Can You Handle the Truth? Advice for Founders

Always tell the truth, its the easiest thing to remember. — Glengarry Glen Ross

I have started my second semester at the Founder Institute, Adeo Ressi’s awesome incubator.  It has been a blast so far, in my view, a lot of really strong founders wiht great, viable business ideas. It has been a lot of fun to be involved, and it is as always humbling to have smart, passionate people asking for my input.

As it is still early in this group’s process, some of the ideas are a little earlier on, still in “ideation” (terrible word) mode.  This is of course a natural state of being in a startups life, that early stage when you’re still not even sure you’ve got a good idea.  Its an exhilirating time–you’ve not made any mistakes (yet) and the world seems ripe to take on your vision, while at the same time, you definitely have those soul-shaking moments of doubt as to whether you’ll ever be able to turn your idea into reality.

Int this stew, founders will come to me to ask my advice on their idea, and I’m happy to try to take the time to listen and provide a few minutes of helpful input.

A question I have had and answered for myself is how hard core or harsh to be on someone’s idea when it is still on the drawing board.  Although it certainly has its risks and drawbacks, I’ve decided that this is a time to be very blunt and hardcore.  The risk is that this approach dissuades someone or that it gives them an impression that I’m a jerk.   This is the last thing any founder wants to become–the startup world is too small afor people t get such an impression.

The counter argument is that by being hard core you toughen up a founder, you help him or her focus on the key challenges in their business, and  at an extreme, you convince the founder that the idea is not worth investing time and life in.  At the ideation phase, the costs of switching an idea are low.  I have become comfortable with this being on balance the preferred approach–the pain is worth the value.  I also try to remind the founder whenever I do this that my opinion is just one, and I’m certainly perfectly happy to have the founder prove me wrong and make a boatload of money doing just that.  In other words, its not personal, and I’m hopeful that it does help.

I have come to believe passionately that this is the only appropriate response for founders asking for advice.  My input is not costing anything, and if I’m off by a mile, there’s no reason that a founder should listen to me.  You asked and I answered.  No harm, no foul.  Totally makes sense, right?

Right.  As founders we should all be pushing each other in as hard core a way to make our businesses kick ass and take names.  Give the advice, hit hard.

Twitter’s Platform Mojo

Betaworks’ John Borthwick recently posted the informative Ongoing tracking of the real time web…  Combined with Fred Wilson’s AVC post Twitter v. the Twitter Ecosystem, these two posts illustrate and highlight important learnings for startups and entrepreneurs everywhere.  Those learnings are the subject of this post. 

The key points of this post are: (1) Twitter is indeed a platform; and (2) platforms’ own profitability are related not a little bit to the revenue driving capabilities of those partners that build on the platform.  Twitter has clearly enabled other applications to create and build innovative services, a la Tweetdeck, Seesmic, Bit.ly, etc.  These are great as they extend Twitter’s value even further.   Over time, we should expect that the traffic through the platform will dwarf the traffic of the application/web site called Twitter.  This is a useful illustration for web- internet-based entrepreneurs on the value of platform building in a business.  Here’s what I mean…

I give a talk called Revenue: Of Moats & Models in Silicon Valley.  The purpose of this talk is to help the very early stage startup—ideally the 1-2 founder team in the garage—frame quickly and easily how to think about revenue and building their business.  One of the things that I talk about a lot is thinking through how to build a fly-wheel in your business.  Some people call this a “platform play,” but I tend to prefer a more crisp illustration of a positive feedback loop.  The steps that I illustrate and walk through with founders is one that is simple and seems to resonate with most founders.  The steps are:

1. Create something users want.  (Smart, effective founders recognize this as the Paul Graham [YC] mantra.  It totally makes sense—this is step 1, without this you’ve got nothing.)
2. Build user base and share leadership.  (This is just about extending step 1 into momentum.)
3. Create a extension that attracts and enables a second stakeholder group.  E.g., application developers who want to access your users; teachers who want to access your students; advertisers who want to sell stuff, etc., etc.
4. Empower that second stakeholder group to reinforce and extend the value to the core users who you started with in step 1.

Wash, Rinse, Repeat. 

This is a very basic description of the positive feedback loop that the vast majority of massive tech companies have used to achieve their dominance—Microsoft, Google, Facebook, Apple Iphone, etc.   Sometimes tech folks will look all dreamy eyed and say the words “platform play,” and this is probably what they mean (or should be).  Specifically, the platform means that there is a second stakeholder group that is specifically betting on you to make money, gain share, whatever for themselves. 

In the talk I give, I suggest or recommend that the founding team spend an hour or two trying to think about building that precise feedback loop around their idea.  I contend that this can be a useful exercise, one more should do.

Part of the reason this exercise is so useful is now highlighted with the blog posts that I started this off with.   What Borthwick and Wilson are both highlighting is something that has been obvious to me for months: namely that the power of Twitter is as a Platform, not as an Application.  Others – bit.ly, tweetdeck, tweetfeed, etc. – are now investing their R&D budgets, engineering talent, marketing efforts towards extending brands that build on Twitter.  Twitter as the platform enables this, and Twitter gets some benefit by having these partners do this work.  This is all great, and it reinforces arguments I’ve made before on this blog about why skeptics focusing on Twitter traffic or retention, while important, is probably less important than the health of its ecosystem. 

The second thing that I’d illustrate on Twitter as a Platform is a point that’s common to most platforms but not well understood.  Namely, while platforms on their own can be massive from a revenue and profitability standpoint, over time, healthy platforms can pale in comparison to the revenue pool created for the partners betting on the platform.

Microsoft’s Windows business is a great example.  According to MSFT’s Annual Report, the Windows division pulls in roughly $16B in revenue, and makes >$12B in operating income.  (What a machine!)  This is awesome.  What is also awesome though, is that you are probably talking about an order of magnitude in terms of the amount of revenue that the partner ecosystem makes. 

Same thing with Google.  Massive revenue, massive margins.  But the amount of money that advertisers are making through getting direct contact with users, massive.  Facebook, starting to show the same thing.  Its an awesome thing on its own, but as Zynga, Playdom and others are showing, they are making massive amounts of money on the Facebook platform.  As Facebook extends, I expect to see even more companies making more money off of them.

This brings us back to Twitter.  As I’ve said before, its easy to think that Twitter is too simple to be a viable business.  That’s wrong-headed.  Twitter is en route to becoming the platform for the real-time web.  As I’ve said, it will create massive value for its users, employees, founders, and investors.   To me, the key quesiton with Twitter is not whether it will continue to thrive in users and traffic (it will), or whether it will make money (it will).  The question for me is whether its ecosystem will find ways to make real money, as this is ultimately a partner ecosystem’s profitability is ultimately the best way for a platform to ensure its long-term viability.

Google & China: An Operator’s View

Google’s announcement Tuesday that it was mad as hell and not going to take it anymore was its second bombshell in a new 2010.  (I count the first being the announcement of the Nexus One, which I think is very possibly a hugely important step for Google as a company.)

Instapundits leapt on the announcement.  Some–TechCrunch notably–stating that it was all about Google finding a graceful exit.  Others—Robert Scoble, SearchEngine Land Sullivan, and others, defending the move as a principled stand.  As someone who’s worked internationally on building businesses, I’m firmly in the Scoble camp.

The idea that this is some cynical move to enable Google to exit China gracefully is ridiculous.  Google is a massive public company, seeking a growth trajectory that goes for decades.  Aside from all the great points Scoble makes on his post on this–which I agree with entirely–the simple math states that Google can’t not be in China long-term.  Later this year, China will become the world’s largest economy that is not the United States, etc.  Huge potential market. 

The second piece to this equation is that its not as though Google’s pouring so much money down a hole with China that earnings are hurting.  Indeed, Google’s trajectory on cash flow, earnings, etc., all are moving in the right direction.  Earnings calls don’t lead Google’s CFO to fend off nervous investors, anxious at the out of control spend in China.  Huge potential market without materially impactful investment—sounds like something Google would want to do. 

So that cost/benefit analysis is straightforward.  The other element to this though that’s been missed is simply that international business is hard.  In Silicon Valley, we like the narrative of overnight success.   And to be sure, Google has achieved unprecedented things in its 11-12 year existence.  Still, Google has been in China for 4 years.  The time between Olympics; the length of most people’s undergraduate career.  That Google has not convincingly “won” in that timeframe is not at all a sign that the race is over.  At least it wouldn’t be to anyone who’s ever built or worked on a business overseas.  With international businesses, you have a whole set of issues around who to hire, how to implement a culture that retains the specific elements to the native culture while still being connected to the headquarters, there’s often differences in business models or price sensitivities of customers, etc., etc., etc.  4 years is the blink of an eye for this type of thing.  The idea that Google’s crying uncle at the end of 4 years because China is just too hard a market to win is quite naive and nonsense to anyone who’s been a manager in an international business. 

Given that view, I’ve found Google’s stance really extraordinary.  It will be fascinating to watch the dialogue between China and Google as this conversation progreses. 

Startup Revenue: Moats & Models

I’m giving a speech tomorrow at the Founder Showcase in Santa Clara.  The topic is around building revenue for startups.  The slides are here:

These build on a prior talk I gave in 2009 on this topic, and I’m looking forward to it.

To give my cliff notes here of the speech, it’s basically:

Revenue is the lifeblood, getting to revenue is nice, very nice. 

Some advise not to think about revenue too early on in the life of a startup.  The thinking goes: focus entirely on building something great, get an audience, then the revenue pieces will start to work themselves out.  I disagree with this philosophy in part. 

I totally agree with the idea that 100% of your focus needs to be on building something people want and driving to iterate, iterate, iterate.  At the same time, I advocate thinking about revenue–at least a little bit–early in the lifecycle of starting a company. Don’t get derailed, but at the same time, don’t avoid the topic entirely.  My rationale is simple—you never know what small thing will someday be the determiner of success or failure, so thinking about something important like revenue is a good thing to at least wrap your head around. 

The talk then goes into two parts.  Part 1 is about building out a business to think about how you’ll establish moats and drive traction.  This is about defensibility in part; its also, however about driving distribution (at least in internet businesses).  I argue that any founder should likely try to draw out the model that I’m advocating here—may not be relevant to you, but I’d think you’d at least want to try. 

Then Part II is about models.  I’ll talk about my thoughts on types of revenue models, a sort of revenue model 101.  Nothing too revolutionary here, but hopefully a useful primer if you’ve not thought through a business model before.  I then finish off with a brief description of how to think about your market as a whole.  An industry or market model, i.e., the macro picture of the environment in which you operate is something that entrepreneurs will very likely need to be able to grasp and exercise their minds about. I’ll provide some quick thoughts on how I view that as working well and not well. 

Hope to see you there!

Channel marketing: What all marketing people can learn from social media

Founder’s Fund’s, Internet Mastermind, and friend, Dave McClure posted one of his periodic rants over on his blog.  Good read, great font colors.

When I read it, it got me reflecting on the value I’ve seen as a marketing professional around social media, though not in the manner that most people talk about this. 

Here’s what I mean.  Many people who talk about social media will talk kind of breathlessly about all the channels that are out there, how to do things like SEO, etc.  These tools are out there and free.  The tools and concepts like SEO are easy to figure out.  And these are all new, lower cost media channels: ones in which marketing people really need to embrace and understand in order to be on top of their jobs, really in almost any industry. 

And this is all spot on—as a marketer anywhere, understanding blogging, twittering, youtubeing, facebooking, blah de blah de blah is IMHO vitally important.  Some though will sort of hesitate and say this is all too egocentric, with too little privacy, and with too high a techy dork quotient to be that important.  Or they’ll just say they’re too busy and blow it off.

My counter to that is to frame these social media outlets in a more traditional context.  A marketer’s job is to figure out how to frame a winning value proposition and to get the word out in order that sales people’s jobs become very very easy.  Social media—broadly—is a free, experimental petri dish that any marketing person can use to learn about this exact process.  All sorts of channels exist in the social media realm, with more coming all the time.  What makes this stuff both fun and useful for marketing people is that now there are free channels for you to try stuff out to see what draws and engages and audience.  Indeed, with nothing more than having something useful to say (your product) and with experimenting in where you say it (your channel), you can create a community.  For a marketer, what could be more golden? 

Dave’s rant goes off principally on VCs who don’t understand design, user experience and internet marketing.  And right on, Dave.  I would extend the points on internet marketing, and specifically social media marketing, to anyone who calls themself a marketer.  This stuff is out there and free.  Use it.  It’ll sharpen your skills for free.

it’s a shame that ncaa coaches like carroll & calipari can trade up when their programs are under investigation for rule violations

creates a negative deterrent effect for coaches.  

Untitled

though i use & love bit.ly everyday, i’m bearish on market opportunity around URL shorteners. http://bit.ly/8ILoUr

via Ping.fm

Apple’s Dr. Jeckyl & Mr. Hyde Routine with Developers Continues

TechCrunch just announced that this is the year for Flash to come to the IPhone.  (Oh, wait, it’s already kind of been there with YouTube, the world’s largest flash app, for the past 2 years, but whatever.)

TC’s Erick Schonfeld rightly points out that this is a big, big deal for users as well as for Flash Developers, as they can build once (in Flash) and have the app automatically turn into an IPhone application:

Once Adobe publicly releases CS5, Flash apps and video still won’t run on the iPhone. But those 2 million developers will be able to keep working with Adobe tools and simply turn them into iPhone apps automatically. In contrast, there are only an estimated 125,000 or so iPhone developers. This will lower the barriers to making iPhone apps even more than they are today, which may ormay not be a good thing. But if you thought there were a lot of iPhone apps now, just wait until the Flash floodgates are open.

I think this is right on.

For me, though, the thing is that this will further weaken the IPhone as a specific developer platform–meaning using the Apple SDK exclusively.

Apple enthralled developers with the opportunity and promise of the IPhone, and for the past 2+ years, they’ve basically run the table.  Any developer who was building a cool mobile app had to look at the Iphone first.  The Palm thing isn’t viable, Android wasn’t quite there.   But Apple’s treatment of developers has been so poor on the dimensions developers care most about–specifically being able to build, ship and update code quickly and hassle free–that there is a lot of badwill out there.  I’d be willing to bet, though can’t prove, that the quantity of badwill is proportional to the skill of the developers working with Apple.

I’ve written earlier about my thinking that Google’s Nexus One and Android strategy throw one very large shot over the bow of Apple’s IPhone ecosystem strategy.  With Adobe opening the gates for its developers, it will help Apple get even more apps, a good thing.  But it will likely marginalize Apple’s own developer efforts even further.

Strategically, it seems Apple has some decisions to make.  First is whether it wants exclusive app content, or whether it wants to be one of several mobile platforms for which all app developers build.  This is just like the game console business in my mind–you’ve got the PS3 and the XBOX–they will each fight for a few exclusives, but most apps are on both.  Iphone and Droid will likely end up in this position for mobile apps.  In this case, then, Apple then has to think about how it wants to retain that–on its own SDK or with Flash or other platforms.  Probably some mixture of a few.  And finally, it will be forced (i’d think) to revisit its approval process–its ability to retain control is correlated to the momentum it has.  As the momentum fades, so does its leverage on the app approvals.

Shortening Shorteners

Image via Wikipedia

URL Shortening services like bit.ly, ow.ly, and others have exploded recently (shortly) onto the social internet’s stage.  What seemed to start as way to get links small enough to fit into a tweet or to make it easier to paste into a mail, Shorteners are responsible for a flood of link sharing with literally billions of links getting shortened and sent around.

Last week, TechCrunch’s Erick Schonfeld wrote a two interesting articles: “What Happened to Bit.Ly’s Market Share,” and “Lies, Damn Lies, and How to Get Under John Borthwick’s Skin,” In these, Schonfeld discusses the discrepancies in market share statistics for bit.ly, and whether it was truly as dominating as it had seemed to be.

Here’s my read of bit.ly and the Shorteners business overall based on these articles.  First off, the most interesting part of the pie chart Schonfeld showed was the “Other” category–apparently now 26.19% of Shortener traffic is coming from this category.  Look for this Other number to grow.  And look for big names, particularly in the social media space, to show up as players here–think Facebook, Google, even groups like WSJ, LinkedIn, etc.  As a result, to net/net things out, I don’t foresee one dominant, winner takes all default URL shortener.

Here’s basically why.  First off the task of shortening is not all that challenging a thing to do.  Second, media (social or otherwise) brands will quickly realize that there’s gold in them thar links, and they’ll want to have a handle on the link flow within and beyond their purview.  So this business is not necessarily hard to create a good customer experience for and it can drive value in broad media channels.  I’d say expect lots of entrants.

I tend to use Bit.ly, and I tend to like their analytics view of things.  That said, I also expect that in 10 years, we’ll look back on the Shortener business as this quaint inter-regnum period in the evolution of the social web, after which point, any link I want to shorten is easily saved, shortened and shared with open analytics, etc., etc.

The Google Phone: The Empire Strikes Back

This week, with much ballyho, Google announced its new superduperphone, the Nexus One.  The product reviews are favorable, broadly speaking.  This is particularly notable when one considers that it will invariably get compared with the iPhone (“have you friggin heard of it?”). 

I’ve used and watched closely the Iphone and its ecosystem for some time and I think this could turn out to be a massive strategic strike by Google against Apple.  Surely the smartphone market remains small as a percentage of the total mobile market, and it will grow.  Both and others like Palm and Windows Mobile will likely find healthy niches.  Still I think there are major elements Google has put into place that make it potentially very advantaged over the medium and long-term against Apple’s Iphone strategy.  Here’s what I mean…

To have done so much in a v1 hardware product, purely on a design and functionality perspective, is an audacious achievement for Google.  Few would have predicted that v1 would have reviewed as potentially competitive on a design front to the iPhone.  For example, just recently, Paul Graham predicted that no one would have a chance to touch Apple in terms of mobile device design, that:

It’s unlikely you could make something better designed. Apple leaves no room there.

I’m not arguing that the Nexus One would win hands-down on a design side-by-side, but it is has enough to likely hold its own on this vector of competition.

So now Apple’s advantages are:

• a clear (though slim) advantage on design
• a strong integration with media (mostly music)
• a strong lead in terms of applications and current application developer mindshare
• tight integration particularly with MacOS computers
• maybe its customer loyalty.  obviously many are quite loyal to Apple, but Google also has world-class customer loyalty.  I’m not sure I’d give Apple much of a lead on this front.

The relative advantages that Google brings to the table include:

• a strong advantage in business model—this was discussed very well by Benchmark’s Bill Gurley here.  Google will pay carriers to carry their phone; Apple gets a fee from AT&T.  This is a very significant difference, and it will have an impact.
• an model for handset diversity. this will basically enable handset makers to pick off other segments of the smartphone market. 
• a vastly more favorable approach to application developers. 

How will this net out?  My early prediction is that Google has a chance to do to the IPhone what Microsoft Windows did to the Mac—it’s the Return of the Empire. 

Why will it play out this way?  Two key reasons will drive this. 

First, the business model advantage that Mr. Gurley talks about in his posting is one that has an impact.  Apple is strong, for certain, but putting a business model that’s cheaper than free in front of their carrier customers is one that will have a result. 

Second, if the business model is the tops-down strategy to win against Apple, the friendliness to application developers is one that works from the bottoms up.  Apple’s attitude and approach to developers is a clear opening to Google, and Google’s approach to date is clearly going to exploit this. 

So most everyone knows that billions and billions of apps have been downloaded for the Iphone.  (3B at latest count.)  Apple created an ecosystem with a speed and breadth of distribution that the world has never before seen.  It is geek magic.  Application developers *love* having the opportunity to develop apps for mobile smartphones like the IPhone.  Small teams of really smart developers can build apps for little money.  There’s distribution through the Apple ITunes App Store, and they can even make money.  It’s a hacker’s paradise, a wet dream, the land of milk and honey….  except when it’s not. 

Apple’s approval process is one that is byzantine and lengthy.  For serious developers, used to working at web speed where they can do daily, hourly, or by the minute updates to their products, resubmitting to Apple for a lengthy review every time they update their app is ridiculous.  It’s boooogus, and everyone knows it.  Great developers won’t stand for it for long, *if* Google can get traction. 

Despite its 3B applications that have been downloaded, Apple’s approach puts its at strong risk of losing developers’ hearts, minds, and their coding fingers.  All these developers figured out how to start building apps—remember, basically no one was building apps for Iphone even 3 years ago—and they realize it just doesn’t cost that much.  (Interestingly as a side note, no one seems to care that Apple takes like 30% of the revenue—a king’s ransom.  No one really complains about this—what is complained about are all the restrictions in shipping an app on the Apple Iphone.)

Developers want a platform that has no hassles—let’em build and ship code and get customers our latest work.  Apple’s choice to impose its will is holding back a community that can and will move quickly to an alternative.

In my view, this is a dangerous approach for Apple at this time.  If they maintain the stance and if Google can get any kind of traction in the next 6 months, I look to Google to gain a vast uptick in developer apps, likely at the medium term detriment of Apple.  As with the early innings in the PC/Mac wars, Mac showed the way, and the PC built the ecosystem and rode the 90’s to glory.  We may see the same thing on a smartphone, 20 years later.  The Empire, this time Google, is well positioned to strike back.