Pro-Profit for Antiviral Drugs: A critique of NPR’s goofy coverage on flu vaccines

Yesterday I found myself listening to NPR’s Morning Edition and its coverage of swine flu.  This story, Antiviral Drugs Discounted For Government : NPR, discussed the deep discounts governments negotiate and the resulting shrunk revenue and profit streams that big makers Roche and GlaxoSmithKline make on these drugs. 

My sense of NPR’s tone was decidedly anti-profit, and I find this worrying.  In addition to a tone that discussed how drug makers were not on track to reap a “windfall” from this, the following quote struck me as emblematic of NPR’s anti-profit tone:

To be sure… other instituations will put in more orders.  And more orders, means more profits.

We should not be anti-profit on flu vaccines, we should be pro-profit.  

First off, the amount of money at stake is very small—for something so important, minimizing a pandemic is something I’m happy to see someone profit from.  According to NPR, Roche made $120M in revenue on its key flu fighting drugs, roughly 50% less than the New York Yankees’ 2009 Payroll.   I’d far rather see Roche making more on flu vaccines than the Yankees.  I’d have no problem with that. 

Second, more profit would mean more investment in the distribution, safety, and efficacy of these drugs.  I don’t buy that this is all optimized.  According to some experts cited in the NPR piece, they’d advocate not taking the potential swine flu vaccine this fall as its won’t be proven safe, a la the 1976 vaccine.  Also, the logistical challenges to getting these drugs built and distributed are quite large.  Though I can’t point to how the safety and logistical problems would be fixed with greater investment, I’m confident that with greater profits in the segment, greater investment would be in place, leading to better solutions here.

The capitalist system has taken a body blow over the last year.  That said, we need to remember that we shouldn’t cut off our nose to spite our face.  It is dangerous to put an interest in profit minimization ahead of a drive to maximizing public health.  I fear that if we continue demonizing profit-making entities,  and we continue to push organizations to minimize their profit motives, that we’ll put ourselves at more risk here and elsewhere.

 

MTV Wheezing Into Social Media Age

According to Tech Crunch,  “MTV has announced plans to a launch a show that taps into the power of social media, tightly integrating with Facebook and Twitter to maximize fan interaction.”  Wow, does this come across as the old media guys trying to wheeze their way into the party.  It’s not so much the strategy of MTV embracing the reality of their user base–they realize their users are using social media, makes sense that they’d use it.  Still, when to read about this on Tech Crunch as a show planning to use social media as a channel, versus just doing it and attracting users, the whole thing just sounds so put on.

I’d contrast it with the very powerful, useful manner in which CNN used Fbk and more recently Twitter in the election, inauguration and more recently with the swine flu and even with Larry King.  CNN has done a fantastic job, I’d say.  They’ve continued to drive the content that’s their bread and butter, first and foremost.  They’ve augmented it nicely with social media.  This is the way for ‘old media’ to integrate the newest media technologies.  The MTV approach that starts by saying we’ll have a Twit/FBK integration into some show, well, I don’t know, sounds pretty weak to me.  We’ll see.  Wheeze.

NFL Draft Day: The Gold Standard in Buzz Building

Image via Wikipedia

Today was “day 1” for the NFL draft–the first 32 college players are selected by NFL teams at an event at Radio City Music Hall in NYC.   No passes are thrown, no game played.  Many of these players will ride the pine this fall and winter during the 2009-10 NFL season.  Another set will get hurt or won’t make the grade, prior to making any material impact on their teams.  And some will in fact break-through, but we won’t know this for years.

In reality, Draft Day is a professional, grown-up version of children choosing kick-ball teams on playgrounds. But the execution is amazing.  There’s lots of money at stake: 1st round players will be under contract to earn more than $400M in a few months.  There’s intrigue–teams trading or not trading, moves up, moves down.  And it’s easy to follow along at home, with things like Mock Drafts, and 24/7 coverage on SportsCenter.

All in all, the NFL has shown why it has grown to be the top dog sports business in the USA.  As a business person and marketing person, I’ve got to take my hats off to the NFL.

Given all this, I find it useful to reflect on the amazing, masterful job the NFL does in driving excitement and interest in their core fan base.  It is hard to imagine any other business or franchise putting together the same level of excitement or interest based on something less immediate.  Imagine early national party presidential candidate debates times about 10.

Does MySpace Really Need a Chief Revenue Officer?

MySpace pulled trigger on Owen Van Natta to run MySpace.  

While I don’t know Mr. Van Natta, my quick take reaction and question centers on whether a former Chief Revenue Officer of Facebook is really going to fix what’s ailing MySpace.  IOW, is the revenue problem really the issue that’s highest priority to MySpace?  My take—absolutely not. 

MySpace’s growth has flat-lined, dead in the water relative to Facebook, to say nothing of Twitter.  The site built for teens as the cool hang-out and spot for media now looks bloated, slow and niched. 

So my question is, how’s a business guy really going to fix that?  What ails MySpace, IMHO, is far more product related – it’s an SNS that appeals to a younger demographic, and isn’t tracking to pull in older users in the same way that FBK and TWIT are.  This isn’t a business problem, it’s a product problem.

Scarier still, I’ve read elsewhere the argument that MySpace needs to be the SNS for Music.  Perhaps this is why you bring in a Revenue Officer.  My first take is that this is a dumb idea—take a MySpace, a flat lining SNS and combine it with a dying industry.  Good luck there!  Maybe as an encore Mr. Van Natta could combine AIG and GM.  🙂

It’s not at all obvious what the next steps are for MySpace, and how it might speak to a broader set of users.  Their product doesn’t.  The business strategy of pulling in media like music doesn’t resonate with me at all to a level of scale that’d be needed to make an impact.  Sounds like a mess.  My bet would be on MySpace getting sold in next 2 years at >50% markdown to acquisition price. 

WSGR’s Yokum Taku – the Valley’s Best Start-up Lawyer?

DISCLAIMER: My company, Moonshoot is a client of WSGR and Yokum Taku.  While I think this is a fair commentary, I’m absolutely not above writing a puff piece as a way to try and build kharma / discounts in the future (I am an entrepreneur after all).  So reader beware; you’ve been warned. 🙂

About this post: This is partly a post on WSGR and Yokum Taku.  As title suggests, I’ve been happy with them.  Yokum’s work in the industry in general and for us in particular has been great.  Its also my brief lessons learned on choosing and working with attorneys as a startup founder. 

This week, Wilson Sonsini Goodrich & Rosati’s Yokum Taku released the Automated Term Sheet Generator.  It’s like Quicken for Term Sheets.  This is a great thing for founding teams and entrepreneurs.  It enables them to raise initial capital with a minimum of legal fees and hassle, while still promising to ensure decent hygiene for when the firm gets to a point of needing full-time, professional representation.  If you’re just getting started, this is a great resource.   It’s yet another resource Yokum’s help put together to support entrepreneurs and to drive WSGR’s reputation. 

Yokum is also the author of Startupcompanylawyer.com, a super valuable resource for entrepreneurs who have a need to ‘go deep’ on provisions associated with financings.  I’ve done a few, and I’ve found Yokum’s articles here super in helping me get my head wrapped around complex topics.  If you’re raising money and have questions, before you call a lawyer, go to his site, read and digest. 

Yokum is also our attorney, and I’ve worked with Yokum for over a year as a founder.  I’d give him and his team at WSGR high marks.   I have 3 key reasons. 

WSGR actually keeps costs down by providing rockstar Associates.  Many startup founders whom I asked for a recommendation argued against WSGR, on the grounds that they were too expensive.   WSGR’s rates at an hourly level are at the high end, but this is only really half the story. 

The legal bill you get at the end of a month is the weighted average of the following, in general:

Legal Bill = ((Partner (Hours & Rate)) + (Associate (Hours * Rate)) + (Paralegal (Hours * Rate))

Where Rate (Partner > Associate > Paralegal)

Thus to minimize Legal Bill, you need a few things:

• Minimize total time, of course
• Of time you do spend, maximize time that Paralegal and Associate are working

If you think about the total bill in this way, you’ll find then that the real key in managing legal bills is this: find an awesome Associate and Paralegal.  If you can do this through a great firm, then my strong belief is that you’ll be able to manage the cost. 

Our team beyond Yokum are rock stars—our Associate Jesse Chew has my complete trust, and the paralegal Andrew Wang has also been super efficient and competent. 

So benefit to me is that I’ve got Yokum when I need heavy hitting.  At same time, our associate and paralegal can handle the vast amount of legal billing.  I’d estimate that vast, vast majority of billable hours has not needed Yokum.  This saves us cash, while giving me confidence that if the chips are down, Yokum’s available. 

Yokum calls it like he sees it, and helps figure out what to do.  Pay advisors to advise; pay cheerleaders to cheer.  I’ve met several attorneys who make me feel great everytime I meet them.  I come out of meetings feeling like I walk on water, like Venture Hacks might start quoting me. 🙂

Having worked in the industry a while though, cheery lawyers spook me a bit–a little like the feeling I’d get if a doctor came in, looked at an X-Ray, and said “uh-oh”.  I feel much more comfortable with an attorney who says, basically “Look, I’ve done this a few hundred times.  You are nuts to think that [insert idea here] is going to happen.  Here’s my strong belief as to what will likely happen.  Here’s what I’d suggest we do.”  This is much more Yokum’s approach, and for me, it’s what I prefer.  May not be for everyone, I get that. 

Responds to everything within the business day.   Though I’ve never heard it stated, Yokum and WSGR appear to have a policy that ensures they get back to you same day, no matter what time of day.   I’ve got a very early stage company, we’re no Google (yet).  Still, as a client, I’m treated well.  This predictability is very nice to have.  They’re the only service provider I’ve worked with about whom I can claim this.  It stands out. 

 

Be in the Review—MKTG Lessons from Windows Mobile

Yesterday was a tough day for Microsoft, and not because of its earnings announcement, which Silicon Alley Insider rightly calls its first revenue drop in memory “horrible, considering the circumstances.” 

I think it was a much harder day, because of two prominent articles talking about the relative mobile ad share and Application Development traction of the Iphone relative to Microsoft Windows Mobile.  The lesson from this is useful to marketers everywhere—namely, get in the review!

First, Erick Schoenfeld’s article Android Catches Up To Palm In Mobile Ad Market Share. IPhone Still Blows It Away compares ad share on mobile OSs, with the Apple IPhone garnering 50%, RIM at 12%, MSFT‘s WM at 11%.  #3 in the market, never a place MSFT wants to be.  It is especially tough that the story is about Android playing catch-up to the IPhone.  Microsoft’s Windows Mobile platform is an also-ran, not even mentioned. 

Second, in MG Siegler‘s article “Zero Remains a Popular App Number for Non-Iphone Owners” analyzes the user traction of apps on IPhones versus non-IPhone platforms.  The classic “Leader v. Everyone Else” story.  Here the only Microsoft comparable is the Motorola Smartphone Owners.  What’s very tough here is that  Windows Mobile isn’t even called out, it’s as if Motorola is the only platform not Apple, RIM or Android.  Yikes. 

I love Microsoft, loved working there.  I remain an unabashed fan, and those who count it out are nuts IMHO.  Great people are still there.  Great businesses are still there–Windows 7 should be a super release.  XBOX and XBOX live are coming along, as businesses .  The Server and Tools business is a powerhouse, despite current market conditions.   Its enterprise business is thriving.  MSFT is and will remain powerhouse.

In mobile– a vitally important area of growth and focus in this industry and to MSFT–to not even be mentioned is a real problem.  This is particularly true, as Windows Mobile is now nearing release 7.  With a v7, having traction as a dev / app platform is vital. 

The silver lining is that the mobile app dev platform is still *very* early.   MSFT has come back before, and it can again.  Still, it’ll be important that the WM marketing guys are extremely aggressive in getting the word out and getting into the reviews. 

 

Quick Thoughts on Oprah Effect on Twitter

This quote from Hitwise Intelligence – Heather Hopkins – US: Oprah Effect on Twitter caught my eye:

There’s been much debate among loyal Twitter users about whether this spells the end for Twitter’s coolness, as soccer moms sign up in droves.

Total, absolutely, 100%, USDA Prime Grade BUNK.  Wanna know how I know? 

Do this thought experiment…  try it at home. 

Step 1: Replace “Twitter” in above quote with the word “telephone,” “email,” “the Internet,” “Facebook.” 

Step 2: Now put your mind’s eye into the following year for each communication technology.

Email: 1994

Internet: 2000

Facebook: 2007

I may have the years off by a year or two, but the net/net is that anyone who thinks that these technologies would lose something when they became “too mainstream,” fail to understand the power of networks. 

All of these technologies became vastly more cool after they became mainstream.   They became more cool precisely because the broader usage spurred broader innovation and investment.  Sure, you as an early adopter and a technical elitist now have to contend with your mom asking you questions about Tweeting, but in return you get a broader, more robust ecosystem. 

Still don’t buy it: invert the argument.  Raise your hand if you’d like to go back to dial-up internet and AltaVista as the leader in Search! 

Venture realities : some big changes, some the same

TheFunded‘s Founding Member, Adeo Ressi, posted an interesting perspective on recent venture capital financing today.  In his post, Ressi describes several of the key issues facing venture funds in the short-term, and he concludes with these predicctions:

new investments will start to surface towards the end of Q2 and in Q3 2009. Since new investments are smaller than later stage support, the amount invested in 2009 will be significantly smaller than any amount in the last 10 years, but the volume of deals will start to normalize by the end of the year.

I agree with Ressi’s key points and his conclusion.  His post also got me thinking more broadly what they likely mean longer term for venture capital, and I’ll share those thoughts below.

First, some perspective: venture capital has existed in some form since at least Christopher Columbus, funded by Queen Isabella of Spain.  (I’d have loved to have understood the term sheet those two negotiated!)  I believe the odds quite high that venture investing will remain a vibrant, real sector for investors.  This is based on a few basic rationales:

1. No one wants to sit aside and miss the next MSFT, Google, or Facebook for what in the scheme of a total institutional investment pie is a relatively smaller sliver;
2. While venture funds have suffered, so have many PE funds–one of their key competitors as a investment class–along with every other asset class.
3. When one looks at the opportunities for big-time innovation to solve big-time problems, it seems pretty obvious that the fields of healthcare, clean tech, and so on will continue to draw funding in for new venture invetment.

Thus my sense is that venture capital as an asset class will continue to exist and will very likely thrive over time.

That said, I think that venture capital as we know it is very likely to change dramatically, particularly with respect to asset allocation.  In addition to the oft stated pronouncements about the coming consolidation of venture funds, here are my key predictions to take place over the next 5 years or so.

1. Consumer Web / Web 2.0 / Social Media investing will decline in overall money invested, though # of deals may stay similar.  Consumer web sites take vastly less money than they did even 5 years ago, before the invention of AWS (Amazone Web Services).  With cloud computing services such as AWS (and competitors such as Microsoft Online/Azure and Google App Engine), the price per cloud computing unit will drop and continue dropping.  Robust, free rapid application development environments and tools such as LAMP, RoR and so on now have rock star developers all over the place who work economically.  As a result, new services can be conceived, prototyped, tested, and launched for vastly less capital.  This trend favors the seed stage venture investors, such as Baseline, Alsop Louie Partners, Jeff Clavier, etc.  Larger funds will find it more difficult to focus here, as it’ll be increasingly difficult for these services to have good use of the bigger checks that larger funds want/need to write in order to get the right leverage on their money.  Certainly, some companies will need more money, a la Twitter, but many a consumer app will be built in next 5-10 years that may never need to raise more than $5m in outside capital.
2. Enterprise 2.0 applications I expect to stay at near similar levels–roughly same number of deals, same amount of money.  Enterprise applications in a way have all the same kind of positive trends around lower cost development that Consumer web does–Ruby on Rails, AWS, etc.  Developing a product should become easier, lower cost.  The challenge is really around how will these companies really build salesforces and channels.  This is an unchanged challenge for Enterprise apps, and as a result, I expect investment stays on trendline similar to where it is now.
3. Sectors with strong alignment with government regulation–CleanTech, Health Care, infrastructure etc –likely have important opportunities.  Bigger investment numbers and more deals will get done over next 5-10 years in this space.  I believe that most big-time mainstream venture funds, in order to stay on the cutting edge of where they need to be in order to run multi-hundred million dollar funds, will need to evolve sectors and take on greater focus in cleantech and health care–two areas where there is a lot of capital required as well as strong government regulation.
   
4. My dark horse prediction is that globalization will become an increasingly important sector and focus for venture funds.  The world is flattening.  This flattening creates opportunities for venture funds that look to exapnd and extend their reach, networks, experience, and footprint to a global perspective as one of the big, largely untapped opportunities for venture funds.  Many larger funds have presence overseas.  Still, it is unclear whether this is really ‘globalization’ — i.e., where every portfolio company is pushing to become a global franchise–orjust putting a VC flag and office on the ground in a certain country.    I suspect its far more putting the VC flag and office in a foreign country like China and calling it a “global” fund.  That’s not really it.  The opportunity, long-term, is to accelerate and amplify earnings by getting companies earning revenues and traction in foreign lands.  Firms that can really get their arms aroudn this will find that they have upside in their returns, irrespective of sector.  This is a little fuzzier a concept, so I expect it to experience modest growth in investment and deals over the coming 5-10 years.

In conclusion, venture investing likely will survive the shakeout intact, with fewer firms and with over time, different focus.  But so long as there are markets to chase and New Worlds to discover, there will be Christopher Columbus’ and the Isabella’s who fund them.

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A Key to Diligence from an Entrepreneur’s POV : Know Thy Numbers

Brad Feld had a useful piece on the concept of Total Addressable Market (TAM) when speaking to investors.  Brad is “in the ‘measuring TAM doesn’t matter at all’ camp, especially in an early stage company in an emerging market.”  I understand his perspective, and in general, there’s a lot about his approach on this point that I’d agree with completely.

I think, though, that it is very important for an entrepreneur (and investor for that matter) to have a loose quantitative model in his head around how his business would work, the core markets, drivers, etc.  I call this the “Know Thy Numbers,” and I think it’s an imperative.  If done well, from my POV, even in an emerging market, you should be able to gain a sense of what the total market could be, how it might develop, key drivers, and ultimately, a realistic sense that the total market opportunity is within a zone of reality. 

Here’s a cautionary tale that illustrated to me how vital this is.  Recently, I was helping a venture capitalist look at a company focused on a segment I knew pretty well.  Without getting into any details of the business or value proposition, it became clear to me that someone had communicated an installed base (IB) for an existing product that was an order of magnitude higher than reality.  This IB assumption was pretty important to the attractiveness of the business plan.  Though someone may have had an analyst report stating this number was true, it was impossible doing a basic analysis of the market dynamics to come to a number anywhere close. 

Instead of finding analyst reports on some highly speculative emerging markets, I recommend to entrepreneurs you gain a solid understanding of the key existing market numbers that are relevant to what you do. 

Example, if you’re in the mobile space, start with how many phones there are worldwide – an IB something north of 3B and growing, with shipments of some other large number.  If you’re in the PC / internet software market, you can find out pretty easily the IB and shipments, and again have facility with those.  If you’re in SNS, well you have pretty good stats on FBK to look at. 

It’s important that from these numbers, you have a model in your head for how your business might someday fit into the world.  This exercise should help you expose holes in assumptions—if for example your business require something where you need to have an average of say, 3 PCs per household in the US, or you need 1 trillion accounts on a SNS you’re building, well then that’s a problem.  Things like this can get exposed clearly for people that take time to really get the core market data under their fingernails. 

We once did an exercise on this at MSFT for a meeting with Steve Ballmer.  We were getting ready for an Annual Strategy Review with him, and the evening before the final presentation, I was reviewing notes of a chat he’d given on what he wanted to hear from different business group leaders.  One point he really hammered on was along these lines: have a model in your head of how your business works and what needs to happen for you to be able to hit your numbers. 

It was a good catch, as we didn’t have it at this point in our prep, really.  Also, it was an easy fix, as at this point our finance people and myself (who was building the presentation) had the key numbers in our head.  We realized that it’d be pretty easy to build a stacked bar chart of what it was we thought we’d do in the next FY, and what had to happen for us to get there.  It took about 30 minutes the night before to build a slide that was a real hit.  Without giving away the business or the numbers involved, etc.  we basically built a chart that said,

next FY, we’re going to grow revenue by XX%

To do that, the following has to happen:

• Market grows X%
• We take Y points share from competition
• We shift Z points of our product mix from lower rev/unit to higher rev/unit
• We increase annuity mix by Q points, which has downward pressure in next FY, but helps us long term
• Channel shift will lead to P points of revenue growth  Etc. 

That kind of model is one that most businesses—even in emerging markets—can come up with.   Even if you can’t, its useful to spend time trying to get your head wrapped around a quantifiable model for how your market works.  It’s not a TAM analysis, it’s a simple business modelling exercise that I recommend highly.

Seesmic Desktop release: a strong product step that exposes the right question on Twitter’s business model

Background: I downloaded Seesmic Desktop tonight.  I like it a lot, but that’s not the subject of this post.  This post is about the importance of Twitter’s business model to nurture a vibrant ecosystem.

2009 is shaping up to be the year Twitter’s white-hotness explodes into the mainstream.  To me, nothing made this more clear than the New York Times’ real-time mapping of tweets during the Super Bowl. 

Leading up to and following the Super Bowl, the media coverage and hype on Twitter has been, in a word, superlative.  Literally, stuff of Silicon Valley legend.  Facebook and Google are rumored acquirers.  Inaugurations and political conversations are changed.  Terrorist attacks are reported first through twitter.  Sully’s downed plane was twittered.  Etc.

And all this is fantastic.  Twitter’s a very useful service, and there’s not a shred of doubt in my mind that it will continue to have an ever increasing impact, its management team will find a substantial, sustaining business model for itself, and its founders, investors, and employees will make a well-deserved, honestly gained fortune. 

In the technosphere, not everyone is so sanguine.  It is a common question to ponder how Twitter might make money.  I was pondering this myself tonight as I tried out Seesmic Desktop.  I realized the question of Twitter making revenue is a silly question; entirely the wrong question.   Playing with Seesmic more, though I realized that there is a better question on the topic of Twitter and business model. 

The right question is this: how will Twitter enable a broad and sustainably profitable partner ecosystem? 

Twitter is clearly the PLATFORM, rubbing in Barry Bonds’ “Clear,” and eating the Michael Phelps 20,000 calorie diet (no bong hits thank you!)  to bulk up into the 800# gorilla it will be.   It’ll make revenue in the same way that Bonds, Phelps, Microsoft, and Google do—they have natural monopolies, in the form of hand-eye coordination to hit 800 HRs, win 8 Olympic medals or own 98% share of PC OSs or 75% of web search.  Twitter’s got the traffic, the network effect is strong and increasing. 

Everyone else though — the Tweetdeck or Seesmic Desktop or Bit.ly guys are the “Applications,” and they don’t ride with the Platform guys (yet).    The Application guys, at least for now, appear to be catching the crumbs from Twitter’s table.  This is a challenge for Twitter, potentially a tough one for them longer term.  To use the most powerful recent example of platform healthiness—the Iphone–the great thing about the Iphone platform is that it’s crystal clear that app vendors can make money on it.  App writer builds app; app writer gets royalty.  Very clean.  very simple.

With Twitter, less so.  While I think its silly to ask whether Twitter will make money, I do think its a fair and important question to ask whether the Twitter App guys will and how they’ll do it sustainably.  And answering this question is important, not just to the App guys, but in fact to Twitter as well. 

Here’s why.  First, it is going to be hard work for app vendors to get and sustain a lead, as Seesmic and Tweetdeck among others will likely show us in the next several months.  The arms race will continue, etc., but it’ll be difficult to see who will ‘win’ the market share.   Beyond that then, there’s the question of how would either monetize?  Will they have an ad platform from Twitter they can tap, similar to Facebook?  Not clear yet.  Are customers going to want to send virtual beers or pokes thru Twitter in the same way they do in Facebook?  Not sure.  So my view is that the application guys have a tough slog in front of them.  They could end up winning some market share war, without any revenue legs to stand on. 

And this is something Twitter needs to help the Seesmics and others get clear around.  How all this tweeting will turn into sustainable revenue for them.  Twitter can’t entirely punt this to the app guy, nor can Twitter solve it entirely for them.  In my experiences with platforms, and I spent a decade on them, this ain’t easy. 

It’ll be exciting to watch Twitter continue to grow and the innovation in the ecosystem around it.  I’ll be keen to see how Twitter’s business model comes forth, and I’ll pay attention to how that model helps app vendors make money.