Why?

Those are actually pretty different core competencies and there is a lot to do when it comes to building great creative building tools.  Are there not opportunities to license this technology?  Is anyone so extraordinarily focused on solving this problem that they don’t think about anything else?  When I look at what AdReady built several years ago, it has not really evolved.  Is “good enough” acceptable?  Why can’t anyone focus on being best-of-breed in a few key areas any more?  It seems like that would be a good idea.

Maybe the market is not good enough.  People like Sprout, KickApps, and Gigya that started out in this space have since moved on to other things.  But Pointroll got rich and sold out doing this.  Medialets started out as a network and has actually decided to focus just on making great creatives.

The approach of people that want to do a lot of things and have this as a “differentiator”, but not the absolute focus of their business sound like people that are unlikely to win.  Focus, focus, focus.  EOM.

http://lifeinthenhs.files.wordpress.com/2009/02/facebook.jpg

The blogosphere is abuzz, errrr, atwitter, err, atalking (“TALKING – A NEW TOOL FROM MICROSOFT – TALKING IS THE BEST WAY TO TALK TO YOUR FRIENDS!  START TALKING TODAY!  IT IS SO EASY TO START TALKING, A TWO YEAR OLD CAN DO IT!”) about how Facebook wasn’t making any money from Ad Networks and their proprietary self-service ad platform is making all the money.  While I am a believer in self-service advertising………..

I have to say that checking out the trees in this forest is fairly instructive.

First, this data is probably wrong.  Inside Facebook revises the run rate from $150m to $50m because it turns out that the $150m includes Microsoft’s cut.  Is Microsoft really paying out a 33% rev share?  Unlikely.  It is far more likely that Facebook keeps at least double that.

Second, Facebook is courting hard-core DR guys on their self-service platform.  The ads they run are ads that Microsoft would never approve.  Those ads perform better because they are designed to.  Facebook is doing things they would not allow Microsoft to do: run brand-degrading ads that are probably illegal all over their site.  This renders higher CPMs.  True story.

Third and more important, Facebook wants them to fail.  Yeah, you heard me right.  Facebook is the reason why banner ads fail on Facebook.  Why would their self-service ads succeed when their banners fail?  Is there some magical structural difference?  Nope.  The difference is this: When you buy a banner ad impression on Facebook from Microsoft, you get exactly that: 1 impression on Facebook.  When you use the Self-Service platform, you get something a little different: A CPC campaign targeted at a man in Wisconsin who likes cheese and the green bay packers.  Exactly what you wanted.  Facebook is not passing data to advertisers on their banner network so their impressions look like the worst ads on the Internet: non-contextual, brand-unsafe, high-frequency UGC inventory.  The ad that shows there is a speculative guess with respect to performance.  The advertising version of throwing stuff at the wall and seeing if something sticks.  Advertisers have no framework for segmenting the inventory so optimizing it is impossible.  It performs like crap because it is crap.  Microsoft can’t sell that on a CPC.  Without data layered in, it performs too poorly to make money on a CPC.

Facebook is selling advertisers on the self-service platform highly contextualized, highly targeted inventory on a performance basis.  Advertisers like that.  Advertisers want to buy that.  Not high-frequency, nameless, faceless impressions.  End of story.

A few key points stood out to me:

1. Maybe this hints at why so few angel networks seem to work.  Angel networks potentially re-create much of the meeting/diligence overhead of dealing with VCs.  If angels, at the end of a night, stood up and wrote checks and used a standard term sheet like the new Seed Series, people would be so aggressive about pitching angel networks, it would be crazy.  That would change the dynamic for angels.  Now one meeting for the entrepreneur turns into 40 meetings with angels.  Huge value add.  If you have the same circus you had anyway of a bunch of meetings after that, that is less compelling.  Maybe the angel network could announce that they have developed a “True Ventures” formula where they have 3 pre-money valuations they invest at with certain criteria for each tier.  That would be really out of the box thinking.
2. Part of what Ben talks about demonstrates the burden on entrepreneurs.  To close a round with an angel in one or two meetings, you need a pre-existing relationship, a warm introduction, or a god-like aura surrounding you.  Sounds like you really have to work your network for those warm introductions!  (At least I do)

http://www.flickr.com/photos/hi-phi/55911511/

Customer Development, Shmustomer Shememelopment.

Let’s talk about books.  SPIN Selling is the single best book to learn about selling that I have ever read.

Why, you ask?

Here is what I like when I read a self-help business book: Data.  Tell me what you think, but don’t just back it with funny anecdotes, although I love a good anecdote.  Back it with research.  SPIN Selling is the most data driven book on sales techniques I have ever seen.  As the subtitle says, “The best validated sales method available today.  Developed from research studies of 35,000 sales calls.”

I was re-reading it the other day – “Sharpening the Saw” in self-help speak, when I read a chapter and thought, “Oh, this is the data that shows that customer development is the most effective technique for new product development”.   “Oh, this is the part where they tell you that you have to use customer development techniques to sell things to people”.  FYI, SPIN Selling was written in 1988.

Want data?  Hell yeah, you know that Cogblog is committed to data driven posts.

First, let me tell you a little about SPIN Selling, in case you are not familiar with it.  If you are unfamiliar with it, here is what you should do: GO READ THE BOOK.  If you are the kind of person that likes my blog, then you should read the book.  End of story.

Anyway, here is a key summary:

SPIN = Situation, Problem, Implication, Need-Payoff

There are two kinds of sales: simple and complex.  If a sale is a simple sale, then you should master closing techniques and close the hell out of people.  It works.  If a sale is complex and you try a closing technique on people, it actually makes a sale less likely (42% of sales situations by people without training in closing resulted in a sale (2.7 close attempts per sales situation) vs. 33% for people with closing training (4.5 close attempts per sales situation)).

In a simple sale, successful sales have more implied needs expressed than unsuccessful sales.  An implied need is something like, “the system we use today sucks”.  Salespeople eat that up!  But here is a fact: In a larger sale, implied needs do not predict success.  So if you are selling something complex, and you hear about a guys problem, it doesn’t improve your odds of victory.  Explicit needs are the difference.  ”Analysis of 1406 larger sales shows more explicit needs in successful calls”  An explicit need is when a customer goes from saying, “My current thing is bad” to “I need a new thing”.  ”I don’t like how our web app loads pages so slow” needs to become “We need our web pages to load faster”.  There is a huge difference between those two statements when closing a complex sale and helping a customer navigate from an implicit need to an explicit need is what SPIN is about.

Asking a customer about their problems makes no difference in a large sale.  (Huge difference in a small sale.) You can ask a lot of “problem” questions or a little.  Doesn’t matter.  Developing the implications of those problems and the value proposition of that information is what separates the winners from the losers.

They specifically relate this back to new product launches by talking about how most new product launches fail because people are stoked to talk about their great product and its awesome features.  Unless you lead with developing a customers explicit needs (i.e. CUSTOMER DISCOVERY), you are never going to close any business.  I think a big part of the customer development process and how it works effectively is getting out there when you have nothing for sale forces you to spend your time developing implicit needs into explicit needs.  In fact, Blank tells you that the most important part of the initial exercise is getting to Need-Payoff – How much does the implication of this problem impact you monetarily?  How much is it worth to solve it?

Features and benefits and how and when to discuss them is something Customer Development talks about a fair bit.  SPIN Selling gives you the data.  In fact, they break it down even more granularly.  A feature is something the product does.  An “Advantage” is a manner in which the feature helps the customer solve a problem.  A “Benefit” is how a feature of the product solves a problem that the customer has said that they have (An advantage they have actually said they need!).  And what does the data show?  If the customer hasn’t told you that they have the problem, then telling them a “classical benefit” (An advantage in SPIN terms), doesn’t do anything to increase the likelihood of a sale.  You have to have developed the customer and a deep understanding of their problems, the implication of the problems and the value that a solution can have in impacting those problems to close business.  If you give them a true benefit: They say they have a problem, they need a solution, and then you say, “My product does that”, the deal is as good as closed.  Now, that sounds, “Duh”, and I know this, but the point is that if they don’t say, “I need a solution”, you are nowhere.  You have to get them to say that.  Customer Development tells you that, SPIN Selling gives you the data demonstrating that this is the case.

Incidentally, and I love that they studied this, the data shows that asking a personal question (small talk – “How are the kids/weather/knicks/red sox/vacation?”) has no impact on the likelihood of closing the sale.  You can just jump right in to talking about the sales call.  A more comfortable situation due to personal relationship, commonalities, whatever doesn’t bear on the outcome.  If you are awkward and do a nice job developing explicit needs, you get the business.  Good news for an awkward guy like me.

Go forth and help your customer understand how their problems require solutions!

First, let me caveat this with a few things people should know.  I am on the record as saying, “Laying off a few people sounds pretty good.“  I have the bias of coming from the knowledge worker industry and was only part of a really, really big company (Booz Allen Hamilton, 50,000 employees) one time.  And that company was a professional services company, where layoffs, in their most traditional context, don’t really count because staffing up and down to be in-line with supply and demand makes a lot more sense and is easier to do in the context of a professional services company than in a more traditional industry.

First paragraph: He implies that Southwest is now the most successful airline in the U.S. because they decided not to lay people off after 9/11.  Doubt that was actually the case.  I think the strategy Southwest pursued has allowed them to be successful, frequently at the expense of other players in the market.  The result was their layoffs were in many respects as much an effect of their poor strategy as it was 9/11.

Wisely, Mr. Pfeffer points out on the next page that studies are hard to do because the companies that lay people off in an industry are rarely identical to the companies that don’t, but that doesn’t stop him from citing tons of studies that strike me as having a lot of causation-related problems.  Just two paragraphs later, he cites research that says that companies that lay people off have lower stock prices than companies that don’t.  Absent details about the research, this sounds like the Southwest example to me.  Companies laying people off are companies headed in the wrong direction.  He follows that up with a host of what sounds like, frankly, half-truths like companies that lay people off are less profitable.

He cites a situation where a friend of his who was good got laid off.  Bummer.  I mean that in all honesty.  Yet, I find layoffs a great situation to get rid of the bottom few percent of the company.  Sometimes you lose good people – look at AOL – but a small layoff can be great for losing the people that take the fun out of the workplace.  Every layoff I have been a part of, the discussion was always, “Are we cutting fat, or are we cutting muscle?”

Circuit City is another example he uses: They “laid off their 3400 highest paid sales associates.”

“Fewer people with fewer skills in the Circuit City stores permitted competitors such as Best Buy to gain ground, and once the death spiral started, it was hard to stop.”

These events actually occurred in 2007 and at the time, almost no one thought that this was likely to right the ship.  And why is that?  Because Circuit City had started its death spiral nearly four years earlier, in 2003.  This was simply the last gasp of the organization.

I love a good story as much as the next guy, but this charade of “the truth about layoffs” strikes me as wrong-headed.  Given the author’s qualifications, I bet they trimmed about 10,000 words from this article for brevity.

• Zach says that DSPs should have access to billions of impressions per day.  Ad.com had that years ago.  Valueclick was big.  Right Media, theoretically, could have tried to spin around and be a DSP.  One wonders how they let so many new companies enter this gap.
• Zach emphasizes reporting, impression attribution and other features as key aspects of a DSP.  Traditional third-party ad servers are all perceived as excelling in this area.

Certainly, there are features that they did not have, but it seems like extending the product would be easier than building a new product.  I can point to several things that probably made transitioning to this new exchange/DSP world difficult:

• The quarter-to-quarter pressure of publicly traded companies.  The ability to invest to meet new market technologies is frequently limited for large companies.  If you look at exchanges, Right Media was a well-funded private company.  DoubleClick was going nowhere until it went private.  Then it was able to escape some of the quarter to quarter pressure and before you know it, they used Project Wolf to sell themselves at a huge mark-up to Google.
• Legacy architecture.  Sometimes it is simply easier to build from scratch than to build with a legacy code base.  Particularly with the growth of new abstractions for rapidly developing technology such as Ruby on Rails.
• Margin and other business structure limitations.  This is the real killer.  There was a certain expectation for how the relationship worked and breaking new ground was hard.  When people have revenue and profits, sacrificing those if you want to change the structure of the industry is hard.  This is classic Innovator’s Dilemma kind of stuff.  Making an advertiser or publisher think of you differently if they are already a substantial source of revenue is a big risk.

How did the big ad companies of the first half of this century sleep on these new opportunities in the market?  Give me your thoughts.

Putting banner ads on a social networking site was more or less bolting on a scalable advertising system onto a site with massive traffic, regardless of the fit with the product experience.

While I think, at some level, this is certainly true, I also think that Facebook never really tried to make it work.  The reason that their ad platform is better is because they are using their data, but they would never share that data with third parties.  If you wanted relevant ads that performed well on your site, why never share?  For the ad networks they worked with, every impression was the 500th ad some guy has seen on the site and he hasn’t clicked on anything yet and we aren’t optimistic about the future.  Of course the ads they have to show are going to perform poorly.

Just saying…

http://www.uwplatt.edu/web/presentations/ar/heweb09/

The blogosphere is buzzing with the story of how Google is working on building out maps and pictures of the insides of stores now.

Lots of people act like they have no idea what this means, take this quote from Alley Insider:

Stupidest idea ever. Pictures will never do a good merchandising effort justice. The only people who would benefit from the pictures are thieves.

And my first reaction was “will I pull out my phone to find the ‘kids clothes section at Old Navy’”?  But I think this really pushes us towards a future filled with augmented reality meta data.  These pictures are the first step to tagging things inside stores and I can imagine a world where I walk into Walmart, grab my phone and say, “Where are the snow shovels” and it gives me a HUD to guide me there.

They could even throw in specials in the store and be adding additional information to the HUD based on geo-targeting data.

This is the future and if Google owns all that data, that probably puts it in a pretty good place.  Much like the cable monopolies and telco monopolies of the 20th century, once they have covered an area, will it be in anyone else’s best interest to recreate that database?

Very ambitious plan, but an obvious part of the future.  This is a $100 million bet on a multi-billion future.  Google is smart to take advantage of it.

Mark Suster’s article on giving great great group presentations was an interesting read for me, but not too much new stuff.  As most people who know me can testify, things like “show energy, make it unique, keep it simple, learn how to structure, make it visual” all come second-hand.  I am such a good speaker, that I rarely even need to practice!  I don’t mean to brag, but that is simply a fact.  If you average it out, I have probably done a presentation or two per week for more than 20 years now.

But even I can learn a new trick or two from time to time.  And the point I want you to take away from all that bragging in the first paragraph is not I am special – in fact, 50% of all people find my unique presentation style incredibly annoying and off-putting.  It is simply that if I say something is, “Wow”, then it is BIG.  And I want to share with you the single best trick I have learned when it comes to doing a big presentation of your company/product for a large audience.

Who did I learn this from?  Josh Kopelman – marketing uber-demi-god.

This is another example of the tremendous value that a great, active, early stage investor can add.

Anyway, here is the story:

At the inauguaral TechCrunch 50 conference in San Francisco, there were a number of FRC investments launching.  Every company had 5 minutes to get up and do their thing and it had to include a product demo.  The FRC companies were easy to spot.  They had way more polished pitches than everyone else.  And here was the key thing that they did that really stood out:  Their demo’s were videotaped.  The walk-through was incredibly smooth because they were not relying on slow conference internet, there were no typos, there was no confusion over what they were doing, and the speaker and the guy working the keyboard didn’t have to stay in sync.  While a videotaped demo might not seem credible for a demo for 5 people, for a demo for 500 people, it simply minimized the odds that the demo goes off the tracks and because it was just an unedited screencast of the perfect walk-through, you didn’t feel like there was a lot of smoke and mirrors.  It still looked like a real demo.

The result was that no FRC company had problems with time or with their demo gone awry – a statement that could be said about precious few at that conference.  They were on message and consistent with their points.  Every FRC company presentation was outstanding.

Do you think I love First Round too much?  OK, here is some criticism: I have heard that the other members of FRC are not as good as Josh.  And I have heard that Josh is super busy, so you don’t get that much of his time.  And I believe that, although I am good friends with Chris Fralic and have had pleasant exchanges with other FRC people.  If you go read TheFunded.com, you will see a lot of comments about how Josh and Howard are godlike and the rest of the partners are OK.  There you go.  Also, what is with the image map links on Josh’s page to blogs and twitter?  That is not how it is done!  Weak developer work!

The key here is differentiation.  What makes taking money from First Round more appealing to an entrepreneur than taking money from someone else?

Just a few of the things I have seen FRC do:

• Web 2.0 Summit: At the annual Web 2.0 summit hosted by O’Reilly and John Battelle, they had rented out 8 of the 9 conference rooms on the mezzanine level to host breakout sessions.  FRC rented out the 9th and created a room for their investment companies to demo their products.  They served margarita’s one day and popcorn the next.  Every attendee of Web 2.0 passed through that room at some point.  It was in that room that the now semi-legendary MyBlogLog/Yahoo introduction was struck by Josh.
• The First Round CEO Summit: This annual event for companies that First Round invested in is an incredibly popular event that gets incredible press.  Part of what FRC does well is invite next stage investors to participate and build relationships with FRC and their investment companies.  The result is great networking, not just great presentations.
• Now they have rolled out the share exchange program.  Regardless of how you feel about this program, for your average entrepreneur, this is really appealing.  Every investment they have done prior to investing in your seed stage company has credibility that your company does not: They raised money!  The result is that an entrepreneur is essentially offered the chance to trade-up by swapping shares of their company for shares in a larger, more established portfolio of companies at a low price.