Monthly Archives: June 2009

Good, if painful, signal from New MySpace Leadership

Today announcements of sharp people cuts at MySpace hit and hit hard.  This is a painful step, and my sympathies go out to any employee impacted.  I take no pleasure or glee in poking fun at this.  I’m sure that in the coming days, plenty of press will focus on more salacious elements of the moves, the pain inside MySpace, whether offices are remaining open, etc.  The story of growing so quickly, getting bought by News Corporation, followed by the rapid flattening of growth–all within the span of a few years–is just too much of a story to pass up for many.

That’s not my focus.  Instead, I’d like to write and applaud Owen Van Natta and his exec team for moving quickly to cut down while they try to figure out what to do.  In a post I wrote upon the announcement of Mr. Van Natta’s appointment to the role, I suggested that I’d be watching for 3 things–(1) a focus on scenarios, (2) execution, and (3) any cultural phenomenon starting in MySpace versus the other tools (Twit, FBK, etc.).  Given that it’s been less than one month, I’d say that taking the step of cutting back this fast and this hard is an example of execution.  It’s a painful sign, but a good one. I’d not expected such decisiveness here to be honest.

I think this is a good move, not just because it helps signal an execution focus.  I think it also helps the team that remains get hunkered down to figure out what the heck they’re actually going to go do.  The features and scenarios that might help them get ahead are not ones that should take tons of people.  Instead, they need a tight focus with highly motivated superstars–hard to do that when you’ve got wave after wave of layoffs.  Better to just get the cut done big and fast.  So kudos to the leaders of MySpace for having the courage to get after this fast.

MySpace still has miles to go before it sleeps.  But I’d say that this is on the whole a good sign, and I’ll be interested to see what’s next with them.

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I’d listen to Jon Stewart before Chris Anderson on fixing media’s business model

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TechCrunch summarizes Wired Editor-in-Chief Chris Anderson’s rules for pricing on online media by calling them “counterintuitive.”  Author Erick Schoenfeld, writes that Mr. Anderson “articulated something that is now increasingly becoming obvious: As products go digital, their marginal cost goes to zero.”

“This is the law of gravity online,” says Anderson. “Everything that becomes digital will become free. There will be a free version, either you will be competing with free or giving it away for free and selling something else. If it is not zero today, it will be zero tomorrow.”

He then goes on to summarize Anderson’s new “rules”, which appear to be:

  1. The best model is a mix of free and paid
  2. You can’t charge for an exclusive that will be repeated elsewhere,
  3. Don’t charge for the most popular content on your site,
  4. Content behind a pay wall should appeal to niches, the narrower the niche the better

I’m scratching my head a bit here, and I’d love to have read more evidence of this actually working at mass scale. There are a bunch of counter-examples that a hard-headed business guy like me might push back on here with a hearty WTF.   First off, some counterexamples.

The best model is a mix of 100% pay / 0% free, like World of Warcraft.  It’s media IMHO, you want onto their servers, you pay to be there.

Any packaged software (or pharmaceutical for that matter) has a marginal cost of zero, it is still for pay.  I reject the idea that media–becuase its marginal cost is zero–cannot be for pay.  Plenty of other high-value products have zero marginal costs and extract high prices.  Linux and Windows have been two versions of digital OSs for more than 10 years.  Windows still has the vast, vast majority of revenue and unit share.

Plenty of authors are finding opportunities to charge for their content–especially in the financial sector. Jeremy Siegel for example.

Finally, nowhere do I hear that the core model of big media brand (e.g., WSJ) and all its writers are needed to do what they do.  I love the WSJ, and this stinks to write.  But the net net is that most news will be covered by more citizen-oriented news outlets by  citizen journalists and niches that are running around snapping Twitpics and posting to blogs.  This will mean that vastly smaller newsrooms are going to be needed to do what they do today.  Some will be needed and some are crucial.  But many will be continuing to compete with free.  Very hard to deal with.  This needs to get teed up and discussed.  Openly.

With that out of the way, now I want to explain why I think this talk is off base with respect to big media.  Brands such as the WSJ, Wired, Time, Newsweek do have a well-known problem–they’ve got a bunch of folks in a priesthood of journalism competing with their congregation of citizen bloggers, twitterers and so forth who are happily, ignobly disrupting the stuffing out of them.

Anderson’s prescription may work for them, but I’m extremely dubious.  I think that the congregation of citizens is going to disrupt all the slices of profit from the priesthood of jounralists.  While I might pay a few bucks for virtual currency on Zynga or a special hat on WeeWorld, I’m not going to pay $0.99 for an article that I can just read somewhere else.

I really think that we’re watching in journalism what we saw in the auto makers a few years ago.  We are looking at an industry that doesn’t realize its dead yet.   The business model needs far more dramatic reinvention in terms of what we’ll consume.  That debate ain’t happening though.  Instead, what we’re hearing is that the pricing model needs to go this long tail route, which is a baby step.  They’re using a pea shooter against an elephant on this.

As an example of how radical things need to get, here’s Jon Stewart talking to Katie Couric about what the TV news should do.  His ideas are closer to what I think needs to happen than working on a long-tail price model.

Jon Stewart Interviews Katie Couric

Here Stewart gives Couric all kinds of crazy suggestions–“free colonoscopy for viewers,” etc.  These get laughs, but he’s basically right.  Old media is going to need things like cage-matched talking heads debating health care pay-per-view, manage Wolf Blitzer’s as a multi-medai franchise similar to Tom Petty, and a bunch of other completely crazy ideas.

The idea that a pricing model as suggested is going to do the trick is in my mind, extremely short-sighted and likely to fail.  Media franchises will need to think radically about trying vastly new and different things, else they’ll be in the same spot GM / Chrysler are in now.

Jon Stewart’s become one of the most trusted ‘newsmen’ in the US, crazily.  His ideas on how to fix big media may make him the smartest business person too!

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Facebook’s Vanity URLs’ impact: web-based mail will be the big loser

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Like hundreds of thousands of others apparently, I grabbed a vanity URL On Facebook Friday night.  (I’m As it was all the rage in the geekosphere, I was aware it was happening.  As the Penguins had just won Game 7 and their 3rd Stanley Cup, I was at home, happy, and ready to jump onto Facebook and grab my URL.

The experience was no fuss and quick.  I was surprised in that sense, as I’d expected to have long queues as Facebooks servers melted with everyone trying to get their URL.  Didn’t happen–the whole thing took about 30 seconds.

So after grabbing my URL, I then finally gave some thought as to what was so important or not about these “Vanity URLs.”  Some, like Om Malik, speculate that it may take a bite out of Twitter’s growth.  I disagree with Om on this–I think the nature of the conversations and interaction in Twitter is fundamentally different than Facebook.  Having Vanity URLs might make groups of friends on FBK have more Twitter-y like conversations, I suppose.  But as a user of both services, I still see them as fundamentally different.  Facebook’s a place where I share with friends updates, thoughts, photos, etc. on a range of topics.  Twitter is in a sense more universal–it’s like a user-generated teletype news feed with people I know and those I don’t.  Vanity URLs don’t really change that for FBK, @replies won’t do all that much either, as my circle of friends already kind of do this in a klugey way in conversations on FBK.

So I don’t see this as a shot across Twitter’s bow, really.  Instead, I think this is more about making it easy for Facebook to grab and secure the next genertion of users.  What I mean here is that I expect that web-based email is going to feel the brunt of this move.  If you’re 13 say, and starting to use computers more deeply, why are you really going to need web mail now?  You aren’t.  You just grab your little Vanity URL, and you tell the world you’re  I’d think the groups more directly impacted in the short term are not Twitter, but gmail, hotmail, aol im, etc.

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Working with VCs part 2: reverse due diligence

Earlier this week, I posted part 1 of a currently 2 part series on working with VCs.  As I mentioned there, and as I’ll repeat basically any chance I get: working with venture capitalists isn’t summer camp.  It shouldn’t be.  My personal experience and view is mixed–I’ve had great experiences and some bowsers.  But as I’m generally an optimistm, my basic view is that you’re served best by approaching the relationship with a well-grounded, objective perspective.  Again, this is business, not summer camp; you should know this as the venture capitalists with whom you might work certainly know this.  Not a ding on them, just the reality that you and they should share.

Alright so this post is about tips and tricks to drive reverse due diligence.  In other words, these are the questions and steps to take if you actually get a venture capitalist involved and you want to research whether they’re worth partnering with in building a company.  Feel free to suggest other ideas in comments.  FWIW, these are my concrete ideas and steps.

First, probably the #1 most useful data point would be a VC working with repeat entrepreneurs who’ve had sizeable exits in the past.  Founders who’ve achieved exits previously are the “A-Listers” of the Silicon Valley star system.  The Max Levchin‘s or Kevin Rose‘s are the Tom Cruises or Tom Hanks of Silicon Valley.   To a degree, they have a choice in working with the VCs they want to work with.  A successful founder who chooses to work with the same VC again is a signal that that VC is solid.  (Otherwise, why would the founder keep working with the person?)  Ask the VC which founders he’s currently working with, and research their track records on this specific dimension.  I’ve met and gotten to know a few VCs who can point to successful rockstar founders who continue working with them–these VCs are the guys you want to work with before anyone else.

Second, find out if the VC on your deal is working with founders on a repeat basis who did not have an exit.  Very similar to the above, except with founders who didn’t exit.  This is somewhat interesting, in that it conveys that both parties still think enough of each other to work together again.  There’s a slight flag here that you should check out, but in generla I’d interpret this as a positive.

Third, ask the venture capitalist to get intros to the founders he’s working with currently, and call them up.  Ideally you meet these folks in person, and you really get them speaking frankly.  This can be easier said than done, but you’ve got to do this. Here are the questions I’d ask them:

  • Please describe your experience with them in depth.
  • What is the best thing that has occurred in this experience. (This should be concrete.)
  • What is the worst thing that’s happened.  (This should be concrete. )
  • If you were to have a successful exit and you could work with anyone, would you work with this person again?
  • What is the biggest and most significant impact this person ahs made on your business?

The purpose here is not to drive a gotcha type conversation.  You are just trying to get information as clearly as you can on the pros and cons of this specific VC.  I consider this must do work.  What I’m providing here is just a basic set of guidelines.  For your speicifc business, there will be a whole host of individualized issues that you need to drill in on.  The point isn’t so much that there’s a single list; its that you’ve got to go through it.

I’ll probably add more to this list as I mull, but here I thought I’d take the approach of getting this out there and then adding as I think further about it.  Comments welcome.

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Working with VCs part 1 : its not summer camp (nor should it be)

This week in the geekosphere, this presentation on venture capitalists has been making the rounds.

Its funny, and as an entrepreneur who’s met and worked with VCs, I can relate to this.  Some are clueless, herd following clowns, and there’s no small amount of glee we all take in poking fun at those folks.  Many aren’t, though.

Irrespective, if you’re working as an entrepreneur and you want or need venture folks to build out your company, then it’s important to have a clear-eyed, rational view of what venture capitalists are doing.  Having this perspective will help you more effectively set your own expectations, and ideally, will help you do a better job in working with them.  This thinking led me to a two part post.  Part I, below, is meant to provide a different perspective from a founder’s poin

t of view on VCs.  I think its useful for founders starting out to have this perspective.  Part II, which I’ll get to later, is about how I’d suggest doing reverse diligence on investors or VCs–who do you speak to and what questions do you ask them–this is more concrete.

So, Part I has the risk of labeling me a VC apologist, a kiss-ass. Whatever.   I’ll share this not because I think VCs need defending.  Rather, I think its important for founders to have a rational view of VCs, in order that founders are thinking clearly about what VCs can do, and how to think about working with them.   If you’re a good entrepreneur, you need to be thinking clearly and rationally about what you’re doing.

Here are the key 3 things I try to remember when I think about venture capitalists.

1. At their core, VCs are the money.  VCs, at their core, represent the money.  At times and at their best, they represent more, but at the end of the day, they are ‘the money.’   This is not meant as a negative–within the sphere of ‘money,’ I view VCs as useful and constructive. They’ll try to be useful, and they’ll (hopefully) try to remember that they’re not magicians.   They want to help, but they’ve got 7 or so boards to work on, in addition to other companies to look at, in addition to raising money themselves.  They want you to succeed and they want to spend less time worrying about problems, more time helping you accelerate, recruit, get press, etc.

They’re way better money than any other institutions out there.  They’re generally not like private equity funds–looking to lever up and sell off! They’re not (generally) in the turn-around business, looking to squeeze costs, downsize, etc.  In general, they are looking to build companies that swing for the fences–they want ideas generally big and wild and possibly able to make an outsized return.  They may do self-interested things, but they’re going to be more aligned with you than any other money you’re likely going to find in the institutional private equity space.  (If you think VCs can be difficult to deal with, try working with guys at hedge funds to finance your business.  Good luck!)

2. The water-finding stick pitch. VCs are funding ideas sooner than most any rationale investor would–that’s why they’re in the business.   While VCs as a group will have different focus, stage, etc., there are many instances where they will give money to people who have nothing more than a powerpoint, a cocktail napkin, sky-writing, whatever.   Some of those who get funded have no professional track record to speak of, with unproven models, unproven businesses.  (!)  Think for a second how crazy that sounds.

Divining Rod
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Here’s how crazy I think this sounds.  When I was a wee pup growing up on the farm in Latrobe, we once needed a new well.  (Ours had run dry, and we were literally out of water.)  We called up the well digging people, and out they came.  Their gear consisted of a huge drilling type rig to drill the well, and a ‘diviner,’ a guy who figures out where to drill.   The diviner walks around holding a Y-shaped stick by the Y’s ends in his hands.  The bottom of the Y-shaped stick, the theory goes, will point down to the ground when he walks over a spot in the earth where there is water.  I’ve not yet seen any scientific explanation for why this exists.  All I can tell you is that it worked.  Within about 15 minutes, he’d identified 2 spots, and he suggested one that hasn’t run dry in the 20 years since that well was drilled.

So that’s a cool story, but the epilogue is what’s relevant to this.  After the drill diggers had left, my dad, an entrepreneur in his own right, shook his head and asked “could you imagine those guys going to a bank looking for a loan?  Their pitch would be: ‘we find water using a stick!'”

If the water finding stick guys showed up on to VCs, VCs would at least want to see a demo before telling them they were crazy.  Every other institutional money source would likely just throw them out of their office.  Remember that.  I remember that and think it’s pretty awesome that I live in the US where there’s a whole industry of folks who will do that.

A Scout assembles his troop at a summer camp.
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3. “Its not summer camp.” I once worked on a turn-around situation in business.  It had a bunch of difficult people issues involved.  My boss at the time and I were talking about some of the moves, and whether the team would be comfortable with all the changes.  My boss said something that I say a lot on this topic: “It’s not summer camp, Jay.”  He meant it both for me and for the team, and he meant that I needed to get tough, and the team did as well.  And he was right–we’re responsible to share holders, customers, employees, etc.  Getting a VC involved does not mean that we all spend time making hot cocoa and gazing lovingly into each others eyes.  It’s a business transaction, and founders need to deliver.  You’re not in summer camp.

Now, with that said, know that there will be days that stink.  Investors will move goal posts or get squirrelly.  Commitments won’t quite be met in the way that we might have thought.  Etc.  And you can get embittered, or you can pick yourself up and realize point one and two above–these guys are the money, and they’re funding water-finding stick businesses.  On the whole, with whatever else goes south, I feel generally pretty lucky to have the opportunity to work with smart people to build a kick ass business.

So those are my 3 key perspective points that I’d share as you think about building your business and working with VCs.  Its high level, but I find these 3 points useful to remember.  Stay tuned for Part II, where we talk more concretely about how to run a diligence process on vetting and double checking the investors you might be workign with .

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My Founder’s Institute Talk on Branding & Naming Your Startup

Last week, I had the pleasure of speaking as a Mentor at Adeo Ressi’s TheFunded’s Founder’s Institute with entrepreneurial superstars James Hong and Bryan Thatcher.   image

First off, before I get into the topic, let me say that I think the TheFunded Founder’s Institute is innovating the approach to startups in an important way.  The approach is a mix of company building philosophies.  It’s one part bigger hammer–that is bring in lots of smart people as founders.  It’s also another part strong social networks, connect those founders to each other and to experienced, proven entrepreneurs.  Add top-tier, discounted, startup services (legal, accounting, etc.) and that gets at crux of the approach.  The new stock class—F-Class—which Ressi’s introduced is also super interesting.

There are a lot more unique details to how Ressi’s going about this, which I’ll not go into here.  But suffice to say, it is both empowering for entrepreneurs and it has a bunch of detailed thought behind it.  Ressi’s vision is big and broad.  It is exciting to be a part of, and I’m eager to help it succeed.   More concretely, I wish I had had access to such a thing when I was trying to start out as an entrepreneur.

Ok, so that’s the Founder’s Institute, now onto what I was talking about when James, Bryan and I spoke last week.  Our topic was Naming—as in, you’ve now figured out what customer problem you think you’re solving and what you want to do, now what do you call this thing?

This is a fantastically rich and interesting topic.  It’s also, IMHO, super super important.  When you’re a startup, your name is about the only marketing you really have at first.  Also, everyone—customers, potential employees, and potential investors—will ask you about your company’s name.  So whatever you name and brand your company had better be good.

My slides from the presentation are embedded here (hat tip to the folks at Igor International, who’s free naming guide was very influential):

(Shared with permission from TheFunded Founder’s Institute.)

It was a good discussion, and my sense is that this provides a useful prescription for startups thinking about what to name their company and how to approach their brands.  Some key points for reinforcement.

Having a process for naming helps.  What I think is particularly useful about this approach is that you can put numerical scores next to how you think about names.  This enables you and your team to have a concrete discussion about why someone likes versus dislikes a certain name.  This is important, as it enables your team to come to a more objective decision, as opposed to just who yells loudest.

Think BIG picture first, then worry about finding the .com or URL that’ll work. Following my talk, one common theme in speaking with people afterwards is that I think many people get hung up on the challenge of finding a good .COM URL that’s not already been picked up.  While certainly a challenge, I think that worrying about this tends to drive entrepreneurs to small thinking.  You’ll have to work through it, but that’s an end point, not the beginning.

As I’ve said in other posts—as an entrepreneur, my advice to other entrepreneurs is to think big in everything you do.  So when it comes to naming and branding your company, think big.  Go for a big name, figure out what that makes sense and helps position you strongly relative to your potential competitors.  Figure out a name that really delivers on the strategy that you’ve put in place.  Get that strategy right and solid.  Then you can go and figure out the more tactical issues of what the URL hunting strategy needs to be.

Commit to going through the process.  The other thing that I’d encourage people to do is really commit to going through the process that I’ve described in the PPT deck.  I’ve met with several companies over the past year who’ve listened to this process, ignored it, and then have ended up hiring a naming consultant to basically help them go through the same thing.

Acknowledgments to the folks at Igor International. Igor International have open sourced their naming guide, which is a great thing.  My deck basically walks through how I used that free information to secure Moonshoot, an awesome brand name, IMHO ;).  The tool Igor’s provided is for frugal founders like us a tool to go figure this out on our own.  Invest the time to commit to doing it.

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DriverSavers & Its Awesome Customer Experience

This mail is a big shout out to the Incredible folks at DriverSavers, who saved over 20K of our photos from a HD and backup regimen that went horribly wrong.  I also think that there are some terrific lessons here that any company–large or small–can take in terms of delivering a great customer experience.

The background

My wife is a serious amateur photographer.  She takes a lot of pictures that are artistic, and as we have two young children, she also takes tons of pictures of our children.  Our approach to backing these up was to use an attached HD to her mac, with a backup HD that used Apple‘s Time Machine.

The problem we faced was that the HD failed slowly.  When my wife would look at photo thumbnails, they would appear to all be there.  When the HD finally failed, and we went to Time Machine, we weren’t able to find any archived copy that had the actual JPEGs of the 25K photos that it was supposed to be backing up.  Disaster time.

After a few trips to the Apple Store and elsewhere, we got pointed to DriveSavers.  DriveSavers is a data recovery service in Novato, California, that promises to deliver data from hard drives that have suffered massive failure.  They’ve apparently been involved in recovering data from drives damaged in 9/11, drives that have been in fires, underwater, etc.

From the beginning of this experience, DriveSavers approach impresses.

First call. Upon my first call to them, I was instantly connected with a real human being–no long number prompt trees.  Despite the fact that I was *desperate* to get a solution, my advisor at DriveSavers slowly and calmly asked me to walk through the situation in detail.  This works to his favor, as it lets me and my wife get out all the concern and anxiety around having lost all the photos our children.  He listened very patiently, would have let me go all afternoon, if that was going to be needed.  As he listened, he then started asking a few questions about what happened with the specific drive, how big it was, when it had failed, had we continued trying to use it after we had had it fail, etc.

After about 20 minutes, our Advisor suggested his path forward.  First off, as we only needed photos recovered, he thought we’d qualify for a price point that was roughly 40% less than their normal drive recovery.  This was a relief as this ain’t cheap.  Second, and frankly more important, he was confident that they could have excellent chances for successful retrieval.  This is what I wanted to hear.

I wanted to hang up immediately and get myself up there to hand off the disk, but he then asked that I work with him to answer some more questions, as he walked through what they woudl do with the disk and how it would work.  This turned out to be awesome–he made me understand that they do this all the time, that the disk failure I experienced was very common, etc.  Now I was in the car and ready to run stop lights to get to him to save our photos.

DriveSavers Office.

DriveSavers office in Novato has its entry wall covered with photos of celebrities who have had their drives saved by them.  The Late President Gerald Ford, Bruce Willis, Brad Bird (writer/director of Pixar’s The Incredibles), Johnny Depp, etc.  That wall dropped my blood pressure even further.

The people in their offices had the same message as our initial advisor–they’d have the disk back to us in about 5 business days, all the content they could recover put onto a brand new drive we provided.  They also gave us a phone number to call anytime–24/7–in case we wanted to check in.

Very impressive.

5 days later.

5 days later, they called me to let me know that our engineering supervisor, Bohi Nadler, had successfully signed off on a saved data set that we could pick up at our convenience. My wife drove up to pick up the photos.  We have the business cards of the specific engineer who did the work, a set of new tips on how to manage data backup and recovery at home to a stronger degree than ever before.  (We now use 2 HD backups and have all our photos on Smugmug as well.)

I love these guys, and had to share the experience a bit.

Lessons on customer service

This experience really showed me how few companies really get on it regardign customer service.  Here are some of the key tips and techniques that I think are important:

  • Have someone answer the phone, and if not, then at least be super responsive.
  • Let your customers vent, listen, and guide them through your solution.  This both disarmed me and gave me a sense of hope.
  • Always offer a deal.  It was very smart of them to offer me 40% off for a Photos Only recovery.  I felt it was expensive, but at least not full price.  I was “saving” money.  Help your customers feel like they’re saving money, always.
  • Get every human at your company to have a consistent message to your custoemrs.  Having the receptionist have the same information as the sales advisor and the engineer made a difference, I felt as though they knew who I was and were willing to help me.
  • Humanize the service–they told me the name of the perrson who actually did the work.  Having a name behind the work made me feel even happier about hte experience.

I can hardly believe that a data recovery service can create such a positive feeling in their customers–part of it surely is the magic of finding what is lost that is valueable.  But I truly believe that their ability to think through the experience they want their customers to have is waht makes their business truly stnadout.  We can all learn from this, and I wanted to both share my tgratitude and my lessons.

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