Contextually Adaptive: Hemang's Blog about Startups & Mobile

A Small Price for Facebook's Mobile Ascendancy

2014-02-20T09:07:00.000-05:00

I'll admit that Whatsapp isn't exactly a household name here in the US. Therefore some collective head-scratching might've been in order when you read that Facebook paid $19.5B (yes, B, as in BILLION) to acquire the Silicon Valley-based mobile messaging startup. In fact, twitter was flooded with glib jokes about this deal becoming the latest piece of evidence that the bursting of this next bubble is upon us.

Call me a contrarian, but I simply don't see how anyone could find fault with Facebook's rationale here. Yes, $19.5B is a lot of money. But in this case, it's money very well spent.

Two years ago when Facebook announced filing their S1, there was one critique that was heard time and time again. It was that web 2.0 poster-child Facebook didn't get mobile. In fact, because Facebook was behind the curve in mobile, they paid a shocking (at the time) ~$1B to acquire mobile darling Instagram.

Fast-forward to yesterday and Facebook now owns three of the most ubiquitous mobile apps anywhere. The combination of Facebook + Instagram + Whatsapp puts Facebook in just about every smart phone on the planet. And to make that happen, Facebook has spent about 11% of it's overall market cap. That 11% means that Facebook now owns the world's biggest social networking mobile app, photo sharing mobile app and messaging mobile app. So where two years ago the critiques were valid, now Facebook is the unquestioned 800 lb gorilla in mobile. Or as a16z analyst Benedict Evans quipped on twitter, "Facebook is being pretty aggressive in making sure it's the next Facebook".

And beyond the strategic value, the growth numbers for Whatsapp are simply mind-boggling. Two year ago the company had ~70M monthly users. A year ago, that number had grown to 200M. Now, we know that number to be over 450M. So the growth is actually accelerating. In the past four months, Whatsapp added 100M user. Today we learned that they're adding over a million users each day. All these numbers are too difficult to fathom until you look at this chart:

So how long before Whatsapp blows past Facebook's MAU numbers? A year? Less? After all, there are already far more Whatsapp users than there are Twitterers. And let's not forget that each of Whatsapp users happily pays $1/yr for the app, so it's not long before that revenue is quite meaningful.

Chalk this up as a win for Facebook. They are sending a clear message that they don't care about what anyone thinks about how they use their currency. They're focused on the big prize. Five years from now, is it really that hard to imagine that Facebook would have significant mindshare on nearly every mobile phone -- globally?? All in, I'd say this is a master stroke for Facebook.

P.S. -- If you haven't read the Forbes story about Whatsapp founder Jan Koum, take ten minutes to read it. His journey is incredible and inspiring. Here's a guy who came to this country twenty years ago with almost nothing. His mom struggled while working hard to make ends meet. At one point they even had to collect food stamps. And now this guy is worth $6-7B and will be somewhere around #200 on the Forbes list of Global Billionaires. Unreal movie script type of stuff. Only in America.

Agree? Disagree? Still think Facebook paid way too much? Tweet at me on Twitter @hemang

Do Accelerators Provide Value?

2013-09-07T13:18:00.003-04:00

Say what you will about Valleywag, but they're certainly never boring (in the same way that car wrecks aren't boring either I suppose). Earlier this week, Valleywag outed a NYC accelerator that was at the center of the maelstrom in an anonymous posting on David Cohen's blog.

In the anonymous letter that Cohen posted on his site, a founder makes a loooooong list of complaints and accusations about the NYC accelerator that he entered his startup into. The lesson that Cohen imparts on his blog readers is a valid one, which is essentially... caveat emptor. Startups should certainly be aware of what they're getting themselves into and do their DD before giving away chunks of equity in their company.

But amid all the rumors, innuendo and ensuing heated discussions is a pretty darn good debate about the true value provided by most accelerators. Sadly, even once you throw out a lot of the hearsay and gossipy BS, you're still left with real questions about the benefits that most accelerators provide.

The notion of rarely present mentors, poor follow-through on curriculum, funding issues, less than ideal working space, and lackluster demo days with few real investors is something that's applicable to 90% of the accelerators out there. So for that 7% that you're giving up for a tiny slice of cash and the supposed pathway to getting your company off the ground and funded, are you really getting your money's worth??

To me, any founder who has the right entrepreneurial DNA can find great quality mentoring from high quality people without paying a dime. There are boatloads of good, solid people who've been there/done that who have a strong desire to "pay-to-forward". If you as a founder can't figure out how to engage with and get some of these people involved with your venture, well then you probably aren't cut out for this line of work anyhow.

That's not to say that there aren't very good accelerator programs that would provide benefit for some very specific types of startups. Just make sure you know why you're really entering one of these programs. It can't just be for advice and mentoring, because in the startup world, great advice shouldn't cost a thing.

Startup Culture, Part Two: The Problem with Buzzwords

2013-08-08T07:56:00.000-04:00

Building culture is twofold in that it encompasses tightly embracing the principles that you hold dear as well as karate-chopping those you despise. For us, that means a lot more doing, less pumping.

As such, we've devised a handy list of words that are banned in our workplace. Feel free to print out this list and post it in every bathroom in your office to ensure that employees know that these words are to be avoided by anyone not certified as a brogrammer.

THE BLACK LIST

BOOM! (unless you're talking about the Die Antwoord video [NSFW])
Crushing It
Ninja/Rockstar/Guru
In the Cloud
Growth Hacker/Hacking
Gamification
Viral
Pivot
Disruptive
Revolutionary

Boom! and Crushing It are the ones that make my skin crawl the most. They make me want to toss heavy objects at whomever is uttering them. Why? Because their overuse has caused them to lose any hint of actual meaning. Instead they stand there as vacuous superlatives that people just tack onto any which sentence. If you're out there using crappy buzzwords like these, it also means that you're probably more focused on pumping up your crappy startup than you are on building something meaningful.

So for us, hopefully as a newly born startup, we can focus more on the doing, crafting, building part and less on the preening.

Agree? Disagree? Have more words that you want to add to our blacklist? Tweet at me on Twitter @hemang

Growing the Right Startup Culture / Part One

2013-07-29T09:15:00.000-04:00

I'm at one of my favorite points of time in the lifespan of a new company -- at the very embryonic stage where you get to contemplate the overarching vision for what your want your new company to be. My co-founders and I have spent a lot amount of time talking about the importance of culture and how we'll ensure that our company is steeped in a culture that we can be proud of.

Here's a small sample of some of the things we've codified:

1. Stop the meeting madness - Every engineer I've worked with has a zone where they attain their optimal level of productivity. While in their zone, engineers are perhaps five to ten times more productive than at any other time. For a startup to be successful, you must ensure that engineers are in their zone as much as possible.

Nothing kills being in the zone faster than incessant meetings. I can't tell you how many companies I've seen suffering from meeting paralysis where it seems like all people ever do is go from one meeting to another. Our solution? We'll have two days every week with zero meetings on the calendar. If someone absolutely NEEDS to schedule a meeting on one of those days, they can do so by paying $50 into our "culture fund". This way, they'll think long and hard about how important that meeting really is versus the team's overall productivity.

2. When you do have meetings, be on time and be focused - How many times have you gone to a scheduled meeting only to wait 5-10 minutes for the meeting to start because everyone is waiting for one or two people who are persistently late? Or how often have you seen a colleague far more focused on texting/emailing/web browsing on their phone than on the meeting itself? Both items make for meetings that are longer and less productive than they should be. To combat this, we have two simple rules. First, no phones or laptops during meetings - they get left at your desk. Yeah, sucks to have to take notes analog style, but removing distractions is more important. Second, if you are late to a meeting, you donate $1 into our culture fund for every two minutes you are tardy. I can guarantee you that people who are persistently late for meetings will kick the habit eventually.

We have quite a few more items of this variety, but I'll save those for another post. Let me know what you think so far. I'd also like to hear what you've done to make your company culture something you love.

Agree? Disagree? Have something to say? Tweet at me on Twitter @hemang

Startup Exits - It's All BS Until It's Not

2013-05-13T10:18:00.000-04:00

Over the past two years or so, I can recount a dozen instances where first-time startup founders have reached out to me to discuss something that they needed urgent advice on. In each of those cases, the founder had gotten an acquisition inquiry from a current or prospective partner and they needed to figure out how to handle it.

I'm reminded of this because the topic came up last week when I was speaking on a panel at Potomac Tech Wire's Mobile Outlook event. I was asked about the most important lesson we learned having been through the acquisition process. My answer to this question always has been and always will be the same: It's all total BS until it's not. The vast majority of the time, this turns out to be much ado about nothing and the less time you spend going down this rabbit hole, the better.

As a startup founder, you will at some point be approached by someone whose stated interest is in acquiring your company. The first time this happens, founders tend to get all aflutter with visions of new Teslas dancing in their heads. This is understandable since an exit is the only way founders get anything that resembles fair compensation for their time. Momentary daydreaming is perfectly innocuous, so long as you don't waste a lot of time prior to vetting how real the inquiry is.

So how do you know when the inquiry is real and when to ignore it as noise? There are a few tell-tale signs that you should look for. If one or more of these signs exist, it's something you need to take seriously and investigate further. If not, you should keep focused on your business priorities and don't allow yourself to get distracted by the shiny object.

First, any potential acquirer would need to have detailed conversations with you about your business. Beyond that, they would also expect that you'd have lots of questions about their business and how you fit into it. As such, it would be in everyone's interest to have a transactional NDA executed between the two parties. Normally, this is not just a boilerplate NDA document, but rather one that is crafted by the company's lawyers specifically to address the issues that come up during serious M&A discussions. The fact that the company took the time to craft a specific NDA rather than just giving you something boilerplate speaks volumes.

The next thing to look for is material cost incurred by the acquiring company. Acquisitions, even small ones, are risky business. That means any serious acquirer will spend money to throughly vet a deal to make sure it's a good fit in the longterm. One example of this is when the would-be acquirer engages an outside law firm to start working on the deal process. Outside counsel isn't cheap, typically costing well north of $500 per hour. The fact that they're spending the money here indicates some serious commitment to moving the process forward.

Another sign to look for is when senior level executives spend significant time working on your deal. Senior execs have busy schedules and won't waste time unless there's real value. In fact, I first realized that Millennial's interest in Condaptive was genuine when I started seeing time being expended by C-level execs. After a few early flirtations, I was invited to come up to Millennial's headquarters in Baltimore to talk more about how we could work together. I had no idea what to expect. When I walked into the conference room and saw that their CEO, CFO, COO and CTO were all assembled there for our meeting, I knew that this was something I needed to take seriously. That was the moment that it went from being all BS to something significantly more.

Agree? Disagree? Have something to say? Tweet at me on Twitter @hemang

The Mentorship Vacuum in the #DCTech Community

2013-05-02T13:24:00.001-04:00

(credit to Valerie Coffman for a more apropos image)

Over the past year or two, it's become far too fashionable for people to work in and around tech startups. So much so that we now have legions of wantrepreneurs and “community builders” who want to find their fame and fortune within the startup universe. And to some degree, that's absolutely awesome. The more people involved in the startup world, the better and I’m all for being inclusive of people who genuinely want to learn and grow within the ecosystem.

Unfortunately, I see a downside of this as well. Mostly because we now have far too many people who have never built or worked for a tech startup who have morphed into “thought leaders” or “mentors” within our nascent startup community. In my view, this does a great disservice to nurturing the young entrepreneurs who are just starting on their entrepreneurial journey.

Why? A few reasons from where I’m sitting.

First, there’s a clear degradation in the signal-to-noise ratio, which means that young entrepreneurs have a harder time getting to something of value in terms of content. There’s a lot more noise from people who have no idea how to build stuff but seem to have lots to say about this topic. Young entrepreneurs will mistake puffery for good advice and take far longer to learn lessons that could’ve been ingested far more efficiently.

We also have to ask ourselves if we’re being deluded into believing that there is not a massive vacuum in mentorship in this region. Folks who have big success in building their startup seem to regularly disappear from the local tech community. Here in DC, we have a ton of people who have sold their company for $100MM+, and yet only a small percentage of them are engaged with mentorship in any meaningful way. Just imagine what type of rich experience and knowledge someone like this brings to any tech scene.

Maybe it’s because we’re complacent about what passes as mentorship nowadays. Maybe we don’t take the extra ten steps to rope in the people who’ve had big success and make sure they stay engaged in the community. Maybe it’s because these true titans don’t see that the community actually needs them to stay engaged and they don’t see an obvious role for themselves. We must do better. We must do a better job not just celebrating the huge successes we have but also making sure these people know that they are very much needed as active members of our community and that there is an important role that we need them to play.

I should disclose that for me, this is something of a personal issue. As someone who has had some success in the past and is now looking to start his third startup, having very senior level mentorship would be of tremendous value. I’m actually fortunate since I do have a number of people who I can call upon whose depth of experience is much richer and deeper than mine. But I could definitely use more. And there is no doubt in my mind that the younger entrepreneurs starting out could certainly use more. A lot more.

Why I Love Zombie VCs

2013-04-25T09:25:00.000-04:00

If you're anything like me, you've probably heard the term Zombie VC bandied about in various conversations recently. This all started a few weeks ago when Danielle Morrill started a bit of a shitstorm with her blog post which was entitled Zombie VCs. In it, Morrill formulates a list of VCs who haven't been doing a whole lot of investing lately according to recent Crunchbase data. Morrill's point was seemingly confirmed by Dan Primack's post earlier this week where he references data that illustrates an 80%(!!) contraction in the number of active VCs in just the past twelve years.

Methodology aside (see Fred Destin's related post), every entrepreneur I know has experienced frustration with Zombie VCs over the past few years. At the end of those interactions, entrepreneurs inevitably felt duped for having wasted precious time during their fundraising cycle. It's no surprise then that the conventional remedy being prescribed to entrepreneurs amidst all this chatter is to steer clear of the Zombie VCs.

I'm here to tell you that this is terrible advice. In fact, Zombie VCs are an invaluable resource that every entrepreneur needs to leverage to the hilt. Why just meet with one Zombie VC when you can meet with a dozen? I say this with complete sincerity because Zombie VCs can provide you a high value, low risk service that you won't find anywhere else. Namely, they can give you critically important real-world pitch practice that no amount of prep work can replicate.

Even if you've practiced your pitch in the mirror a hundred times, you'll be amazed by how much you learn from your first five VC meetings. You'll figure out what tempo works best for you as you're presenting. You'll learn how to handle interruptions that you weren't expecting. You'll hear a variety of tough questions that you hadn't thought of. Most importantly, you'll develop confidence while getting real feedback on the overall efficacy of your pitch. Write down every question, every comment and soak it all in. You'll use these invaluable insights to iterate upon your pitch until you get it to a place where it feels just right.

And what better audience to have for you first few (highly imperfect) pitches than the non-check-writing-but-surprisingly-eager-to-take-meetings Zombie VC? Wouldn't you rather that your worst performances -- the ones where you're still honing your craft -- are in front of investors that you know will never invest? This is precisely why it's so important to rank your prospective investors. Of course, you should be mindful of why you're having these meetings and don't allow yourself to get sucked into the vortex of follow-ups beyond the initial meeting. If the Zombie persists in wanting to follow-up, tell them honestly that your goal for the first meeting was to solicit feedback and to get to know their firm a little bit. And be sure to say thank you. Because the Zombie helped you more than you would've ever imagined.

Now go meet with some Zombies.

Agree? Disagree? Have something to say? Tweet at me on Twitter @hemang

MAVA TechBUZZ & Diversity of Views in Seed Investing

2013-04-22T11:53:00.001-04:00

On Tuesday, April 23rd, I'll be participating in a CEO/Investor panel at the MAVA TechBUZZ Spring event in Bethesda. There are some great speakers throughout the day and the attendee list looks really impressive. It should be an excellent learning opportunity for all of you early stage founders who want insight on how to go from zero to seed with your startup.

But what I'm most excited about is the vast diversity of seed-stage investors that will be on the panel I'm participating in. There will be a few angel investors (like me) who are focused on fostering the local tech ecosystem. There are folks from traditional venture funds, who likely have defined methods for how they evaluate seed stage opportunities. You'll also get the perspective of two folks who help run state funded venture funds (MD Venture Fund & CIT), which tend to have different investment criteria than traditional venture. And finally you have someone representing the corp dev and strategic side and who likely views opportunities through an entirely different lens.

The great thing about this assortment of views is that the sixteen companies pitching will get wide-ranging opinions that reflect the unique interests and roles of the panelists. It's a pretty good bet that no two panelists will have the same criteria for what defines a good investment. This dynamic mirrors what you'll see in the real world. Nearly every investor you'll meet has their own unique criteria as to what makes for a good investment. What one investor sees as prince, another will see as a toad. Where one sees clear sailing, another will see stormy seas.

When you're out there pitching your early stage company to investors it's important that you don't lose sight of this dynamic. You're going to hear a fair number of investors saying "no". Don't get discouraged. Your company isn't necessarily broken or ugly. It may just not be the right fit for that particular investor. Keep improving your pitch, keep getting detailed feedback from every meeting, and make sure you take the time to understand how each investor you meet with defines their investment criteria. With the right approach and sufficient effort, you should be able to find an investor who sees the big opportunity in what you're working on.

Later on this week, I'll be posting how I define my own investment criteria for angel investing. Subscribe to the blog feed and stay tuned!

Ranking Potential Investors

2013-04-20T10:04:00.000-04:00

It's incredibly important to figure out which investors are the right investors for your startup. As you've probably heard, fundraising is an all-encompassing, time consuming, pain-in-the-you-know-where process. It always takes longer than you think. And unfortunately most of us waste a hefty chunk of time on pitching the wrong investors -- people you have no hope of ever collecting a check from.

The goal then, is to avoid those time-sucking meetings and to focus your time on investors who are more likely to invest in your startup. Because the less time you spend on fundraising, the sooner you can go back to spending your time and energy on actually building your company.

In order to do that you first have to rank all of your potential investors to figure out who you should spend your time chasing down. And notice that I keep saying "investors" and not "VC firm". The reason for that is that while the history and reputation of a VC firm is important, ultimately it's about the individual partner that you're going to be working with.

So then what is the criteria for ranking potential investors? When we were looking to raise an A round for Condaptive, here's how I went about the ranking process:

The Laundry List -- Start by making a long long list of all potential firms that you think are reasonable targets. Make sure you factor the stage at which these firms invest when you're putting together the list. If a firm only does later stage deals and you're raising a seed round, it's a waste of time to talk to a partner there.
The Qualifier -- The single most important criteria is what I call "The Qualifier". If your research indicates that a firm or individual angel fails the qualifier, remove them from your list immediately. The question is simply: are they really & truly investing money nowadays? To figure this out, use a combination of Crunchbase and Google (or simply ask) and you should be able to quickly determine how frequently the investor is putting money into new investments (not follow-ons, NEW investments). If you don't see any new investments in the past two or three quarters, it's not likely to be a fruitful lead for you. This is especially true of angel investors. For some reasons, lots of wannabe angels spend time taking meetings even when they haven't cut a check for a very long time (if ever).
The Fit -- Once you've eliminated all the prospects who aren't cutting checks, the biggest part of my criteria is how well an individual partner & the firm fit your company. Start by looking at their portfolio. Do they invest in the vertical that you're in? Some VCs only do consumer deals, so no matter how great your enterprise software company is, it won't be a good fit. Some of the best VCs have outlined the "themes" that they invest in right on their websites. Do you fit one of those themes? Nearly every investor uses investment hypotheses, and if you don't fit into one of these hypotheses, you won't get a check. Have they funded a potential direct competitor of yours? If so, most VCs won't create a conflict for themselves -- even if they might happily take the meeting (you can imagine why this could be very bad for you). Do they have domain expertise, connections and credibility in your space? That could be very helpful for you in the long run. Can you tell anything about their culture that might indicate whether you'd have good or bad chemistry? Do they have a reputation for making fast decisions or do they take forever? Are they widely respected by entrepreneurs and other investors?
Geo Rationalization -- While the fit is clearly the most important thing to consider, don't overlook geography. Investors tend to have clear patterns in where they will invest and if your startup isn't in one of these places, you'll have a hard time convincing them that you should be the first check they cut for that geography. The reason for this is simple. For VCs, investing often means taking board seats. Board seats mean board meetings -- normally the in-person variety. For angels, they prefer investing in their own back yard. Most of them are investing to foster the startup ecosystem, and they normally want to focus that effort in the community they live/work in. With all that said, you shouldn't be dissuaded from pursuing that cross-country investor who you've heard so many good things about. But, make sure they have a history of investing in stuff in your area. I know of a fair number of west coast VCs who happen to have a decent number of east coast investments in their portfolio. Those guys already have to travel east for board meetings and other business. For them, geo is less of an issue than for their colleagues whose portfolio is comprised solely of companies that are within one hour flight time.
The Warmer Intro -- It's a pretty good bet that investors are far more likely to invest in people they already know. In fact, you're probably 10x more likely to get an investment from an investor who knows you than from one you met for the first time yesterday. But because you have only a few investors you know personally, you'll have to rely on getting "warm intros" to others on your list. The warm intro is incredibly important. If an investor doesn't know you personally, they're not likely to respond to your email or take your phone calls. You can waste a lot of time this way. They will however respond to your email if you can find someone the investor does know and trust and get that person to make an introduction for you. The better the investor knows this person, the more seriously they'll take you. For that reason, it makes a ton of sense to make sure that you get an intro from someone who has a real relationship and past history with the investor you want the intro to. Be picky in who you ask to make intros. Because an intro from the right person will not just help you get your foot in the door, but it can help you even more as you get further down the path.

Now that you know all of the criteria, make good use of it. For us, we put all of this data into a spreadsheet that we used as a way to track our communication & progress with various investors. Here's what my spreadsheet looked like:

Note that the "Score" wasn't just a straight adding of each criteria. We actually weighted each criteria since some were more important than others.

The other HUGE way that this ranking was helpful for us was that it told us which meetings to pursue and when to pursue them. This was extremely important! When you're first starting to pitch, you do NOT want to pitch investors who are at the very top of your rankings. No, you need a lot of practice first. You need to hone your pitch, listen to a bunch of questions that other people ask you, revise your deck a few times and make sure you really have the whole thing down to a science. Only then do you want to pitch the high value guys. So your first meetings should be with people who aren't nearly as high up on your rankings. Use those meetings to work out the kinks and get good feedback. Practice your pitch every opportunity you get. Only then will you be at your best for the meetings that really count.

Another Resolution to Write More...

2013-04-19T15:23:00.000-04:00

In the weeks and months after my company Condaptive was acquired by Millennial Media. I thought a lot about all of the things I learned in the entire startup process from A to M (we hadn't quite gotten to Z yet). I made a long list about all fo the topics I wanted to write about and told myself that I was going to get better about blogging/tweeting and generally being more productive within the startup community. Well, if you're reading this blog now, you can see that never really happened. I keep making resolutions to write regularly, and keep finding other things that take priority.

I mention this because Paul Singh asked a question on one of the Facebook group boards that we're in together about how to stack investors. That happens to be one of the topics that I jotted down, so I figured it's time to make yet another resolution about writing more.

Before I get started, there are a lot of people who can offer you incredible advice because they've seen a situation a thousand times and have expertise in the startup space. I'm not one of those people. I'll just tell you about my experience and what we went through in starting, building and selling a startup, and hopefully there's some insight there for you to glean.

With all of those disclaimers in place...

Exhale

2012-10-13T05:03:00.002-04:00

Has it already been eighteen months? My last blog post was when Condaptive was acquired by Millennial Media and the past many months have been a wonderfully chaotic whirlwind. To recap for my reading audience (which, according to Blogger stats, consists of three family members - hi mom!) :

get acquired by Millennial Media --> integrate team & existing technology --> open new office in DC for Millennial --> lead ever-expanding team to build Millennial's new data platform --> endure severe growing pains as technology struggles to keep up with the volume of data --> many sleepless nights --> kick-ass team puts in long hours, and after the sixth (re)launch, technology platform finally performs (and performs awesomely) --> Millennial files S1 that prominently highlights the data platform that the Condaptive team built (!) --> watch up-close the incredibly fascinating process of a company going public --> work on a bunch of stuff for the roadshow --> pitch the heck out of our new data platform --> watch company go IPO (!) --> refresh stock quotes every two minutes for the next few months --> decide to take a break --> exhale

So now the next journey begins, and it's off to an amazing start so far. More on that later...

Condaptive acquired by Millennial Media -- some lessons learned

2011-05-25T16:13:00.000-04:00

Today marks a momentous day for the Condaptive team. Today we’re announcing that Condaptive has been acquired by Millennial Media. As you likely know, Millennial Media is the premier player within the mobile advertising landscape and one of the most exciting venture-backed companies anywhere. We are incredibly proud of what we’ve achieved with Condaptive and are excited to play a key role in Millennial’s long-term growth.

This outcome is one that comes as a surprise to a lot of people, probably the Condaptive team moreso than anyone. We started Condaptive less than a year ago and we never expected that we'd find this type of "exit" in such short order. I say exit in quotes because while today marks an important milestone for us, our journey is just now starting. With that said, we have learned so much over the past twelve months and have so many people that lit our path and guided us in building this company from day one. I'll be sharing a few of those lessons in the coming days and weeks in hopes of adding something of value to the entrepreneurship community.

One of those lessons is something Paul Martino (one of Condaptive's earliest advisors) touches on today in his blog post. Paul talks about how as an entrepreneur, you should find any excuse to meet with people who can help you. I'll put a slightly different twist on reiterating Paul's basic theme. As an entrepreneur, you owe it to yourself to knock on every single door possible in order to get guidance from people who can assist you in building your dream. Why? Because you can't possibly anticipate where that help is going to come from. The people who ultimately turned out to be massively valuable for us are folks we had no idea would be so critical to our success. Paul is a good example of this. A chance meeting at a ballgame turned into a long-term relationship with him opening up all kinds of doors and providing tremendous insights for us.

Mike Lincoln, our lawyer at Cooley, is another great example. We went with Mike because we took an immediate liking to him and felt that he genuinely believed in our vision (and our team). But we had no idea at the time exactly how important that decision would be. As it turned out, Mike was as valuable for us as anyone on our team. Mike and the Cooley team supported us every step of the way and helped us navigate the startup maze from beginning to end. Not only did Mike make several dozen of introductions for us, but he made himself available whenever we needed his sage advice. I remember him being on the phone with me at 10pm on a Sunday night when we were deciding on taking a VC offer versus pursuing the acquisition offer from Millennial. Mike was incredibly generous with the commodity that I find most irreplaceable -- his time.

So the lesson here is really simple -- help comes from many different places. It's not luck or kismet that brings divine assistance. You make your own luck.

Amazon Streaming Plan Could Be Huge

2011-01-30T14:46:00.001-05:00

I normally do not like to throw around words like genius since their overuse tends to render them without meaning. But in this case, I think it is really warranted. Yesterday, Engadget got hold of some screen captures that seem to indicate that Amazon will soon be launching a Netflix-like streaming service in the very near future. That in and of itself is ho-hum since everyone has been waiting for Amazon to either buy Netflix or launch a competitor. The nuance that I found far more interesting however was that Amazon is planning on offering this service for FREE to people to subscribe to Amazon Prime.

At first, you might be scratching your head as to why Amazon would give customers streaming for free as part of their $79 Prime subscription. That’s the part that is not only entirely rational, but should help increase Amazon’s Customer Lifetime Value metric in a major way. Some time ago, Amazon arrived at this big a-ha moment where they realized that Prime customers were worth their weight in gold. Once a customer joins Prime, their number of purchases on Amazon increases by 150%. So if a customer is buying from Amazon 10 times a year before Prime, that same customer would now make purchases on Amazon a staggering 25 times annually.

Once Amazon analyzed all the numbers, their biggest goal as a company became to get as many customers onto Prime as humanly possible. And to do so, Amazon has been offering more and more creative ways to get customers hooked. The first part of the plan was to target key demographics – students (who buy lots of books presumably) and moms – and offer them Prime as a free trial. They also made it exceedingly easy for those customers to indefinitely continue on Prime for a long long time based on their purchases. Because it was never about the $79 fee for Amazon. Though it’s been a nice chunk of change, Amazon’s goal with Prime was always engendering loyalty and making sure that customers looked to Amazon for all of their purchases, even if Amazon’s price on an item happened to be a dollar or two higher.

So by making streaming free for Prime customers, Amazon is in fact killing three birds with one very efficient stone. First and most importantly, the number of customers on Prime is likely to increase substantially with the added benefit of free streaming. For all of those fence-sitting customers who couldn’t find a free path to Prime and had a hard time rationalizing the $79 cost, that decision becomes a total no-brainer now. Next, Amazon drops a nuclear bomb on all those who were seeking to copy Prime or crafting other free-shipping programs of their own. Walmart, JC Penney, Best Buy and Target have all been toying with ways to compete with Prime in some capacity. GSI Commerce launched their own Prime competitor called ShopRunner and made great progress in banding together a federation of retailers to compete with Amazon. With this shiny new and extremely useful addition to Prime’s set of benefits, what exactly can these retailers do? It’s like they were already climbing Everest and suddenly someone moved the peak up by 10,000 meters. Last but not least, Amazon is firing a pretty big salvo at Netflix and making a play to capture a large part of the streaming market. And while streaming is a solid business as Netflix is proving with each quarterly earnings report, the real play here is to be a fixture with the customer beyond the PC by owning their eyeballs both in the living room and on their mobile devices. As W said, it’s about capturing hearts and minds, and that’s exactly what this will do.
Smart.

A touch of genius even.

Time for Mobile Commerce is Now – Part III Global Trends

2011-01-25T13:32:00.001-05:00

PART III – GLOBAL TRENDS IN MOBILE COMMERCE

It’s a generally accepted truth that the state of the mobile channel in the US lags behind some global markets, perhaps most notably Japan, Korea and some parts of Western Europe. It’s therefore worthwhile to spend some time looking at how mobile commerce has evolved in some of these more mature geographies and seeing if there is insight that we might derive as to what our domestic experience might be over the next several years.

Ok, we already know what you’re thinking. Why, you ask, should we assume that the experiences from other parts of the world will be relevant to how mobile commerce evolves in the US? The reason is that with the passage of time, global trends within mobile have a tendency to proliferate from early adopter markets down to laggard ones. Text messaging is a solid example of this. SMS first gained mass popularity in places like Japan and Korea, eventually spreading to early adaptor Western European nations like Norway and Finland. But in the US, it took quite a while longer.

As recently as 2006, there was ample ink being spilled on why SMS hadn’t taken off here despite being a core part of mobile behavior in other parts of the world. Fast forward a few years and US behavior has changed dramatically in how we use SMS. In fact, the average American now sends far more SMS per day than the average Brit, making us among the most prolific people who mangle language with our LOLs and LMAOs.

That said, let’s talk about what the global trends are for mcommerce and how we might glean some perspective on how US retailers should start thinking about the opportunity. Today, mobile commerce is a really big deal in many of the geographies that are historically early adopters for mobile technologies. In Japan and Korea, mobile represents anywhere from 10% to 25% of all ecommerce revenue. Mobile shopping has become a core part of mobile behavior with users accepting mobile transactions as an everyday part of how they use their mobile devices. With the prevalence of mobile shopping in those countries, we also see the lockstep adoption of complimentary mobile technologies like QR codes and mobile payment mechanisms. It may be the chicken or the egg, but it is pretty evident that mobile commerce must progress with the maturity of QR codes and mobile payment in order to see the big revenue percentage numbers that we’re talking about.

Based on what we’ve discussed so far, you might expect that the European experience with mcommerce to have similar success stories like the ones we’ve just discussed. To some people’s surprise, that really hasn’t been the case thus far. The data from Europe looks a lot like what we’re seeing here in the US with mcommerce representing around 2% of overall ecommerce. But also like the US market, we seem to be at that tipping point where we embark upon that mythical journey towards hockey stick growth rates.

The question then is, if the adoption pattern for mobile technologies was relatively consistent in how it moved from innovators & early adopters (Japan, Korea, other parts of Asia and the Nordic countries in Europe) to the early majority (Western Europe) to late majority (US, Canada) to laggards, then why does mobile commerce look a little bit different? The answer I’d offer is that most other mobile behavior was not been dependent on bandwidth availability.
Americans and Europeans are an impatient bunch when it comes to their web experiences. Users expect pages to load really quickly and those expectations keep accelerating as wired broadband adds more speed to our browsing experience. In fact, you can expect 8% of your audience to abandon your site for every additional second of load time beyond two seconds. So 11 seconds of load time for a page? Kiss 70% of your audience goodbye.

With that in mind, it shouldn’t be surprising that the most prominent beacon for understanding the state of mobile commerce is penetration of 3G networks. In Japan and Korea, the point at which mobile commerce really took off was when 3G subscriptions were the reality for a majority of mobile users. Western Europe has trailed Japan in this particular metric by about five years and the US is closer to seven.

The hypothesis then is that the wide-scale adoption of mobile commerce has everything to do with the overall experience being palatable for end users. The inexpensive availability of 3G+ networks is the biggest variable, and the availability of complementary technologies like QR codes and mobile payments certainly will make for a more coherent overall experience.

Where does that leave us exactly? Well, the US will cross 50% 3G penetration sometime early this year and the vast majority of smartphones come equipped to handle things like reading QR Codes. Payment technology is on the way as well since we know that both the iPhone 5 and the next Android OS will incorporate NFC as a core piece of solving the payment issue. So if our hypothesis is one that resonates with you, well then all the more reason why we need to start taking the mobile channel more seriously in terms of dollars spent on both marketing and technology.

Time for Mobile Commerce is Now – Part II User Adoption

2011-01-24T03:18:00.001-05:00

PART II – USAGE OF MOBILE IS SKYROCKETING

Forgive me for stating the obvious, but users are finally utilizing their mobile devices as a primary or secondary means of ingesting web content. Look around and the data is pretty staggering. Cisco’s projections for mobile data usage show 117% CAGR from 2009 to 2014. That represents a 48x multiple over a six year time span, which is nothing short of mind boggling.

It’s not just an abstract concept either. Every retailer I’ve worked with over the past two years is seeing this hyper-growth in mobile traffic as a percentage of overall traffic in their analytics reporting. The ranges I’ve seen are anywhere from 2% to nearly 10% of overall site traffic, and that’s without factoring in things like the iPad. Even if you discount some of the projected growth rates significantly, would it be crazy to think that mobile users will be 20% of your overall site traffic within the next five years?

Traffic growth alone isn’t the only thing that’s important though. We also should ponder the fact that nearly all of this mobile traffic is coming from smartphone users. That’s important because smartphones allow for a far more robust experience and in some ways actually provide a superior experience for the end user once you factor in how location and other sensors come into play (more on that in Part V).

As we get to a place where the majority of the market are smartphone users, more and more people will be using their mobile phones almost exactly as they use their computers right now, only they’ll be able to engage with retailers in far more diverse situations and circumstances.

Even now, we’re starting to see some massive changes in user behavior as it pertains to the shopping experience. There were a lot of numbers floating around during the holiday season, but the ones I found most interesting were the ones that indicated fundamental shifts in what users are doing. For example, a recent Internet Retailer survey finds that 16% of all U.S. adults are already using their mobile device in their shopping process. And the people who are most likely to use mobile are the same people who are shopping online (arguably your most valuable customers in terms of LTV).

Finally, what’s most fascinating about all of these numbers is that these changes in user behavior are happening despite the horrible experiences that retailers typically offer mobile users. The numbers are rapidly changing, but somewhere between 50% to 70% of retailers do little more than offer mobile users the same website that they get on their PCs. You probably know this already if you’ve tried to purchase anything on your mobile device. The experience right now can best be described as being somewhere between mildly unpleasant and getting a root canal, depending on the site. Let’s say for the sake of argument that mobile users are 5% of your overall site traffic. In what universe would a retailer otherwise allow 5% of their users to get a nearly defunct experience?

Not all is lost though because the NRF will tell you that 75% of retailers are at least “thinking” about a mobile strategy. That’s a big step in the right direction. After all, it took retailers a long time to put real dollars into their ecommerce channel. Let’s hope they catch on with mobile a bit sooner.

Time for Mobile Commerce is Now – Part I

2011-01-21T17:19:00.005-05:00

For some of you who have been following mobile for a while, this title might sound like a broken record. Those of us drinking the Kool-Aid have been talking about mobile commerce being The Next Big Thing for what seems like a lifetime now. We’ve sold it to the point that it’s become fashionably contrarian to dismiss mCommerce as the channel that cried wolf. But there are big changes happening in the mobile landscape that tell me retailers better start paying more attention.

So what are those big changes that I’m referencing here? Over the next week, I’m writing a six part series on all of the key factors around the most salient issues for retailers. I should mention that a significant part of what we’re doing with Condaptive centers on helping retailers harness mobile for all matters of customer engagement, so I’m clearly biased here (as I said earlier, I’ve been drinking the Kool-Aid for some time).

This six part series starts today with this introduction and here’s what’s coming up:

Part I – Introduction
Part II – Usage of Mobile is Skyrocketing
Part III – Global Trends in Mobile Commerce
Part IV – Why Retailers Have Been Skeptical
Part V – Technology Changes Driving Mobile Commerce (HTML5, Location, QR Codes)
Part VI – Why Invest in Mobile Commerce Now?

Why LivingSocial’s Amazon Deal Was Inspired

2011-01-20T22:41:00.004-05:00

I’m reading a lot of press this morning deriding LivingSocial’s Amazon gift card deal. In case you were stuck in a cave for the past 24 hours or somehow didn’t see all your friends retweeting the deal, LivingSocial was offering a $20 Amazon gift card for $10. So all of us who spend gobs and gobs of money at Amazon anyhow basically got $10 for nothing.

So fast-forward to this morning and you’ll notice a lot of snide comments in the media about the LivingSocial deal. The premise being that LivingSocial is surely taking a bath on the deal, to the tune of millions and millions of dollars. WashPo’s Rob Pegoraro wrote about the deal being reminiscent of the heady dotcom boom, with the requisite references to sock puppets, stoner comfort food delivery and the like. The not so subtle point being that LivingSocial may be going down a dangerous path of spending silly amounts of money on marketing.

Well, this isn’t 1999 and LivingSocial’s deal makes a ton of sense on a number of levels. Here’s why:

First and foremost, a lot has changed in the past twelve years. Back then, the notion of understanding key metrics like Customer Acquisition Costs (CAC) was at it’s very infant stages. So when companies like Kozmo, UrbanFetch (somehow I still have three UrbanFetch t-shirts in my wardrobe) and Pets.com were on their drunken spending sprees, they did so without understanding the value of every dollar spent.

In 2011, metrics like CAC are the lifeblood of companies like Groupon and LivingSocial (and frankly of any ecomm company). These guys spend a ton of time and brainpower understanding down to the penny exactly what the LTV numbers look like and what sort of CAC model makes a ton of sense (and a ton of profit). My former company, GSI Commerce has built a multi-billion dollar ecommerce empire by mastering these concepts. Simply put, if I know that I can make $2 in PROFIT for every $1 I spend on CAC, I’ll spend that dollar from now to eternity. All day every day.

So with that said, the smart folks at Living Social are sure to understand CAC and LTV like the back of their hands. And what they know that Rob Pegoraro doesn’t is that whatever loss they take on every Amazon gift card is far smaller than their normal CAC (which I’d estimate at somewhere between $25-30 normally).

Not only that, but you should probably also assume that Amazon picked up some of the tab here. Jeff Bezos is one of LivingSocial’s biggest investors given the $175MM that they invested in the company. And $2.50 on a $20 purchase would be more than reasonable given the strategic relationship that they have with LivingSocial, which probably leaves LivingSocial with a $7.50 net cost.

And finally, on the LTV side of the equation, even if you significantly discount the LTV of a customer who comes in for a special deal like this one, LivingSocial has huge potential for monetizing that customer over the long run. They are not just expanding geographically, but they’re moving into a much more profitable segments with travel deals and more coming soon. Given this move upstream for larger margins and revenues, the LTV for LivingSocial is likely to keep expanding for some time. So in short, I’m pretty confident that the math here makes plenty of sense and that there’s no one over at LivingSocial crying about the massive success of this promotion.

All in, I’d say great job by the team at LivingSocial. They got their CAC to be about 1/3 or 1/4 of what it normally would be and that’s not even counting the huge earned media value (a lot of peeps would tell you the earned media alone will pay for half of the cost). When you’re trying to catch up with the Groupon behemoth, it’s moves like this that help change the game.