What's next?

Commitment in the Marketplace

2006-08-15T11:53:00.000-04:00

What is the price you pay for making your service a "no-commitment" option for your users? While most start-up experts will tell you that less commitment is key to get new users to try a service/product, is there a flip side?

Recently, I read Influence: Science and Practice by Robert Cialdini. While the entire book was packed with interesting insights, one of the most profound was the effect commitment has on a person. Cialdini gave numerous examples, ranging from cults to volunteer efforts, that showed how people will reinforce their belief that they made a good decision, once it's been made. I recently saw this first-hand, having to make a significant career choice. It was a difficult decision, as my two options were not directly comparable. I actually went back and forth a few times, even after I had thought my mind was made up. However, as soon as I called and made a commitment to one company, the turmoil vanished, and over the past several weeks, I have become more confident that I made the right choice. At least some of this, I am sure, is due to the commitment effect mentioned above.

One of the most common themes I've seen among new startups this summer has been businesses that bill themselves as the "eBay of XXXXX", where XXXXX is something other than a material good. The companies are aiming to provide a marketplace for intangible goods, much like a consumer version of the B2B exchanges that cropped up in the late 1990s. Some of the players in this market are Ether, IPSwap, etc.

While each of these want to be the next eBay, it's important to examine how the intangible nature of their goods may affect the attitude of customers towards their service. If I want to sell my expertise for instance, I can use Ether to connect me to buyers. However, I can also use several other services to do the same thing in parallel. By contrast, in the early days of eBay, if I had a single collectible Beanie baby, I could only sell it in ONE place. Each time a person listed something on eBay, they were making a commitment to that platform. This had a reinforcing effect, as they convinced themselves that eBay was the right place to sell, and made them more likely to use it again in the future. True, these days, eBay does much of it's business with sellers that have several of the same item that they sell through multiple channels. However, this occurred only AFTER eBay hit it's critical mass, and became a de facto retail channel. When building that initial traffic, I believe it was the commitment effect that was a strong driver of success.

Without this commitment effect, customers are less likely to become the passionate evangelists you want them to be. This can obviously be overcome with a great product that does something that no one else can, but when your service is counting on a network effect to differentiate itself, it makes it much easier if your network is wedded to your service alone.

So how can this be overcome? I think the key lies in building a secondary relationship with a user, one that can create commitment over time. For marketplace systems in particular, the development of a reputation is one possible approach, as it helps a customer commit to one platform, to avoid spreading the benefits of a good reputation too thinly. This however, may be a short term solution, as portable reputation systems like Rapleaf may soon prevent this from being a focus of commitment.

Convergence 2.0 - The networks

2006-07-19T12:30:00.000-04:00

I posted last week about the theme of "Content is King" that was all over the place at Convergence 2.0. The other major takeaway I took from the conference was that the networks are still thinking in old models. While the networks were all speaking of the shift in power back to content in tones of glee, there were a couple of points that I think they missed.

1. For a lot of their content, they are not the ultimate producer.
2. Professional quality content is hard, but for some types of content, it's not as necessary.

The Context of the Content
During one of the breaks, I had a chance to speak to an IP attorney at one of the networks. We chatted about one of the networks clips that had found it's way onto YouTube, and the resulting explosion of attention generated by that leak (okay, it was an NBC lawyer, and the clip was "Lazy Sunday"). I asked why the network didn't just view such activities as free advertising. Her answer was that while the network doesn't have a problem giving the clips away for free, they want it to be only available on their site.

I didn't understand why it was so important that it be on their site, until I recently wanted to show a friend the Lazy Sunday clip. Before, I had simply pulled up the clip on YouTube, shown it, and gone about my business. This time however, once I found it on NBC's site, it was listed with several other SNL digital shorts. After we watched the first clip about 5 times in a row ("You can call me Aaron Burr, the way I'm dropping Hamiltons" - Genius!) we proceeded to check out the other digital shorts.

Needless to say, none of them were nearly as good - but the point is that we actually watched them. As a media consumer, there is a signal in proximity (on tv it is temporal, while on a site, it is more spatial). We naturally assume that things near each other will be similar in some important measure. Coupled with inertia that keeps us in the same area, this can be a powerful effect. The networks have used that for years, as they leverage "lead-in" from one show to boost the ratings of another, weaker show (think of all the one-season wonders that followed Seinfeld).

Microchunking blows that proposition out of the water. It means that each piece of content has to stand alone and win popularity on its own merits. Already, this is hurting the music industry, as they can no longer bundle 2 good songs with 14 poor ones on an album - we just buy the single off of iTunes. Similarly, if each show is spread on it's own through numerous channels, there's no audience to leverage, and the weak content will not survive on its own. That's why they want to control the context of the content - to allow them to piggyback weaker content on the stronger.

Capitalism of Content
Now, if I was a content producer with a hit, why would I want to allow someone else to create value based on my work? If the power in negotiations is shifting from the distributors (Cable and RBOCs) to content (proxied by the networks), why wouldn't that shift continue, and ultimately end up with the primary producers of the content? After all, if TV is no longer the only way to distribute content, all of a sudden, Fox need American Idol more than American Idol needs Fox, right? When each piece of content exists on its own, the value of top content will rise exponentially, while that of lower quality will actually drop.

I asked this very question during the conference, and the answer was that content aggregators would still be necessary, to enjoy economies of scale in promoting the content. The rule of thumb I heard was that if promotion expenses ever passed production expenses, you are in trouble, and that can only be avoided by aggregating content. However, if you stop leaning on the promotion of content, and allow each distribution channel to compete for the best content, it should naturally rise to the top anyway. Therefore, I see the networks having a harder time signing top content once the alternative distribution methods become more mainstream.

The Digg Network
The final point where I disagreed with some of the network representatives was in the area of user generated content. Over and over, it was dismissed as a distraction, with the mantra of "Professional quality content is HARD - not everyone can do it". I agree with this to a point - it is unlikely that user generated sitcoms will become a big competitor. Any form of content that requires serial quality for an extended period of time will probably stay the province of professionals.

However, for content types where each piece stands on its own, the story is completely different. While professionals might maintain the highest average quality, amateurs can meet or exceed that quality for individual items. Taking a print analogy, there are very few bloggers that can consistently write at the quality of a Washington Post, or New Yorker, or Fortune (and most of those tend to write in both types of media). However, the best posts of the day on Digg are often as good or better than anything you will from those professionals. As content spreads to new channels, the new aggregators that succeed will be the ones that bring the best of both types of content to us. Consumers will judge aggregators on their ability to find and organize the best content, but since content will be available to each aggregator, there won't be any room for weak content that simply piggybacks.

Convergence 2.0 - Content is King

2006-07-12T19:26:00.000-04:00

I attended the Convergence 2.0 conference hosted by The Deal a couple of weeks ago. After a full day of listening and talking to experts and practitioners in new media, old media, and telecomm, I came to the following conclusions:

Content is king - the ability to capture value is shifting from distributors to content producers.
The networks (at least the representitives I heard) still don't get how tenuous their position is.

Content is king
Without a doubt - this was the theme of the day. As the number of different channels available to reach consumers increases (Cable, IPTV, mobile, portal, search, etc), distribution as a concept starts to become commoditized, even if a particular type of distribution is a monopoly or duopoly. Pretty much all the players agreed on this, the carriers with resignation, and the networks with glee.

The one exception to this I think, is in connecting end users to one another. It's in this area that distribution channels have a great chance to differentiate themselves from one another. While watching a music video on a cell phone vs. a computer sceen vs a plasma TV might be a difference in degree, the way we communicate with others over those channels is a difference in kind.

What does this mean for start-ups targeting this space? I think it means that if you are a business bringing content to users through a new channel, you need to focus more on differentiating your content, not your delivery. I have actually seen a couple of companies that are pitching mobile services, and they are all focused on their delivery technology. They considered the content they are delivering a mere afterthought. When talking about their competition, they focus on others in the same distribution space. But in the end, I think they should worry more about the incumbents in older channels with higher quality content (be that a more thorough database, better user-generated or professional content, or even more relevant search results). The barriers to expanding good content to a new channel are much lower than the barriers to accumulating that good content in the first place.

This is next

2006-06-13T08:35:00.000-04:00

Well, it's official - according to Guy Kawasaki, I only add $250K to a start-up's value now that I have received my MBA (I'm assuming I still get to keep my engineer value). After 3 years, I graduated from the Langone Program at Stern!

In addition, as of yesterday, I started as an intern screening new deals for an early stage tech investor (I still don't know the blogging policy, so I'll defer names until I know it's okay). This transition from the operating side to the investing side has obviously been a goal for quite some time, so hopefully this is just the first step in my next career. With this transition, I am going to try and abstract the lessons I am learning about investing in new companies.

The first of these lessons is that the best way to learn how to write any kind of document is to read a lot of them. In school, I saw my own case writing improve dramatically after I read dozens of case assignments as a TA. As an entrepreneur, I know that when I wrote my plan, every word was precious, and every statistic in the plan was captivating. However, after reading dozens of plans, I know that there are paragraphs or even sections that cause most readers' eyes to glaze over. Most of these relate the painstaking process that was used to derive a market size or valuation.

A good approach is to find others with business plans in related, but not identical fields, and read as many of them as you can. Whenever you find yourself skimming or even skipping over a section in their plan, highlight it. Then, go back and find the corresponding sections in your own plan. Most probably, you'll find one sentence that you really want to convey out of the section. Keep that one sentence. If you must keep the rest, reference an appendix, where you move the rest of the statistics, methodology, assumptions, etc.

This has two benefits - 1) It lets readers focus on your results, and only dig into the methodology if the results interest them and 2) As you find out more, and have to tweak the numbers, it makes it easier to find them all and keep your plan consistent.

Building network economics

2006-04-18T16:26:00.000-04:00

I've been working with a number of start-ups in the NYC area recently, and most of them are launching community based sites, hoping to capture some of the value created by networks of users. While most of these ideas are interesting once the network is built, the one part that seems to be overlooked in many cases is how to build to that critical mass.

Most people talk about the network value of successful sites. However, before a site is successful, the network value is much smaller than the non-network value. Until a critical mass of users exist, the only value to a new user is the "selfish motive". This is the reason you are willing to be the very first person on a community site, even if you think no-one else would ever join the community.

A great example is flickr - one of the poster childs of the web 2.0 wave. Now that the site has a great community, and active content posters, the value of the community feeds itself, and helps them bring in even more people. But at the beginning, when there were no other people uploading and tagging photos, they still had something useful - an intuitive and quick way to upload and share photos - that was the selfish motive for people to use the service.

With that in mind, I think it's important to clearly define your customers' selfish motive for using your service/site/network, and at the beginning, THAT needs to be your primary marketing message. Only once you achieve critical mass can you switch to really pushing the value of the network itself. Push the network value too early, and you risk people expecting more than they find, and not sticking around to help build the network itself.

Warning - equations and low level geekspeak below!

A few months ago, there was a lot of attention paid to Metcalfe's Law, and later, to it's big brother, Reed's Law. Both of these talk about how the value of a network grows faster than linearly with the number of people on the network (or correspondingly, in the community). Metcalfe's law is usually quoted as saying that the value of the network is N^2, where N is the number of members of the network.

Now, this is an approximation based on the assumption that N is large. More precisely, Metcalfe's Law states that the value to each member is: a + b*N, where a is MUCH greater than b. Therefore, the total value is simply

N*(a+b*N) = a*N + b*N^2

For networks with a large number of N the value to a new member is driven much more by the b*N portion of the value, than by the a. However, for those first early adopters, there absolutely has to be a selfish reason to join - the a.

Update: This post had been in draft form for a while, and it looks like Tom Evslin and his readers beat me to the punch, both in time and in content.

Consumer EAI

2006-01-09T15:41:00.000-05:00

In my background working with ERP systems, there were discrete trends that washed over the industry, one after another. The driving force from one generation to the next was an alternating cycle of features and integration:

The first wave were the single-focus, stand-alone applications. This goes back to the time when SAP was just manufacturing software, PeopleSoft did nothing but HR, etc.
Next, these applications tacked on additional services, but to be honest, their original focus was really still their strongest selling point. Having worked with the first iterations of modules like SAP HR, let me assure you, it was no fun having to implement v1 of any of these attempts.
After the first group of companies implemented these suites, and realized they weren't really enterprise ready in all of the functional areas, we came upon the era of portfolio management and EAI. Companies chose "best-of-breed" solutions for each area, and then tried (with varying levels of success) to tie them all together. Some companies that did this well stayed here, while others moved back to...
The all-in-one solutions. Consolidation in the enterprise software industry had led to better all in one suites. SAP and Oracle, in particular, had bought up enough of their smaller competitors to shore up their weaker areas. Although each of them still retains their original areas of expertise, their other offerings were at least good enough to be deployed.

Looking at the consumer space being served by internet services now, I'm starting to see parallels:

AltaVista does search, Yahoo does a directory, Amazon does B2C book sales, etc.
Yahoo, AltaVista, and everyone else with a website tries to make an all in one portal.
This is where I think we are now - multiple sites are cropping up on a daily basis, trying to provide the best solution for very narrow niches (del.icio.us for bookmarking, LinkedIn for professional networking, AirSet for Calendaring, etc).
We're beginning to see this next step, as Google, Yahoo and Microsoft buy up the niche companies from stage 3 and tie their services together into more stable suites.

Despite these parallels, the differences between business and consumer markets may prevent stage 4 from becoming as strong among consumer services. For better or worse, individual consumers have a much broader range of needs, and so are more likely to want to pick and choose individual services to meet their needs. Especially among early adopters, consumers may be willing to trade off interoperability in exchange for better functionality. This may be reinforced by the fact that consumer system integration does not need to scale quite as much as enterprise systems.

However, what we're really missing is EAI for these services. Individual mashups exist to tie some pairs together as a point-to-point solution, but what we really need is a common middleware for these. RSS may provide the basis for this, but that's really nothing more than message transport (much like MQSeries was for enterprise applications). It's the next layer, the message brokering and routing, that's really missing for consumer apps. Once we get this in place, as consumers we'll be able to define our own data models, and populate them from the range of web services that expose API's.

Imagine being able to extend the core concept of a contact. In addition to contact information, I'd like to be able to hold a history of meetings with that person, a trail of our emails and IM's, and some favorite postings from their blog. I could populate this larger model with data from LinkedIn, AirSet, gMail, AIM, and del.icio.us. Being able to see this all in one place would be much more valuable to me than having the same data spread among the different services.

One obstacle I see to this is the approach to monetization being used by many of these services. With most of them being supported by ad revenue from the site itself, they are not likely to allow background access to the underlying data. This probably will end up being resolved with premium subscriptions that allow direct access.

While this represents a fundamental advance in consumer services on the web, it's really just the first step. Once this is in place, things REALLY get interesting, as we get to start building workflow on top of it.

Irrational Games

2005-10-24T19:35:00.000-04:00

Thomas Schelling and Robert Aumann were this year's Nobel Prize winners for economics. They shared the prize for their contributions to game theory, with Aumann helping to create the theoretical foundation of the field, and Schelling using the theories to help interaction between nations.

Other than the Peace Prize, it seems that the economics prize always generates the most controversy. Typically, this is driven by a conflict in the political ideologies that support or attack the winner's economic theories. This year, the conflict was no less, but it seemed less political than usual, and more academic in nature. Several articles came out that attacked game theory as a field itself, claiming that it was too idealistic and based on too many assumptions shown to be false in real life. One such article was written by Michael Mandel in Business Week. In it, he asserts:

Instead, the real progress in economics these days is coming not from game theory, which has been around for 60 or more years, but from the much newer fields of behavioral and experimental economics. Behavioral and experimental economics don't start with the assumption of rationality used by game theory. Rather, as the name suggests, the focus is on looking at how individuals and organizations actually make decisions in practice, including systematic biases, misperceptions, and just general all-around bloody-mindedness.

The article basically states that game theory is intricately intertwined with the assumption of fully rational behavior, and that fields such as behavioral and experimental economics are simply incompatible.

With all due respect to the author's PhD (I'm just an MBA student, and not even specializing in economics), but this isn't how I've learned game theory. I have always understood game theory to be more of a framework to determine strategy, based on the analysis from all the players standpoints. It doesn't matter whether the players make rational, utility maximizing choices, or not. What does matter is that you know what drives their choices.

If you can predict other parties' action, no matter the motivation, the framework of game theory can still apply. These choices can be based on truly rational self-interest, on altruistic social conscience, or on the ego of the CEO. In determining these decisions, behavioral and experimental economics are indeed valuable, as they often predict individual behavior better than the standard assumption of purely rational value maximization.

Therefore, the important thing to learn through game theory is not the fundamental assumptions of what drives behavior. Rather, it is more important to learn how to build upon the assumptions to find the correct response to a given situation - in order to maximize whatever drives YOU.

What is Google?

2005-10-11T17:18:00.000-04:00

A few months ago, there were several rumors that Google would create a payment system that would compete with PayPal. Several peopled took this as a sign that Google had strayed away from their core competency, and that they had no relevant experience in being a financial company. However, as you look at the growth of new services whose sole revenue is from Google's AdSense, you start to wonder if Google really is new to the financial business. Paul Kedrosky's worry that Web 2.0 is just a google affiliates program is like wondering if Web 1.0 was just a program for Visa and Mastercard.

Once again, the beginnings of this idea came from a conversation I had with Charlie. The value of his attention is important to him, and he was wondering what the best way to get compensated for his interactions on the web.

I think the biggest obstacle to this goal is with payment systems. Every day, each of us performs a series of activities on the web that could potentially create value. The trouble is that typically each discrete activity produces a very small amount of that value. I may generate a lot of value in a day - through my browsing history, or my tagging, or through referrals to new services - but it's broken into too many pieces. Even worse, very rarely do more than a few of the pieces have value to the same party. In aggregate, the total value created and the total value enjoyed are large, but the value of each transaction is so low.

It's a little difficult to explain clearly what I'm trying to say, so here's an example. Let's say 1000 people in an ecosystem each perform 100 activities every day. Each of these transactions create 5 cents of value to one of 100 other parties (websites, advertisers, etc). So each of these users creates $5 of value a day (100 x .05). Each of the "payers" could conceivably receive $50 (1000 x .05) worth of value each day. So as a system, there is $50K of value created everyday. But any two parties would only ever have a transaction worth 5 cents - so the costs of sharing that value are too large, and they end up giving up that value. Either one person gets all the value (like when I read a blog and learn something, but don't give anything back to the author), or worse, the transaction doesn't even occur (if I didn't refer a good service, because I got nothing out of the referral).

There 2 options to monetize your created value in this environment

Limit your own interactions such that all 100 of your transactions are with 1 person, so that you can build up $5 of value with them, where it's actually worth splitting it.

Figure out a way to keep a big central clearing house, lowering the costs of splitting the value via economies of scale, to the point where it's worth doing, and then charging for it (google or paypal model)

Google has done the second with it's AdSense program. People who have been talking for years about developing a reasonable micropayment scheme for paying for content on the web seem to have missed the fact that Google has done just this. Because of AdSense, I can now monetize my attention, and pay the producers of content with that attention.

This is just the first step though - my interest in a subject is just one transaction that can be monetized, and arguably the one with the least value. Just yesterday, I referred people to 2 different online services - Writely, and NumSum (future post about trying to move entirely online is forthcoming). In both cases, I've provided value to these sites, but got nothing in return. If each of those referrals was worth < $1, it's not worth it to the sites to set up a reward program, or to me to sign up for it. However, what about a "referral central", that would allow smaller sites to subscribe to a joint referral program. They pay for 1000s of referrals at a time, and I get credit for all my referrals across multiple services.

Moving even further up in value, is pay for sales. Amazon and others have affiliate programs, but this is essentially option one - limiting your referrals to one store, to build enough credit there. What about a meta-affiliate network, where I could refer people to a variety of specialty stores, and get credit for every sale. This gets closer to the holy grail of advertisers of "pay-for-sale", and allows me to refer others via blog/email/IM to the best place, not just where I have an affiliate set up.

These are exactly the types of things that CAN'T happen in the off-line world. Why haven't we made them happen on-line yet?

Risk vs. Reward

2005-09-07T15:13:00.000-04:00

So after a couple of trackbacks, several emails back and forth, and some furniture problems that delayed it a couple of times, I had lunch with Charlie O'Donnell today. It was my first face-to-face meeting with someone as a result of my blogging, which brought with it the slightly awkward moment of finding each other through vague descriptions. Fortunately, my description (6-foot-3 Indian guy) narrowed the field down pretty well.

We had a great conversation, most of which should find it's way into a post in the next few weeks, but one part that really intrigued me was as we discussed how tagging with RSS would change the future of content delivery. Right now, my feed reader has mostly individual feeds of people that I find interesting (see my blogroll). However, with services like del.icio.us providing feeds to collections of tagged content, how long will it be before you eschew individual publishers, and only subscribe to tagged content?

While I agree that such feeds will soon be much more popular, I'm wary about making that jump completely. While aggregations like this will definitely make for more focused content, it will also strip out a lot of the benefits of finding a good publisher. The trouble with completely customized content is that often, you have a hard time getting exposed to new things. Just like in finance, when you lower your risk (wasted time on items that don't interest you), you also lower your reward (unexpected or new things that appeal to you).

A great example of this dynamic is in music. I have a decent size collection of music, accumulated over the past 15 years or so. If I really wanted to, I could listen to nothing but the music I already own, and since it was stuff I bought, I'd have pretty close to a 100% "hit rate". However, in doing so, I also cut myself off from exposure to any new artists or groups that I might like.

Enter Pandora - I know I've mentioned this in the past, but I'm just in love with the service. I might only get an 80-90% hit rate on it, but so many of those are new acts, that it's worth the risk to me. Unlike radio stations, that hit rate gets better with time, as they learn my preferences, so my "risk" goes down, without a corresponding drop in my "reward".

I really enjoy Jeff Nolan's Venture Chronicles for much the same reason. While he's good for a daily dose of tech and vc posts, every so often he'll throw in a link talking about the heredity of thoroughbred. They're not all my cup of tea, but enough are that it's worth it to subscribe to his feed.

In the financial world, people get paid a LOT of money to increase, or even just maintain, the return while lowering the risk. I think the analogy holds up for content - those who find the best way to increase my reward for consuming their content while lowering the risk of wasting my time will be the ones that will have me as a loyal customer.

The Dark Side of Web 2.0

2005-08-30T16:35:00.000-04:00

There have been a number of great posts recently about the promise of "Web 2.0", as well as ideas on how to capitalize on this new wave of innovation. I'm as big a fan of these changes as anyone, and I think RSS, AJAX, and other enabling technologies will make the web much more useful over the next few years. However, as with any change, it's not all roses - there are real trade-offs that need to be made, and the companies out there aren't always making the right decisions.

In no particular order, the top 5 issues I see right now with "Web 2.0" are:

Loss of context
A lot of bloggers have commented on this, how they prefer people to read their posts in the framework of their site, as it puts it into proper context. I have to confess, I read about 30 VC/technology related blogs per day, and a lot of them blend together. I use BlogLines to read my feeds, so they all look the same from a format perspective, and there's no brand impression made by the look and feel of the websites. Often times I will know that I read a great post, but when I look for it later in the day, I have to search among 5-10 different blogs to find it.

One blog that does it right is TechCrunch. Even within the framework of a feedreader, each of their posts carries a similar, unique format. I realize it's easier for them to do this because each of their profiles covers the same types of information, but I think the same lessons can be applied to more general posts as well.
Interdependencies, and multiple failure points
Fred Wilson recently discussed his move from Bloglet to FeedBlitz. For those readers who now get his blog via email, the services involved are - TypePad (which I believe is Fred's blogging host), FeedBurner (which is used to add stats, etc), and then FeedBlitz which takes the feed and emails it out. This is definitely a model case of the interaction that web services allow, but it also creates multiple points of failure. In addition to being tougher to debug problems, it also makes no one completely accountable. For uses like a blog, that's not a big deal, but as the importance of these new mashups grow, customer's will start to demand accountability. There may be a whole market that grows up around managing the interactions and putting a customer service wrapper around all these services, much like RedHat does with Linux.
Speed
Thanks to a comment on my last post, I was able to find the way to export my Bloglines subscription and try out the Pluck web interface. How was it? I have no idea. After importing all of my feeds (which I have to admit was pretty painless), I tried to start reading some feeds to get a feel for basic navigation, before I went looking for advanced features. Unfortunately, the site is S-L-O-W. It took me 5-10 seconds to pull up a feed, something that usually takes <3 in BlogLines. I'll admit the Pluck interface looks better, but I was back using BlogLines in 10 min. The lesson? Find out what your users do most, and make it FAST. Only then should you worry about the bells and whistles. Pluck could have some absolutely amazing feed management and reading tools, but I'll never find out. Others have abandoned Technorati recently for the same reason.
Data ownership
Okay, so back to my old pet peeve - who's data is it? When my apps were all desktop based, it was easy - it was my data, and I could get it if I wanted. When it's all stored on a server, you better make it easy for me to get it out. However, after my last post on this subject, I've had several interesting conversations, and I realize it's not that black and white.

What makes data "mine" - is it because I created it? Or is it because it is about me? Social networking sites are a great example. If I have contact information for a bunch of my friends on a site, the data could be mine, my friends' or the site's. It's in my account, but the data is about my friends. Should they have to give permission before I can take it out of the shared system? When Amazon gives me recommendations, they are in my account, but I didn't create that data - should I be allowed to take it with me? I think this is one area that will have to be handled through trial and error, as services find out what boundaries the market is willing to accept.
Less interaction
This seems like a contradiction, with new services popping every day that allow more interaction. However, here I'm speaking specifically about RSS, and the current state of feedreaders. Before my discovery of RSS and feeds, I bookmarked blogs that I found interesting, and pulled them up in a set of firefox tabs every day. I read the posts, which usually were directly followed by the comments, and the form to add my own. I would say that I usually posted 1 comment a day back then, and I read comments on most posts.

Ever since switching to a feedreader however, I pretty much just read what's in front of me. That one extra click to actually go the page and scroll down to the comments has drastically reduced the number of comments that I read or write. As a result, I'm once again moving to the producer/consumer relationship with most of my feeds, rather than the conversational relationship I enjoyed earlier. Tom Evslin has made some autolinks at the bottom of each of his posts, which have made it slightly easier , but few people will go through what he did to get them into place.

In conclusion, I don't intend this to be a list of reasons why companies mentioned above will fail, but rather a set of opportunities for the right firms to address to create new businesses or competitive advantages.

Not all data is created equal

2005-08-23T18:07:00.000-04:00

It's been a long time since I've fallen in love with a new web service as quickly as Pandora. I saw a blurb about the site on TechCrunch, and managed to grab one of Michael Arrington's first invites. Although I'm not a music junkie, it seemed intriguing - providing customized music streams based on computer analysis of songs you liked. To be honest, I thought that I'd be more interested in how they classified the songs than in what music they showed me.

Boy was I wrong! I quickly set up a station based on Madonna (my single favorite artist), and started listening. At first, it pulled a range of songs, and I'd say I really enjoyed about 30-40% of them. Still not bad, but nothing I couldn't find from the right radio station. However, after giving feedback on about 15 songs that I especially liked or disliked, that hit rate quickly increased to 70-80%! But more importantly, it wasn't just songs I already knew I liked - I found at least 3 or 4 artists I had never heard of, and that I really enjoyed. (For those who want to snicker about how out of the music scene I am, or about my musical tastes, the artists were "Katy Rose", "Alice Deejay", "Saint Etienne", and "Le Tigre".)

About the same time, I was thinking about trying out a new RSS reader site - Pluck. I went ahead and registered, but when the time came to enter my RSS feeds, I thought about manually re-entering the 60 or so feeds I have in Bloglines, and I completely gave up on the idea. I searched for a few minutes, but I didn't find any way that I could export a list of feeds that I have configured in Bloglines, and that really upset me. After all, it was MY data, I put that list together, why shouldn't I be able to export it out, and take it to another RSS reader?

This frustration was reflected in rule #5 on Charlie O'Donnell's 10 Steps to a Hugely Successful Web 2.0 Company - "Don't hold users against their will". As I was stewing about this cardinal Web 2.0 sin and rating more songs on Pandora, I realized that I have a double standard about my data. I don't expect Pandora to export my ratings that I give on their service. In fact, there's a lot of data out there that I generate, but I don't mind that I can't export. My buying history on Amazon for example, or even the recommendations that I give to books and movies I've seen before. When I gave up on Netflix, I had probably rated over 500 movies, but I never felt upset that they didn't let me export that.

My connections on LinkedIn and my newsfeeds on Bloglines, however, fall into a category that I do expect access to - even if I want to take it to a competitor. LinkedIn finally started allowing vCard exports recently, so I guess I'll lay off of them, but this duality made me start wondering - where is the line? Under what circumstances is it a given that you HAVE to give access to your user's data, and when is okay to keep it proprietary?

My conclusion was that it depends on whether the data was a one-party contribution, or the result of a "conversation". On bloglines, I found the feeds myself, and added them to my list. Since it was my own contribution, I want to be able to take it with me. However, with Netflix and now Pandora, they presented me with items that I responded to with a rating. Since this data was the result of interaction between the service and me, I don't feel bad about leaving it behind when I leave.

I'd love to hear others' thoughts on this - do you segregate your expectations for data accessibility depending on how it was created?

P.S. In case anyone else wants to try out Pandora, email me at llamaatinamedotcom. The service itself is great, and after emailing them with a new feature suggestion, I got an email back within hours saying that they were already working on it!

Reader's Logic

2005-08-12T10:01:00.000-04:00

When dealing with busy readers, always put your biggest points up front. When writing an executive summary for a business plan, the concept and how it makes money should be the first two lines, and certainly no later than the first paragraph. As they say in journalism, "Don't bury the lede!" It's important because busy readers will only listen to your justification IF they find the assertion itself interesting. They won't wait around to see if your idea was worth the wait.

The idea of pitching your idea first, and then providing the supporting information is called reader's logic. Conversely, writing through a thought process, and leading the reader to a conclusion, is called writer's logic. Reader's logic is most often found in good business writing and journalism, while writer's logic is prevalent in engineering and the sciences. You can see that the areas where reader's logic is more widely used are those that cover a wider array of topics - as such it's important to let the reader know what the main idea is up front - and let them decide whether to invest the time to read further.

However, this isn't a magic bullet, and it does come at a cost. Reader's logic doesn't allow you to draw the reader in as much, or engage them as deeply. For that reason, most of my posts on this blog use writer's logic. This style also makes it much harder to present ideas that the reader will view skeptically - since the ideas are up front, you have no time to "ease" the reader over to your point of view.

So, whether your reader is a busy VC that gets dozens of business plans every week, or a harried TA trying to grade 50 papers during finals week, make sure to get your most important points across using reader's logic.

This post is a rewrite of an older one, designed to illustrate the differences between these two styles of writing.

Update: As usual, Seth Godin says it better than I ever could.

Writer's Logic

2005-08-09T18:50:00.000-04:00

Another week of finals has come and gone at Stern, and with it, a pile of papers to grade in negotiations. As I worked through this pile last week and over the weekend, I finally understood the daunting challenge that faces most VC's. I was grading 50 papers that were all on the same topic, and I knew what information I was looking for. Nevertheless, after the first couple of papers, it became difficult to read the papers, and finding the concepts I was looking for became harder and harder.

Compare this with a VC that gets dozens of business plans every week. Unlike my papers, each one of these is on a different topic, although presumably still within the VC's area of expertise. How much harder must it be to read through all of these plans (actually just the executive summaries), and come away with some sense of what is worth pursuing. No wonder most VC's send cold-call plans to the inbox in the corner!

This realization helped me finally internalize the difference between writer's logic and reader's logic. This was a concept that I first encountered in my business communication class. An engineer by training, I had always had it drilled in to me that you never put forth an unsupported assertion in your writing. Good papers were those that allowed the reader to follow the writer's path, and eventually, after all the evidence had been presented, would draw a conclusion. This had always been, and to a large extent, still is, my primary writing style.

To a large extent, I write in this style on this blog. I believe that writer's logic engages the reader more at a deeper level, and is more in synch with the idea of a blog being a conversation rather than a sales pitch or a news source. However, this style is a luxury that one can only afford if the reader has the time and energy to devote to the reading.

In cases where the reader doesn't have those resources, a more direct approach, or reader's logic, is required. This method, which presents the biggest idea up front, is used extensively in journalism. In fact, one of the best known admonitions to new writers is "Don't bury the lede!" This style allows the reader to get the main gist immediately, and only continue on to the supporting logic if they are interested. Its a lot like seeing pictures of a beach before deciding whether or not to drive there - is the destination worth the journey.

When trying to reach busy readers - executives, customers, or investors - this approach works best (provided of course, that you have a destination worth visiting). It can't make someone interested in a bad idea, but it makes sure that you have a shot of being listened to, before you are consigned to the trash heap.

In practical terms, what does this mean? Too many of the executive summaries I've seen on business plans start out with a comprehensive industry overview, and descriptions of all the trends currently leading to their idea. All of this is important information, but if your idea and the problem it fixes comes halfway down the first page (or worse, on the second page) because of it, you've greatly reduced your chances of reaching your audience. So make sure you lead off with your biggest idea, and let the reader decide if he wants to visit.

For those of you who made it to the end of this post - yes, I realize that even this post is written in writer's logic - thus the heading. I'm going to try and write substantively the same post tomorrow in reader's logic, just to show the difference.

What balance?

2005-07-27T08:08:00.000-04:00

Disclaimer: All references to success in the following post refer only to professional/financial success. Obviously, there are several ways to be successful in life, many of which do not come with financial rewards.

Two of my favorite bloggers, Fred Wilson and Brad Feld, weigh in on the concept of work/life balance this week. Now, I don't know either of them, but each of them is a GP at a VC fund, which is no easy thing. They also speak about their families in their blog, especially Fred, and even through their posts, it's obvious that their families are important parts of their lives.

So, successful, with strong families - these two must have it all figured out right? Well, looking at their narratives, maybe that's not the whole story.

Brad reminisces:

I started my first company when I was 19 and in college at MIT. I was obsessive, worked incredibly hard, and - while I generally had a lot of fun - was almost always maxed out. This manifested itself in many ways, including always being overcommitted, regularly being exhausted, having a failed marriage when I was 24, and physically changing - according to one of my best friends - from "skinny Brad" to FOB ("fat older Brad").

During this time, I was very successful at the work I did. I created a company - Feld Technologies - which was acquired by a public company. I helped start and/or finance a number of other companies which went on to be acquired or go public. I helped create a venture capital firm. I was well known and respected within the entrepreneurial community - both for what I had accomplished and what I was working on.

In a similar vein, Fred says:

Although I didn't know it at the time, it was an issue that I was really struggling with, having just started Flatiron, wanting badly to prove myself to my partners and investors, and also struggling with a family - three young kids and a wife.

Both of these posts follow a pattern I've seen in every discussion of work/life balance. A successful executive talks about how they were completely driven and single-minded for a long time, had varying degrees of difficulties in their personal life, and then finally came to the realization that they needed to have more balance in their life. While this always makes for an inspiring story, the one part that is never mentioned is how much of their professional success was a direct result of their single-minded focus.

For better or worse, we are often judged professionally, not only on how much we have accomplished, but by how quickly we have accomplished it. This problem is only exacerbated by the fact that it is much harder to prove oneself at the beginning of a career, than to maintain a developed reputation. By no means am I saying that either one of them is "coasting" on their reputation, but both of these men have achieved a certain professional status. With that status comes the expectation, at least from most people, that these guys know what they are talking about. In most cases, meeting, or even exceeding these positive expectations does not require the type of all-consuming dedication that building that reputation in the first place does.

The simple fact is, some things are hard, and require a 100% commitment. To be the most successful in several fields, this kind of focus is a pre-requisite, at least early in your career. This kind of commitment is not limited to the business world - sports, acting, music - all require a single-minded focus (not to mention a little luck) to rise to the top. I say this, not to denigrate the importance of family or a personal life, but to highlight the reality of the situation - balancing a personal life with a career will inevitably lead to forgoing some advancement in the latter. Whether or not this is a worthwhile cost/benefit, is something that each person has to decide for themselves, but I think it's important to acknowledge that "Balance" is sometimes about choosing between the two, and not just a matter of juggling better to have it all.

If I could ask Brad and Fred a question it would be - do you think you would have risen to GP as quickly had you had more balance in your life early in your career? Looking back, would you have been willing to delay that accomplishment by 5 years to have more balance? How about 10 years? Would you have been willing to pursue another (presumably less interesting) career altogether, if that is what it took to achieve the balance you have now?

Textiles, Steel... IT?

2005-07-19T02:49:00.000-04:00

Just got back from India yesterday, and I have a couple of observations to post about. As I find time over the next few days, I'll write about some of the things I noticed in Bangalore while visiting. All of these observations are based on anecdotal information, as I was there for a wedding, not research.

The first thing that struck me on my trip were two conversations I had within the first 48 hours. The first was with an old colleague in Singapore during my day-long layover, and the second with a relative of mine in Bangalore.

In Singapore, we were talking about how much the attitude of Singapore has changed recently. I mentioned that there seemed to be a much bigger push towards entrepreneurship and strategic management, visible even to a casual tourist, than I saw when I worked there a few years ago. The front display of every bookstore was dedicated to their bestsellers, but those best sellers were not by Crichton, Grisham, or Rowling - Instead, they were by Welch, Gladwell, Covey, etc. Tellingly, I went to 5 bookstores in the city, and EVERY ONE of them was sold out of "The World is Flat" by Thomas Friedman.

Naively, I believed this push was because Singaporeans felt they could benefit greatly from the more globalized economy. My colleague was kind enough to disabuse me of that notion quickly. It seems there's actually a sense of quiet dismay among the country's labor force. Many of the jobs that came to the country only over the past couple of decades are now being moved off shore.

Just a day later, I had arrived in Bangalore, meeting relatives I hadn't seen in 20 years, if ever. One of my distant cousins and I were chatting, and I found out that he recently started working at Siemens. He mentioned that he had been there for only 3 months, but was excited as he had moved from being a developer to more of an architect role. As we talked more, I found out that the reason he originally had to move was because the company he had previously worked for had relocated to Northern India. Apparently, competition for good developers had driven rates too high in Bangalore, and there were better opportunities elsewhere in India. What struck me most however, was what he said about the move. "We did all the hard work bringing it here. After that, moving it somewhere else was easy." The move from having an on-site, integrated development team in California, to an off-shored, spec driven development team in Bangalore is difficult. Processes have to be put in place, communications have to be improved, etc. However, once all of these have been set up, the move from having that off-shored development done in Bangalore to having it done somewhere even cheaper is much easier.

What does this mean? Well, for the foreseeable future, there will always be a oversupply of well educated people around the globe, who can do basic development work. That means even the "low cost" centers that exist now, will soon face pressures similar to what we see here now. Singapore, which was built on the back of outsourced manufacturing as it grew, is slowly seeing that pressure, as there are still high switching costs to moving a plant. Bangalore however, built on the information economy, is seeing these pressures arise only 5-8 years after really getting started!

Most industrialized nations today shared a few key development points. Textile and steel are two traditional examples of industries that most countries develop at some point. The theory is that these are industries that help a country develop the infrastructure and basic skill set to allow for the next level of advancement. However, the basic nature of these industries also means that they face competitive nature more rapidly than others, as evidenced by the state of American textile and steel today. IT development looks to be the next of these fundamental industries - a traveling aid for developing economies, not a viable final destination.

How flat is the world?

2005-07-05T21:45:00.000-04:00

I'm off to India for a couple of weeks (I have a family wedding in Bangalore), so I'm looking forward to visiting. I'm a 'Bama boy born and bred, but I always enjoyed visiting the "motherland", and since this is my first time going as an adult, I'm interested to see how different the experience is.

Before I leave though, I wanted to put down some thoughts I had following a VC networking reception I went to last week. I don't want to mention the fund by name, but basically, they would like to be the VC fund of choice for American entrepreneurs of middle eastern origin - specifically for business models built on the idea of outsourcing "intellectual" work to the middle east. They want to set up the region as the destination of choice for research and engineering design outsourcing, claiming that India and China are both set up for low skill/low wage outsourcing, and so will not be competitors in the area.

Obviously, key concerns with dealing with the region are stability, infrastructure, talent pool, etc. Unfortunately, their answer to any question in this area was "Dubai". They acknowledged the problems, but seemed to think that everything could be solved by locating in Dubai. However, this seemed at odds with their value proposition - that being able to tie into the ENTIRE region was how their fund could add value.

Another related topic that I was skeptical on was their ability to brand the entire North Africa, Middle East and Pakistan region as a unified whole. In all of their comparisons, they related this region to India, Israel, or China - their models on how to break into a new area. They talked about how each of these regions had groups that came to America and grew into the first generation of entrepreneurs, which then led them to build out industrial bases in their home countries. They are counting on the same level of national affinity among MENA-Americans to locate their offshoring in the middle east. However, unlike India, or China, the multi-national nature of MENA may pose a problem. Since they want to locate everything in Dubai, but recruit entrepreneurs from the entire region, I'm not sure how big an advantage they will have when it come to an entrepreneur from, say, Tunisia.

One last note - they made it clear over and over that they don't want to compete on a cost basis with China/India, but that the middle east is still "50% as expensive as Silicon Valley". Now, I didn't see exact numbers, but if they are using the 50% discount from SV as a selling point, that would seem like a tough sell, since there are probably several cities in the US itself where engineering talent could be had for close to that level, with much less hassle.

In general, I've seen plenty of presentations, articles, and conversations talking about "XXX" will be the next India or China. Invariably, XXX is some arbitrary compilation of geographic/political entities needed to support a big enough base to make a comparable number of entrepreneurs, faculty, or engineers to India or China. However, no matter how much technology has lowered barriers between cultures, the fact is a group of nations that happen to border one another will never enjoy the same economies of scale that you can accomplish within a unified, relatively homogeneous nation, such as India or China. In both of these countries, a big push to their growth was their national government's investment in education, and later, in infrastructure. Finding a larger group of countries that can coordinate well enough to replicate this is a daunting challenge. While the world may be flattening, there are still some hills at the borders.

Nano-corps?

2005-06-30T12:21:00.000-04:00

I had a great breakfast meeting this morning with someone who works extensively with the angel investor community here in NYC. Although the focus of our conversation was NYU's hosting of the 2006 Northeast Regional VCIC Competition, we talked a bit about the role of angels and how that role may grow in the future, because of lower start-up hurdles.

Fortunately for, me I had just read Joe Kraus' post - Bnoopy: It’s a great time to be an entrepreneur. Joe gives several great reasons for why starting a web 2.0 company is so much cheaper than one just 8 years ago. He mentions cheaper hardware, software, labor and marketing as key reasons.

Jeff Clavier looks more at the other side of the equation, adding that you can monetize niche markets better than ever before through advertising.

One other driver that I think is important is that it is now possible to add value in smaller doses than ever before. With the infrastructure of web services and interoperability on the web, someone can add value with just one layer of code. Housingmaps is a great example of this - 10, or even 5 years ago, no one could add value by tying together two easily exposed interfaces (in this case Craigslist and Google maps). While no one is going to become the next googlionaire off one of these ideas, they'll probably be great at providing a stable cash flow. And if a serial entrepreneur can build enough of these into a portfolio, that can add up to a pretty nice life.

Web 1.0 made it possible for the little guy to compete with the big chains - but most of what really succeeded were the little guys who were able to grow quickly. This time around, we have enough infrastructure for entrepreneurs to succeed even if they decide to stay little.

Signaling vs. Motivating

2005-06-28T07:22:00.000-04:00

The end of the semester is always a crazy time. The last couple of weeks have been no exception, as I've had final projects and finals, and plenty of papers to grade. However, in the midst of all this chaos, several of my friends and I were able to get together for a wonderful evening of dinner and discussion about the book "Coopetition". We were also fortunate enough to have one of the authors, Adam Brandenburger, join us for the evening. I've had the pleasure of working as the Professor's teaching assistant, and can say that he is easily one of the nicest and most intelligent people I've ever met.

Our group was comprised of several part-time students like myself, so we were able to discuss the concepts of the book as it related to our various industries and areas of expertise, and we had a number of very stimulating exchanges. I hope to talk more about some of these in the future, but I'm still working my way through most of them.

For those who are not familiar with the book, "Coopetition" discusses the concept of the value net, explaining how various players interact with one another, including a new (at the time) type of player - the complementor. It then moves on to discuss the application of game theory to business strategy, presenting a framework of PARTS (Players, Added Value, Rules, Tactics, and Scope). One exchange that I found particularly interesting came up when we were discussing the "Tactics" section. As an example, the authors describe their thoughts on how to negotiate on their own book deal, and the conflicting interests that shaped their position. On one hand, they wished to signal their confidence in their book idea. To signal this, they considered taking a higher royalty with a low guaranteed advance. However, they also wanted to make sure their publisher was committed to the book as well, so it would be motivated to properly market the book. As such, they felt a large advance and a smaller royalty would better align their interests with the publisher.

This seems to be a similar to the conundrum faced by most VCs and entrepreneurs when settling on terms. Entrepreneurs need to signal their confidence in their plans, and VCs have to protect their investments - both of these lead to terms such as liquidation preferences. However, these protections, by their nature, affect the motivations of both the VC and the entrepreneur. An extreme example of this is a contingent valuation, where the entrepreneur and VC agree on an initially high valuation, with penalty clauses that allow the VC to acquire more of the company if certain benchmarks (like sales or profits) are not met. Agreeing to such a deal is often a sign of an entrepreneur who is sure that he/she can meet their rosy projections. However, in a perverse twist, the VC now has a financial motivation to delay the success of the company for a time, to get more of the company.

Now this is a greatly simplified example that ignores the fact that VC that actually did exhibit this sort of behavior would soon have no deals at all. But there should be a way to remove even this level of conflict, so that both interests of signaling and motivation can be addressed. One possible example? An escrow of the "contingent shares", which does not transfer to the partner in case the numbers are not met, but are only released if the entrepreneur agrees that the VC made all reasonable attempts to assist in making those numbers. If the two parties cannot agree, the shares would revert to a neutral third party (perhaps some sort of charity). In this way, the entrepreneur does get the incentive to project reasonably, since he/she loses part of the company if they don't hit their projections, but the VC has all incentives to "sandbag" removed. In this way, the conflict - between the desire to signal your confidence and to properly motivate your partner - is removed.

Underneath it all

2005-06-15T11:23:00.000-04:00

I'm up to my ears in preparation memo's that I have to grade for the negotiations class I TA at Stern. The assignment was to review a case (from the excellent people at the Dispute Resolution Research Center), and to write a 3-5 page paper on how one would prepare for the negotiation.

The students that are writing these papers have had 12 hours of class already, most of which focused on integrative bargaining, or "expanding the pie". The number one method we discussed on how to create more value was to focus on the interests, rather than the positions, that the parties bring to a negotiating table. Our professor gave a simple example to illustrate this concept. She and her husband had a disagreement about where to go to dinner - she really wanted to go to Cafe Spice, while he wanted to go to Nobu. Students had to figure out a way to make both of them happy.

Well, I have to admit, people came up with some inventive suggestions: "Go home, and each order take out from different places", "Meet up after dinner", "Have dinner at one place and dessert at the other". However, it took several minutes before a student thought to ask - "Why did you want to go to Cafe Spice, and why did he want Nobu?". The answer, which made the solution much easier was, "I wanted somewhere close to school, and he wanted a nice sit down sushi dinner". Well, at that point, the answer was obvious - Japonica, a nice sushi place just around the corner from Cafe Spice.

A simple yet powerful concept, right? But it is amazing how hard it is to recast your thinking to allow for the probing that is required to do this kind of value creation. The most important step is to listen carefully. Despite having heard about this for the first four classes, many students still wrote the paper based on achieving the positions set out in the case, not satisfying the underlying interests. People display this behavior all the time (myself included), focusing on "winning" based on hitting their numbers or having the other party cave in. However, a lot of the time these "winners" could have achieved even better results by listening carefully.

I think the same skill set that allows for interest-based negotiating can be used in product development and marketing. While market driven product development is important, this has to be tempered with a questioning of the underlying needs. If a customer requests widget x on screen y, a responsive company may have a new build out the next week with that exact widget. However, an interest-based company will work with the customer to figure out WHY they want widget x.

Now this isn't license for companies to respond "you don't really want that". I've heard that as a customer before, and it's incredibly frustrating. "Can you explain why you want that? Maybe we can figure out another approach." is a much more satisfying response, and engages the customer's efforts in improving your own product.

It isn't easy to do, but I think the benefits are great if you can turn your development team into an "interest-based" organization.

A Virtual Elevator

2005-06-13T12:23:00.000-04:00

Last week, I had a post about how much easier it was to capture someone's attention using a new medium.- in that post, the medium was blogging. Well, over the weekend, it seems that has already become passe. Instead, the newest thing is getting your "elevator pitch" onto a VC's ipod via del.icio.us, feedburner, and podcasting.

This new idea was the result of Fred Wilson's post on how to set up a feed to auto-download to your ipod. As a music buff, he asked his reader's to tag songs that they thought he'd be interested in, but it only took a day or two for an entrepreneur to figure out that access to a VC's ears was a valuable opportunity, that shouldn't be wasted. So instead of tagging a new song, Eric, the CTO at Feedburner, recorded his elevator pitch, and put it in the queue.

Fred liked the idea so much, he went ahead and set up a new tag, "fred'selevatorpitch" just for this type of idea. And much like any good idea, it was soon copied by David Hornik ("ventureblogpitch") and Rick Segal ("rick'svcpitch"). So, a great chance to get your company in front of three VC's, something that previously may have taken weeks or even months.

Another thing I realized while browsing the tags above - del.icio.us is another way to screen your VC's. For instance - looking at Fred's account, you can see a lot of what he bookmarks is related to tagging, rss, or blogs. This starts to give you some insight into the types of technologies and markets he's interested in. Obviously, as a prolific blogger, you could get a lot of this out of his posts, but one thing I saw when browsing his tags was the "ajax" tab. So although he hasn't mentioned it specifically, you could draw the conclusion that he'd be interested in pitches that talk about making web sites more user-friendly with rich interaction.

The positive side of this is that entrepreneurs can learn more about VC's before spending time trying to pitch to them. It's not as good as the conversations that happen in blogs, but for a VC that doesn't have the inclination to post everyday, its an easy way to show the things that they are currently interested in.

The short distance between two points...

2005-06-09T09:52:00.000-04:00

is through a new medium. At least, that's according to Mark Pincus, who has a post based on a email exchange we had yesterday. (I even get a nice reference as a "smart kid")

with the introduction of every new communication medium comes a short window to more easily get the attention of influential people. when email first came out and then instant messaging i was surprised how easily i could get to ceo's playing with the new medium (but not yet getting a lot of incoming msgs) where today it's impossible even to get people you know.

This came about because I mentioned Mark in yesterday's post, and he found my entry through a technorati search. To some extent, a blog is a much more public way of doing this than the email/im channels Mark mentions, but that also means you can grab people's attention just by talking about things that they are interested in, rather than having to mention them by name. For instance, another VC blogger I read has two portfolio companies - del.icio.us and Return Path. Both are interesting services that try to help us manage the overwhelming amounts of information we see and create on the net. Without ever mentioning him by name, I've now created a post that he may see if he watches for new mentions of his companies (I'll see if I get a hit based on these and post later if I do).

However, the reason Mark and I had a conversation over such a mundane activity, as him reading my blog, is a little more interesting. His post yesterday mentioned he was in Hawaii, and when I looked over my statcounter logs yesterday (yes, I have developed an addiction to seeing how many people are reading these posts), I saw a hit from an IP in Hawaii, with the referring page being a technorati search for "Mark Pincus". If it hadn't been Hawaii, or if I hadn't read his post within a minute of looking at my logs, I probably wouldn't have noticed, but as it was, I was able to put two and two together and figure out that he had searched on his own name, and had read my blog when it showed up in that search.

As Mark mentions, this is probably a short-lived phenomena, and it's probably already too late for some people. A technorati search for "Bill Gates" for instance, returns over 10 pages of hits from just the past 24 hours. But given the somewhat more intimate world of Venture Capital, it still might be a useful tool for a while. A search for "John Doerr" still reaches back over 2 weeks on the first page of results. (In fact, that may come to be a new buzz metric - how far back does your first page of results go. The shorter the time, the more buzz worthy you are right now).

And just for the record, a search for "Keshava Dasarathy" returns nothing right now.

Next up - VC's offshored

2005-06-08T13:53:00.000-04:00

Well, perhaps we are not quite at that point yet, but there have been several conversations lately about how the VC industry is changing, along with the general private equity market. Bill Burnham talks about how competitive advantages based on dealflow are extinct (except for the top handful of firms), while Fred Wilson agrees that thesis driven investing has helped Union Square Ventures go out and proactively find the right companies, rather than waiting for them to come to them.

Similarly, Paul Kedrosky talks about the end of geography as a factor in venture investing. This seems a natural outgrowth of a paper by Josh Lerner, which came to the conclusion (among many others) that endowments seem to do better when investing in VC's across the country, not just in the same state.

Finally, Mark Pincus takes it one step further, suggesting that a time may come when VC's and entrepreneurs may cease to be distinct identities. Instead, VC's would simply find a market opportunity they are interested in, and create a team to address it. This in fact, is exactly what a senior partner at Warburg Pincus mentioned as one of their approaches in a talk to my Venture Capital class a few months ago. In this same talk, he mentioned how Warburg Pincus was realizing that the PE market has significant economies of scale, explaining the several new mega-funds being raised recently.

These are all indicators of an industry maturing. Another indicator is the persistent and growing gap between the top funds and the rest. Much like consolidation in a manufacturing industry allows the top few firms to pull away from the pack, it seems that the top VC firms are increasing their lead on the also-rans.

As a VC aspirant without a great deal of financial background, but strong experience in technology, this gives me hope. Another investor I spoke to recently mentioned that the finance side of venture investing is now commoditized - it's really the value added services that will differentiate firms going forward. And since it's here that I think I have to most to offer, such a shift in the venture industry can only be a good thing.

Update: In an great example of how blogs allows for greater communication, I just saw that Daniel Primack mentions one of the points above virtually verbatim today. I don't want to make too big a deal about the coincidence, but it shows how much more access people outside the industry have now. In the past, there's no way that and outsider like myself could end up with even close to the same information as someone as well connected as him - but now, because of more conversations taking place, we can connect at least two of the same dots at the same time.

VCIC @ Stern!

2005-06-06T17:52:00.000-04:00

I'm really excited - I found out on Friday that Stern will be the host of the Northeast Regional for the 2006 Venture Capital Investment Competition (VCIC) on March 9-11th, 2006. I'll be organizing the regional, and even though it's almost a year away, there's a lot to be done by then.

The VCIC is basically the exact opposite of your standard business plan competition. Instead of student teams coming up with business plans and pitching them, the student teams play the roles of Venture Capitalists instead. The night before the competition begins, each team is given 4-5 business plans from real-life entrepreneurs. They then have twelve frantic, caffeine-laced hours to do all the background research they can on the various plans.

The next day, all of the teams have a chance to listen to the entrepreneurs give their funding pitches, and get a few minutes for Q&A. Then, there's another long night, as the teams do as much due diligence as they can. They also have to come to a decision on which opportunities they would fund. Finally, for those they would fund, they have to create term sheets.

The next day, the teams have to present their funding decisions and term sheets to the panel of VC judges. These judges examine the teams' rationale, as well as the final term sheets to award a winner. The entrepreneur's also vote for the team they felt asked the best questions.

Needless to say, a competition such as this relies a lot on the judges and entrepreneurs that are involved. The judges listen to the entrepreneur presentations, monitor the Q&A sessions, and evaluate the final team presentations. They also provide feedback to the entrepreneurs and the teams. This feedback is just as important as their actual judging role.

It's also critical to get a good cross section of companies, from different stages and industries. More importantly however, the companies need to be well developed concepts. The more refined a plan, the easier it is to differentiate between the teams that evaluate it.

What's in it for the judges and entrepreneurs? For the entrepreneurs, it's a chance to present in front of several accomplished venture capitalists, and to get more feedback than typical. Several companies have gone on to get significant funding after presenting at a VCIC.

For the judges, its a chance to see several new companies, most of which will have been referred by one of their colleagues. More than anything though, they get the opportunity to mentor and guide several of the brightest business school students interested in their industry.

If you would be interested in being a presenting company or judge, or would like more information on the competition, please email me at kbd222 at stern dot nyu dot edu.

You can't take it with you

2005-06-03T10:46:00.000-04:00

Charlie O'Donnell has a posting up today talking about networking sites like LinkedIn, and giving some great advice to the company:

Too Many ^$%#ing Profiles

As far as I'm concerned, LinkedIn, at least for all this professional stuff, is far and away the best answer. Their site is extremely professional. Their set of permissions based contacting prevents me or my network from being spammed. That's my favorite profile, but it doesn't solve half my profiling and networking issues. I can't take that profile anywhere and use it for anything, nor can anyone else use it to really solve their member database issues. Everything about LinkedIn has to be done on the LinkedIn.com site. So, people see it as Y.A.F.P. when they already have enough trouble managing all of their member database and profile data everywhere else.

I agree - LinkedIn is by far the best networking site out there - But I've found that I still have a couple of major issues with it.

1. I haven't figured out how to attach my own notes about people. I try to keep notes on where/when I met people, as well as something we talked about at that first meeting. Right now, I have that all in my Palm contact notes, but it would be a lot easier if I could have access to those at Linked In.

2. Synching. I use Palm's desktop software as my primary contact management. For me, the most valuable features are the pictures and the notes that you can keep on each contact. However, as I grow my networks on LinkedIn, its frustrating that I have to re-enter information manually. Any time I have to type the same info more than once, it means that some company is missing an opportunity to make my life easier. LinkedIn has provided a tool to import contacts from any contact tool, why can't they allow you to synch up? I know that a standard "export" is probably not coming anytime soon, since that would make it easier for people to switch networks if a competing service arose. But a Palm conduit to synch up new contacts shouldn't be too hard to come up with, should it?

Overall, this is a big problem I have with a lot of the PIM service sites. LinkedIn (contacts), Trumba (events), Gmail (email) - each of these is really good at what it does, but they all prevent me from being able to synch up this same information and take it with me. Because of that, I end up either a) using competing services that are not as feature rich, but allow me to use my data more efficiently (yahoo has an online calendar that can synch with my palm), or b) forgoing either web or palm access to the information.

BTW - I highly recommend Charlie's other blog, Success Blogging, for any aspiring bloggers. I read it before starting this one a few weeks ago, and it was a great resource for a lot of the initial questions I had. I especially recommend the post "Week One Thoughts and Assignments".

Markets vs. Technologies

2005-05-31T19:08:00.000-04:00

During the irrational days of internet bubble 1.0, I had started a software company along with a college friend. Looking back now, I realize that I made a number of mistakes. I learned a lot from that experience though, and I think the most important lesson I took away from it is that markets are not the same as technologies.

Like many entrepreneurs at the time, I was a technical geek, and loved any exciting new technology. My mistake however, lay in thinking that people would pay money for a product just because it was exciting and new. In hindsight, it seems like an obvious mistake - with the exception of a very few technophiles, people don't pay for technology, they pay for convenience. Customers only care about the technology to the extent that it allows them to solve problems better, faster, or cheaper than before.

Our company, along with several others during the bubble, fell into the trap that technology is all it took to build a company. We focused on how to solve a problem, rather than looking at what problems to solve. Since then, I've had this idea repeatedly stressed, not only in my readings, but also in my entrepreneurship and VC classes at Stern.

But my question is, why didn't I think of this the first time around? I'm a consumer too, so why wasn't my natural inclination to think as a consumer? I should have focused on the problems that I could address, rather than the technology I could use. I think one of the causes was my education and experience at the time I left to start the company. After getting my undergrad degree in Chemical Engineering, I went to work as a consultant at Price Waterhouse, doing SAP implementations. In both my coursework, and then in the first couple of years at work, all my training and evaluation were based on how well I met the requirements presented to me. Problems or requirements were handed down as scripture, and all my effort was spent on the mechanics of figuring out the heat transfer coefficient, or the right sql to generate a report. Not once was I encouraged to ask why these requirements were the right ones.

After my company folded and I went back into consulting, I moved into positions of more responsibility, and a lot of my new responsibilities were to do exactly that - determine what to do, rather than how to do it. I realize that until I had the mechanics of development down, I wasn't qualified to do this job, but I don't know why this need was completely ignored in school and in my first assignments.

Most of my engineering education was about teaching me how to think analytically, not about the specific subjects I learned. That's why I was able to take the problem solving concepts I learned in chemical engineering, and apply them to programming. With this focus on skills rather than facts, it seems really surprising that the program didn't take it one step further, and teach us to question the problems themselves, not just the solutions. This may be a result of many of the professors having been academics their entire careers, and not worrying about the business value of what they were teaching. With all the efforts that schools spend on making sure their graduates succeed, it would be an easy win to make sure that every technical graduate had to take at least one class that stressed this type of thinking.

But even if school could be excused for neglecting this education, I don't understand why companies would not drill this into every new hire's head. Since they make their revenue from solving clients' problems, it only makes sense that they would want every person in the company thinking that way from day one. To this day, I see companies who think that developers don't need to worry about the business needs, just about their code. The most successful companies though, make sure that everyone in the organization knows that they exist to solve client needs, and development avoided is much better than development done quickly.

While simple, this is probably one of the most important lessons I've learned in my career. I know many people who've gone through the same learning process, but who now assume that it's common sense. If you are responsible for the development of someone else - as a teacher, a manager, or a mentor - don't take this skill for granted, and make sure you convey how important it is to focus on needs, not technologies.