Benefits of a Platform-Based Approach A platform-based approach to your business brings many benefits  Platforms make it easier to use a recurring revenue model.  Investors appreciate the value of this revenue model. It brings predictability to the forecast and makes it somewhat easier to manage the business and raise funding. With three metrics, cost of […]

Applying AI to E-commerce AI brings new capabilities and benefits to e-commerce businesses. AI can enhance e-commerce companies in the following ways: Create better search tools for customers seeking products and services online. Retarget customers for related products. Provide better recommendations to customers for similar products. Enhance the customer shopping experience through voice or chat […]

Applying AI to Current Product AI can be applied to your current products. Here are some benefits of integrating AI with your product line: Add new capabilities to the existing product. This could be a better analysis of the information coming out of the product. Reduce costs. AI capabilities could replace more expensive search algorithms. […]

How To Use Data With AI Data is a key component of Artificial Intelligence systems. AI looks for patterns in the data and draws conclusions from it. The better the quality of the data, the better the output. AI requires a substantial amount of data with which to discover insights. As AI acquires new data […]

The Use of Data and Algorithms in AI Artificial intelligence utilizes data and algorithms to create technical solutions. Data and algorithms could be open or closed giving the business a competitive advantage. Here’s a list of the business models and how open and closed data and algorithms impact the business. The Black Box — both […]

Why Add AI to Your Business AI brings many advantages to your business. Here’s a list of benefits to consider for your company: Automate repetitive tasks such as those found in sales, administration, and customer service. For support, AI can enhance help desk functions by searching the network for potential solutions. Personalize customer support by […]

Types of AI Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. There are many types of Artificial Intelligence. Here’s a list of the types: Narrow AI — focuses on a single task or narrow range of functions. Applications include image recognition, voice recognition, […]

Issues in adding AI In adding AI to your business consider these best practices: Create a list of potential applications and order them by the ease of use and value to the company. Identify a simple use case for the first effort. Check to see if you have the skills necessary to implement the program. […]

Business Benefits of AI AI brings many benefits to a business. Here’s a list of key benefits that can help your business. Improve existing products with new features. AI adds another layer of functionality to current products. Optimize the business. AI points out ways to improve business operations by reducing costs. Reduce costs by optimizing […]

How AI Can Be Used in a Business AI can enhance the operations of a business. Here are some steps to implement AI in your startup: Identify an application where AI can enhance your operations. Define the outcome of the solution and what it should do. Choose an AI tool that is built for the […]

AI Art Generators AI brings new capabilities for generating art. There are many tools now available to create art of all styles, subject matter, and formats. One can even generate a new piece of artwork using the same style as an original work. By using machine language, algorithms, and data structures AI can reconstitute an […]

AI in Gaming AI brings many new capabilities and enhancements to gaming. Here’s a list of how AI improves gaming: Image improvement — AI can enhance the imagery in games by using neural networks to increase the number of pixels in the image. Level generation — AI can create new levels increasing the complexity of […]

AI Applications in Business AI solves many business problems. Here’s a list of AI business applications: AI can create content for marketing campaigns building copy for social media, email, and website pages. It can assist sales in prospect management by searching all past correspondence with the lead. It can augment cybersecurity by tracking vulnerabilities of […]

Generative AI Use Cases Generative AI even in its earliest stage provides meaningful use cases. Here’s a list of use cases it can handle: Creating marketing copy such as product descriptions and social media content. Assisting in sales work such as screening prospects and completing sales contracts. Code generation for software applications including code verification. […]

Generative AI Artificial intelligence has been around for over fifty years. Through the use of large language models and machine learning tools, it is possible to mimic human output. Generative AI is artificial intelligence that uses algorithms to generate text, data, or images, that is new information. Generative AI models are trained with enormous amounts […]

Curse of Knowledge The Curse of knowledge is defined by Wikipedia as when better-informed people find it extremely difficult to think about problems from the perspective of lesser-informed people. Startup founders are often experts in their field and find it difficult to discuss with investors who are not experts. They are so close to the […]

Default Effect The Default effect is defined by Wikipedia as when given a choice between several options, the tendency to favor the default one. It’s also called the Status Quo bias in which people choose the default option because it’s less risky. Startups should position their deal as the default so that in case of […]

Expectation Bias The expectation bias is defined by Wikipedia as the tendency for experimenters to believe, certify, and publish data that agree with their expectations for the outcome of an experiment, and to disbelieve, discard, or downgrade the corresponding weightings for data that appear to conflict with those expectations. Startups select market and customer data […]

Fading Affect Bias The fading affect bias is defined by Wikipedia as a bias in which the emotion associated with unpleasant memories fades more quickly than the emotion associated with positive events. Startups encounter both hard times and good times.   People forget the hard times but remember the positive moments. The harder the times, the […]

Framing Effect Bias Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing. The framing effect bias is defined by Wikipedia as drawing different conclusions from the same information, depending on how that information is presented. How you frame the startup in a pitch can […]

Ambiguity Effect The ambiguity effect is a bias defined by Wikipedia as the tendency to avoid options for which the probability of a favorable outcome is unknown. Startups are risky and make proposals about the outcome of their deal.  Investors avoid engaging with startups when they do not have confidence in the proposed outcome. Startups […]

Attribute Substitution The attribute substitution is a bias defined by Wikipedia that occurs when an individual has to make a judgment that is computationally complex and instead substitutes a more easily calculated heuristic attribute. Startups presenting a complex concept such as how their technology works should replace it with a heuristic or analogy that is […]

Backfire Effect The backfire effect is a bias defined by Wikipedia as the reaction to disconfirming evidence by strengthening one’s previous beliefs. Investors can reject a startup’s pitch if they doubt the premise even if confronted with the facts.  Providing more facts will only make the investor dig in further.  To overcome the backfire effect, […]

Belief Bias The belief bias is a bias defined by Wikipedia as an effect where someone’s evaluation of the logical strength of an argument is biased by the believability of the conclusion Similar to the confirmation bias, investors bring their experience to the startup pitch and make judgments on the proposed pitch while underway. Investors […]

Ben Franklin Effect The Ben Franklin effect is defined by Wikipedia as a person who has performed a favor for someone is more likely to do another favor for that person than they would be if they had received a favor from that person. This effect comes from a statement by Ben Franklin: “He that […]

Shared Information Bias The shared information bias is a cognitive bias defined by Wikipedia as the tendency for group members to spend more time and energy discussing information that all members are already familiar with and less time and energy discussing information that only some members are aware of. Investors focus on information their investor […]

Picture Superiority Effect The picture superiority effect is a phenomenon defined by Wikipedia whereby the notion that concepts that are learned by viewing pictures are more easily and frequently recalled than are concepts that are learned by viewing their written word form counterparts. Investors identify and remember more from images than words. Startups should use […]

Modality Effect The modality effect is a phenomenon defined by Wikipedia whereby memory recall is higher for the last items of a list when the list items were received via speech than when they were received through writing. In a startup pitch, the last slides are the ones that the investors will remember most. These […]

Levels of Processing Effect The level of processing effect is a phenomenon defined by Wikipedia whereby different methods of encoding information into memory have different levels of effectiveness. Different forms of communication and listener processing will affect the investor’s ability to remember. Shallow learning results in short-term knowledge retention. Deep learning results in long-term knowledge […]

Lag Effect The lag effect is a phenomenon defined by Wikipedia whereby learning is greater when studying is spread out over time, as opposed to studying the same amount of time in a single session.  Investors learn more about the startup if the information is spread out over time. It helps to understand the startup […]

Semmelweis Reflex Semmelweis reflex is a cognitive bias defined by Wikipedia as the tendency to reject new evidence that contradicts a paradigm. Some investors reject startups if it goes against conventional wisdom. In the startup world, there are always new technologies, markets, and business models to support them.   It takes some effort to learn about […]

Stereotyping Stereotyping is a cognitive bias defined by Wikipedia as expecting a member of a group to have certain characteristics without having actual information about that individual. Investors can stereotype startups based on their previous experience. This can be a bias against a sector of business, a leadership style, or another. To overcome stereotyping, investors […]

Halo Effect The halo effect is a cognitive bias defined by Wikipedia as the tendency for a person’s positive or negative traits to “spill over” from one personality area to another in others’ perceptions of them.  Investors often presume those who are good at pitching and are passionate are also good at running the business.  […]

Ingroup Bias The Ingroup bias is a cognitive bias defined by Wikipedia as the tendency for people to give preferential treatment to others they perceive to be members of their own groups. Investors give preference to those in their network over those outside their network. This can be a challenge as startup investing is often […]

Self-Serving Bias The self-serving bias is a cognitive bias defined by Wikipedia as the tendency to claim more responsibility for successes than failures. Investors use successful investments as proxies for their skill but attribute the failures to other causes. Investors are naturally optimistic. When things go wrong it’s easy to blame external factors. To overcome […]

Selective Perception Selective perception is a cognitive bias defined by Wikipedia as the tendency for expectations to affect perception. Investors tend to see what they want to see in a startup deal. Investors choose those elements in the pitch that match their experience and expectations. Selective perception comes from previous experiences with startups both good […]

Present Bias Present bias is a cognitive bias defined by Wikipedia as the tendency of people to give stronger weight to payoffs that are closer to the present time when considering trade-offs between two future moments Early exits weigh stronger on investors than further-out exits even if substantially larger. Under present bias, investors forgo longer-term […]

Not Invented Here Not invented here is a cognitive bias defined by Wikipedia as the aversion to contact with or use of products, research, standards, or knowledge developed outside a group.  Investors can be biased toward startups that have developed the idea and strategy with the investor’s input.  This leads to investments into startups that […]

Neglect of Probability Neglect of probability is a cognitive bias defined by Wikipedia as the tendency to completely disregard probability when making a decision under uncertainty. Investors can be biased by their previous experiences and ignore the probability of success or failure in potential startup investments. Those who lost money on previous investments may be […]

Law of the Instrument The Law of the instrument is a cognitive bias defined by Wikipedia as the over-reliance on a familiar tool or method, ignoring or under-valuing alternative approaches.  “If all you have is a hammer, everything looks like a nail.” Investors use the deal flow and screening process they are most familiar with.  […]

Loss Aversion Loss aversion is a cognitive bias defined by Wikipedia as the disutility of giving up an object is greater than the utility associated with acquiring it. Investors will continue to hold a position in losing startups because of hating to lose and clinging hopefully to a potential turnaround. To overcome loss aversion startup […]

IKEA effect The IKEA effect is a cognitive bias defined by Wikipedia as the tendency for people to place a disproportionately high value on objects that they partially assembled themselves, such as furniture from IKEA, regardless of the quality of the end product. Investors will have more affinity for a startup if they’ve had a […]

Groupthink Groupthink is a cognitive bias defined by Wikipedia as the psychological phenomenon that occurs within a group of people in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome.  Since many investors invest as a group and use social proof as part of their decision […]

Mere Exposure Effect Mere exposure effect is a cognitive bias defined by Wikipedia as the tendency to express undue liking for things merely because of familiarity with them. Angel investors are much more likely to invest in deals in which they have more exposure to it.  This can lead to investments in substandard startups. To […]

Gambler’s fallacy The gambler’s fallacy is a cognitive bias defined by Wikipedia as the tendency to think that future probabilities are altered by past events when in reality they are unchanged.  Investors bet on startups that follow what other recent successful startups have done even though the potential of the startup is no better than before. […]

Frequency Illusion Frequency illusion is a cognitive bias defined by Wikipedia as the illusion in which a word, a name, or other things that have recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterward. This comes from the mind’s selective attention kicking in when hearing something new.  The mind then starts […]

Decoy Effect Decoy effect is a cognitive bias defined by Wikipedia as a situation in which preferences for either option A or B change in favor of option B when option C is presented, which is completely dominated by option B (inferior in all respects) and partially dominated by option A. Investors will find a deal […]

Continued Influence Effect Some investors will hold onto their preconceived notions even when presented with corrected information. For example, a startup positions their company as providing a service but they don’t mention they have recurring revenue. Recurring revenue shows scalability while service businesses typically do not. Even after the investor learns about the recurring revenue, […]

Courtesy Bias Courtesy bias is a cognitive bias defined by Wikipedia as the tendency to give an opinion that is more socially correct than one’s true opinion, so as to avoid offending anyone. Courtesy bias arises when an investor tells the startup what they think the startup wants to hear rather than what the investor […]

Base Rate Fallacy The base rate fallacy is a cognitive bias defined by Wikipedia as the tendency to ignore base rate information (generic, general information) and focus on specific information (information only pertaining to a certain case). One-off sales to specific companies while helpful do not define the startup’s growth forecast.  Investors should look at […]

Bias Blind Spot The bias blind spot is a cognitive bias defined by Wikipedia as the tendency to see oneself as less biased than other people or to be able to identify more cognitive biases in others than in oneself. All investors have blind spots and biases. Investing in experiences causes one to be biased […]

Confirmation Bias Confirmation bias is a cognitive bias defined by Wikipedia as the tendency to search for, interpret, focus on and remember information in a way that confirms one’s preconceptions. Investors bring their recent investment experiences to fund new startups. If the investor recently lost their investment in a deal in a certain sector, then […]

Availability Heuristic The availability heuristic is a cognitive bias defined by Wikipedia as a mental shortcut that relies on immediate examples that come to a given person’s mind when evaluating a specific topic, concept, method, or decision.  The availability heuristic operates on the notion that if something can be recalled, it must be important, or […]

Bandwagon Effect The bandwagon effect is a cognitive bias defined by Wikipedia as the tendency to do (or believe) things because many other people do (or believe) the same. Investors follow the lead of others. The more investors following a deal, the more investors are willing to join. Investors look for lead investors who will […]

Anchoring Anchoring is a cognitive bias defined by Wikipedia as the tendency to rely too heavily, or “anchor”, on one trait or piece of information when making decisions (usually the first piece of information acquired on that subject). Investors tend to attach to the first thing startup pitches and stick with it. If the startup […]

Build a Moat Warren Buffet once said, “I look for economic castles protected by unbreachable moats.” In the startup world, investors look for a competitive advantage that can build a moat around the business. “Me too” businesses are difficult to fund because anyone can start one and compete. To build a moat around your business […]

Repeatable Systems Repeatable systems are a key element in growing and scaling a business. Once the business is up and running, the founder should start to build repeatable systems. Anything you do more than once should be documented. The key steps should be written down and followed each time you do it. This saves time […]

Start With Why A key concept in aligning people’s motives is to start with the Why. The Why represents the motives behind people’s actions and their purpose. The How represents the methods or steps to get there. The What represents the results or outcome to achieve. To align the team in your startup, start with […]

Social Proof Social proof is the idea that people look at others to see what they did and then copy their actions.   The need for social proof can be found throughout the startup world. Customers will look to see if others have bought the product before they buy it. Investors will look to see if […]

Gamification Gamification applies game-design techniques to applications outside of gaming. Game techniques can make the application more engaging and productive. Here are some gamification techniques to include in your application: Establish flow in the software which is a combination of challenging and workable. Break large tasks down into smaller ones that give the user a […]

Open Platform vs. Closed Platform Open platform vs. closed platform is a key concept in the startup ecosystem. It defines how the startup will interact with customers, partners, and others. A closed platform is one in which the startup restricts access in order to monetize its content. It’s often called a “walled garden” which one […]

Freemium Freemium is a key business model in the startup world. It’s a pricing strategy that provides a product or service for free in order to attract more users.   After the user is engaged with the product, the company can upsell the user for paid services.  The freemium strategy is highly scalable as it can […]

Technology Adoption Lifecycle Technology adoption lifecycle in the startup world shows how new technologies and products are adopted first by lead users and technologists.  Following this group are early and late-stage majority users. The laggards are the last group to accept the new technology.  This concept comes from Geoffrey Moore in his book entitled, “Crossing […]

Forcing Function Forcing function is an activity or event that forces one to take action and produce a result. Forcing function is a mental model for how to set up a startup so it produces a result.  Here are some examples: Precommitment — in selling your product use monthly or annual contracts that prescribe follow-on […]

Technical Debt Technical debt is a concept in software development that accounts for additional work to recode a program that was developed quickly rather than properly. It’s the result of prioritizing the speed of development over the quality of code. To manage technical debt in your business consider the following: Define the technical debt currently […]

Thought Experiments for Startups A thought experiment is a hypothesis laid out for thinking through its consequences. Many great thinkers have used this technique to solve problems. Galileo used it to prove his idea that mass does not influence acceleration when he dropped both a heavy and light ball from the Tower of Pisa to […]

First Principles First principles are basic truths that cannot be deduced from any other proposition or assumption. Founders should base their startups and products on first principles. First principles research requires direct contact with customers to uncover the core problem. By going back to first principles the startup founder can approach the problem from a […]

Second-Order Thinking First-order thinking looks at solving the immediate problem. Second-order thinking looks at the consequences of solving the problem. To practice second-order thinking, ask the question, “and then what?” Most people look at the world through first-order thinking such as: “That product is on sale, I should buy it.” Second-order thinking asks the question, […]

Probabilistic Thinking Probabilistic thinking is making an estimate using math or logic to determine the likelihood that an outcome is going to happen. This often involves statistics and historical data. If the revenue in a company has grown by 10% for each of the past five years, then probabilistic thinking will point to a growth […]

Economies of Scale Economies of scale is an economic principle in which the costs of delivering a product go down as the volume goes up. Over the life of a product, the cost per unit should decrease. For startups, this means the cost to build your product should go down as you ramp up sales. […]

Jobs To Be Done Jobs to be done is a mental model in which you look at the customer’s workflow to determine what they might need to complete their jobs. This concept came from Clayton Christensen and provides insight into what product your startup should build. It provides a framework for understanding customer needs. As […]

Circle of Competence Circle of competence is the area in which one has a skill or expertise. Tom Watson the founder of IBM once said, “I’m no genius.  I’m smart in spots and I stay around those spots.” You don’t have to be an expert in everything to be successful. You do need to know […]

Schlep Blindness Schlep is a tedious or difficult journey. Schlep’s blindness is overlooking the obvious startup ideas as everyone is used to working in a current manner. Most founders can’t see many ideas because of schlep blindness — they know how hard it is so they don’t consider it.  Look for ideas you want to […]

Power Law The power law is a key mental model for venture investing.  The power law states that the majority of the returns will come from just a few of the investments. Similar to the Pareto principle, 20% of the deals will account for 80% of the returns. In venture capital, the power law requires […]

Total Addressable Market The total addressable market is the size of the market that represents the total potential revenue for a product.   This is the market that could ever buy the startup’s product. In the startup world, there’s truly no limit to how big a company can grow. Investors look for business opportunities with large […]

Flywheel Effect The flywheel concept comes from the industrial world in which a large mechanical flywheel gains momentum from small steps and eventually creates enough momentum to generate its own motion. In the startup world, the flywheel effect refers to an alternative to the sales funnel by building a growth machine by connecting strategy with […]

Agile Development Agile development takes an iterative approach to building software. Instead of one monolithic development, agile proposes incremental changes. Agile is a useful mental model in the startup world as it fits well with the startup dynamic. Startups use agile development as they are still learning about customer requirements. As the customer base expands […]

First and Last Mover Advantage In startup markets, there are advantages to being the first mover and advantages to being the last mover. Here are some advantages of being a first mover: The first mover in a market can gain market share due to the lack of competitors. The first mover can gain branding and […]

AARRR AARRR stands for Acquisition, Activation, Retention, Referral, and Revenue It’s the mental model for the customer lifecycle. In growing sales this model breaks down the process into stages and steps which the startup can metric as follows: Acquisition —  find users through multiple channels Activation —  excite customers with your product  Retention —  bring […]

Inversion Mental Model The inversion mental model generates new startup ideas by inverting the problem. By looking at the problem in reverse you can ideate new product solutions and business models. This technique tests the assumptions and gives us a new way of thinking. For example, instead of asking “how can we build the best […]

Earned Secret The earned secret mental model postulates that you should have some information that most others don’t before launching a startup. The earned secret gives you an edge over other startups through a key insight into the customer or industry. Those outside an industry have little or no insight into it. Insight comes to […]

Minimum Viable Product Mental Model The minimum viable product called MVP tests the market before building the final product. The MVP is designed to gain customer feedback and show market validation to the investor. It tests the riskiest assumptions with small experimental products. The MVP is not an early version of your go-to market product […]

Product Market Fit Mental Model Product market fit is a mental model that demonstrates your product meets the market’s requirements.   It’s a key milestone in the journey of the startup as it’s the point of inflection for growth and later scale. Without product market fit the startup will most likely fail. A startup has achieved […]

The Idea Maze The idea maze is a mental model for how a founder sorts through the plethora of ideas to find the right one on which to build a startup. There are many choices including the problem to solve, product to build, and how to monetize. In navigating the idea maze for your startup […]

The Babe Ruth Effect The Babe Ruth effect mental model comes from Babe Ruth who once said: “I swing big, with everything I’ve got. I hit big or I miss big.” The mental model postulates that it’s better to take big risks than to avoid failure. Eventually, the big risks will pay off and will […]

Regret Minimization The regret minimization mental model helps you make difficult decisions by projecting yourself into the future and looking back on the decision to be made. Jeff Bezos once said,  “I knew that when I was 80 I was not going to regret having tried this.” Today you are your present self. Tomorrow you […]

Disruptive Innovation The disruptive innovation mental model describes a simple innovation starting at the bottom of a market and then moves up the curve to overcome the industry incumbents. This mental model was first defined by Clayton Christensen in his book The Innovator’s Dilemma. Industries with expensive products are overtaken by companies operating in overlooked […]

The Why Now “The why now” mental model builds the case that now is the right time to launch and raise funding for a startup. Timing is key to a successful startup launch. Launch too soon and the market won’t be there. Launch too late and the competition will be too far out in front […]

Introduction to Mental Models A mental model according to Wikipedia is “an explanation of someone’s thought process about how something works in the real world”.   It is a representation of the surrounding world, the relationships between its various parts, and a person’s intuitive perception about their own acts and their consequences.” Mental models help solve […]

Product Roadmaps The product roadmap is a shared resource that outlines the vision, priorities, and direction of a product over time. It aligns the goals of the company to deliver the product and sets the expectations of the customer. The first product is the minimum viable product and sets the starting point for the product […]

Pre-seed Product Work The minimum viable product is one of the more challenging products to design. There are many choices and limited resources available. In designing your MVP consider the following: Scope into your core technology in building out the first version. Eliminate as much of the surrounding building as possible. Take a specific use […]

Product Reporting It’s important to track the key metrics for your product. Here’s a list of numbers to capture: Customer acquisition cost — the cost to acquire a customer. Customer lifetime value — the total revenue received from each customer on average. Churn rate — the percentage of customers dropping out each month. Conversion rate […]

Product Usage Metrics Metrics are a key tool in product management. In managing a product track these metrics: Customer acquisition — track the performance of the product in acquiring new customers. This is often done broadly across all products but should be done by each product as well. Customer adoption — track the performance of […]

Product Development Process There are many approaches to product development. Here are some approaches companies use: Defines the ideal process. This lets the process work out from project to project.  Systematizes development activities. The core systems are made available to the team to use as they like. Focus on the customer and their needs. They […]

Gamification of the Product In designing your product consider adding gamification to it. Here are some key elements to consider: Include goals for the user to accomplish with the product. This makes it engaging for the customer. It also provides a benchmark on how much the customer uses the product. Provide control over the product […]

User Experience Design The user experience of the product must be designed into the product from the beginning. Here are some key points in researching the user experience: Understand the user’s goal and what they are trying to achieve. The user may be trying to generate a report or store key information, or analyze data. […]

Product Data Product data is the information about the product used for product management purposes. Here are some key data points to capture and maintain: Customer tests for new product features. Capture A/B test data into a central repository as the answers may be useful for building future features. Key metrics such as customer engagement […]

Product Development Priorities There are many features to add to a product and never enough resources to do all of them. Consider these points in prioritizing your product development: Look for lost sales to find high-priority features to work on. Focus product development on customer requests. Look at how the customer is solving their problem […]

MVP Mistakes In developing a minimal viable product avoid these mistakes: Trying to create your vision fully in the MVP. The MVP will be a greatly reduced version of the envisioned product. Taking customer feedback literally. Customers will provide feedback and ask for specific features.   In building a product you must look at the bigger […]

Product Features The features of your product will determine your competitive position in the market.  For any market, there is a baseline set of features that customers will expect. To enter the market your product must provide these basic services. To beat the competition your product must have differentiation features. Differentiation features distinguish your product […]