Monthly Archives: January 2010

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.

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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.

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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. 

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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!

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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.

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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.  

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

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