Dear Daughter (II)

Thanks for reading my first letter!

June, your systematic approach to deciding where to study impresses me. Just remember, getting into the best university based on rankings in financial newspapers is one thing; getting the best out of the university is another. Ideally, you’ll get four things from your studies, and you should aim to get all four:

1. Learn to learn – Just like in high school, you’ll dive into new topics and have to quickly go from beginner to... well, slightly less of a beginner. Your ability to learn wide, deep, and fast may be your most important competitive advantage going forward (Competitive advantage is a business term popularized by Michael Porter. Two hours of reading and listening to Michael Porter will probably teach you more than two weeks of business school. Just do it.) At university, you can attend your own classes and drop in on others. Try to drop into at least one class outside your curriculum each week. Trust me, it will be worth it.

2. Learn exciting topics and some you hate – You’ll love many of your classes, but there will also be topics you hate. Boring classes are great! New research shows that doing things you hate makes you stronger and more resilient and strengthens your will to live. In other words, the classes you hate might be the best ones for you in the long run.

3. Meet people - Network – University is a great place to make lifelong friends. But you’ll also meet many people who may become useful in some shape or form. They might become someone you hire, a customer, a partner, someone you call to learn about a business issue, get an honest reference check on someone you are interviewing, or maybe someone you can apply to for a job. To make this happen, be social, join different clubs, and be open to new friendships. Don’t fall into the trap of spending all your time with a new boyfriend or best friend. I’m not saying “no boyfriends”, just use this unique time to make many friends.

4. Insurance/entry pass – It’s okay to drop out of university. Some of the most successful people in history didn’t complete their studies, but most of these dropouts did so to follow their passion. June, if a unique opportunity comes along, grab it, and don’t be afraid to call me and say you’re quitting. Quitting because classes are challenging or if you’re unsure about your direction is less acceptable. A completed degree has several advantages. It’s an entry card for your first few jobs, and later, it will be like insurance. Most of the time, you don’t need insurance, but if, for some reason, you lose your job or need to pivot, a degree will always help you start over at something new.

Keep working hard to nail your last exams, and remember: hard work beats talent when talent does not work hard. Now, back to business

Is a Scented Memory device a good idea?

Most ideas are bad ideas. That's just the brutal reality of ideas. You can see evidence of this everywhere - from failed companies and products to flopped albums and movies. New ideas are risky because most of them, even with all the effort put in, are just a waste of time and resources, and in the end, they might embarrass and shame you.

Are you ready for my most valuable insight, one that probably cost me 120 million NOK to learn?” Here it comes. While most ideas are bad, the best ideas often seem crazy for a long time. Then there’s a breakthrough. A few years pass, and suddenly, everyone think it was obviously a great idea from the start. June, what do you think of the idea of an online bookstore or a book about a young wizard attending wizard school? Jeff Bezos, the founder of Amazon, had to go through 66 meetings to raise his first million. J.K. Rowling faced 13 publishers before getting a "yes," and the list goes on, with what we think are obviously good ideas now, but at the time were doubted.

This is why judging what makes a great idea is so tricky. As you know, I built a retail chain with 60 stores filled with new products. Each product was an idea with a lot of promise, eventually failing or succeeding. A store is a great laboratory to experiment and build your product idea instincts. But it is very difficult, let me illustrate with one of my failures. I set out to create the best series of lunch boxes the world had ever seen. Naturally, it couldn’t be just one type since so many preferences exist. So, I created five boxes:

1. Slim - The world’s thinnest lunch box, less than a MacBook thick.

2. Gourmet – the best lunch box for salad lovers, complete with a place for cutlery, a drainer, and a small container for dressing.

3. Optimal – the lunch box that combines vacuum and cooling for optimal storage.

4. Clean – the lunch box that ensures kids clean their hands with sanitizer before eating.

5. Lunchbag – a beautiful, retro-looking silicone bag.

When it was time to launch the products with a TV commercial, I had to choose 4 out of the 5 (the commercial was 30 seconds: 5 seconds intro, 5 seconds per product, and a 5-second outro). I dropped the Lunchbag from the commercial because I thought it had the smallest chance of success. A year later, we had sold 150,000 units of the series and 105,000 units of the Lunchbag - the very product I decided to leave out. Stupid dad!

When someone succeeds, do you think it makes them immune to bad ideas? Nope. Steve Jobs, Mark Zuckerberg, and Jeff Bezos have all had spectacular product failures that cost billions. I always say,” If 5 out of 5 MBAs think your idea is good, then you should throw it away.” The best ideas, the ones with the most commercial potential, are always controversial, with many saying it’s a “horrible idea.” To push through all the disbelievers, you need a lot of courage and conviction. That’s why most innovation happens in founder-led companies, where someone can make crazy decisions that stay unpopular for a long time. In contrast, most companies strive for consensus. To reach a consensus, you add and remove so many pieces to an idea that you get something everyone can accept but no one loves.

There is no formula to know if you have a good idea. If there were, that person would become the richest woman in the world by investing in startups and picking the right authors, artists, and musicians. While there’s no magic formula for separating great ideas from good ones and good ones from bad, you should consider a few things when starting something new. All ideas are created to solve a problem. So, when analyzing an idea, start with the problem it should solve:

Who has the problem? A classic mistake young entrepreneurs make is to say “everyone” when asked who their customer is. You can't solve a problem for everyone in the world simultaneously. You need to narrow it down. On this topic alone, thousands of business books, most from the marketing angle, have been written. You don’t need to read all of them; it’s mostly common sense. In school, you learned never to stereotype. Now it's time to forget that and come up with different types who could become customers. In business, these are called personas. Most companies consider everything from one to ten personas (more isn’t better). Let me give you an example. “Is a diet ice cream popsicle a good idea?” Close your eyes. “Who would buy it, and who wouldn’t? Would your grandmothers buy it?” Since you’re stereotyping, don’t think of Kari or Kristina but grandmothers in general. “No way!” you’re thinking. I agree. “What about teens your age, maybe younger and a little older? They wouldn’t buy it either. So, who would?” “Hannah Healthy,” a woman between 30-40 years old who enjoys ice cream and watches her calorie intake. See the trick? Giving the customer type a name and label starting with the same letter (alliteration) makes it easier to remember. Then there are “overweight dieters,” a group of men and women between 30-50 years old, who are clearly overweight and on a diet. They would possibly include a low-calorie ice cream as a treat. I’m not going above 50 years old, as this is a “new” product, and reaching an older audience would be more difficult. So, who would be the customer for a memory-enhancing product? I think of three customer personas:

• Eric Early – Well-functioning people with no or early signs of dementia. This type of person could be of either sex and probably between 60 and 75 years old.

• Wanda Worried – She is most likely the daughter of someone showing signs of dementia. She has resources and is willing to spend money to improve her parent's life.

• Peter Prepared – This is probably the smallest group and consists of individuals who want to proactively address potential memory issues before they become a problem.

What do you think, can you think of more customer personas?

How many have the problem? I don’t know if I’ve told you this story about when I was hired at BCG, but it was the quickest hiring process they’d ever done in the Oslo office. I came in at 1 PM and got an offer by 8 PM the same day. In my ninth interview for the day, I was asked, “How many razor blades are sold in Tromsø in a year?” I had not done any interview prep, so most of the interview questions came out of the blue. The point of the question was not the answer but my reasoning. I started with an assumption of how many people lived in the area, how many were in the shaving age group, how many of these would use shavers, the difference between men and women, and then how frequently people switched blades on average. After about 10 minutes I had the answer. So, the exercises we will do here might come in handy for a job interview.

To answer questions about market size, you need to know three acronyms: TAM, SAM, and SOM. TAM stands for Total Addressable Market, which includes everyone who has the problem you’re solving and could be interested in your solution. Let’s say you’ve developed scissors for left-handed. Your TAM would be all left-handed people in the world who would use scissors. For the memory device, a quick back-of-the-envelope calculation (it’s an expression for a rough estimate you’d scribble on the back of an envelope) would be to examine our customer personas. The main driver of market size is people between 60-75 years old (Eric Early and Wanda Worried buying to her parent): if we assume people live to be 75, this product will interest about 20% of the population (15 years/75 years average life span). With a global population of 8 billion, the TAM is 1.6 billion (assuming one unit per person). So, no matter how smart we are, it cannot exceed this unless the product appeals to other age groups. Many believe that having a large TAM makes a company very valuable. You’ll hear young entrepreneurs say, “If we only get 1% of this 2 billion market, we’ll sell 20 million units.” That’s very naïve at best. But the TAM does tell you something about the growth potential.

Next, we move on to the SAM, which stands for Serviceable Addressable Market. This is the total market our company can realistically reach. For our memory device, we will initially focus on the Nordics but probably make it available to everyone through Amazon. If our target when we are up and running is Europe and the US, we're looking at a market of about 1 billion people, not the entire 8 billion. Assuming like before that 20% is our target customers brings our number to 200 million. However, considering that the product might be expensive for some, let's adjust that down by 25%, bringing our SAM to 150 million units. This is still a significant number. So far, we've assumed that everyone in this market would become our customer. Realistically, that's not going to happen. We lack the extensive marketing resources and business model to reach everyone, and not all target customers will need our product.

This brings us to the SOM – Serviceable Obtainable Market, the final piece of the puzzle. Just as SAM is part of TAM, SOM is part of SAM. The SOM is what we can serve if we do almost everything right. Given the market size and the challenge of reaching an older customer base, I believe that with the right messaging, marketing, influencers, and distribution, we could reach 1 out of 100 people in the SAM. In other words, the potential for us is 1.5 million units. What do you think? Does this sound realistic for a product that “promises a better memory?”

Is it a real problem, and are customers willing to pay to have it resolved? I've created many products that solved real problems (like selling 3.5 million ice cleats to keep seniors upright on icy sidewalks), and some that I thought solved a problem. One of my biggest flops was a product designed to help women remember to take their birth control pill. We tried linking pill-taking to an existing habit: brushing your teeth. The idea was that when you picked up your toothbrush, the pill tray would pop up behind the brush. Spoiler alert: customers did not like it. To figure out if a problem is real, consider the pain it causes. Little pain, not a real problem. Big pain, big problem. June, what do you think is easier to sell a vitamin (that can prevent health issues in the future), a headache pill (that solves a pain with medium intensity), or a migraine remedy?

Memory deterioration is obviously a real problem, so I think we are on to something here. The challenge is that sometimes the person doesn’t see the problem, even though it’s obvious to everyone else. To me, it’s clear that if we can make this product, it will solve a real problem, and people will pay to fix it. In other words, such a product checks the box, “is it a real problem?”

Is it a good idea for you, and is the timing right? Finally, there might be fantastic ideas out there that just aren’t right for you in terms of your experience, skills, and ability to raise capital and build a company. A memory product might not be the best starting point for June since you're new to business and products, and it requires many new skills. With my background, it’s a good fit. Then there’s timing. Sometimes, you can have a great idea, but be a little early or late. In this case, the timing seems perfect: The study was recently published, there's a lot of focus on health, and affluent seniors are living longer.

“So June, what do you think is this a good idea for me?”

With all my love and support,

Dad

P.S. You only need one or two great ideas in life, alongside many smaller ones. The best way to come up with great ideas is to generate lots of them. In a recent study, a pottery class was split into two groups. One group was asked to create one perfect vase throughout the entire course, putting all their effort into making it flawless. The other group was told to make as many vases as possible and submit their final one. June, guess which group made the most beautiful vases? The group that made the most vases! The takeaway here is to experiment with different ideas rather than trying to come up with the perfect one right from the start. So, let’s get those creative juices flowing and see what we can come up with!

P.P.S 92,4% of all people make up statistics if it fits their purpose.