan will eventually come after that, if this is what you really want you think is necessary.

Don’t worry if you think your ideas aren’t good enough or might be too hard to sell. The real value of this exercise lies in learning how to quickly validate any idea you have.

When you know how to validate any business idea, you’ll never wonder anymore “should I have tried this?”.

One last reminder:

You may successfully validate your idea or not. If not, your main goal here is to keep moving forward with other ideas and repeating the process without spending a lot of money or time on a website, landing page, app or whatever. You really don’t need it. Just go after the low-hanging fruit and go manual without building a website or hiring anyone until forced to do otherwise.

If you already have a business you want to try, let’s stick to this one. If you don’t have any idea, go back to this post and come up with your own list of ideas. The point is to get started.

If you don’t know how much to charge for it, think how much value it brings to the person you want to help, and divide it by 3x or 10x. For example, if you are selling a course, or a product that you know will make the other person 1000€, you can easily sell it for anything between 100€ or 300€.

If you still don’t know how much your product or service is worth, go with 10€. You’ll see what are the reactions from people before and after you deliver your services or product. Their feedback will guide you into increasing or decreasing the price.

But always make sure that your price is always above your costs to build and deliver the product.

Otherwise you’ll be selling a service that will become a black hole of money for you.

How can you validate your idea in 48 hours?

You already have done some great work with your list. Let’s keep up the momentum to find your first customer and see how easy it is to sell your idea and to gather interest.

I/ Help people individually

The best way to start a business is to start helping people individually (even for free).

This will help you see what they are most excited to pay you for.

It doesn’t look very scalable, but it will give you amazing insights. When you start getting too busy helping others, it’s time to start building your platform, website or whatever you are planning, not before.

Hone your skills and craft first and build your customer base one by one at the beginning.

You’ll have the money, knowledge and proof you need to scale once you’ve got enough people interested.

And keep track of the questions that keep coming. This will guide you when making your product or service.

When you get too busy helping people one on one and making things manually is when you can justify building the actual course, book or product…

Some Examples

  • If you wanted to create something like Ifixit, you could go work at a repair café or at a repair shop and see what products people are repairing or what tools they need. Then make repair guides for the products that appear most often, and sell tools that people don’t have and need to take care of their repairs.
  • Before starting Amazon, Jeff Bezos learnt how to keep an actual book shop. Once he knew how to solve logistical problems and how to satisfy his customers, he went on to develop his platform.

II/ Don’t develop an app, website or physical product, do a crappy sketch

Before we start our business, most of us think we need to develop an app or website, and spend money for some reason. I’ve been guilty of spending time and money on websites before validating people wanted them.

I’ve done this with four projects. It has cost me a lot of money and 2 years of working on projects that could have been way more successful if I had actually asked people if they were ready to use them.

So if I can give you an advice it would be: “Don’t do it!”

Don’t invest in anything before you meet your users.

If you want to create a website, app, marketplace, or even a physical product, don’t start by hiring a designer, developer or engineer.

To make sure what you build will be used, all you need is paper and pencil, Google Draw, Powerpoint or a basic paper Mock-up you can make with Balsamiq or Pencil. It’s cheap, quick and extremely effective.

Imagine you wanted to create an OpenDesk-like platform, but instead of customizable furniture, you want to offer customizable garden-gnomes.

Instead of building your app, just draw it on a piece of paper as it would look like.

My OpenGardenGnome marketplace could look something like this:

OpenGardenGnome

THIS IS AS CRAPPY AS SKETCHES GET

Once you get your first low-tech prototypes, show it to others and get their feedback.

If you have a gnome-selling website, ask them if they want to pre-buy a gnome. If you have a subscription website, ask them if they want to pre-book a subscription to the website…

If they do, you can invest your own time and money in it. But not before.

What people want are SOLUTIONS, not another web, app or product. If you can validate that people want your app or your gnome, then you should build it.

If you fail to validate it, that’s great as well. The point is to learn, and move on quickly to the next idea.

Don’t spend more than 48 hours validating an idea. If it takes longer, look for another customer profile that could be interested.

Once you’ve tried with enough people you thought would be interested, adapted your offer to their needs and it seems hard to find early customers, move on. Trying to sell something hard will only get harder with time.

Note: If you are making a marketplace, you wouldn’t be asking your customers to pay for the marketplace, but for an item you are offering on the platform, like a rental at a someone’s place for Airbnb or an hand-made product for Etsy.

But more on this later.

You want an example? Here is one:

Dmitry Dragilev wanted to find out if people wanted a platform that would help them do their PR outreach.

He did a few sketches and hung them up on a whiteboard to show how it would work. This way he could see if they wanted it or not, if they were missing any features, and if they would be serious about buying his service.

Luckily for him, it turned out they wanted it and were willing to pay, so he built it.

Tip: Focus on the root problem your idea solves, and make sure people are ready to pay for it.

III/ DIH (Do It Home)

This technique is specially useful if you are launching a product that requires retail presence.

When you consider opening a physical space like a fablab, a makerspace, a school, a virtual reality cinema or a hardware store, your costs, time and risk are very high. So to prevent this risk, it is better to start validating your business at home.

Your costs are lower, and you can start making a profit, building your customer base and polishing your offering.

When time is ready you will have people ready to open your physical space.

If you want to launch a fablab to offer courses on 3D Printing or CNC Machining you can invite some friends at your place .

You can charge them through Eventbrite or Paypal. If people pay, you got yourself a business. If they don’t you can move on to your next idea.

For Example:
If you want to invite your friends to try your future physical offering, here is a template you can use to send the invitations:

Hey Guys,

I’m going to run a workshop to learn in one hour how to use a 3D printer, so you can start prototyping your next product designs 10 times faster. [EXPLAIN WHAT YOU OFFER, AND WHAT WILL BE THE RESULTS FOR THEM]

7pm at [your place/ coworking space]. It’s going to be pretty nice ? [TELL THEM WHEN AND WHERE IT WILL HAPPEN]

Who’s in?

I will charge 15€ for an hour and your first 3D impressions. [TELL HOW MUCH IT WILL COST]

See you!

[YOUR NAME]

This template also applies If you are going to do a yoga studio, a gym, a restaurant or any other retail businesses.

You just have to tweak the email to fit your idea.

IV/ The Public Billboard Technique

Post your low-tech idea on an Internet billboard like Craigslist, LeBonCoin or whatever billboard website that’s popular in your country. Any section will do: for sale, gigs, community chats or services.

Using this kind of platform is an amazing validation and will save you tons of time and money building a website, buying a domain, and so on…

You want to make an Open Source custom-clothing platform?

Offer to sell some custom costumes on Craigslist and see if people are ready to buy.

I am sure you are looking forward to ordering some costumes

I AM SURE YOU ARE LOOKING FORWARD TO ORDERING SOME

Once you have people willing to pay for your product, but you don’t have any product, you can deliver them yourself or post your own request for tailors in gig billboards to fulfill your orders.

Example:

When Airbnb was beginning they posted their listings in Craigslits, this is how they found their initial customers. To grow the offerings on their platform they also emailed people who were listing their properties on Craigslist.

Here is an email example written by the founders of Airbnb looking for more people to fulfill their orders:

airbnb-craigslist-letter

V/ The Low-tech email technique

If you want to create a marketplace or website, this is the best technique. Instead of developing your platform straight away, just email your friends. Manually connect people via your email list and charge for the connection.

Offer a service, connect people via your email list and charge for the connection.

If they pay you for what you want to offer, then you can consider making it happen.

Imagine you want to create a food delivery marketplace like Deliveroo. You consider making it Open Source and cooperatively owned. But first you need to find out if it will make money to support the people involved.

So you first email 15 of your busiest friends. If they are interested, you tell them to pay you 20€ through Paypal and deliver food on the night they choose.

Then you post on the Craiglist from your region – or Le Bon Coin if you are in France – that you need a caterer. You then pick up the caterers that would be a good fit, just like in the previous method.

This will validate that people want to pay for the service and that people are ready to deliver the service.

First example – Delivery marketplace:

If you wanted to create a food delivery platform you could use this email template to test your idea. You can also tweak this template for many other types of businesses:

“Hello Friends,

I’ve realized I don’t have much time to cook after I get home or am too tired to make a proper dinner. [EXPLAIN THE PROBLEM]

I wanted to invite you, with a select few others, to test a business idea with me. (Lucky you ? ) [EXPLAIN WHAT YOU THINK OF DOING ABOUT IT]

Convenient quality restaurant food delivered at your place. 

On [date], for 25€ I’ll be delivering sushi, french food and vegan gastronomy. You could choose any of the three, and I’ll deliver it right to your door for your enjoyment! [EXPLAIN WHAT YOU OFFER]

If this sounds like something interesting to you, you can paypal 25€ to name@inbox.com [ASK FOR THE PAYMENT]

Any feedback is welcome.

Have a great day,

Your Name

PS: Please let me know if you have any preference. I guarantee that the meals will be great.”

Second Example – Oomph:

When Oomph (now Crew) started their own marketplace they wanted to match freelance developers with people looking for freelancers.

But instead of spending time and money developing a complex platform, they just used a Mailchimp newsletter and a Wufoo contact form to get their business started.

When people were looking for developers, they just had to enter their project idea and their budget.

Wufoo's contact form

WUFOO’S PROJECT CONTACT FORM

Then Oomph would send a newsletter with the project to their list of developer friends who could provide solutions.

Mailchimp email to send new projects

MAILCHIMP EMAIL TO SEND NEW PROJECTS

This way they started selling $25,000 of projects in 3 months without any complexity, validating people were ready to use their service and pay for it.

If you want to launch your own platform cooperative, don’t build the platform, just set up a contact form to those who want to buy from you, and then add your providers in a Mailchimp newsletter. If there is a match you’ve got a business.

Third Example – Arcade City:

When Uber and Lyft were banned from Austin, Arcade City set up an invite-only Facebook Groupwhere people could request a lift by posting it on their wall, and drivers could match those requests. Potential Drivers could respond with their time of arrival, estimated price and phone to confirm the pickup.

Ride requests on Arcade City's Facebook Group

RIDE REQUESTS ON ARCADE CITY’S FACEBOOK GROUP

This validation helped them get their first 40.000 users and providers, and they’ll be sure it makes sense to invest in developing a platform.

Key Takeaway: Can you match your requests and service providers with a very simple platform at first to validate that there is enough demand and offering?

Wrapping Everything up

We’ve covered a lot of ground in this post. Here is what you should remember:

  • Pick your one idea
  • Pick above a validation technique you think is best for your idea
  • Test it quickly with people in your network who you think would be interested
  • If nobody buys, move on to the next idea
  • If people buy, deliver them your product or service, and invest the money into improving it
  • Help people with your fantastic ideas
  • Rinse and repeat

I understand that the examples I have given above may be different than what you may have in mind.

The point is to share a system that you can adapt to your own ideas so you don’t risk your finances or over-committing to others. I encourage you to try ideas that will help bring more life, openness and transparency to the world.

It might be permaculture products, a sensor, a textile, a book, a new software or anything else you came up with.

Whatever it is, validating will ensure that your creation is a win-win for yourself and for those around you. For yourself because you can make a living, and for those around you because they’ll want what you offer so much that they’ll be ready to pay you for it.

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About the Author

This article was written by Jaime Arredondo, a Spanish and French collaborative entrepreneur of Bold & Open. See more.

Entrepreneurship

The Brittle vs. Ductile Strategy for Business

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Companies and startups often pursue a path of “brittle strategy” and in it’s execution, it can be translated, in layman terms, into something like this:
Heard about the guy who fell off a skyscraper? On his way down past each floor, he kept saying to reassure himself: “So far so good… so far so good… so far so good.” How you fall doesn’t matter. It’s how you land!
– Movie : La Haine (1995)

Brittle strategy :

A brittle strategy is based on a number of conditions and assumptions, once violated, collapses almost instantly or fails badly in some way. That does not mean a brittle strategy is weak, as the condition can either be verified true in some cases and the payoff from using this strategy tends to be higher. However the danger is that such a strategy provides a false sense of security in which everything seems to work perfectly well, until everything suddenly collapses, catastrophically and in a flash, just like a stack of cards falling. Employing such approach, enforces a binary resolution: your strategy will break rather than be compromising, simply because there is no plan B.
From observation, the medium to large corporate company strategies’ landscape is often dominated by brittle “control” strategies as opposed to robust or ductile strategies. Both approach have their strong parts and applicability to corporate win the corporate competition game. The key to most brittle strategy, especially the control one, is to learn every opponent option precisely and allocate minimum resources into neutralizing them while in the meantime, accumulating a decisive advantage at critical time and spot. Often, for larger corporations, this approach is driven by the tendency to feed the beast within the company that is to say the tendency is to allocate resources to the most successful and productive department / core product / etc.. within the company. While this seems to make sense, the perverse effect is that it is quite hard to shift the resources in order to be able to handle market evolution correctly. As a result of this tendency, the company gets blindsided by a smaller player which in turn uses a similar brittle strategy to take over the market.The startup and small company ecosystem sometimes/often opts for brittle strategy out of necessity due to economic constraints and ecosystem limitations because they do not have the financial firepower to compete with larger players over a long stretch of time, they need to approach things from a different angle. These entities are forced to select an approach that allows them to abuse the inertia and risk averse behavior of the larger corporations. They count on the tendency of the larger enterprise to avoid leveraging brittle strategies, made to counter other brittle strategies. These counter strategies often fail within bigger market ecosystem as they are guaranteed to fail against the more generic ones. Hence, small and nimble company try to leverage the opportunity to gain enough market share before the competition is able to react.

Ductile strategy :

The other pendant of the brittle strategy is the ductile strategy. This type of strategy is designed to have fewer critical points of failure, while allowing to survive if some of the assumptions are violated. This does not mean the strategy is generally stronger, as the payoff is often lower than a brittle one – it’s just a perceived safer one at the outset. This type of approach, will fail slowly under attack while making alarming noises. To use an analogy, this is similar to the the approach employed with a suspension bridge using stranded cables. When such a bridge is on the brink of collapse, will make loud noises allowing people to escape danger. A Company can leverage, if the correct tools and processes are correctly put in place, similar warning signs to correct and adapt in time, mitigating and avoiding catastrophic failure.
To a certain extend, the pivot strategy for startups offer a robust option to identify the viability of a different hypothesis about the product, business model, and engine of growth. It basically allows the Company to iterate quickly fast over the brittle strategy until a successful one is discovered. Once found, the Company can spring out and try to take over the market using this asymmetrical approach. For a bigger structure, using the PST model combined with Mapping provides an excellent starting point. As long as you have engineered within your company and marketed the correct monitoring system to understand where you stand at anytime. Effectively, you need to build a layered, strategic approach via core, strategic and venture efforts combined with a constant monitoring of your surroundings. This allow you to take risks with calculated exposure. By having the correct understanding of your situation (situational awareness), you will be able to mitigate threats and react quickly via built-in agility. However, we cannot rely solely on techniques that allow your strategy to take risk while being able to fail gracefully. We need techniques that do so without insignificant added cost. The cost differential between stranded and solid cables in a bridge is small, and like bridges, the operational cost between ductile and brittle strategy should be low. However, this topic is beyond the scope of this blog post but I will endeavor to expand on the subject in a subsequent post.
Ductile vs Brittle :
The defining question between the two type of strategies is rather simple: which strategy approach will guarantee a greater chance of success? From a market point of view this question often turns into : is there a brittle strategy that defeats the robust strategy?
By estimating the percentage of success a brittle strategy has against the other strategies in use, weighted by how often each strategy is used by each competitor you can determinate the chances of success.Doing this analysis is a question of understanding the overall market meta competition. There will be brittle strategies that are optimal at defeating other brittle strategies but will fail versus robust. However, the robust one will succeed against certain brittle categories but will be wiped out with other. Worse still, there is often the recipe for a degenerate competitive ecosystem if any one strategy is too good or counter strategies are too weak overall. Identifying the right strategy is an extremely difficult exercise. Companies do not openly expose their strategy/ies and/or often they do not have a clear one in the first place. As a result, if there is a perception that the brittle strategy defeats the ductile one, therefore the brittle strategy approach ends up dominating the landscape. Often strategy consulting companies rely on this perception in order to sell the “prêt a porter” strategy of the season. Furthermore, ductile strategies tend to be often dismissed as not only do they require a certain amount of discipline, but also the effort required in its success can be daunting. It requires a real time understanding of the external and internal environment. It relies on the deployment of a fractal organisation that enables fast and risky moves, while maintaining a robust back end. And finally, it requires the capability and stomach to take risk beyond maintaining the status quo. As a result, the brittle strategy often ends up more attractive because of its simplicity, more so that it’s benefit from an unconscious bias.

The Brittle strategy bias:

Brittle strategies have problems “in the real world”. They are often unpredictable due to unforeseen events occurring. The problem is we react and try to fix things going forward based on previous experience. But the next thing is always a little different. Economists and businessmen have names for the strategy of assuming the best and bailing out if the worst happens, like “picking pennies in front of steamrollers” and “capital decimation partners”.
It is a very profitable strategy for those who are lucky and the “bad outcome” does not happen. Indeed, a number of “successful” companies have survived the competitive market using these strategies and because the (hi)story is often only told by the winner’s side only, we inadvertently overlook those that didn’t succeed, which in turn means a lot of executives suffer from the siren of the survival bias, dragging more and more corporations into similar strategy alongside them.
In the end all this lot ends up suffering from a more generalized red queen effect whereby they spend a large amount of effort standing still (or copying their neighbors approach). This is why when a new successful startup emerges, you see a plethora of similar companies claiming to apply a similar business model. At the moment it’s all about UBER for X and most of these variants. If they are lucky, they will end up mildly successful. But for most of them, they will fail as the larger corporations have been exposed and probably bought into the hype of the approach.
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About the Author
This article was written by Benoit Hudzia of Reflections of the Void, a blog about life, Engineering, Business, Research, and everything else (especially everything else). see more.
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Entrepreneurship

What Kills A Startup

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1 – Being inflexible and not actively seeking or using customer feedback

Ignoring your users is a tried and true way to fail. Yes that sounds obvious but this was the #1 reason given for failure amongst the 32 startup failure post-mortems we analyzed. Tunnel vision and not gathering user feedback are fatal flaws for most startups. For instance, ecrowds, a web content management system company, said that “ We spent way too much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision. I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.”

2 – Building a solution looking for a problem, i.e., not targeting a “market need”

Choosing to tackle problems that are interesting to solve rather than those that serve a market need was often cited as a reason for failure. Sure, you can build an app and see if it will stick, but knowing there is a market need upfront is a good thing. “Companies should tackle market problems not technical problems” according to the BricaBox founder. One of the main reasons BricaBox failed was because it was solving a technical problem. The founder states that, “While it’s good to scratch itches, it’s best to scratch those you share with the greater market. If you want to solve a technical problem, get a group together and do it as open source.”

3 – Not the right team

A diverse team with different skill sets was often cited as being critical to the success of a starti[ company. Failure post-mortems often lamented that “I wish we had a CTO from the start, or wished that the startup had “a founder that loved the business aspect of things”. In some cases, the founding team wished they had more checks and balances. As Nouncers founder stated, “This brings me back to the underlying problem I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made.” Wesabe founder also stated that he was the sole and quite stubborn decision maker for much of the enterprises life, and therefore he can blame no one but himself for the failures of Wesabe. Team deficiencies were given as a reason for startup failure almost 1/3 of the time.

4 – Poor Marketing

Knowing your target audience and knowing how to get their attention and convert them to leads and ultimately customers is one of the most important skills of a successful business. Yet, in almost 30% of failures, ineffective marketing was a primary cause of failure. Oftentimes, the inability to market was a function of founders who liked to code or build product but who didn’t relish the idea of promoting the product. The folks at Devver highlighted the need to find someone who enjoys creating and finding distribution channels and developing business relationship for the company as a key need that startups should ensure they fill.

5 – Ran out of cash

Money and time are finite and need to be allocated judiciously. The question of how should you spend your money was a frequent conundrum and reason for failure cited by failed startups. The decision on whether to spend significantly upfront to get the product off the group or develop gradually over time is a tough act to balance. The team at YouCastr cited money problems as the reason for failure but went on to highlight other reasons for shutting down vs. trying to raise more money writing:

The single biggest reason we are closing down (a common one) is running out of cash. Despite putting the company in an EXTREMELY lean position, generating revenue, and holding out as long as we could, we didn’t have the cash to keep going. The next few reasons shed more light as to why we chose to shut down instead of finding more cash.

The old saw was that more companies were killed by poor cashflow than anything else, but factors 1, 2 and 4 probably are the main contributing factors to that problem. No cash, no flow. The issue No 3 – the team – is interesting, as if I take that comment ” I didn’t have a partner to balance me out and provide sanity checks for business and technology decisions made” and think about some of the founders and startup CEOs I know, I can safely say that the main way that any decision was made was by agreeing with them – it was “my way or the highway”. I don’t therefore “buy” the team argument, I more buy the willingness of the key decision makers to change when things are not working (aka “pivoting” – point 9).

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About the Author

This article was produced by Broadsight. Broadsight is an attempt to build a business not just to consult to the emerging Broadband Media / Quadruple Play / Web 2.0 world, but to be structured according to its open principles. see more.

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