The ‘What Customers Need’ Fallacy

Here is a simple puzzle for you: If you start with ‘What customers need’ – you will only build incremental stuff, because what the customer needs is always based on what they have right now. To build revolutionary products, starting with what customers need is a very bad starting point. Steve Jobs was right when he said that the customer does not know what he needs until you build it and show it to him, for the simple reason that he does not know what is ‘possible’.

But then if you start building stuff without knowing if the customer needs it, how do you know they will need it when you have built it?

So the puzzle is this: where do you start?

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What The Next Generation Needs Is Math, Not Programming

Math is silently taking over the world. You can’t see it, but it is happening. For a generation immersed in the next photo app success story this might be difficult to imagine – but we live in a world driven by math. Algos drive most of our lives everyday – it is not just NASA or GE or stock market anymore. It is basically everything around us.

Programming is a tool, a very important one. But training a whole generation in Programming alone, ignoring the all-important Math that goes behind most things around us, would be a huge mistake. Yes, you can implement an algo. But how many of us can understand the algo? And how many of us can try to write the algo?

Take a step back and look around you. The apps and devices and screens and all of that – yes, they provide many lucrative opportunities in the short term – but it is the intelligent analysis of information that would be the most critical skill in a decade from now. After the noise around all the hot apps die, the signal will emerge – and it would carry this unambiguous message: intelligent analysis of large scale data is the future. And for that future, what you need is Math, not Programming.

Today, we can get away with ‘knowing’ how Google works without understanding what a ‘principal eigenvector’ is. Tomorrow, we need to absolutely know that. And that is something you cannot understand in a hurry.

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You don’t want jacks-of-all-trades. You want experts.

(This post is a response to Bryan Goldberg’s article in PandoDaily)

Bryan’s argument revolves around two points – quoting from the article,

1. “But I’ll wager that there aren’t many people on the planet who understand the confluence of technology, editorial, and advertising better than me.”
2. “But what really catalyzed our success was that the founding team could bring it all together. Short of that, you would have had a boardroom where the editors, engineers, and salespeople were talking past each other and growing frustrated.”

Confluence and bringing it all together. That is basically the argument. Bryan’s idea seems to be that you can ‘hire’ experts – but to get it all together, you need a jack-of-all-trades running the show. It sounds like a great idea, except that it isn’t. Particularly in today’s world. Bryan’s argument can be nullified with this one statement – Expertise in any area and the skill required to bring it all together are not always mutually exclusive.

And Bryan’s examples are wrong. We will not consider the AOL example though – we never really understood why Bryan picked up that example as well. AOL is basically just a wrapper brand around many web properties, at least in our view.

What is wrong with Bryan’s examples? Steve Jobs, Jack Dorsey, Elon Musk. Steve Jobs – Jack Dorsey – Elon Musk. (Read it the way Steve Jobs introduced the iPhone in 2007). SteveJobs-JackDorsey-ElonMusk. That is right – he has picked examples that are, by definition, exceptions. What is wrong with that? If there ever could be a ‘most non-representative sample’ to base an entrepreneurship argument on, this would be it. SteveJobs-JackDorsey-ElonMusk.

Bryan, Steve stood atop a mountain of experts, and they listened to him because he was Steve Jobs. Jack Dorsey can get away with not knowing about credit processing (we don’t agree with you on the technology part though, he is an expert on technology) because he is ‘Twitter creator’ Jack Dorsey. And Elon Musk – don’t even get us started ..

The issue with the ‘jack-of-all-trades’ argument is this: it works at both ends of the entrepreneurship spectrum (small business owners and visionaries) but it doesn’t work in the huge space in-between. Because in that space, you absolutely have to be an expert to run your business. You definitely cannot be a jack-of-all-trades when you are expected to be an expert-of-all-trades. At the very least, you need to be an expert in one area, and preferably in the area that is the focal point of your business.

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Connect The Dots Looking Forward

“You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever. Because believing that the dots will connect down the road will give you the confidence to follow your heart even when it leads you off the well worn path; and that will make all the difference.” – Steve Jobs

The first statement there – ‘you can’t connect the dots looking forward’ – is stated with so much conviction, that most people perceive it as a fact. In which case, you are left with just one option: to ‘believe’ that the dots will connect down the road, and keep moving forward. It sounds like an exciting option, but it is not. Of the three things that humans dread the most – Fear, Uncertainty and Doubt, Uncertainty is the most unsettling. Unfortunately, that is the defining characteristic of your life as soon as you start moving ‘off the well worn path’.

That statement – ‘you can’t connect the dots looking forward’ – is misleading in many ways – it depicts the path taken by a person with no idea whatsoever of where he wants to get to. While that might have worked very well for a genius like Steve Jobs, for the rest of us, it would be foolishness to waste our limited time and effort on activities that would fit this description from Steve Jobs: “None of this had even a hope of any practical application in my life”. The story of Steve Jobs (or at least the way he describes it in his speech) is a sequence of happy coincidences with an overdose of serendipity, that has a negligible probability of happening to anyone other than Steve Jobs. While it is definitely impossible to connect the dots looking forward, it would probably not be a great idea to follow Steve Jobs and learn today’s equivalent of calligraphy – yes, if you find something that is ‘beautiful, historical, artistically subtle in a way that science can’t capture’, and you find it fascinating – go right ahead and dive deep into it. For the majority of us though, such serendipity can basically be ruled out. Or let us just say, that it has not happened yet. What do we do?

Let us look at that statement again : ‘you can’t connect the dots looking forward’ – What if it is not a fact? What if you could actually connect the dots looking forward? On paper, this suddenly opens up a wide range of possibilities. Now you could try to paint a path with dots that would take you to your destination, or at least in that direction. And work on the dots. Build those skills that will take you from one dot to the next. When you look at it that way, it suddenly sounds like a fundmental thing to do: that you should try to connect the dots looking forward and have the draft version of a path to where you want to get to.

Yes, the path will change. The dots would be hazy. Things around you will change that would make some dots useless or redundant. But what you will have, is a sense of direction. If you are not Steve Jobs, it is a good idea to try to connect the dots looking forward and have a strategy that moves you in a general direction. Everything will change, including the destination, but the dots would be more meaningful. And you are betting less on low-probability, life-changing events and more on building relevant skills and a solid platform for success. Trying to connect the dots looking forward will help you increase your surface area for a positive black swan event.

You still have to trust that the dots will somehow connect in your future. “You have to trust in something – your gut, destiny, life, karma, whatever. Because believing that the dots will connect down the road will give you the confidence to follow your heart even when it leads you off the well worn path; and that will make all the difference.” – We can’t thank Steve Jobs enough for phrasing it that way. But we should try to connect the dots looking forward. Here is PG:

“I think the way to use these big ideas is not to try to identify a precise point in the future and then ask yourself how to get from here to there, like the popular image of a visionary. You’ll be better off if you operate like Columbus and just head in a general westerly direction. Don’t try to construct the future like a building, because your current blueprint is almost certainly mistaken. Start with something you know works, and when you expand, expand westward.”

Connect The Dots Looking Forward. You will fail in finding a destination but you will definitely succeed in finding the general direction.

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A Tale Of Two Statisticians

First, from A Genetic Code For Genius?:

“At a former paper-printing factory in Hong Kong, a 20-year-old wunderkind named Zhao Bowen has embarked on a challenging and potentially controversial quest: uncovering the genetics of intelligence.
Mr. Zhao is a high-school dropout who has been described as China’s Bill Gates. He oversees the cognitive genomics lab at BGI, a private company that is partly funded by the Chinese government.

At the Hong Kong facility, more than 100 powerful gene-sequencing machines are deciphering about 2,200 DNA samples, reading off their 3.2 billion chemical base pairs one letter at a time. These are no ordinary DNA samples. Most come from some of America’s brightest people—extreme outliers in the intelligence sweepstakes.”

Next – from an interview with Nick Chamandy, statistician at Google:

“SS: Is your work related to the work you did as a Ph.D. student?

NC: Although I apply many of the skills I learned in grad school on a daily basis, my PhD research was on Gaussian random fields, with particular application to brain imaging data. The bulk of my work at Google is in other areas, since I work for the Ads Quality Team, whose goal is to quantify and improve the experience that users have interacting with text ads on the google.com search results page. Once in a while though, I come across data sets with a spatial or spatio-temporal component and I get the opportunity to leverage my experience in that area. Some examples are eye-tracking studies run by the user research lab (measuring user engagement on different parts of the search page), and click pattern data.”

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The Best Product Does Not Always Win

We had suspected this all along – but like many things tech, it is not wisdom unless a VC states it.

So here it is. If you thought that the best product always wins, you are probably wrong. According to Ben Horowitz, the product need not be the ‘best’ in its category to win initially – there are multiple other factors that decides which product wins in the market – but once it becomes a winning product, it then BECOMES the best product because of the attention, support and everything else it receives because it is the winning product.

We can easily imagine the mechanics of how this would play out – and we can actually see multiple examples of this happening in the market as well. Even though there is some bitterness from the browser wars that is evident in Ben’s statement, we all know that Ben is right – The Best Product Does Not Always Win. For those of us who look at a product and think that the win was deserved, we are looking at a product that has BECOME the best product AFTER it became the winning product.

We actually spotted this in a PandoDaily Ben Horowitz interview here. You need to go just past 30 minutes to hear this particular point.

To think that the best product would always win, is just Ludic fallacy

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You Will Never Know This, Maybe Even After You Die…

Here is an interesting 30 second thought exercise.

Let us say you have this issue since you were born – the color RED appears to you as GREEN and vice-versa. So the first time when you went to school, the teacher showed you the color RED, which of course appeared to you as GREEN. She taught you to call it as RED and you have been calling it RED ever since, in spite of you seeing GREEN every single time. The same story holds for the color GREEN as well – you see RED, but you call it GREEN since that is what the teacher taught you the first time you saw that color. You even cleared the color blindness exam for your driver’s license, since you ‘called’ all the colors right. When you drive, when the signal is RED, you actually see GREEN, but since you call that color as RED, and you know you need to stop at RED, you stop.

Here is the thing: You will never know that you have this problem, till you die. WOW.

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George Soros, Nate Silver and Barack Obama: A Story of Reflexivity

There is one theory that billionaire hedge fund manager George Soros famously said helped him ‘make money and spend money’. It is called the theory of reflexivity, here in Soros’ own words:

“I can state the core idea in two relatively simple propositions. One is that in situations that have thinking participants, the participants’ view of the world is always partial and distorted. That is the principle of fallibility. The other is that these distorted views can influence the situation to which they relate because false views lead to inappropriate actions. That is the principle of reflexivity. For instance, treating drug addicts as criminals creates criminal behavior. It misconstrues the problem and interferes with the proper treatment of addicts. As another example, declaring that government is bad tends to make for bad government.

In the real world, the participants’ thinking finds expression not only in statements but also, of course, in various forms of action and behavior. That makes reflexivity a very broad phenomenon that typically takes the form of feedback loops. The participants’ views influence the course of events, and the course of events influences the participants’ views. The influence is continuous and circular; that is what turns it into a feedback loop.”

(Source: FT)

On February 15 2012, Nate Silver published an article titled “The Fundamentals Now Favor Obama“. A quote from that article:

“Given Mr. Obama’s current approval ratings and consensus forecasts on the economy, he rates as about a 60 percent favorite to win the popular vote against Mitt Romney, with somewhat higher chances against any of the other Republicans running for the nomination. By contrast, in the November version of the model, Mr. Obama was an underdog to Mr. Romney, with a 40 percent chance of winning; the president’s approval ratings were about 6 points lower then and economic forecasts were somewhat more pessimistic.”

In June, Nate Silver wrote this (Election Forecast: Obama Begins With Tenuous Advantage):

“However, the outlook for the Nov. 6 election is much less certain, with Mr. Obama having winning odds of just over 60 percent. The forecast currently calls for Mr. Obama to win roughly 290 electoral votes, but outcomes ranging everywhere from about 160 to 390 electoral votes are plausible, given the long lead time until the election and the amount of news that could occur between now and then. Both polls and economic indicators are a pretty rough guide five months before an election.”

And of course, the probability numbers for Obama kept going up as we neared the polling date and time. We are not trying to imply that Reflexivity caused these numbers to go up since the subjects are ‘thinking’ in Soros’ terms. Our key argument is this:

1. Feedback loops have definitely been created. Sandy might have played a catalyst role, but the kind of visibility and background that Nate Silver brought to his predictions have definitely triggered Reflexivity.

2. Did that convert into votes? We don’t know. What we know is this: if one could quantify Nate’s reach in some way (number of pageviews could be a starting point) and tie that to the swing states geographically, and add to the argument with some kind of keyword/sentiment analysis on Twitter / Facebook, one can definitely see Reflexivity in action.

3. This might all be the stating the obvious – but the bigger point is this: this is not Reflexivity attributed to a set of folks talking about Obama – this is Reflexivity attributed to a person with a solid background making statements based on models. People then talk about it. Ask Obama’s data mining team. We are sure they saw some of that Reflexivity the day of the $2000 bet, and after that. It might have been Reflexivity on steroids, but Reflexivity, it was.

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To Focus Or To Pivot, That’s The Question

Well this could be a question facing many firms particularly early stage start-ups today. Given the fact that different people give different perspectives – many people say Do One Thing Right – and many say You Need To Pivot To Win. Well, which advice should you follow?

The answer, it turns out, is the same as the one we had for Product Vs Service, or for Network Effect – Avoid Vs Embrace – both directions work, and there is heavy survivorship bias in the stories that are told. AirBnB could have been a limited edition cereal maker, or Groupon could have been a platform for mobilizing groups of people towards action for various causes. As Ben Silberman says, the future is unwritten.

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Yahoo: ‘We Need More Revenue. Let’s Fire Some People’

We spotted this today:

“But one analyst warned of further demoralization at Yahoo, something that he said could weaken the Internet giant’s ability to generate growth in revenue.
“Yahoo’s issue right now is not profitability — it’s revenue growth,” BGC Partners analyst Colin Gillis said in an interview. “That’s why the market is reacting so tepidly to this.”

Yahoo shares edged up a fraction to close at $15.27, against the backdrop of a broadly lower U.S. equities market. Yahoo’s stock has lost more than 5% since Jan. 1.”

Statistics Source: MarketWatch

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