How To Spot a Breakthrough: Tips from Early Amazon Investor Nick Hanauer

http://www.xconomy.com/seattle/2008/12/03/how-to-spot-a-breakthrough-tips-from-early-amazon-investor-nick-hanauer/

by waderoush • 18 years ago

109 28 18 years ago

sireat• 18 years ago

Interesting that despite numerous cases of success, he still believes in the big ol' bag of luck. Highly successful people usually loathe to admit the part of luck in their lives.

ph0rque• 18 years ago

"Luck is what happens when preparation meets opportunity." --Seneca

josefresco• 18 years ago

Seneca was kind of a rebel, and quotes like that discount the instances of true luck.

sanj2• 18 years ago

I've found that the people who are most successful are those that ascribe their success to good luck. And when things fail, they examine what they did wrong: externalize success, internalize failure.

Those that believe that luck has "nothing to do with it" are generally endowed with a huge ego and no way to see around it. Strangely, they're also the ones most likely to blame bad luck when things go wrong: internalize success, externalize failure.

The advantage to internalizing failure is that you can learn from it.

kirse2• 18 years ago

From an optimistic (and even mental health) perspective, externalizing failure and internalizing success - aka "I did the best I could but the situation did not materialize" - is much healthier than internalizing failure and blaming yourself when things go wrong. Externalizing success never gives yourself due credit when things go right, and internalizing failure always blames yourself when things go poorly. See the problem?

This is not to say one should have an inflated sense of value or "don't learn from your mistakes", but it is much healthier to optimistically look at failure as not a personal thing, but something external.

People who have succeeded and are confident in themselves are never afraid to look back and admit that a little bit of luck (and opportunity) was part of the equation. But by no means will they discredit their own personal influence and attribute the entire success to something external.

brentb• 18 years ago

I'd argue that you can learn more from internalizing success, simply because I suspect the domain of things you can do wrong when starting a company is much larger than the domain of things you can do right.

If you fail and learn not to do some of the things that led to the failure, there are likely still many more things you have yet to learn that may lead you to fail in the future (assuming you don't repeat your mistakes). On the other hand, if you succeed and learn from it, then you can apply some of the things that contributed to your success to future endeavors.

I'd argue that this may be one reason you see so many serial entrepreneurs... reflecting on what contributed most to their successes allows them to achieve similar successes over and over.

I'm not suggesting learning from your failures isn't valuable... it absolutely is. I'm simply suggesting that learning from your successes may be more valuable.

petercooper• 18 years ago

Luck is always a factor - however, I think there's definitely some upbringing and family success at play here. Nick's brother Adrian Hanauer ( http://en.wikipedia.org/wiki/Adrian_Hanauer ) is also a successful investor.

wmeredith• 18 years ago

"I'd rather be lucky than good." -Lefty Gomez, NY Yankees and MLB All-Star 1933 - 1939

nostrademons3• 18 years ago

Something I'm wondering - how do you spot that "transformational" value in foresight, when the next element ("social disruption") is all about how these huge shifts in value creation are never really apparent at first glance?

For example, I think that YouTube is easily a 10x improvement over things like VHS tapes. I was just hunting for the opening credits of children's shows that I watched as a kid, and I found every single one (except Voyage of the Mimi ;-)) in about 15 seconds. My dad has been searching for the songs he grew up with, in the 40s, and they're all there. It's like a vast nostalgia library.

But that didn't exist until enough people started using YouTube that basically everything became available online. When I first saw YouTube, around the fall of 2005, I was basically like "What's the point?" You were limited to 10 minute clips, and it didn't have anything I wanted on it. Even when Google acquired them for $1.6B, many people say they overpaid. Heck, people still say they overpaid.

And Google Video, which came out before YouTube and offered a very similar feature set, never really caught on. Nor did the zillion other video-sharing startups.

Ideas? My cofounder once talked with Clayton Christiansen about this (who's done a lot of work on disruptive innovation), and he said that on a micro level, it was basically all luck. You know what doesn't work, but finding out what does is basically just a matter of trying lots and lots of ideas and letting the vast majority fail.

maxwell• 18 years ago

YouTube succeeded because it's a good brand and good enough software. If Google had just integrated video results more tightly into search, thus making it a feature rather than a distinct product, and made uploading straightforward, they might have won. They still could, actually; a lot of people I know use Google to find YouTube videos in the first place.

I've noticed that whenever Google launches Google _, where _ isn't a search filter, it more often then not fails. It's the branding. I think that for a lot of people Google = web search. Google Image Search is popular because it's an easily comprehensible feature of search. Google Docs is a shit brand; if I only knew about Google search and Gmail, I'd guess it's document(ation) search. Or just a word processor. It's not immediately clear that it's a web-based office suite.

A large part of Gmail's success was in creating a distinct brand; my hunch is that if it was launched as just Google Mail, it wouldn't have been nearly as successful (technical merits aside).

fallentimes• 18 years ago

Youtube was hemorrhaging cash. If someone wouldn't have bought them, Youtube would have been in big trouble. especially if we had been in a recession.

pchristensen• 18 years ago

a lot of people I know use Google to find YouTube videos in the first place

This isn't specific to YouTube. I use Google to find anything on any site - very few sites can find pages better, even with advanced search features.

aston• 18 years ago

Gmail is called Google Mail in the UK and Germany due to trademark issues. Pretty sure it's not hurting them too much.

jdunck2• 18 years ago

Google Video was originally positioned as the Authorities providing TV. Its brand was convoluted. Remember in-video audio search? It was never about user sharing. It was never about me.

YouTube is sort of a special case, in that it has obvious network effects, and pretty much anyone that corners the market has a lock. eBay, Amazon, delicious, etc.

We continue to be surprised by the network effect. So perhaps the interesting question when you find yourself asking "so what?" is "does this have critical mass and a network effect in play?"

Go read Wealth of Networks. ;-)

nostrademons3• 18 years ago

The vast majority of network-effect businesses are very difficult to tackle, though, because:

1.) If it's already apparent that this is a viable business, then there's probably already an entrenched player, and the network effect serves to keep you out.

2.) If it's not already apparent that this is a viable business, then prospective users are like "Why should I bother?" and you never get the initial critical mass. After all, if the utility of the service grows with the square of the number of people, then the utility for the first person is zero and they have no reason to begin using the service.

It seems that most firms that overcame the initial network effect did so through a combination of blind luck or leveraging other assets. For example, YouTube's traffic hovered around zero until they got SlashDotted. EBay was blind luck - Pierre Omidyar figured he'd run an experiment on creating the perfect marketplace, and it turned out people sent him money. Digg used Kevin Rose's TechTV audience to seed the initial site. FictionAlley had the most popular HP fanfiction author as one of its founders, and she pulled her fanfiction off all other sites and hosted it exclusively on FictionAlley. Microsoft lucked out on the IBM deal and then leveraged that to gradually increase their monopoly over the PC industry.

ible• 18 years ago

One tactic I use is to consider things which are 1000 times better than something which already exists. You don't have to invent something completely new, if you make something 1000 times better its uses will change in transformational ways.

It's easy to see these in retrospect, things like spreadsheet software, digital photography, digital publishing, and email are all a factor or 1000 or more better in some regard than what came before. Hanauer mentions getting "1,000 times the surveillance per dollar".

In Founders At Work the guy behind PayPal describes their fraud tools which were probably 100 to 1000 times better than what their fraud investigators were working with and allowed PayPal to survive when their competitors died.

I've been in academia for a long time so I often wonder how to make education 1000 times better. If that 1000 times better is 10 times faster and 100 times cheaper (questionable math I know) you'd be able to do college in 5 months for a few hundred dollars. I don't know how to do it, but it forces a different thought process.

It's relatively easy to make something 1000 times better that is only useful for one or two people in a particular situation, and the more people it is useful for the more money potential there is. A simple script has been 100 to 1000 times more efficient for me in some situations, but isn't useful for anyone else. 1000 times makes such a difference though that it is almost always worthwhile.

netcan• 18 years ago

When I was finishing high school, I went through a bad patch. Nearly dropped out. I fell out with the math teacher at week one & never went to a class.

The school decided to let me have a chance at taking a few versions of the year's final. I took about 5 hrs 1-on-1 tuition with approximately 1.5 hrs preparation each + about 10 hrs of self study + about the normal amount of pre test practice (maybe 20-30) hrs. That adds up to approximately 45 hrs all up compared to maybe 5-6 times that much pursuing the normal study path. I had similar examples at university (though not as sharp).

Assuming that 5 hrs 1-on-1 is probably cheaper the 1/30 X 1 year of teacher time, that's an efficiency. But you could probably have 7-8 hours of 3-on-1 with similar results. 1 teacher could potentially "teach" 10-15 students how to pass that test in a week.

Of course there what you have is a totally different experience. I was taught how to pass the mathematics test, not mathematics. My classmates were taught mathematics, but they still learned how to pass the test.

Universities have terrible inefficiencies. They basically subsidise research with tuition. The students receive some of the prestige gained via research in the form of their degree. But if you look at it from a purely educational perspective, it's inefficient.

In many subject areas attendance in lectures was about 40%. My own attendance was in no way linked to my results. What I did find important were the tutorials. But that was only about 100 hrs per year (10 - 15 students). Everything else, from lectures to course administration is very scalable.

I could have received a very similar education with 10 hrs per student tutorial time if the structure was behind it.

But if I had to place a bet on what the future disruptive innovation would be I'd say it won't be the same thing just more efficient. I think there is a lot of potential in separating education from certification.

The knowledge is accessible online for the most part. It still needs to be arranged. But that will almost certainly occur if certification exists separately to education.

I also think/hope that it will occur in the developing world. Employment is becoming accessible via the web already so the motivation is there. Knowledge is already there. I don't think that a situation where $1000 in hardware & internet access can take someone from a year 9 education to paraprofessional or professional level of education.

There is a huge amount for the world to gain. The biggest economic inefficiencies are barriers to trade, barriers to investment & barriers to immigration. Trade barriers & investment barriers can (& have) been lowered to allow the flow of capital, technology, products & services but not labour. Education is part of that.

gruseom• 18 years ago

This stuff is as much better than the average advice post as this guy is more successful than the average investor.

danielhodgins• 18 years ago

Using the 10, 100, or even 1000X better rule leads to some interesting, dangerous thoughts about how to solve some of the world's toughest problems. Kudos to Ganauer for mentioning Qliance- a dangerous new model for treating non-catastrophic health problems that might just mortally wound the fat-cat insurance companies.

Here in Canada everyone gets free health care, and Scandinavian countries are even more progressive than we are. Residents in some Scandinavian countries attend university for free. Free university and health-club-style medical for everyone!

nazgulnarsil• 18 years ago

this is a startup focused news site. we're all aiming to be one of the fat-cats one day.

How To Spot a Breakthrough: Tips from Early Amazon Investor Nick Hanauer

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