Startup Economy

Mobile app marketing is not just about downloads

chris.lee@startupeconomy.com — Wed, 19 Jan 2011 01:42:00 +0000

I was just following an email thread in my Inbox for a friend of mine looking for some thoughts on marketing a mobile app. As I quietly followed a healthy dose of active discussions, I couldn't stop jumping in to make some corrections. For those of you new to the world of mobile app marketing, watch out for these rumors, pitfalls, mistakes, red flags, or whatever you wanna call it that all app marketers should try to avoid.

Speaking from the point of view of paid app marketer.......

It's all about getting the high ranks - Wrong!

Yes, if you're ranking high in the App Store chart, you get the visibility that you only dreamt of, and magic often happens. As Mighty Eagle of Rovio explains, "Being #1 starts doing some magic". If you read between the lines, its starts the magic but doesn't cause the magic to start. Apps rank high because of the well-planned marketing effort, but it starts with the product. Mobile app users are chatty, and word-of-mouth catapults the traction. However, ranking happens as a result and not because.

A small paid advertising campaign to test out the customer funnel, optimize that channel, and maximize the sales.....blah, blah..... - Not quite.

If you're like most of the paid app developers (meaning excluding the in-app purchase or offdeck subscription apps), you don't get many chances to optimize that channel. It's a fight for impulse buy. It's about quality product. It's about capturing that "moment" to convert. In a more traditional SaaS business, you get a number of chances to convert these users to long-term paying customers. For many of the paid apps, there's one (maybe 2-3) chances to convert. This places tremendous pressure on marketers to ensure that the conversion happens early on in the purchase process.

Free apps are obviously different, because it's really about the engagement that makes or breaks a free app. There's no cost to the "buyer". You don't get paid a dime for selling a free app. For socially-driven apps, as long as network effect kicks in at some point in time, you're in good shape. BUT, it's the user engagement.. gotta keep 'em coming back.

As for the in-app marketing... it's a separate topic.

Startup vs. "Big" Company - Pecking Order of Execution

chris.lee@startupeconomy.com — Fri, 14 Jan 2011 03:21:00 +0000

I wrote a post about startup vs. big company a while ago. There, I talked more about politics in startups. Today's post is about something else that may resonate more with the big company types.

For those of you who've never lived the life of startups, here's the thought process to get ideas going.

Ideas to Execution (startup style)

Boss: "We don't have $$, but come up with something awesome."
Peon: "Yes, sir. We'll juice our brains as much as possible to get something going as soon as possible. It's a matter of life or death situation for me."

Ideas to Execution (big company style)

Boss: "Come up with the best idea ever."
Peon: "Yes, sir. We'll talk about it with the teams. What's our budget?"
Boss: "Come up with the idea first. We'll see if we can fund that idea."
Peon: "Yes, sir. What's our budget?"
.........

You get the idea. Neither is a good or bad thing. The pecking order of executing an idea is just different. Budget is already out of the equation (mostly in early-stage company marketing stuff), so the $$ discussion never happens. Ideas make everything happen in startups.

It just takes different personalities to operate under these two different conditions. Trust me. Not having the $$ to make an impact sucks, but it's such a beautiful act of startup life. On the other hand, having a set $$ creates artificial boundaries to think big.

Where do you fit into this picture, dear readers?

Ramen Profitable VCs

chris.lee@startupeconomy.com — Thu, 13 Jan 2011 04:56:00 +0000

Dow Jones reported today that venture capital fund raising at 7-year low. Some people smell VC shakeout and doom, and I call that B.S.

Yes, being in venture capital sucks compared to the good ol' 2004-2007 when the fund size was outrageously oversized. Before 2008, it really was a good life. 10 partners get together, go out to raise a billion dollars, and earn 2-3% management fee. (If you do a simple calculation, this comes out to be a lot of $$) When they hit 1-2 homeruns, they go out again.

It's no secret that the recession beginning in 2008 changed the dynamics of entrepreneurial community. VCs can't raise bigger funds, downsized partnership, and hate the fact that startups require less capital to make pretty awesome outcome. Wait, what? Some people don't like the fact that it's cheaper to run startups? Well, they're not making as big of living as before by making the same # of investments and get underwhelming management fee now.

Look. LPs lost a ton of money during the recession left and right from both public and private equity investment. They hated private equity but weren't able to unload this long-term assets. When PE/VC managers come back in 2008-2009, they said, "Look, things will be better. I want to keep this relationship. Instead of cutting you out for this fund, let me scale back". Money managers nodded, though not so excited about this.

VCs raised smaller funds and can no longer make big investments. Heck, startups are becoming cheaper to run, so why should investors make big investments? Coupled with the rise of super-angels and micro-VCs, the venture investor community go small. After all, startups don't require that much capital anyways. This is a healthy situation. Life is good again.

Many evidences point to the fact that VC shakeout hasn't really happened. Instead of shutting down, they scaled back. They became smaller. Yes, venture fund raising is at rock bottom in terms of capital raised, but there are as many investors and ever more startups making the startup economy engine going. Maybe we'll see ramen profitable VCs?

App Store vs. Internet Boom

chris.lee@startupeconomy.com — Tue, 11 Jan 2011 23:47:00 +0000

Back in the day, when the Internet was just about get introduced to the public, organizing the internet properties to be easily searchable was a horrendous task.

Comes in Yahoo!, and they changed everything. Here's Yahoo! circa 1994. The concept was so revolutionary. Some mastermind academics from Stanford set out to categorize website in a way that's easily navigable. Consumers can now search and find the websites to their likings. Super cool, revolutionary magical, whatever you want to call it. (let's not get into what kinda shithole that this awesome company has gotten into 15 years later. :) )

Fast forward 13 years or so, a tiny company called Apple and its CEO Steve Jobs shamelessly copied this idea, hired a few awesome designers, throw some modern 21st technology behind it, and created something call the App Store.

It started pretty small, but the audacious plagiarism of old 20th century paid off. See the similarities between Yahoo! and App Store? They are all categorized into seemingly random group of things that may match consumers interests. People can not pick their interests, browse, and get the apps that they want.

One innovation that App Store added on top of Yahoo! is the editorial and chart. They showcase the apps that they think are interesting, so they get more visibility.

App Store is gorgeous, and it works well....... most of the time. I'm not trying to trash the App Store or any other app stores for that matter.

The point is that this beautiful looking thing will seem arcane in the near future. As the app economy evolves to be something as big as the web (probably much smaller but much bigger than what the web was over 10 years ago), there's gotta be some other ways to make app discovery easier and faster. Just like Google killed the portal business, there'll be something else. What startups will disrupt this? I don't know, but let the revolution begin.

Android's Most Popular App is Problematic

chris.lee@startupeconomy.com — Fri, 03 Sep 2010 20:28:00 +0000

I have no doubt in my mind that Android will be a successful platform. It already outsold Blackberries, stealing shares from iOS, and mobile companies are jumping all over the Android ecosystem.

With the App Store, Apple brought native app back to life. It's the app world now. When consumers buy an iPhone or iPad, one of the first destinations is to check for interesting apps. Angry Birds, LogMeIn Ignition (yah, shameless plug), Twitter, and Fruit Ninja are all great apps. Great user experience, awesomely fast. In fact, I spend so much time within the apps on mobile devices that browser acts like just another app. I'm pretty convinced that Angry Birds can never be so much fun on a mobile Safari.

There comes a report from Quantcast.

iOS is losing it's browser market share. Android is going up to the right. Bad news for Apple. Not!

If I was Steve, I'd be thinking, "This is awesome. App Store is growing like weed, we're distributing more and more money to developers, and developers are excited to make more apps". As an app developer, Android's upward trends in browser usage makes the Android platform less attractive.

Is this is sign that Android's most popular app (i.e. browser) is problematic?

Thoughts on iAd

chris.lee@startupeconomy.com — Sat, 10 Apr 2010 17:43:00 +0000

I just watched the full video of Apple's latest iPhone OS 4.0 announcements. Most of it seem to be the obvious ones - multitasking, foldering, Mail, etc.

iAd is probably a more controversial announcement. Apple hasn't traditionally been an advertising company until the recent acquisition of Quattro Wireless. For those even remotely interested in digital interactive advertising, iAd really is a game changer. Whether it will be successful or not is a question, but definitely a revolutionary approach to mobile advertising.

Even though many claimed to have done innovative creatives around interactive advertising, I really haven't seen anything close to what Apple demoed in this event. You basically stop what you're doing to interact with.. basically a promotional content.

For free app developers, the only way to monetize on their sweat and effort is by selling advertisements. (actually there are others like sponsorship. Let's get down to those minor categories later) The irony is that all those cool, free apps are stuck with banner ad impressions (okay, what about CPC? Points taken, but it's still static). From the consumer point of view, we can either simply ignore or click the banner to make a purchase. This is a crappy buying experience. The big missing piece here is that banner ads suck at marketing products. They just ask you to get your credit card number out.

This is where iAd comes in. Okay, I'm sold on this cool banner. So, I click into it. Rather than showing me the "Buy Now" button, show me something else. A well-made iAd can be a full-fledged platform to experience the product and brand. The Toy Story example had gaming component, free wallpaper.. things that I can interact with. Yes, there's a "buy now" component, but it's not the only thing in there.

Some iAd opponents argued that this is a stupid idea because people just don't want to stop what they are doing to get into an ad. This is true, because mobile ads really suck now. Think about Super Bowl ads. People expect good stuff, and the value of those ads go up proportionately. If advertisers, as a whole, can serve high-quality experience through iAd, maybe this is something that consumers don't mind giving up leaving the app for an ad.

Of course, whether there'll be good iAds or not is a big hole here. Apple created the platform. Now it's up to advertisers and marketers to make iAd successful.

What's that "+" sign in App Store?

chris.lee@startupeconomy.com — Tue, 06 Apr 2010 00:42:00 +0000

If you are like one of the millions people getting the first look at the App Store this past week, you probably realized that the App Store looks dramatically different now.

My early question about the iPad App Store, "Oh no, do I have to buy another app for my iPad?" This is partly true. Look for the "+" sign. This mean that the app is a "universal binary".

To the ordinary people like me, universal binary means nothing. What it means is that the app would work for both iPhone and iPad, and users get the optimized experience from the same app. Some developers went the route of selling a "HD" or "for iPad" app, requiring the new iPad owners to shell out more for the same app that they own for the iPhone.

For those of you who are more frugal, look for the "+" sign. You'll easily find some developers more kind than others.

Cracking the App Store

chris.lee@startupeconomy.com — Wed, 31 Mar 2010 02:31:00 +0000

Phew, I've been away for a while. For those of you not aware of where I've been since my last post, I've been deep in my neck doing iPhone app marketing. I'm managing the product marketing of LogMeIn Ignition. It's been a blast and challenging experience at the same time.

I spent more time than I ever imagined browsing, trending out, and building models to crack the App Store Code. Yes, I cracked it all.... would be a straight out lie.

What I come to realize is that there are at least thousands of developers and marketers trying to crack the App Store code. It's the out-of-the-box marketing, both on-deck and off-deck integrated marketing of iPhone app to find the customers who buy into the iPhone apps.

In the future, I'll put up some thoughts around what I find interesting about the App Store. For the starter, here they are:

Ranking is not the most important thing. Yes, ranking gives additional visibility. If you're in the top 50, you are in the first page on iPhone App Store. If you're in the top 100, you're placed in iTunes App Store. Think about the cause and effect of ranking? Are you getting boost to sales because of ranking, or is it the other way around?
App Store economy is evolving. It almost feels like I'm back to the 90s when Yahoo! created an internet directory. App Store is just that. It's got its own kinks and will need to improve.

This is a starter.

Thoughts for today - focus on the customers. Not ranking. Not competitors. Just customers!

Thoughts on Winner-Take-All Businesses

chris.lee@startupeconomy.com — Mon, 25 Jan 2010 20:57:00 +0000

Startup Boy pointed out in a recent post that consumer internet is increasingly becoming winner-take-all businesses and that every bit of advantage over competitor means you own the market.

Though his blog makes a case for why you need to be in Silicon Valley, that got me think about the non-compete agreement prevalent in MA. With the non-compete in place, employees can oly jump over ship to unrelated industry and are forced to forego the relevant experience built over time. This seems to be a big inefficiency in loss of productivity especially in the startup community.

What if Google, Facebook, Twitter, and Yahoo are all headquartered in MA? One of the most attractive talents may have worked at Yahoo in the late 90s, Google in early 00s, Facebook after that, and Twitter now. If they were in MA, non-compete clause would've required them to work on something else that they cannot capitalize on previous experience.

Whenever I talk to my buddies in the Valley, they are saying, "We need another Google", "We need another Facebook", etc. while folks elsewhere waste too much time thinking about "how can I keep my guys from working for a competitor?" There's no winner-take-all in this situation.

So the real question is.... could we have built uber-successful consumer internet businesses in lieu of non-compete?

Can VC and entrepreneurs just get along?

chris.lee@startupeconomy.com — Wed, 11 Nov 2009 19:45:00 +0000

I've been thinking about the discontent between entrepreneurs and VCs. The story goes like this:

Entrepreneur (E), VC (V)

E: The venture capital model is dead. I'm working on a hot company that's going to change the world. VCs don't understand my business.
V: What's the correlation between dead VC model and your inability to raise VC money? Bring on the VC-fundable idea and team, and we'll write a check.
E: We have a target market with no competition and great idea.
V: No competition? If it's an attractive market, there's gotta be someone else competing against you in that market. No product? Too early for us.
E: The reason that we are the only one is that it's a $100M market opportunity.
V: $100M market? Too small. Can't justify the investment return in the end.
E: We have a business model and product that can dominate this market.
V: Interesting. Maybe I'm interested.
E: Good. We're looking for VCs with operating experience. We're not going after just money. We want value-adds.
V: I have been investing for 20 years right after MBA. I invested in company A, B, and C all of which exited successfully. My partners have operational experience in your sectors.

and it goes on and on....obviously, overly simplified but the gist should be there.

Who's right and/or wrong? Nobody. But entrepreneurs and VCs make a big fuss about the stuff above.

Can we just get along and stop blaming each other?

There are ideas that are VC-fundable and bootstrapping.
There are successful VCs with operating experience or just management experience.
There are big market opportunities and small ones.
Entrepreneurs' job is to create and capture value in any market opportunities.
VCs are in the business of maximizing returns to their investors (a.k.a. LPs). This may be a controversial statement, but I'm going to say it. Entrepreneurs are NOT VCs' customers. LPs are.
Remember VCs are value-adds, not a must-haves in business.

Startup vs. Big Company - Politics

chris.lee@startupeconomy.com — Tue, 10 Nov 2009 14:34:00 +0000

(used with a sing. or pl. verb) The often internally conflicting interrelationships among people in a society.

so says Dictionary.com (http://dictionary.reference.com/browse/politics)

Many of us in startups talk about flat organization, no hierarchy, no politics quite often. We tend to believe that bureaucratic organizational structure in big companies is the enemy of all, and that startups are nimble and move faster to adapt to changes to customer demand and market conditions.

I recently engaged in a discussion with some friends and talked about the office politics. There were entrereneurs, consultants, bankers, and even VCs. Not surprisingly, we agreed that there's politics when there are more than 3 people in the same room.

In the startup environment, politics is not necessarily a bad thing. When 3 people always agree, they are not probing the problem enough. On the other hand, the whole resolving internally conflicting interrelationships is difficult. As with many other things, there are pros and cons. What's your story?

Future VC Crisis

chris.lee@startupeconomy.com — Fri, 15 May 2009 14:22:00 +0000

I usually don't pretend to predict the future outcome of industry. I'm often very wrong about the future like many people out there, but what the heck! There will be a VC crisis... at least in the small segment of those affected by the current trends and from pure perspective of financials .

It is no secret that the cost of startup decreased dramatically. Paul Graham agrees here, and Prof (via NY Times) has an article here to reinforce the case in point. Wait, didn't I argue for rise of startup cost in the past? Not so fast here. Here's the difference:

The cost of starting up a company (e.g. ideation, prototype, incorporation, deployments) definitely decreased dramtically. To that point, NYT has a good argument for why that is so here.
What I meant to say in my previous blog post was the cost of total capital requirements to create the value at the time of exit went through the roof.

Let me come back to the first bullet about the cost of starting up a company. It is no accident that I talk to quite a few venture investors and entrepreneurs for a number of reasons. We quite often chat about the recession and the impact of economic crisis on deal flow, investments, etc. The investors love the current times, because

revisiting valuation in this recession gives them a good leverage to make attractive investments
they are busier than ever looking at all kinds of companies
cloud computing and virtualization (in the software sector) turned out to present attractive value propositions to customers looking to reduce cost and survive the economy. ehhhh?

The VC Crisis
Without further due, here's my prediction about VC crisis. There will be winners in cloud computing. At the same time, it will be cheaper than ever for web entrepreneurs to start up a business, thanks to the innovation created by the cloud computing companies (invested by VCs). That, in turn, will make it difficult for many early-stage VCs to convince web companies to take money at an early stage. Then, early-stage VCs move downstream to later stage investment where the economics of exit multiples, etc. just doesn't work out well for almost all web investments. Instead of $10M in, $100M out economics, it will be more like $40M in $400M out. By the way, the number of companies that can justify the new economics...... there are even fewer companies to realize that kind of exit, thus more losers.

Summary (I could've Twittered this)
After investing in the sugardaddy cloud/virtualization companies, these companies drive down the cost for other startups, then the startups don't take early-stage money, then there goes the VC crisis. Sounds like now is a suicidal time for VCs.

Ouch...

chris.lee@startupeconomy.com — Tue, 21 Apr 2009 11:16:00 +0000

John Sculley: Don't Be Afraid to Make Tough Decisions

John Sculley says it was one of the hardest things he'd ever had to do as a CEO: stripping his friend and sponsor, Steve Jobs, of any operating role in the company Jobs had co-founded. Sculley spoke to Inc. in 1987 about what became a very public crisis at Apple Computer, explaining why working with entrepreneurs -- especially those who crave control -- can be trying. "The hardest part of dealing with entrepreneurs is getting them to recognize their own weaknesses. Sometimes they will say they are weak in certain areas, and then try to jury-rig an organizational concept to compensate for those weaknesses. But they really don't mean it -- they don't believe it."

Courtesy of inc.

Disengaging from Social Media

chris.lee@startupeconomy.com — Mon, 20 Apr 2009 13:29:00 +0000

I've been trying out various social media tools to engage with other online audience personally and professionally. I got into the social media ecosystem that I'm getting to the point where the incremental value of utilizing another social media tools (at least in the contact management sector) is close to zero.

The best tools so far has been Twitter, LinkedIn, and Facebook, and it should be no surprise.

I tried to make sense out of more extreme professional contact management tool by using Plaxo. Today, I declare the permanent "uninstallation" of Plaxo... forever.

I get too many spams and don't really get much value out of Plaxo. My contacts (including me) don't really update the contact information up-to-date. There's not really a reason to visit the Plaxo website. The desktop tool just flashed and uses up my CPU for no reason other than the software doing nothing.

Bye, bye, Plaxo. Although I never got to know you, you've already made yourself a fame by getting acquired by Comcast.

Rubbish Land

chris.lee@startupeconomy.com — Tue, 17 Mar 2009 16:09:00 +0000

Image by Giant Ginkgo via Flickr

Americans and people in relatively well-developed countries take clean water and infrastructure for granted. When I was in Chicago, one of my favorite annual event was the "greenization" of Chicago River. It's actually quite amazing what Chicago has done with its water system, including:

Reversal of flow to prevent Lake Michigan drainage
Beaches nearby downtown
Fish hotels underneath the Michigan Ave. bridge
Water Purification

During the early 20th century, the water was too contaminated for consumption, but the city has done a tremendous job at purifying it and making the riverside enjoyable for tourists and citizens. It's gotten to the point where a bit of color contamination on the St. Patrick's Day is acceptable.

In this country where people take clean water for granted, there are still a ton of startup activities geared towards water purification. Making this blessed country even more blessed is........ blissful.

On the other side of planet, more specifically Manila, rivers are covered in trash. Not sure if any technological advances will be able to clean up the river, but this is just too stunning. The picture below, first shown at The World Water Forum, makes me wonder, "What the heck are we doing working on incremental environmental changes when the same resources can be deployed to make a much bigger impact?"

(Source: http://www.thesun.co.uk/sol/homepage/news/article2323032.ece)

Overheard in Silicon Valley

chris.lee@startupeconomy.com — Tue, 10 Mar 2009 19:48:00 +0000

If my previous post was an indication of summarizing my daily lessons learned in the Valley, yes, I slacked off. I was busy learning about many things, and I would like to share some lessons learned with my readers. Mostly just brain dump of various things, but I'll try to bucket them into different categories.

Economy

It's tough out there (quite frankly, everywhere these days), but productivity is WAY up stemming from low burn rate and increased work hours.
Growth is still the king. Monetization can happen when the economy recovers
(somewhat of a contradiction to the above) "Product, product, product. Growth later, please"
Not that many companies feeling the pains in a tangible way. They just want to stay low until somebody else brave (or dumb) enough makes a big move.

Startup/Company Gossips

Silicon Valley needs the next Google (awesome product with real revenue stream [not just a proven revenue model]) real soon
Semiconductor industry is about to enter the most difficult times in its history
SV always talks about SV, Boston talks about Boston vs. SV
"Recycling" high valuation deals is somewhat of a trend
Angels are busier than ever
Facebook's talent hemorrhage is a big contrast to its predecessors like Google, Yahoo, etc.
Entrepreneurs here live on dreams, elsewhere driven by reality
Lots of excitement around Palm Pre. Most of the design features actually got "stolen" from another company
While operational experience is highly respected, venture business is really about accessibility to deals
New York's rise to stardom in entrepreneurship is noticeable from the other side of coast. With top-notch innovations and investors to enable the whole ecosystem
Boston's main competitive advantage is largely top academic institutions
Google fired some flamingos on the dinosaur sculpture, so that the employees can spend the time more productively

Other Stuff

Too many good restaurants contributing to accelerated weight gain. No wonder the weather is so good all year round. I needed to burn some calories all the time
Intuition is highly respected. Analytics, less so.

Too much to list all them out, but I'm sure I'll use some of the lessons learned in the future posts.

Silicon Valley Trip - Day 1

chris.lee@startupeconomy.com — Wed, 04 Mar 2009 16:44:00 +0000

Here in Mountain View, sitting at a quiet cafe, I'm sipping on a delicious cup of latte.

I met a few startups and investors yesterday. Nothing was really new.

Due to the economic downturn and surge of available time, Silicon Valley sees more companies and innovations
Entrepreneurs are laser-focused on doing what they're supposed to be doing: improving product and engaging more customers. This applies to both well and under-capitalized companies. Many are cautiously hoping for revenue generating opportunities.
Weather is scattered shower, sunny, and cool. I was wearing a t-shirt, and people kept asking me, "Aren't you cold?" Nope, my skin thickened quite a bit with lipids and adipose tissues.
Building products is cheaper than ever.

I want to say something more explicit about the last bullet. I've been hearing the mass exodus from Google, and how the company turned into a monster like Microsoft praying on innovators in the Silicon Valley. All that aside, entrepreneurs were integrating Google Docs, Calendar, Tasks, Maps, and many other products by using the free API.

Google's main and only revenue source may be from its wildly successful ads operation. At the end of day, the company's turning all that revenue into enabling many other technology innovations among startups.

Without further due, "Google, you the man!"

Yet Another East vs. West Coast Startup Economy

chris.lee@startupeconomy.com — Fri, 27 Feb 2009 18:26:00 +0000

"You know, it was interesting to see that Boston entrepreneurs are...umm..... older.... mostly in 30s and 40s. Many guys in Silicon Valley are younger".

No offense to the people in their prime 30s and above (including myself), hearing this from a venture investor from the west coast was somewhat demoralizing, though not surprised at all.

Some say Boston is still going strong, and others say it lost the edge already. I don't necessarily believe that Boston lost the edge, but c'mon, Silicon Valley owns a vast majority of big, successful latest high tech startups.

Rewinding a bit to

my conversation with a local recruiter in Boston....... "I sort of miss the good ol' enterprise software companies. I see so many mobile/internet companies, and they started to dominate the whole startup scene in Boston".

Another quote from a VC.... "We like backing serial entrepreneurs who's been there, done that". Yes, we heard this many times before.

Yet another talk with an entrepreneur.... "Yes, we are still hiring. But, it's extremely difficult to hire the right person to fill this role. If you know someone from Yahoo, Google, DoubleClick, or MySpace, please let me know". Really? Not someone from our very best EMC, Lycos, or AthenaHealth?

Hmmmmm.... what's going on here?

Here's my hypothesis. Since the dot com 1.0 revolution, Silicon Valley pretty much sucked in a lot of young talents into its ecosystem. Young, fledgling entrepreneurs dreaming of making a big time career at a cool company like Yahoo and Google flocked to the west coast. Why not? People complain about cold 60 degrees weather, many awesome restaurants, get to see legendary entrepreneurs on the street, etc.

While B2B software is still critical and remains to be a profitable business (when done right), the dropping cost of starting a company applied mostly to those developing application layers, thanks to cloud computing, Web 2.0, and iPhone. Many of these entrepreneurs are from New England. They used to work in a high-flying companies in MA and started companies to change the world.... in a largely irrelevant sector to their root. Then, venture investors figure that they are not really "the serial entrepreneurs" they are looking for. No money, companies die.

By the way, the young, fledgling entrepreneurs from some of the greatest educational institutions in MA can't find a good job, because the companies are telling them that they need to learn from the successful companies like Yahoo, Google, Microsoft, and Facebook before proving themselves to be valuable in the mobile/internet/media startups. They listen, buy an one-way ticket, and never come back. Then, they follow their dream where they build relationship, know people, and start rooting personal lives in the west coast.

Entrepreneurs in MA get older and not nearly enough young entrepreneurs fill the talent pipeline. The younger generation fades away.

The vicious cycle goes on and on.......

Stay in MA is a great program to mitigate the problem of mass talent exodus out of MA, but there needs to be more aggressive programs and effort within the whole startup ecosystem to take the risk of hiring and training less-skilled entrepreneurs and let the young entrepreneurs start their dreams here.

Marc Andreessen is full of it

chris.lee@startupeconomy.com — Wed, 25 Feb 2009 20:32:00 +0000

Okay. Probably not, but he definitely spat out the revenue generating potential of Facebook, because he had to right at that moment. Here's the transcript from his interview with Charlie Rose. BTW, very inspiring interview overall. Highly recommended spending the time to watch the whole interview.

MARC ANDREESSEN: The fallback position is to just take normal advertising.  And if
Facebook just turned on the spigot for normal advertising today, it would
be doing over $1 billion in revenue.  So it’s much more a matter of long-
term strategy.  The company has got (INAUDIBLE) cash...

CHARLIE ROSE:  So if they wanted to make a lot of money instantly, it
could. 

MARC ANDREESSEN:  Yes.  Oh, very easily.  It could sell out the home
page, and it would start making just a gigantic amount of money.  Yes, so
there’s just tremendous potential in it, and it’s just a question of
exactly how they choose to exploit it.

Monetizing on social media is something that many startups are trying to tackle and will require some real innovaitons to make this happen. Yes, Google figured it out with their search engine platform. Facebook, with 175 million active users with half of them using Facebook daily, is a huge business. It's just amazing that Facebook turned into this monstrous internet giant in less than 5 years.

Revisiting my critism of the Facebook's advertising platform, the company really has not figure out the underlying platform to serve the needs of marketers.

Selling out the hompage? Are you kidding me? Since when marketers are willing to give Facebook billions of dollars when they know that non-targeted online advetising is a waste of money?

Will people click through and convert to sales?

Oh yeah, by the way, when was the last time you went through the Facebook homepage?

Marc is a legend, and I respect him very much. I just wish he just never said anything about the non-potential of Facebook on national TV. What's wrong with simply saying, "We are in the process of figuring out the magic" (which he did) or even a humble, "We don't know"?

Distorted motivation of startups

chris.lee@startupeconomy.com — Tue, 24 Feb 2009 16:33:00 +0000

I'm absolutely torn between choices and motivation of startups. I touched on the futile attempts to raise venture capital, and I'm a firm believer in fixing broken systems and making life richer, regardless of how money is raised.

Over the last several weeks, I met many friends doing all kinds of different things with their lives... mostly people sitting on the other sides of table: entrepreneur and investors.

The stunning contrast among their motivation was nothing less than stimulating, and I want to share the discussion with my readers.

Friend A - early-stage VC:
I've been bouncing some business ideas and wanted to get his feedback on products, features, and potential business opportunity out of a mere idea. He's a venture investor at a very respectable firm with vast knowledge of industry, technoloyg, and market. I thought he would be the right person to give some agnostic feedback based on what he knows about startups. About 15 minutes into the "pitch", his attention was already somewhere else, and he asked, "Do you think this is a $100M business opprotunity?" and it was an obvious no. My original intention is to fix some broken system based on my own experience from b-school. With very limited capital out of my pocket, I was going to solve it. If it happens that I can build loyal users WAY beyond my original target, I *might* consider runnning it as a business. Then, he said, "Why are you wasting time going after no market opportunity?"
Summary: Small dreams are futile attempts.

Friend B - Non-VC-backed-entrepreneur:
He started his business doing someting very fundamental. He takes a purchase order from website, manufactures and delivers the product. For every single order he processes, there's a gross margin and money to be made. The challenge is to scale the business to be profitable. The target market size? Not too big to be honest, but he can make a pretty good living out of this if it takes off. He went on to make predictions about the whole Web 2.0 implosion, and how forgetting fundamental business concept (a.k.a. revenue - cost = profit) will prove detrimental to many seemingly successful tech startups. His motivation: make profits and run businesses like business. Hype doesn't generate profits. Points taken!
Summary: Small dreams are NOT futile attempts. There's something grandiose about small businesses.

Friend C - VC-backed entrepreneur:
He runs a pretty well-known startup in the gaming industry. The first time I met him, he had a very, very long lecture on how raising venture capital is wasting his time while he could've worked on something very productive. He's going after a very big market opportunity with significant capital that already went into his business. He's still going for the >$100M market opportunity... the only problem is ... he's not making much money at all. For almost every transaction/deal he makes, he's still sinking money.... for more than 7 years now. What a contrast with Friend B!
Summary: Big dreams are way to go.... only takes much more money to be profitable.

I'm not saying any of them is right or wrong. It's just that the motivation of startups varies very much. We in the ventue capital ecosystem tend to think that small dreams are futile, because it's a homerun business after all.

Think Facebook, Twitter of the world VS. Craigslist and Wikipedia. Maybe a bad example, think Facebook vs. MIT Truck, what's wrong with MIT Truck? I don't see much.

Why am I penalized for being "green"?

chris.lee@startupeconomy.com — Wed, 18 Feb 2009 16:39:00 +0000

Image via Wikipedia

I'm by no means an expert in green stuff or clean tech, but the energy industry just has this strange behavior of penalizing green consumers.

"Green" spans from organic foods, consumer products (i.e. 7th Generation), wind energy, solar energy. I can understand the premium on the organic foods and consumer products. Many of these products are sold at Whole Foods where the shopping experience is better than other local grocery shops. Also, organic foods are supposed to be healthier for me anyways, so I pay premium to get the luxury of experience and health.

I've been trying to embrace green energy as a consumer for a while, but I just can't justify the price hike. Seriously, I'm all about being green. I sort all recyclables, trash appropriately. NSTAR (MA utility company) often sends me an email saying how good it must feel good to be green and how I'm improving the global warming and what not. Oh, Glory America, a country driven by the fear of world coming to an end. What NStar is doing is to induce fear and guilt to convince consumers to adopt green energy. But, but, where's the economic benefits? Not even that, why are you penalizing me with the additional ~10% increase in utility bill?

Where's the "premium"? Would my light bulbs be fluorescent? Am I being just too capitalistic and not environment-friendly?

Online Advertising is Largely Broken

chris.lee@startupeconomy.com — Tue, 03 Feb 2009 17:53:00 +0000

Chris Anderson's recent article "The Economics of Giving It Away" stirred the blogosphere and those of us in the startup world. Some prominent bloggers talked about it here (AVC), here (peHub), and here (OnStartups). I might as well say something about it.

The industry research forecast predicted a stunning growth in online advertising spending, only to chop the forecast when the economy doesn't seem so rosy.

Since Google proved the viability of contextual advertisement business model based on the search keywords, many companies all of a sudden started believing that the advertisement was and would be a viable business model. Internet audience take free content as granted, providers think free content is the way to go because advertisers are willing to pay for the service..... as long as the right advertisement gets displayed at the right moment for the right audience.

"The standard business model for Web companies that don't actually have a business model is advertising. A popular service will have lots of users, and a few ads on the side will pay the bills. Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform. Even if you could figure out what the right ad to serve next to a high-school girl's party pictures might be, she and her friends probably won't click on it. No wonder Facebook applications get less than $1 per 1,000 views (compared to around $20 on big media Web sites)."

Let me take this sliver of the WSJ article and relate it to my own experience to justify the $1 CPM in Facebook is probably the most it can charge.

Whatever the Facebook Grader tells me about my Facebook grade (basically, what they are telling me is that my friends are unimportant, uninfluential, and doesn't add value to my social media presence compared to other obsessed users), I like using Facebook. I love it, and my friends there are all important.

My Twitter, Facebook, Google Reader, Ping.fm, Bit.ly, and several other social tools are interlinked, yet I prefer to go directly to Facebook to reply to messages received inside Facebook. Long story short, I contribute to the Facebook traffic.

BAM! This is the advertisement I see today on my Facebook.

Am I ever going to click the ad? No.
Am I offended by this? Yes, sort of.
Has Jessica Simpson or IQ ever entered my consciousness? No.

What a waste of web property! If I were an advertiser, I'd be saying, "Facebook, you are wasting my money".

I'm sorry, but online advertising is largely broken and it needs to be fixed.

BTW, I'd never take this IQ Challenge out of fear that I fall below 111 even if I can tell tuna apart from chicken and know that buffalo wings actually don't come from baffaloes.

Danger of Self-Confidence Bias

chris.lee@startupeconomy.com — Fri, 30 Jan 2009 15:14:00 +0000

Thanks to TechCrunch for publishing an article to amplify my post about biased decisions.

I stumbled upon the post "The Economy According to Mint", and I really do hope that Aaaron Patzer doesnt' really see the economy through the lens of Mint.com data.

First of all, another thanks to Mint for publishing data, not just vague qualitative assessment of the economy but real numbers. Now, here are the reasons that the "Guest Author" should've spent the time doing something more productive.

Inclusive data sources leading to self-confidence bias

1. Let's see.... (http://www.quantcast.com/mint.com)

The traffic through Mint.com just doesn't represent statistically significant set of overall population. They are well-educated, leaning towards male, ages 18+, mid-to-higher income, and no kids. The monthly visitors are around 280K in December with a majority of them being "non-regular, passers-by". (By the way, I am superposing another layer of obscurity by using Quantcast to make assumptions about the real Mint.com users.)

Just to make this clear, the state of economy represented by Mint.com usage is just that. The economy doesn't look as bad for the Mint users. Great for the company... maybe... but doesn't give any data outside its tiny world.

2. I personally am a Mint user, and I like it. I don't particularly love Mint, because it's go some technical glitches in connecting with a number of my other accounts. For example, I have a loan and savings account that several emails to customers service and numerous searches could not resolve. In the end, Mint has a very wrong view of my personal saving/spending/asset/liabilities trend.

I'm not trying to bash against Mint. They have a great product in process towards something significantly meaningful. I believe that they are on the right track towards something. Mint will probably face a moment sooner or later to make critical business decisions based on internally generated data like this. I smell self-confidence bias creeping into the office of Mint. The team at Mint.com, please surprise me!

How to Make Unbiased Decisions in Startups

chris.lee@startupeconomy.com — Thu, 29 Jan 2009 19:32:00 +0000

A recent article in MIT Sloan Management Review "Decision 2.0: The Power of Collective Intelligence" presents a great decision framework.

In a world of startups, especially those backed by VCs, there should be a striking balance between agents' (entrepreneurs) decision making based on emotions and intuition and principals' (investors) ability to take the emotion out of the equation to exert "unbiased" advice to the company. On a second thought, emotion and biases almost ALWAYS exist in any decision making processes.

As related to a startup, the whole premise of venture financing is "Here's the money. grow your business. It's okay to make mistakes, but make as few as possible and move on quickly if there are flaws". So, why am I saying this?

STARTUPS MUST MAKE DECISIONS WITH PRUDENCE AND HAVE UNBIASED DECISION MAKING PROCESS IN THEIR DNA. Here are some of the pitfalls, as mentioned in the article, as related to venture business.

Self-serving bias (seeks to confirm assuptions): Startups often deal with a very few or no information because of the nature of the business. Entrepreneurs usually make assumptions about markets, customers, financials, HR, etc. and searches for data to confirm this. If the assumption is wrong, they are just pushing themselves further away from the "right" answer. Ever had a situation where a cool product feature is exactly what you wanted and everyone else you Googled to confirm the assumption?
Social interference (influenced by others): Yes, VCs follow the trend and invest in the wave of things. Entrepreneurs need to balance this out in a way that's contrarian to the society. When everyone thought search was a mature business with multiple dominant players in the late 1990s, Google made its way through, by being a contrarian.... sort of.
Availability bias (satisfied with an easy solution): This is a hard problem. We entrepreneurs think anything is pretty much possible. This one is really tricky because there might be some things that are worth time and effort of doing despite the complexity. On the other hand, there are quick and easy stuff that can get done easily. I don't know what to say about this much beyond than that.
Self-confidence bias (believes prematurely to have found the solution): I actually think this helps startups. Assuming that this kind of decision get reiterated many times in a short time period (like agile development process), it could be a tremendous help. Entrepreneurs, by nature and definition, are full of self-confidence. Just make sure that you know this may not be THE solution.
Anchoring (explores in the vicinity of an anchor): Building personal relationship and leveraging people's knowledge in your network is often used by startups. Remember, the relationship you've built may be self-selecting. You like them. They like you. Both influence each other.... in a cyclical way. Knowledge and influence cycle through the same system infinitely without seeing the outside world. Explore more. Be ready to talk with random people to hear second thought.
Belief perseverance (keeps believing despite contrary evidence): Being a contrarian and out-of-wack essentially are the same thing, depending on the outcome. Please, please, don't keep believing if a majority of people who (might) care about your product say "no". I've seen a plenty of people who keep on saying that they are right and will change the world and future will make the judgment call. If you (or people you know) fall into this category, please, please say that in the future. We got better things to do now.

This is just a partial list of decision making "frameworks" from the article. Good read, overall, so I encourage all of you to do the same exercise I just did.

Lastly, be unbiased and fair. Don't let the biased blind get in your way.

Asking the right questions - Using Negative to Draw on Customer Insights

chris.lee@startupeconomy.com — Tue, 27 Jan 2009 22:09:00 +0000

Let's just face it. When it comes to innovations and improving products/services, customers just do not give much valuable feedback. Wait, maybe it's an extreme position. So, let me just rephrase it: "Customers do not usually give tips on product improvements. They typically complain about a bunch of things, and companies make incremental changes to satisfy the customer needs".

When sending out a survey to gauge customer satisfaction, interest, and what not, it usually goes like this....

"What feature did you like the most about our product?"
"How much are you willing to pay for our product?"
"How satisfied are you?"
"What can we do to improve our service?"

Nothing wrong with the above questions, except..... these questions just don't provoke the innermost thoughts.

Instead, try using negative tone to give a twist, like...

"Why would you not use our product?"
"How didn't we serve your needs?"

It all gets down to people psychology where the respondents to the exact same questions with different tone can uncover a lot of interesting information. No, I'm not a psychologist, but I did a fair amount of this kind of interviews recently and wish somebody had told me this in the past.

Try this, and tell me some interesting stories.