Tech Road Trip

A Company's (First) Tipping Point

2010-04-30T05:07:00.000-07:00

I like to think of the first sale as being the first major tipping point for a startup. It is the hardest sale to make, since little is known about the product's efficacy or the company's stability in the marketplace. This is a classic lemon problem, where information asymmetry between the seller and the market result in a breakdown of trust and propensity to buy at fair price. Overcoming this inertia is extremely difficult but there are very clever ways to overcome this by creating strong positive signals in the marketplace. The following (true) story, shared by Dr. Macmillan at Wharton, is a great example of this:

A salesman came to pitch an industrial plant manager on an innovative new water filter. The filter was twice as expensive as the next best alternative but lasted 5 times longer with the same efficacy. The investment would have justified itself but he did not make the purchase, because he had to somehow justify why his expenses had risen in the quarter to the company before any ROI from the purchase was evident. Having gotten this response, the salesman went to one of Proctor and Gamble's factories and gave the filter away for free. In doing so, he created an invoice and had it signed on delivery by the company. He then went back to the manager and showed a signed delivery slip (not showing that it was actually given for free). The fact that a major multinational had implemented the technology was all the manager needed to justify the expense to his bosses so he purchased the new filter product.

This is just one great example of how one can leverage the trusted/positive image of a client and create a strong signal in the marketplace that inspires confidence in the company and product. The key here was that the manager thought that P&G had puts its trust in the product by purchasing it, signaling to him that it was indeed a good investment (whether this is withholding or clever positioning may be debatable, but the signaling effect is clear). Over the years, I have seen both good and bad signaling strategies.

Good ways to signal the market:

Get a customer with a strong reputation in the marketplace. If you work with a company that is known to have very high standards in their business relationships, you will benefit from this. This could also be the case with an adviser or investor who has a strong reputation.
Set up free trial periods. This will signal your confidence in your product by shifting the risk to you, while still not making the client's purchase totally 'free'.
Make use of great PR. There seems to be a positive signaling effect in peoples' minds from reading about a product in a reputable source (ie: "as seen in the NY Times").
Collect data. Lots and lots of data. Try to get the study conducted/verified by an independent source. Show where the product works best and where it is least effective (this will show you are transparent and not only showing the positive data).

Bad ways to signal the market:

Sign up early customers for free. While this can be great for collecting data, it does not say much about whether the counter party actually sees the value of your business. Anybody will try something if it's free. When you pitch the next company, it really does not send any valuable signal.
Working to get 'the wrong' early customers who do not help you 'signal' your product's value to your target customer base. For example, if your target is a Tier 1 company do not waste too much time going after Tier 3 companies. This may in fact create a negative signal (ie: Tier 3 companies use this product).

These are just a few examples that come to mind from my last startup. Obviously there are cases where these rules will not apply but in general I think this is a decent framework.

Under the Googview Hood

2010-04-25T19:02:00.001-07:00

I recently made an update to Googview, my first web project. The new functionality automatically updates the Googview background to current Bing search backgrounds from around the globe. This exposed me to a few new web technologies that I thought I would share here.

Search Functionality:

Made using Google Custom Search Engine. This tools has a wizard that makes it very simple to create custom Google search tools.

Bing Images:

Images are taken from Bing's global sites and put into an RSS feed by Long Zheng at istartedsomething.com
This feed goes into Yahoo Pipes and is modified to make the media asset URL the 'title' of each item.
A simple PHP script on the Googview page runs on load, takes in the Yahoo Pipes feed using MagpieRSS, parses the media asset url and writes it down to the page as HTML.

OMM- How Display Media is Traditionally Bought and Sold Online

2010-04-19T20:12:00.000-07:00

For this installment of Online Media Mondays, we will discuss how display media is traditionally bought and sold online (we will cover the newest methods in a future post).

What is Being Sold?
If the publisher of a website wants to monetize content by featuring ads, it will allocate a certain amount of screen ‘real estate’ to show advertisements. Every page that has this allocation is part of a publisher’s ‘inventory’ and can be sold to an advertiser. Sales are generally made on an impression basis, so that the advertiser pays for each time the ad is loaded onto a new page. However, some publishers might use different revenue models in including performance (clicks and conversions), revenue sharing or time-based sponsorships (ie: homepage takeovers).

Direct Sales Teams
In order to sell its inventory, larger publishers will generally have a sales team that will organize direct buys for advertising space. This team will often focus sections of the site with the highest traffic/reach for a specific audience that an advertiser is interested in (‘premium inventory’). These sections could be homepages (yahoo.com) or specific sections (health.yahoo.com) and will be priced at high CPMs, generating significant revenues.

Selling premium inventory through a sales team makes sense for premium inventory where CPM values are very high. However, the direct sales model does not work for the remaining or ‘remnant’ inventory because sales teams cannot scale operations as easily as a site can increase available inventory (given the low cost of publishing content online). This leaves a significant amount of content that the publisher cannot monetize.

Enter Ad Networks
As the amount of content on the internet grew, publishers struggled to sell off their remnant inventory. A number of companies named ‘Ad Networks’ started aggregating this remnant inventory and selling it to advertisers over a significant discount over the publisher’s direct sales rates. The only stipulation that publishers applied was that advertisers not be able to directly target sites/sections that they wanted, but rather target a ‘channel’ of similar content across multiple publishers to make sure their direct sales teams were not undermined. Ad networks therefore started to focus on aggregating content within specific verticals (ie: Travel) to make sure that their ‘channels’ were still of high value to advertisers.

Ad network inventory is sold to advertisers through direct sales teams, very much like premium inventory. However, the lower pricing of inventory and limited targeting choices make it much easier to negotiate contracts and sell in high volume, resulting in a much more scalable business model.

Now that we have built an understanding of how ad serving works and how internet content is bought and sold, we will bring this all together to build a front-to-back understanding of the ads you see on a site end up there in next week’s post.

The Power of Instant Gratification

2010-04-14T19:52:00.000-07:00

Today I was thinking about what it was in the fundamental design of web apps like Twitter, Facebook and Zynga that made them so successful in acquiring and keeping users (causing enormous changes in online behavior).

I was reminded of an analysis that I did for a large social gaming company as part of their recruiting process. They asked me to play one of their Maffia games and determine what features were driving 'virality'. At first, I had absolutely no idea how the game had become so popular. The GUI was limited to having a user click a handful of buttons that would instantly give them points and 'virtual goods'. There was no story-line, no mental challenge, no advanced visualization; just an instant reward for performing a simple action (for example, to rob a store, one would just click 'Commit Robery', and instantly see an increase in wealth points without any chance of failure). It was the equivalent of flipping a series of light switches on and off and getting some psychological reward for it. "Strange" I thought...

After playing for an hour however, I was rather surprised. I had progressed quite far in the game and started to enjoy it. I'd built a mini 'empire' and had no idea how I'd gotten there. Each click had given me some slight enjoyment and they had magically added up to an hour of gameplay. Furthermore the game kept kicking me off every time I made progress so I never got to the point where I was bored of it.

Instant Gratification (aka the Bon Bon Theory)
My theory on what has made web apps is that they deliver instant gratification in limited doses. In the game described above, I felt instant utility through building my collection of virtual goods. The game design allowed me to instantly enjoy small doses of pleasure, while forcing me to come back later for more. In the case of twitter and Facebook, we are gratified by the emotional value of seeing a constant stream of information from those we value most. Once again, this utility is enjoyed over time as updates/tweets trickle in small doses throughout the day.

I call this the Bon Bon Theory because it reminds me of how quickly one goes through little wrapped sweets when they are lying around the house. They are just the right size to give you instant satisfaction but never sizable enough to satisfy a craving (and the solution is always simple-- you just go back).

This is an extremely powerful concept and should be considered key when looking at future web services as we become more and more connected (since being 'always on' makes it easier to administer each 'dose' of utility).

OMM- Basics of Ad Serving

2010-04-12T21:02:00.000-07:00

Before we can start to discuss the current state of the online display industry, we need to have an understanding of some basic concepts in online display media. We will start today's installment of Online Media Monday (yeah I know I'm late, but it's gotta be Monday somewhere!) with the basics of Ad Serving, which is the process through which display ads are shown to users on web pages. This will be critical to understand as we go into the evolution of the industry next week.

How Ad Serving Works
The basic flow of serving an ad on a website is very simple

A publisher (ie: Yahoo) gets an ad server, which generates some basic code that they then implement on their sites. The code will be specific to each creative size so the ad does not break out of the space given to it in the site design
An advertiser signs a contract/Insertion Order with the publisher to advertise on their website. They agree to pay $10,000 at a rate of $10 CPM. This means that they are guaranteed to serve 1,000,000 impressions.
The advertiser gives a set of creatives to the publisher who then loads the creative into the ad server.
Every time a page loads the ad server code is executed and sends a request to the ad server. The ad server recognizes the specific site and the ad size, and loads the ad to the page.

Adding Logic To The Ad Server
Of course the logic behind serving an ad on a page is much more complicated than the example above. For example, when a request comes for a creative of size 325x250 from a web page, there can be many different creatives from many advertisers that are candidates to be served. How does the ad server determine which creative to serve? Most ad servers will implement some logic that will fit both the publisher's and the advertiser's goals.

Some publisher goals might include:

Honoring Contracts (ad server prioritizes delivery for campaigns with upcoming deadlines)
Maximizing Revenue (ad server prioritizes campaigns with higher CPMs)
Protecting Audience/Brand(ad server will not serve 'adult' ads to 'kid' section of site)

Some advertiser goals might include:

Serving to the right audience (ad server will only show ads to certain sites and geographies)
Frequency capping (ad server does not show creative to same user more than x times per day)
Meeting ROI targets for clicks and conversions

These are just a few parameters an ad server might take into account before serving an ad impression to a user when they load a web page (there are many more that we can address later). One interesting points to note here are that the logic is entirely on the publisher's ad server, so if interests are misaligned with the advertiser this could impact the advertiser's campaign. Another interesting point is that the advertiser is entirely reliant on the publisher's ad server's reporting system for information. This will be critical to keep in mind as we start to build on this model of ad serving and discuss how the industry evolved over the past 15 years.

How Does Online Display Media Work? (Kicking Off Online Media Mondays)

2010-04-07T19:26:00.001-07:00

Inspired by Fred Wilson's MBA Mondays, I will be starting a new series called Online Media Mondays that will teach the basics of online media (channels, technology, data, etc) from the start. This was inspired by some recent findings

While doing some research on the metrics being used in the industry, I came across some interesting stats:

One study suggests that 8% of users represent 85% of clicks in display media. Furthermore, 70% of sales that are made due to display ads come from "effective" clicks (ie: instead of clicking on a Nike ad, the user sees the ad and goes directly to Nike.com
Another study by Comscore suggests that the demographics of frequent clickers is heavily skewed to households who make under $40k a year.

My first takeaway from this was rather positive, as it suggested that display media is working far better than we can traditionally measure. My second takeaway was rather grim, as this data also suggests that there is a fundamental lack of trust for display media in the educated/sophisticated user (ie: a user responds to the creative content but refuses to interact with the media as they are unsure of what will happen.)

I believe this lack of trust comes from a poor understanding of the medium itself. This issue has been worsened by several factors:

Poor quality display content seen on many junk sites (ie: "punch the monkey" ads) that link to spyware/malware
The industry has a history of lack of transparency so there is very little information on the web about how it functions (since starting at my current role, I have been taught completely by my peers without having any other references on the internet)
Many users see the effect of being targeted based on behavioral data but have no idea how this information is collected/utilized. Therefore, they a) See it as some kind of targeted spam and b) worry they will provide more data to the 'spammers' by interacting with display ads.

Luckily, the industry landscape is changing. As new ad exchanges allow high quality advertisers to reach across sites, it's likely that we'll see less and less 'punch the monkey ads'. Also, the new standard being set by DSPs is fully transparency so very soon the shroud should lift and advertisers/users should learn more about the industry and understand the benefits of display ads.

This new series will be about educating users about the past, current, and future state of online media and show them the value that it creates for both users and advertisers. Most importantly, it should answer the question of 'how does that ad on the page get there?" so that they can start to build trust in this up and coming media channel.

Where are we going?

2010-03-31T20:27:00.000-07:00

In the new world of web apps and APIs, skilled developers are now able to build and launch new products in very little time. This has advantages and disadvantages.

Advantages:

Gaps in the market are quickly closing and user needs are being met
Low cost implementations can quickly scale and generate a massive audience

Disadvantages:

Closing the gaps of today ignores the big questions of the needs of tomorrow. We have some great engineering minds who are building on the platforms of today without considering what the platforms of tomorrow will be.

Every great idea/platform that exists today was far ahead of his time. It sounded a little crazy. It was different and it predicted a future need based on changes in our behavior and the world around us. This is the lens with which I am approaching my two side projects. The first, Just Us, is much more defined in scope so I can share a little bit on that.

My thesis is that in this world of social media/sharing, there will come a point where relevance and intimacy will matter more and that the 1-to-1 connection will be stressed over the 1-to-many. I developed this concept when I moved far from my girlfriend in the fall, seeing enormous potential in the tools of social media for sharing without the benefit of privacy and the ability to emphasize emotional connections.

Hello World (Again)

2010-03-28T16:32:00.000-07:00

It's been a rough transition to the world of online media. I've been learning a lot about the basic infrastructure of the internet and the plethora of ways different parties gather and mobilize data. This has given the Triip and Just Us teams a lot of great ideas to improve our apps. We're going back to coding our Alpha releases :)

ESAF Part I: Testing the Business Model

2010-03-25T19:23:00.000-07:00

I will be writing a small series to provide further insight into the Early Stage Analysis Framework (ESAF). I recently posted to the blog. This will be somewhat out of order, as I will try to follow up based on discussions that I have with others in the blogosphere.

Today I wanted to address the question of how to test the business model. In ESAF, I suggest that there are 3 key steps to understanding whether a business model is sound:

Create a unit economic model of the business to understand the key revenue and cost drivers
Conduct break-even analysis on the unit level to see if the company can generate margins on each unit. If this isn't the case, expand the model to take into account multiple units and see what scale is required for the company to reach break-even.
Conduct Crystal Ball analysis to understand expected profit values based on a Monte Carlo simulation and de-risk the business model

I devised this approach after working for quite some time with both entrepreneurs and investors in early stage companies. I found that very often they spent a lot of time breaking down complex 3-5 year models and questioning key assumptions that the model makes. This is often a highly time consuming (and subjective!) process and often means very little since both sides stand firm behind their own assumptions. The challenge for me was to devise a way of testing business viability in an objective way without taking any position on what assumptions were 'reasonable'. This was key in getting buy-in from investors and entrepreneurs on the validity of my analysis. I outline my approach below.

First, creating a unit economic model is crucial because it strips the business down to its core revenue/cost drivers and eliminates the unnecessary complexity that most models have. This model is created by identifying an economic unit for the business (whether it is a cookie, a box of cookies, a delivery truck of cookies or the daily supply an average supermarket purchases) and allocating all revenues and costs (both variable and allocated overhead) to that unit.

Once we have this unit economic model, we simply ask the objective question of whether the business model is viable given the existing market size. If the unit has a positive margin in the model, immediately we know that the business model is validated. If the unit runs a loss, the model can be enhanced to account for multiple units to see if the company can break even as it scales up (and economies of scale lower overhead cost down across all economic 'units'). Once break-even volume is determined, this can then be compared to market size to judge whether or the business is viable. For example, if you found that it would take 9 billion customers to sign up for an annual subscription to your web service, you have objectively proven that the business is not viable since there are some 6 billion people in the entire world. When we conduct our break-even analysis , all we test is business viability. This does not take into account whether the business can actually achieve the market share necessary to break even (we examine this question later). It is an objective analysis that can be understood by everyone around the table.

If the business seems viable from a unit economic model perspective, the next thing to test is whether it can actually meet the ROI targets necessary to make the business worthwhile to the entrepreneur and investor. To do this, a Monte Carlo Simulation software such as Crystal Ball can be used. This software allows you to create a basic financial model and designate 'ranges' for inputs (ie: sales figures, resource costs, etc) instead of coming up with distinct best/worst/expected case scenarios. For example, if you think that salaries might be in the $40k-60k range with an average of $48k, it will allow you to input these ranges into the system. Once this is complete the software will iteratively simulate thousands of possible scenarios across all model inputs and generate two key outputs. The first output is a chart outlining results from the simulation with expected outcomes. Lets take this chart as an example:
This chart shows that across several thousand simulations performed on the input model , the business can indeed suffer a loss, although the expected value is a net income of $6K a year with an optimistic scenario of ~$12K. This data can be extremely useful when trying to compute ROI targets and value a company.

The second key output is a tornado chart that illustrates the key sensitivities of the business model. While running random simulations, the software isolates the most sensitive drivers of profitability and presents them in the form below:
This tornado chart shows the most sensitive variable in the model is Website Development costs (which will in the best case be ~$12K and in the worst case ~$18K.) Using this insight, entrepreneurs and investors can understand the key risks in the business and take steps to mitigate the key drivers of risk.

My experience has shown me that 'objective' analysis is crucial in the initial stages of discussing business models with early stage companies, as it ensures buy-in from both entrepreneurs and investors. Otherwise, there is simply too much room for subjectivity when looking at assumptions one by one and debating whether they are reasonable.

Early Stage Analysis Framework

2010-03-21T19:35:00.000-07:00

This is a little project I developed over a weekend. It is the culmination of 4 years of experience in working with bootstrapped and VC/PE backed early stage companies. I welcome any and all feedback!

Early Stage Analysis Framework v2

Why Are Entrepreneurs That Way?

2009-11-20T05:51:00.000-08:00

How does an entrepreneur think and what is that unscratchable itch that drives them? From time to time I ask myself these very questions and when I need a little perspective, I turn to the wisdom of Thoreau. These two paragraphs come from the final chapter of his book Walden:

I left the woods for as good a reason as I went there. Perhaps it seemed to me that I had several more lives to live, and could not spare any more time for that one. It is remarkable how easily and insensibly we fall into a particular route, and make a beaten track for ourselves. I had not lived there a week before my feet wore a path from my door to the pond-side; and though it is five or six years since I trod it, it is still quite distinct. It is true, I fear, that others may have fallen into it, and so helped to keep it open. The surface of the earth is soft and impressible by the feet of men; and so with the paths which the mind travels. How worn and dusty, then, must be the highways of the world, how deep the ruts of tradition and conformity! I did not wish to take a cabin passage, but rather to go before the mast and on the deck of the world, for there I could best see the moonlight amid the mountains. I do not wish to go below now.
I learned this, at least, by my experiment: that if one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours. He will put some things behind, will pass an invisible boundary; new, universal, and more liberal laws will begin to establish themselves around and within him; or the old laws be expanded, and interpreted in his favor in a more liberal sense, and he will live with the license of a higher order of beings. In proportion as he simplifies his life, the laws of the universe will appear less complex, and solitude will not be solitude, nor poverty poverty, nor weakness weakness. If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.

Why Start a Company When You Could...

2009-11-10T05:24:00.000-08:00

There's a lot of opportunity out there and I've been hearing some interesting insights from several entrepreneurs recently who've been very much against the idea of someone starting their own company. The argument is that there is so much risk in a pre-revenue venture (after all, creating something from nothing is the hardest part). So then, they ask, why wouldn't you:

Join a revenue generating start-up? A huge part of the risk has been taken away and the question isn't as much 'whether this will ever work ' but how we can now tweak the business to grow revenues. You won't get anywhere near the same amount of stock but a lot of people have made good money this way (and built their networks through venture backed companies).
Buy an existing business that's stagnant. Again, the hard part has been done. There are businesses out there that are profitable but stagnant making between $100k-5mm a year. So rather than trying to start a business why not raise some private money and flip the company around?

The moral is that there are a lot of undervalued assets out there that can use an individual's talents just as well as any bright new business idea.

Viral Marketing & Design on FaceBook

2009-11-03T12:04:00.001-08:00

A very interesting area I'm working on right now is Viral Marketing and Viral Design. As progress on Triip continues to move forward (predicting Launch in early December!) the team has been asking a lot of questions on how to launch our FaceBook app & how to add features that will optimize virality.

The presentation below is a stripped down (sorry!) version of a deck I created to show our engineering team how Marketing and Viral Design are essentially the same thing on a social media platform. The objective is to logically break down the question of 'how to do we get 100000 users?' into simpler parts and see what actionable steps we can take to reach success.

FB App Virality Drivers

A framework for success

2009-10-14T13:54:00.001-07:00

What is success? If you can't set the vision, you'll never reach it. that's why i came up with three criteria based against which the success of all current/future passion projects that I participate in will be based:

it should challenge an existing paradigm and make people think
it should empower people to do something they otherwise wouldn't be able to do
it should engage and inspire people to act

Release Early & Release Often

2009-10-13T10:08:00.000-07:00

"Release Early, Release Often" is a principle that is now adopted by some of the most successful companies in internet. I've known of it, incorporated it in the develop strategy of KnolSoft's internet product but I never actually knew how amazing it was until I started my little mashup experiment Googview.

GoogView Started off with a simple question: if people like Google search yet they keep going to Bing for the daily image, what would happen if we combined the two? The first iteration was simply the current Google Search with a background that I selected from Wikipedia picture of the day. People who I gave the simple pitch to loved it but other people didn't quite get it. After this I kept tweaking the site based on user suggestions daily. The rapid changes kept even the people who weren't that into it at first interested and I was able to keep the communication going. The result was a significantly better website design, users participation and a lot of fun. So, what were the lesson I got out of this?

Iterative development is an extremely powerful tool and it must be incorporated into your product strategy.
You have to iterate fast and work hard to keep dialogue going and maintain user interest.
If you don't have the infrastructure in place to go through this cycle rapidly, you're not ready to launch. If it means more manpower, get it.

Evolutionary Economics & How Small Business Can Survive Among Giants

2009-08-22T14:57:00.000-07:00

Building my company has made me think a lot on how a potential entrant to a market dominated by giants should position itself. After a couple weeks of pounding my head against the wall, I thought of a Discovery special that I saw on the rain forest, where the canopy created by 300 ft trees stifled the growth of life on the ground. This seemed to be a perfect analog to my conundrum, and two questions came to mind: 1) How did certain species evolve to position themselves for growth when no sunlight was available and 2) In such a stifling environment, how did the Amazon become one of the most diverse ecological systems in the world?

Here were some of my findings (I came across a U.Michigan website that summarized some fascinating studies on competition in the evolutionary biology context):

In answering the first question, it seems natural selection offers two answers. Some plants did not compete with the big guys, simply adapting to living on the forest's floor with less sunlight. Other plants actually used the gargantuan trees, and climbed up them towards the bright sun over the canopy. These very elegant solutions reminded me of small business either positioning in a niche market or partnering with larger firms to leverage their distribution channels.
The answer to the second question proved much more interesting, as it went to the heart of the studies summarized in the aforementioned website. Findings showed that whenever competition over limited resources existed within any system, all interactions were destructive (ie: no two species could co-exist). The dominant species always exterminated the subordinate one. The key to survival in competition was always adapting to position a species in a way that minimized overlap in resource consumption with the dominant ones. This suggests that adaptation is not a way of survival but the only way to survive, and that diversity is an inevitable state in any perfectly competitive environment.

The lesson from this analog, in my opinion, seems to be that going after Microsoft P&G or any competing giant is suicide (no kidding!). Yet evolution does seem to offer one glimmer of hope for small businesses that cannot afford an outright war with the big guys: the vine. Nature's solution to our problem was to adapt in a way that made partnership with the dominant player possible, and this should be a key option for any small business entering a multibillion dollar market should consider before taking the niche approach.

The Consulting Question or the Entrepreneurial Question?

2009-08-03T02:54:00.000-07:00

Over the past few weeks I'd been working on a business problem with someone who had decades of experience in the consulting industry. Our approaches towards solving the problem seemed to be notably different for the first part of the discussion, but at the end of the day the data uncovered by each ended up being the ying to each other's yang. From this experience came two conclusions: 1) That the consulting and entrepreneurial mindset were different and that 2) neither necessarily proved superior to the other. This made me wonder what it was that made our approaches so different, how our experiences played into it and whether a start-up or consulting practice could possibly survive without having both mindsets in the game. These were some observations:

Consultants are problem driven while entrepreneurs are opportunity driven. Consultants are ready to delve into mountains of data until they start finding some kind of pattern and go from there. It's guaranteed to work every time but risks missing out on the big picture. Think tuning an engine (figuring out the fuel to air mix, timing of each stroke, etc) instead of asking whether it's the right engine for the car, whether it's the right car for the user and what an alternate engine might be. The entrepreneur is much more opportunity and customer driven and is eager to go out and start talking to customers, understanding the potential of the product and then looking at the numbers to see if their findings make sense. Think of a multi-function product like compressed air; sales to existing clients may be stagnant due to a price point issue but what else can you do with it?! The downside: it can be hit or miss and might fail to consider small changes that can have big impacts (ie: changing the price would be so much easier/cheaper than chasing a new market.)
At the end of the day a winning solution is an innovative idea that is supported by evidence (or perhaps evidence that is supported by innovative ideas). It is unclear to me which way of thinking is more likely to succeed but I did learn something very useful last week: That the creative tension that results from having both on a team can not only be highly productive but essential.

A Decision Rule To Live By

2009-07-16T07:10:00.000-07:00

Over the past year I've found my decision-making to have become much more sharp and it's really really been based on one decision rule. It has been so powerful in my personal and professional life (ranging from R&D decisions, to managing employees and to maintaining relationships with my business partner.)

I always ask myself the following:

"What is the worst possible case that could happen if I make this decision? If it happened, would I be kicking myself or could I live with it?"

If the answer is the former, can I do anything to mitigate the risk and make the worst state more acceptable? If it's the latter, accept the decision because no matter what you're taking a calculated risk and the negative outcome will be out of your control.

A New Day, A New Blog

2009-07-16T06:56:00.000-07:00

I've been gone from the blogosphere for a very long time. Why? To be frank, nothing good to say. Over the past few months I've found that in the start-up world all people do is talk about the theoretical when the field is purely about execution and results. Therefore, I've decided to move the blog in a new direction and will now make the following pledge to my readers:

Anything read on this blog from here on will be original and a reflection of my personal experiences in the start-up world. I will not regurgitate anything that's well documented elsewhere and all discussion will be result-oriented instead of theoretical.

Sourcerer Makes it into Wharton VIP!

2008-12-11T17:42:00.001-08:00

The venture that I've been developing with my partner Atish was recently admitted into the Wharton Venture Initiation Program. We're extremely grateful for the opportunity and are looking forward to joining this entrepreneurial community.

Could Facebook Charge Money?

2008-09-27T12:32:00.000-07:00

I've been pondering our venture's pricing strategy lately, and it's sparked all kinds of thoughts about the free web 2.0 world. At a time when companies that serve free web apps, like Facebook, are having trouble monetizing (and having their valuations lowered as a result), one of the questions that they are surely asking themselves is whether they could move to some kind of subscription model to create new revenue streams and increased profitability. Before discounting this idea completely with arguments of Koppelman's 'penny-gap' theory and low switching costs between social networking services, let us consider the fundamental idea behind pricing and ask ourselves what price facebook could charge in exchange for their services, if anything.

Price is a direct reflection of value. The more something adds value to a customer's life, the more he is willing to pay for it. Therefore the first question is what value does Facebook add to my daily life?

The ComScore results in march suggested that on average people spend a total of 20 minutes EACH DAY on the service. It is a tool for organizing our social lives, networking, chatting, organizing photos and, increasingly, a platform for sharing information; a center for all things Web 2.0 that has driven internet use through the roof. Then we should have no doubt that Facebook adds considerable value to our lives. The question then is how does that translate to a price?

Though it may be a gross oversimplification, the price point would be the one we'd be willing to pay just before switching to a rival service. While some might argue that switching costs are negligible, Facebook has a number of competitive advantages that make these costs substantial. These include the network effect, unwillingness to manage multiple profiles, loyalty, inability to transfer all photos and profile, etc. So then let's imagine that Facebook were to implement a policy that either forced us to pay 1 cent per month or to watch an additional advertisement to receive 12 cents in revenue over the course of the year per customer. That means that with 100+ million users, they increase revenue by over a million dollars each month!

Now let's ask ourselves, is that 'charge' that facebook imposes on its customer in exchange for a very useful service likely to drive people away? Probably not. What the ideal price point would be will require a lot of research but it does leave us wondering why they wouldn't consider implementing a comparable policy to boost their revenues and valuation. What amazes me even more is the fact that they haven't created less invasive premium-service based revenue stream, such as bringing SmugMug type functionality to the photo app, which would certainly generate even more substantial revenues than charging subscription fees.

All signs are now pointing to targeted advertisements not being an optimal revenue source for web 2.0 tech. With companies like Facebook issuing equity valued at hundreds of millions of dollars, investors should really be pushing to develop the business in order to maximize shareholder value. Whether they would is another story, but from the logic described above I believe that they could make a strong case to do so.

Follow-Up to Yesterday's "Solve Your Own Problems..." Post

2008-07-24T08:59:00.000-07:00

I got an email this morning from a close friend of mine, Anthony Orlando, who made the following comment in relation to yesterday's post, where I argued the importance of solving problems that you've experienced in your own life when starting a business:

"...what if you're not an expert on anything, i.e. you don't have a problem of
your own to solve?"

The question goes to the the heart of the point I was trying to make, since this is what so many young entrepreneurs with limited professional experience ask themeselves. While it's true that you might not have the professional experience to cater to enterprises, you have plenty of experience as a consumer to cater towards consumers like yourself.

Everyone is a consumer, so there's no excuse to say that you don't have expertise in anything. For example, if you spend 3 nights a week going to restaurants and night clubs, you start to get some idea of what makes a good menu or entertainment venue. If you go to coffee shops a few times a week, you begin to develop some expertise in what people are looking for in terms of atmosphere, music, service quality and product offering. If you like to explore new bands, but have trouble locating these emerging groups in your local Virgin Megastore, you start to gain some idea of a need that exists for people looking to explore new music based on their current preferences. The list goes on and on. As a consumer there's a pretty big chance that you have some sort of consumption pattern that makes you knowledgable in some areas, and it's these areas you want to focus on (if you'll notice by the way, I'm positive you can think of someone who has made money off each of the ideas I've listed above in the last 12 months.)

Of course the difficulty of innovating towards consumers like yourself is that consumers are innovating all the time. Our lives in the new millenium are so comfortable thanks to technology and e-commerce that we don't even have to get off our lazy backsides to purchase bread and milk (it's all delivered to your house! and if you don't like it, free return shipping!) But that does not change the fact that there's always room for improvement, and that there's always a pain point somewhere (it's human nature to never be satisfied!)

I find it highly unlikely that anyone 'doesn't have any problems' anywhere in their lives (if this is the case, my recommendation is not to bother reading this blog and starting a business, but rather taking it easy on a beach somewhere.) The trick is being persistent and always keeping your eyes open for a potential need. This means that you don't get much time to just shut down and lie down in the sun without analyzing the hell out of everything, but hey, that's the life you choose as an entrepreneur.

And if you really are living a life where you can't find a single need as a consumer... start changing your lifestyle to open you up to some new experiences; you're bound to find something somewhere out there. Just make sure you live it before you act on it.

Solve Your Own Problems, Not Someone Else's

2008-07-22T12:32:00.000-07:00

Creating value is all about solving a problem. Solving a problem means understanding the problem itself in every dimension (missing even one dimension can render the product/service that you develop utterly useless). The only true way to understand a problem fully is to experience it. That pretty much explains why some of the most successful businesses in the world stem from the entrepreneurs solving a pain point that they experienced and knew inside out. Bankers identified opportunities in banking services/software, people having trouble working remotely developed collaboration software and college kids having trouble organizing their social lives built social networking.

One of the biggest issues I've faced over the past 6-7 months has been coming up with a great idea. Ordinary people find this difficult enough but it's infinitely harder for a young person who has such limited work and life experience and whose problems really are between the three realms of social life, student life and and consumer life. The result is often that young entrepreneurs try to learn about others' problems in the hope of solving them for a premium. Yet my recent experiences have shown that this is extremely difficult, since you keep learning some new information down the road which forces you to reevaluate everything. Uncertainty is always higher than you'd like and there's a part of the story that you know you're always missing.

So what's my takeaway here? Stick to solving your own problems. Don't try to build a business catering to outdoor sports enthusiasts if you've never been camping once, just because you see some untapped niche. If you think the opportunity is that huge, get a partner who IS an outdoor enthusiast so that you at least have some way of understanding what clients are telling you. In other words, stick to what you (or someone on your team) know. It'll take longer to find a great idea but pay off in the long run.

Angry Employees (Updated)

2008-07-03T13:08:00.000-07:00

“A happy worker is a productive worker”; every company with a half decent HR department knows that’s true. An unhappy employee can be dangerous, not only because his productivity stalls but also because he can diffuse his dissatisfaction into the work environment and turn others against the company as well. Yet there is another area of your business in which an unhappy employee is even more dangerous; word of mouth marketing. People tend to put twice as much trust in the word-of-mouth of an employee that trashes the business than a peer who recounts a bad experience. This is because of two reasons; firstly, we always consider the possibility that our peers’ bad experience is a one in a hundred occurrence, whereas the employee gives us a survey of the history of the company’s service quality. Secondly, we assume that a company has to be pretty bad if its employees are putting their livelihood at risk by scaring away potential clients.

I was reminded of this fact last week when I was on a boat trip on the Aegean. The anchor broke and our captain, unable to get the proper guy to fix it since the owner of the business told him to go cheap, made us stay in the same spot for an entire day. The cook took the opportunity to trash the captain and the owner of the business, telling us about ‘the great boat’s he’s worked on before’. Suffice it to say, this really gave us a strong bias throughout the rest of our trip to everything that went wrong, and we were already talking about using one of the boats the cook was talking about next year. If this happens to every tour group that gets on board, I can’t imagine the business prospering. So what’s the bottom line: keep your employees happy, there’s more at stake than productivity!

UPDATE: A friend of mine who was on the boat with me shared some interesting information ysterday; apparently the cook did not stop at trashing the tour company but went so far as to give the contact numbers to other tour companies later that evening (I, of course, was asleep when this happened). FYI

3 Grievances on the VC Industry

2008-06-13T15:19:00.000-07:00

The VC conference that I attended earlier this week gave me a very different view of venture capital. I was expecting to hear a lot more from the fund managers regarding their investing strategies. There were a few things that really got to me, and made me wonder whether some of the people in the room actually knew what they were talking about. Here is a list of grievance that I have regarding the VC industry:

No Real Investment Strategy. Quite a few VCs in the room were asked the question "What kind of companies do you normally fund?" The answer that a lot of them gave was that they were looking for 'anything and everything', as long as they were 'disruptive technologies.' Now, there are A LOT of VC-backed companies out there that do not even mildly look disruptive. Flash video technology was disruptive- it affected the movie and music industries and created a revolution in personal expression in the internet sphere. The IPhone is being disruptive- Apple single-handedly changed the idea of what a phone should be and is on the way to beating RIM and other competitors into the ground. A social network twist that allows you to share musical ideas is NOT going to disrupt anything! Yet VCs keep putting money into these start-ups, which in turn fuels more non-disruptive start-ups to emerge (no wonder there is too much money chasing too few good deals!) This shows that either a) they don't have an investment strategy or b) they are not following their investment strategy. This conclusion got me thinking and I arrived at my second grievance.
They are essentially gambling. If you set out at the start to get a success rate of 10-20% something is seriously wrong. If your investment strategy is to make picks and get that low a rate I equate it to gambling (even a random toss of the die gives you a 16% chance of success.) Now, I understand that the model has been proven to work, people have made money, etc. etc. Yet I can't help but wonder how anyone could possibly think that this current model is the right one to use going forward. Just because this has been the typical result historically doesn't justify it being a future goal. This thought led me to yet another realization and, indeed, another grievance.
Misalignment of interests. The objective of the fund is to make money in x years (typically 6). This time constraint and the large funds that are raised forces VCs to make investments no matter what to make sure they get a large return for their investors (even if they haven't come across the next disruptive wonder) I believe that this is a misalignment of interests, as VCs are pushed to use their money unwisely, resulting in the ridiculous 1/10 success rate. Again, this system just doesn't seem right.

Now let's get back to the infamous complaint of there being 'too much money chasing too few good deals'. The first reaction that I had to this statement was that not enough innovation must be happening- after all, given the billions of dollars out thee one would expect innovation to increase. Yet in retrospect I wonder whether this excess money is playing some role in stifling innovation by encouraging people to create moderate innovations in an effort to make a quick buck. If this is true, it suggests that VCs are actually doing damage to themselves because of the aforementioned grievances. Then what are some possible solutions to these problems?

Give VCs less money. If they have less cash they will have to make every dollar count. No more of this 1/10 success rate business. Investment strategies will have to be clearly defined and followed to the letter. With this much scrutiny, entrepreneurs will be pushed to create true breakthroughs
Make VCs set higher targets... if VCs attain higher success rates because they are no longer swimming in cash then losses should go down and expected returns should go up. This means that LPs should demand higher returns on their capital and push the VC partners to invest their money better.

No VC at the conference really addressed these questions completely (admittedly, I only confronted 2 people on the topic) so I'd be interested in hearing peoples' thoughts on this.

My Two Favorite Web Generators

2008-06-11T05:46:00.000-07:00

Over the past couple weeks of looking around the blogosphere, watching videos and talking to entrepreneurs I came across two great website that I wanted to share:

The Dot-o-mator: I published a post a while back about the importance of naming your company early on. After not having followed my own advice for the past two weeks (and after suffering one of the pitfalls I'd predicted at a VC conference) I decided to get it over with. Enter the Dot-o-mator. This is a fantastic web-app that helps you generate a list of names and then automatically check for domain name availability. The programmer let's you specify the prefix/suffix and then lets you merge this with prefixes/suffixes from selected categories. So for example, if you are creating a sports website an want a 'Tech' name, you get results like soccercast, soccerfeed, soccerwire, etc. etc. etc. The author did a great job in thinking up all of the popular suffixes that are out there and then categorizing them. A lot of fun, very easy, give it a shot.
Dilbert Mission Statement Generator: I get the feeling that I'm one of the few people in the world who hadn't seen this before, but in case there are more of me out there this is a must-see web app. Guy Kawasaki referred to this as a way to 'save $25,000', making fun of how inane corporate mission statements are. I think it's really clever and amusing. Enjoy.

What Country is it Easiest to do Business In?

2008-06-10T08:57:00.000-07:00

It's not the United States- at least, according to the International Finance Corporation's Doing Business Report.

The report breaks down the process of 'doing business' into several categories, including starting a business, registering property, getting credit, protecting investors, employing workers, trading across borders, etc. What's really interesting is that it also gives the breakdown of each category (for example, for the 'starting a business' category you can see that the metrics are how many procedures it takes to start-up, the average number of days, cost and minimum paid in capital)

It's interesting to see how high China is ranked, both in relation to the developed economies and the emerging markets. Though it ranks quite low in starting a business, acquiring licenses and registering property, it is ranked 3 or higher for getting credit, protecting investors, conducting trade and paying taxes. I commend the IFC for making this information public, as it is a valuable resource for businessmen and policy makers alike.

Venture Capital in the Emerging Markets

2008-06-09T08:36:00.000-07:00

I attended a conference called Venture Capital in the Emerging Markets today in Istanbul, hosted by a local VC named Golden Horn Ventures. I was really looking forward to hearing what everyone had to say about the state of VC/innovation in emerging markets outside the BRIC countries. The panels were arranged such that they addressed three viewpoints- Funds of VC Funds, VC funds and entrepreneurs. These were my key takeaways:

Plenty of opportunity to grow/capture the market for goods and services as emerging economies develop and household incomes rise.
Legal barriers are still a pressing concern for investors and entrepreneurs. I had no idea how long the list of grievances was before today. VCs were concerned with matters like enforceability of contracts (the IFC rep noted that they had a whole portfolio in Russia because of this) and the infrastructure in place to facilitate investing/exiting. Entrepreneurs complained about the inability to create different classes of stock and create stock options within some emerging markets’ legal systems.
Exits are difficult. The normal exits come through either IPO or M&A, yet these are much more difficult in emerging markets. In fact, a Turkish PE fund manager noted that a preferred exit for their company was to sell the shares back to the entrepreneurs! However, the possibility of exit through M&A is increasing as a result of multinational firms seeking to expand into emerging markets.
Private Equity will need to become established before Venture Capital. A panelist noted that the lucrative deals being sourced by Private Equity funds have roughly the same IRR as those of VC deals in some emerging markets. Hence PE is a much more preferable option for investors.
There is a lack of relevant VC/Entrepreneur experience. One of the panelists referred to this as a ‘chicken and egg’ problem. Nobody wants to invest in regions where VCs/entrepreneurs don’t have prior experience, and yet these regions have a lot of first time entrepreneurs who can’t gain experience without acquiring funding.

It may take time for a new generation of entrepreneurs to out of these markets. Many attendants noted that cultural norms make it very difficult for entrepreneurs to come out of emerging economies. For example, not all cultures are as accepting of failure as much as the Americans and there is a huge amount of social pressure to stay away from high-risk business ventures.

Overall I was very surprised to see how new the concept of early stage investing was to the local VCs. It was very easy to tell who had worked previously in Europe and America and some investors openly admitted that they were unable to fund the kinds of companies that American companies did since they did not know what risks to take… which makes me wonder what the BRIC countries are doing right, that is facilitating so much VC/PE activity. I’ll give an update here when I find the answer.

Update- Morgan Stanley Internet Trends '08!

2008-06-01T15:04:00.000-07:00

I was able to find the '08 version to the Morgan Stanley Internet Trends Report (published just in March) and I've embedded it for your viewing pleasure.

| View | Upload your own

Some interesting things that catch the eye:

A quote from Google's CIO saying that consumer software is now better than enterprise software in terms of reliability, security and speed.
15% of internet traffic belongs to social networking- a category that did not even exist in the report 3 years ago! (Youtube + Facebook have more page views than Google and Yahoo combined)
Online ad spending per household is still significantly lower than newspaper spending but has grown 26% Y/Y while Newspaper advertising fell 7%.
Some interesting insights on how Facebook's interface has made it more successful in growing than myspace (slide 15)
The mobile platform is a growing opportunity, especially outside the western countries where developing landlines have skipped building landlines in favor of wireless services.

Patents...

2008-05-30T15:28:00.000-07:00

I came across a great post on Josh Kopelman's blog the other day regarding the value of Patents. It was really enlightening from a first-time entrepreneur's perspective, as I used to think that the 'patent pending' stamp meant a lot.

Kopelman founded Half.com in 1999 and sold it to eBay in 2000. The patent that Half.com applied for in 1999 was issued just recently, 8.5 years later. He goes on to discuss the long waiting time, currently averaging 4+ years, in the patent approval process. Given that even a month is a very long time in the tech industry, you need to make sure that you have other ways to protect your IP and other forms of competitive advantage. Indeed, it is crucial to apply for patents early (if you don't someone else will and then take you to court 8 years later for using 'their' technology) but it is important that you evaluate how important that patent will be in determining your success.

I really liked the analogy that Kopelman uses from Fred Wilson's Blog:

"Patents are like nuclear bombs, you just got to have some". But if you're fighting a war today, it's better to count on weapons you have at hand today -- don't rely on a nuclear program that could take five years to come to fruition.

Volunteer Groups- a Test of Your Management Skill

2008-05-30T15:18:00.001-07:00

In this post I will discuss some thoughts on good management (which I think of as the ability of a person to motivate others to work productively to achieve desired outcomes), as well as an exercise to develop strong management skills

In business, problems of motivation can be overcome to a significant extent by monetary compensation; people who get more burdensome tasks with longer hours can be convinced to stay and do the work by way of larger compensation packages. If the boss drops the ball, employees aren't all that concerned about it, as long as they get their paychecks in the foreseeable future. Bonuses, overtime pay and stock options can be used to get people to give it their all and make sure the work is done. While I agree that these compensation schemes have been proven over time to be very effective, I contend that they can become somewhat of a crutch for managers and that they fall outside the realm of good management. This is because these schemes fail to address intrinsic motivations (a person’s internal desires for accomplishing the goal for the sake of it) and fail to make people work to their full potential. With this crutch it is difficult to say that one’s management skills are tested fully in the corporate environment.

Successful Volunteer Groups, however, are unable to rely on financial compensation to motivate people to offer their time and effort. Given the lack of extrinsic motivators in these groups, a very interesting question we must ask is: how do leaders in these organizations leverage intrinsic motivations to achieve organizational success? I believe that answering this question is the key to understanding what good management is. I'll quote my good friend Stu Stein on why I believe that this is so- "if you can motivate people to work for your cause for free, imagine what you could get them to do when you start paying them."

Some close friends in Volunteer Groups and I have spent much time discussing our HR issues and have found that certain practices have stood out as good management practices in volunteer groups, all addressing team members' intrinsic motivations:

Hiring/accepting people with strong intrinsic motivations. These motivations may be different for each person but the importance is that they WANT to help achieve something that the organization values because they believe in it.
Relate to people on the team on a personal and professional level. A key to understanding intrinsic motivations is to better know the person and how they work/think. This information is critical when the time comes to align interests. Socialization within the organization is a great way to create a culture through which managers can learn about people on their team.
Set the Vision, Mission and Values. Though these are overlooked in ordinary businesses (and not taken seriously by anyone who’s taken a management class that makes a mockery of this concept), this is crucial when it comes to intrinsic motivations. Each person has a different desire that they prioritize but if the team agrees to a common set of VMMs, the priorities will set themselves.
Make sure each person feels valued. You can’t compensate them with bonuses so you need to reward achievement and effort by recognizing it.
Flat structures. Utilize peoples’ intrinsic motivations to allow them to innovate- let them be the drivers of their own projects.

As you can see, the complexities of Volunteer Groups and the issues that their managers face make them an ideal ground to develop practical management experience. It is especially a good experience for aspiring entrepreneurs, who often don't have the resources to use money as a motivator for people to work for them.

Asking the Right Questions

2008-05-28T13:24:00.001-07:00

This is a great follow up to the previous post about choice and product design. This video features Malcolm Gladwell, a social psychologist whose work has contributed to a plethora of subjects (teachers in 4 of my classes assigned readings from his works) and who was among Time’s 100 most influential people.

The main subject of his talk is how Howard Moskowitz reinvented product development in the food industry. Moskowitz had been hired to determine what the ideal level of sugar a new Pepsi drink was supposed to have (somewhere between 8-12%). What one would ordinarily do is make a bunch of different batches with different levels of sugar, increasing in small increments, and survey a large sample of people to find the 'ideal' level of sugar. However, this experiment seemed to produce no statistically significant result for Moskowitz. This led him to realize that he was asking the survey participants the wrong question- “He was asking for what was the best Pepsi; what he should have been asking was what are the best Pepsis?” In other words, there was not one ideal Pepsi that people were looking for, but multiple optimal solutions.

This realization led him to make breakthroughs in other food categories. When trying to find a superior spaghetti sauce for Ragu, he changed his approach. Instead of changing a limited set of variables in the batches, he changed every variable the he could think of, including how coarse the sauce was. A third of participants showed preference for a 'chunky' textured sauce; this proved to be revolutionary, as it contradicted the conventional notion of 'fine, authentic Italian sauces' and was not a preference that people would think of mentioning when being surveyed (especially since they have a bias towards the idealized traditional sauce). This opened up a third of the established market to Ragu and made them millions.

My takeaways from Gladwell's story are the following

The wording of your questions are crucial. People were giving Moskowitz the right answers to his question- he was just asking the wrong one! When we get a lot of ‘noise’ in our survey results the immediate response should be to analyze the survey and not to pick an average value in the hope of satisfying the middle of the bell curve.
How you ask the question matters. When you survey people, they will not always say what they really mean to say. Gladwell compares this to asking someone what their ideal coffee is; they will immediately conjure up the picture of a ‘nice dark hearty roast’ even if they like their coffee ‘milky and cold.’ Some creative experimentation like the spaghetti sauce experiment may be required to get the information that you want from your customers.

The Power of Mobile

2008-05-26T13:53:00.000-07:00

This year I was lucky enough to find my way into a presentation given by Andrew Weinrich at the Wharton School, thanks to the guidance of a brilliant VC named Baris Aksoy. Weinrich is one of the pioneers of social networking, having co-founded Six Degrees in the mid-nineties. He was giving a lecture on the power of the mobile phone as an enabling technology and its potential applications by talking about his latest tech venture MeetMoi.

For the longest time I’d been trying to figure out why there was such hype about moving social media to the mobile platform. The presentation proved to be very enlightening in this respect. MeetMoi is a dating service, much like eharmony.com and chemistry.com, but with a twist. The idea is that they can use your mobile phone to determine where you and all of your matches are at any time, and alert you when you are within an X mile radius of each other. It also gives you the freedom to change your service preferences at any time, so you can activate the service on the way home from the office or when you’re out at a bar with friends and deactivate it while at work or asleep.

Now I won’t go into some of the clear issues that are associated with the service itself (people in the room thought of all kinds of situations where this idea could get you into trouble as the user) but it definitely highlights the potential of mobile: the power to not only match your interests with a cataloged set of services but to also match you geographically. Say you’re looking for a new apartment; there’s a good chance that you walk by half a dozen great apartments on the way to work each day without knowing it. Imagine that a service knows of this and sends you a message saying (“Apartment 411, 12 Barclay’s Street, $3500 a month, resident accepting inquiries now) on your way to the red line in downtown New York- now there’s an interesting start up that I would love to be a part of.

Choice and Customization

2008-05-26T02:34:00.000-07:00

I'm constantly surprised by the fact that TED isn't receiving more attention. It's a fantastic website that I've spent countless hours on and I'd recommend that everyone check it out at least once (be forewarned, it can get addicting- I spent 2 full reading days during finals distracting myself with these videos). This video is a brilliant TED lecture that I found a while back on Choice by Barry Schwartz.

Schwartz's delivery is just superb and really makes one ask questions about the current trend in design that's moving towards customization. The idea is to cater to individual tastes by allowing consumers to shape their own experiences. This puts users in the driver's seat and saves the designers the trouble of spending endless hours trying to determine what the average customer wants. Yet there is significant scientific evidence that too much choice makes us unhappy, as we struggle to make the right trade-offs and end up focusing on the happiness we could have had with one of the other choices. The result: either we are unhappy with our choice or we don't make a choice at all (a well known study conducted in a supermarket showed that increasing choice decreased sales of a particular item.)

The lesson here is that designers need to be careful in how many customizable features they incorporate into their products. Sure, they should offer some options for various types of people but they still need to do their homework and create products with optimal settings for different cohorts.

An Aside --> for people looking to get some more exposure to TED here's a good sample of the types of lectures you'll find. Enjoy!

http://www.ted.com/index.php/talks/view/id/66 - on rethinking our education systems

http://www.ted.com/index.php/talks/view/id/7 - simplicity sells.

http://www.ted.com/index.php/talks/view/id/93 - ridiculous statistics.

Go To Your Customers

2008-05-24T03:38:00.001-07:00

When I was in high school my father had just reached retirement after 35 years in commercial banking and was eager to share the wealth of experiences that he'd accumulated. The one concept that the pounded into my head week after week when discussing business was, "Go to your customers!" Though it's fundamental to the marketing process, many entrepreneurs that I've seen to date think it's inconvenient and ignore it for a number of reasons. Examples are (paraphrased from what I've heard):

"I don't have any patents and I don't want to risk making the idea public until I make some headway into developing the product"
"Customers don't want to take time to talk to us, and if they do they don't put thought into surveys."
"How can you go to your customers if you don't have any yet"?

My time as a consultant at the Wharton Small Business Development Center showed me how important it was to ignore these excuses. Don't get me wrong, they are legitimate concerns that certainly make the process more difficult but they aren't good enough to make it impossible. Most of our clients had strong business plans with graphs/tables/quotes from research reports but were still unable to meet their sales targets because they were lacking enough data points from interviewing potential/existing clients. Indeed, gathering and analyzing this information was probably our biggest value-add activity. Did we sometimes come across difficult (and even rude) people? Yes. Were people often rushed and able to answer only a tenth of our questions? Yes. But the answers to the few questions that we managed to ask were sometimes so insightful that we were able to make small adjustments to our clients' business models and help them grow revenues significantly. This is a lesson that my partner and I are taking forward in the process of developing our business plan.

The Bottom Line: You've done your secondary research and developed some important hypotheses on what the customer should want. It's up to you to prove that this is what the customer does want before investing a single dime into the business. IF you find that the costs to reaching your clients/acquiring this information are too large, you may want to rethink whether you really want to risk being in this business.

Undergoing MyBlogLog Verification

First Post (Introduction)

2008-05-24T02:43:00.000-07:00

Hello blogging world! I've been wanting to start this blog for a year now but I kept pushing it back (college becomes pretty time consuming once you switch to the 3 year track 1.5 years into it.) Now that the summer's finally here I'll be updating the site frequently so I hope to offer some interesting insights into the world of tech from a young aspiring entrepreneur's perspective... what? there are already millions of people doing this already? I'll play the 'diversity' card by offering some views/news on tech from back home in Europe and focusing on my personal experiences in the world of entrepreneurship.

So... what is the 'Tech Road Trip'? I've recently started the first stage of a tech venture with my close friend and peer from school (currently in stealth mode- more details to be released over the course of the coming months) and have immersed myself in the world of internet technology. Though I decided to take the summer off after a grueling experience at a couple of banks last summer, I've been spending 5+ hours a day reading on the internet/blogosphere and talking to other entrepreneurs in an effort to learn as much as possible form others' experiences. It's a gift and a curse that there seems to be no shortage of people willing to share knowledge and tips/tricks, but it's rare that we see a chronologically organized guide to understanding the product development process from start to finish. I hope that this will serve as a resource to other aspiring entrepreneurs, both present and future.