There’s a bit of a Meme going around the internet the past few days about what a CEO does.  Mark Suster, Fred Wilson and Howard Linzon have all had there say, and while I enjoyed them, I think they miss one overall theme.  Fred started the whole thing by posting the quote above.  I totally agree with the quote, but I think the first one sounds so wishy washy that it gets overlooked.  I want to take a minute to refine it by way of an analogy, the CEO’s primary role is as an investor.  At the end of the day, she has the power to allocate her company’s resources in the way she thinks will have the highest returns.  This investment comes in two forms.

First, the CEO will be required to select internal projects to develop.  Startups have scarce resources and, consequently, have to make extremely critical decisions.  Is SaaS the way of the future?  Will our customers prefer to have downloadable or SaaS software in a year when we debut?  In 10 years?  This decision is much the same as deciding to invest in large enterprise hardware/software companies because they tend to do well as we exit a recession.  In either case the CEO/investor must select the next big thing before it happens.

Second, the CEO will be required to make partnerships.  Once the CEO has decided how she wants to move her company, she will need to find the right partners to do it.  Ok, she’s going to build an SaaS solution using some sort of PaaS platform.  Should she pick Salesforce’s Force.com or Google’s App Engine / Web Toolkit?  This question is different from the previous one, she now need to be able to evaluate a supplier’s management structure and strategy.  The last thing a CEO would want to do is build a Force.com app and have them stop offering the service in 2 years.  She also doesn’t want to over pay for the media darling that’s sure to last 10 years, but charges so much that she can’t be profitable.  This decision is very similar to the investor selecting a particular enterprise hardware/software company to invest in.  Even if the sector is going to be hot, you don’t want a company with a poor management team or one that’s not dedicated to its products.  You also don’t want to buy one that’s overpriced because while the rest of the sector shoots through the roof, your investment will stay level as the market corrects its over valuation.  Both the CEO and the investor need to be able to take a thesis about what is right for the company/portfolio and find the perfect fit.

Don’t get me wrong, I’m not saying that this is in lieu of all of the things that Howard and Mark called out.  Being a good stock picker doesn’t make you a great investor.  The things Howard and Mark called out (such as building a team, keeping the team organized, making sure the team is motivated) are just as crucial.  A CEO that can’t do those things is like an investor that knows exactly which stock to pick, but fails to put money in a brokerage account.  All I’m saying is that even with a motivated, organized, talented team the strategy has to be right.

Much was made in the early 2000s of the need for companies to focus on entire vertical solutions, even if they don’t own the entire system.  For example, a producer of carrots that sells to a bagger of frozen vegetables must consider that bagger a partner in a vertical system, even if he is an adversary in annual contract negotiations.  If the carrot producer doesn’t consider things in that way, then he may “bite the hand that feeds him” and secure deals that are so bad for his downstream partner that the stream dries up.

The chart above is derived from one produced by Robert Trent of Reed Elsevier for an article in March 2004 Supply Chain Management Review.  It will become important for those of us doing business in the social media space, particularly those of us who operate on top of or supply APIs.  To consider what Trent has laid out and how to partner with those upstream or downstream of us.  In the bullet points below, I’ll walk through an example of each type of relationship and the repercussions for each party.  For these examples I’ve made it simple and made the downstream partner the one whose name is associated with the content provided and the upstream partner is the one supplying a service that enhances or makes possible the downstream service.

• Strategic Example:  Facebook partnering with Microsoft for search and ad sales.
• Description:  The advantage to this agreement for downstream companies is that they get some active control of how their supplier implements its solution.  In some cases, as with Facebook and Microsoft, they may also get paid a premium for setting up a strategic alliance.  There’s high risk in partnering with a single (or few) partners though.  The partner could fold or lose its good reputation.  With a single partner there is also a stifling of potential innovation in the space.   Upstream partners have similar risk exposures.

• Leverage Example:  The early relationship between Twitter and Bit.ly (before t.co).
• Description:  In this type of agreement, the consumer (downstream company) has many options to pick from, but its consumers find a lot of value in the service.  The upstream company is very vulnerable in these types of situations.  It can gain enormous amounts of market share and revenue by entering the agreement, but usually loses its shirt in negotiations.

• Transaction Example:  Integrating Klout with a Twitter desktop client.
• Description:  In  this type of agreement the downstream company is faced with a limited number of options for a service that is not critical.  What becomes essential is that the upstream partner limits transaction costs as much as possible.  Since most of the API-based relationships are built without monetary cost, this means ease of implementation.   There are few people (though there probably are some) begging for a desktop client that can verify users’ influence.  Consequently, HootSuite’s decision to integrate with Klout likely had as much (or more) to do with Klout reducing transaction costs as HootSuite needing the integration.

• Market Example:  Finding advertisers for your site or blog.
• Description:  Here, there are plenty of upstream options for the downstream provider.  Selecting the right one may involve looking at a feature or two, but for the most part it means simply asking “what are you willing to pay?” or “what do you cost?”  As with the transaction example, in the new world of social media, these costs are often non-monetary.

The lesson here depends on whether you’re the downstream or upstream entity.  If you’re going to be a downstream entity, you should look at each relationship you’re forming and figure out which quadrant it falls in to.  Once you’ve done this, you should treat the negotiations, contracts and suppliers accordingly.  If you’re an upstream entity, you should think carefully about what type of company you want to be seen as (hint: there’s not usually a lot of money in the bottom right.)

Dr. Miller begins by defining what he means by the tech industry.  For him it includes four industries, “Two represent the core of the life sciences sector: pharmaceutical and medicine manufacturing, and medical equipment and supplies manufacturing; two represent the core of the information technology (IT) area: computer and electronic product manufacturing, and computer systems design.”  Of course, on this blog, my focus is the latter two, but the article is still worth considering.  I highly recommend reading the article from either of the two links above, but I do want to call out a few things that stood out to me.

1. We’ve got a lot of work to do.  The article provides several sobering statistics.
   • Of the 36 largest metro areas we 28th in computer systems design and 17th in computer and electronic product manufacturing.  In the former category we trailed Columbus and Cleveland.  In the latter we trailed several comparably sized cities including Milwaukee.
   • We lost jobs in computer and electronic manufacturing during the recession.
2. There was some good news though
   • The systems design sector grew by almost 10% during the recession.
   • Though only 2% of Pittsburgh’s private sector is employed in these 4 fields, the jobs in these sectors is much higher then the Pittsburgh average.  In fact it’s close double (44k to 77k) in systems design.
3. The thing that stood out to me is the relatively small size of firms in these industries (the average company employs less than 20 people).  I believe that this lack of big companies, in combination with the shortage of funding in the city are our two largest problems.
4. Dr. Miller’s bottom line (which this blog shares) is that we have no choice but to learn to excel in these categories.  More and more of the economy will be in these sectors and if we can’t grow there, we will not be sustainable as a city.

Now on to the real purpose of Sauerkraut Sundays… As I go through the week, I use Twitterto send out little updates and links.  I realize that I do this quite a bit and that not all of you use Twitter, so with that in mind I’d like to take Sunday to do sort of a week in review.  I’ve selected the most useful of my tweets from the last week and placed them in to the categories that I use in this blog.

Business

• I disagree slightly with him, but @vwadhwa ‘s TC article will change the way you think about IT employment http://bit.ly/atldk5

Me (Mostly from trip to ATL to watch LSU vs UNC)

• Indoor football is frickin loud.http://twitpic.com/2lbldw
• Im done with Sergio, he treat me like a rag doll.
• UNC vs LSU in ATL… Not a lot of ennunciation goin on own ere.
• Right at the heart of communism. http://twitpic.com/2l8jde
• Excuse me, could I get a ride to Alabama? http://twitpic.com/2l8df7
• The man pumping gas next to me has used duct tape to dix his blue jeans (@ Kangaroo Express) http://4sq.com/am6NmZ
• If (KidsInSchool == true) then commute = commute + 20; aggrevation++; End If

National Politics

• RT @bussgang: The Economist apologizes to Pres. Obama – “you were right about GM” - http://bit.ly/aeFKXK

Personal Technology

• Ever seen an old person hang up their cell phone because there’s lightning outside. Good Stuff.
• TC: Phone Numbers are Dead http://tcrn.ch/draMsW. I’ve been saying that since Jan http://bit.ly/9QCBXV.

Pittsburgh

• Best. T-shirt. Store. Ever. http://www.believemerch.com/ Seriously.

Social Media

• Google continues social buying spree with purchase of Angstro.http://bit.ly/cWyriX

Sports

• Not a real Football School RT @calipanthergrl: Pitt always makes it close and then rips your heart out by doing something stupid. #cfb
• Just a spectacular, retrotastic video on the buccos, love the music!!! http://bit.ly/dkVsBp (via @WHYGAVS)
• Nice RT @russwbeck: If Penn State and Wisconsin play for a keg, all those awful years of the Land Grant Trophy will have been well worth it.
• It’s starting to make me very nervous that PSU hasn’t named a QB yet. http://bit.ly/dd8qez

Unsolicited Advice

• Brilliant post by @SethGodin. Once again putting words to a concept every productive person knows. http://bit.ly/bHy8Sm

Other (Mostly Humorous/Interesting Comments from the Week)

• HA! The Chat Roulette Wheel Deciphered: http://bit.ly/9qHNu2
• I want to see! RT @ebertchicago: My 4-star review of George Clooney’s “The American.” The starkness of a samurai.http://j.mp/c12rtJ
• HAHA RT @dancortese1: God, it’s great 2 be back in Pittsburgh!http://twitpic.com/2jgq0t

The latest example that proves my point, KickApps.  I noticed the new company on the SocialTimes.  It’s a web-based, social media infused web development toolkit.  Which is an AWESOME idea.  It also provides all the content management necessary to keep your site going.  This kind of an application can be critical to smaller firms that want to have a more hands-on approach to their website and give it a more social flare.

This was going to be a post about how awesome there idea was, until I reached the pricing section; “Monthly fees start at a minimum of $5,000/month for our enterprise-level clients and scales based on usage.”  For any organization with less then three full-time social media / web folks that doesn’t make any sense.  Why would you pay a tool like it was an active member of the team?  Especially since you can buy an entire pre-built website based on the WordPress platform for less then a single months fees.  For large organizations, KickApps is still a rip off, but a more justifiable one.  You don’t want to be playing with community built widgets (as you would on WordPress) when dealing with thousands of hits per day.  Still, I think with the right team and the right web hosting company, $60,000 per year is a little much.

If you are launching a startup or have one that is just one or two people, you should really try to get into a coworking space. It can be more cost effective, but that is not the best reason to do it. You’ll get knowledge sharing, energy, and a lof of camraderie. And you can’t put a price on those things when you are doing a startup. –Fred Wilson, AVC

Fred Wilson made a fairly long post this morning (link above) about coworking locations.  He points out that while he’s not a big fan of incubators overall (I disagree with him there, but we’ll do that in another post).  He specifically calls out about a half dozen NYC based coworking locations and then points to this wiki with a list of 8 current spots, 4 under construction and 15 “alternative locations”.

I know AlphaLab has coworking space (but only for their incubated companies) and I know there was an attempt at a location called Think Tank; but the only coworking location I know for sure is open is Eve‘s We Do Property Cowork downtown.  Is that really the only one?  If so, that’s something we need to work on.

…you NEED to be following this tumblr.

I’ve been thinking about this development a lot lately.  Mostly, I’ve been considering what that meens for social media as a business.  My conclusion: Social Media companies from now on will be more “market-driven” then “product-driven”.  A market-driven venture is a company that finds an under-served niche (market) and sells something that fulfills that market.  A product-driven venture is a company that develops a new product that no one knows they need yet.  They promote that product and, once people understand what it can do for them, it creates its own market.

Let’s consider two recent successful examples.  Cupidtino is about as purely a market-driven venture as you will ever find.  The website is a dating site for mac owners only.  The entrepreneurs behind Cupidtino didn’t invent dating sites, they didn’t even really advance dating sites.  What they did, was found a market segment (niche) that needed a dating site and brought it to them.  FourSquare on the other hand is a product-driven venture.  Few people were sitting around thinking, “I want to be able to check in to places.”  Instead, FourSquare developed a technology they thought would be novel and then, through promotion, built a market for it.

My theory is that this second type of company (product-driven) will continue to become less and less common in social media as the concept matures.  However, now that the concept is fairly mature there are many many many underserved niches where it can be applied.  Of the next 100 successful startups in social media, 95+% will be market-driven.

Today, I’m going to be talking about Alan Robinson’s AP Article.

As an MBA who’s been working with private companies the last few years, I can tell you, you can make the numbers say whatever you want.  I wouldn’t read too much in to the fact that the Pirates showed a profit.  And so what if they did?  They show a profit of almost $30M over 2007 and 2008.  The Pirates are valued at $289M so that’s about a 5% return, or just barely keeping with inflation on two good (financially speaking) years.

Let’s look at what Robinson’s report really means for baseball in Pittsburgh.  What it appears we know for sure, is that since 2007 the team hasn’t needed outside financing, has very low cash reserves and is in the black.  Nutting haters, what would you prefer?  Would you prefer that the team was losing money and that Nutting was forced to consider selling or moving the team?  Need I remind you how close we were to losing the Penguins?

The finances that Robinson “expose” mean we have a chance of winning here in Pittsburgh (though admittedly, the chances seem bleak).  We’ve been able to make a little money while we built up our farm system, and it appears that if the Pirates became competitive and ticket sales rose (again I point you to the Pittsburgh Penguins) then we could use some of that money to invest in players without running in to the red.  So there’s the good news, we do have a SLIM chance of success.

What are our options for improving those chances?  While a deep pocketed, free spending owner would help, Nutting doesn’t appear interested in selling.  So, why don’t we stop bickering about a guy who is barely keeping up with inflation and start focusing on the real problem, revenue disparity.  In order to keep up with the Yankees, Nutting would have had to lose hundreds of millions of dollars each year.  It’s unreasonable to ask him to do that.  What we need is a system that allows the Pirates and the Yankees a similar resource pool to field a team.

National Politics

• RT @TheOnion: Texas Vows To Reclaim Title Of Most Regressive State From Arizona http://onion.com/aOwjEH