We made many mistakes along the way but we survived and finally thrived.  The company is a great success; 200 million uniques a month, a big revenue number and profitable, and a top 30-35 global slot amongst the largest websites in the world.  More importantly, it's a company that was built on product excellence and managed to make in the face of full frontal competition from the biggest internet juggernaut ever to grace our shores, YouTube.  Veoh, Metacafe and all the other better funded and better equipped competitors died, and we thrived.

So when I see the French government scuppering the best possible growth deal that the company could hope for, I just want to throw my hands up in despair.

POST DEAL MINISTERIAL MEDDLING 

After rumors first emerged in Le Monde that the government was intervening in the sale, the Wall Street Journal revealed the details.    Here is the what the Minister reportedly told the CFO of Orange: "I won't let you sell one of France's best startups," Mr. Montebourg told Mr. Pelissier, his voice raised, according to people briefed on the meeting. "You don't know what you're doing."

Now you have to understand the Mr Pelissier is the CFO of Orange / France Telecom.  He usually does not get involved in deal negotiations of this size directly - he has an extremely capable team that would have done that for him, including the CEO of DailyMotion Cedric Tournay, his M&A department and probably some of the senior talent in digital strategy such as for example the excellent Stephanie Hospital.

The late intervention of the Minister tells me the deal was agreed when they got wind of it and decided to step in.  As major shareholder in Orange they have a right to make their voice heard, though given the scale of Orange I doubt that a divestiture of a majority stake in DailyMotion required any form of shareholder approval.

Cute Montenbourg champions "Made in France" on the cover of a leading French magazine - tainted by a desire to be famous perhaps ?  I prefer boring technocrats.

HYPOCRISY AND POOR DAMAGE CONTROL

I don't know whether to laugh or cry about the pathetic attempts at damage control that are now being undertaken.  

Mr. Montenbourg says in a statement that he "regrets that talks between Yahoo and France Télécom did not lead to a satisfactory agreement for all parties involved".   It's nice to try and spin this as a business disagreement but it's clear from the reports that the deal was agreed between the parties and the state killed it on issues of control.  Indeed, the CEO of Orange, Stephane Richard, indicates that the state intervention spooked the buyer in this article.  And who indeed does that surprise ?  Yahoo probably thought they were negotiating with a private company that was privatized a long time ago in the form of Orange, not a state owned Telephone Company still sometimes called France Telecom.

Then you have Fleur Pellerin saying : "there is no need for Dailymotion to remain wholly French-owned, and all options must be studied".   Who is she kidding really ?  Do you think a $300M acquisition happens without "studying all the options ?".   Indeed, Stephane Richard indicates clearly that the search for a partner started 6 months ago, over 60 partners were contacted, and the French State was involved at every step of the way through the FSI.  

Laughable.

TERRIBLE SIGNALLING 

The French State has now effectively told people that it considers it OK to meddle into transactions between private companies.  It told founders that after working hard for years, they feel it is their right to come and step all over your carefully negotiated exit.  

The issue is : it can do this on a large scale.

Consider this: the State is the largest direct Venture Capital investor in France and the largest fund-of-fund operation in France (both through FSI), as well as being the largest shareholder in the leading telecom and ISP in the country.  Dan Primack pursued that line of thought in connecting all the dots of what he calls the French Connection. 

Do they now really expect that a fresh-faced investor will be happy being a minority investor alongside a shareholder who behaves in this way ?  Stephane Richard might be putting a brave face on it for political reasons, but there is no way anyone I know would accept to be locked into a minority investment where an exit can be blocked in political or ideological grounds.

They're hurting us through tax, insane regulations and now this.  It has to stop.

WHAT'S NEXT ?

The battle for DailyMotion is not in France, where growth is limited. It's all about nailing the international strategy - no amount of posturing is going to change any of that.

Now they killed the deal with best possible partner to go execute on that strategy. That is all. Take your responsibility.  As Pierre Kosciusko-Morizet, the awesome founder of PriceMinister, put it : "if DailyMotion does not find a strong international partner. in the end, it will die".

I hope this pyrrhic victory acts as a watershed moment in France when the startup community, #geonpis and others realize it's time to say STOP.  Maybe we have not yet reached rock bottom, but it cannot be far off now.

In the meantime, all I can think of is Cedric, Martin, Luc, Giuseppe, Olivier and all the others still trying to crank the wheel and put a brave face on this, all because of some ego-maniacal ministers who think it's OK to destroy shareholder value, taxpayer money and more importantly the aspirational nature of entrepreneurship in the name of some vague "national interest" that no one asked them to protect in the first place.  

Clowns.

PS - Disclosure : I was investor and board member in DailyMotion and PriceMinister

Between 2005 and 2012, we went back to our roots.

2013 03 13 10 48 54

Complexity kills
What is true for startups is true for VC firms. When I joined Atlas in 2003 we had way too much geographic and sector complexity. Picture this: London, Boston, Paris and Munich get on a video conference call to approve new tech and biotech investments (we sometimes referred to it as the "intergalactic meeting"). We had legal, PR and recruitment services at our main locations. We had three layers of partners and three layers of investment professionals below the partner layer !

How Atlas got there, I don't really know. Atlas was a very successful firm built on a strict regimen of small funds and a maniacal focus on very early stage investing. Because of the quality of its results, it became one of the pre-eminent firms in the late nineties, and started ballooning out of control. Fundraising became more important than investing, and Atlas began to think of itself as an "institution".

It matters little at this stage. What is more important is what happens next.

Losing Sonali
These shortcomings were obvious to me when I joined.   I thought that with time we could fix this and there weren't many ways to get into venture through the front door.  So we had started a patient process of reducing team, concentrating our locations and so forth.   It was a very consensual process that followed the usual pattern of young guns pushing and established guns moving more slowly.   Anyone who's done generational transition in venture knows what I'm talking about, though this one was constructive and pretty smooth.

Then suddenly the nonchalance got thrown out of the window.   We were in the process of raising our Fund VIII in 2008 when my partner Sonali left to join Accel Partners in London.   Sonali was my sister-in-arms and our most talented person in Europe.  It was no surprise to me, but it changed the game overnight.   It's one thing to be evolving slowly, it's quite another to lose one of your best people.

The time for reactivity was over.

Staying at Atlas
Over 2007-2008, there were periods of doubt.   I considered leaving; it's tough to find a new partner in European VC and I had a lot of inbound interest.  I stayed for two reasons.  First, I decided to make Atlas my battle of Thermopyles.   I set down my shield and planted my lance and thought : I will make this work no matter what.    I will take failure when it comes but I will fight for this one, make it mine. The second reason was my partner Jeff Fagnan.   We're brothers in arms in this; I was not going anywhere.

So I stayed.  Goodbye Europe, hello Boston.

Proactive, not reactive: designing a fund we'd invest in
Once you stop caring about the consequences, you can do things right.   Sonali's departure provided that opportunity.   In our case, this meant evolving the fund so it was one we would want to invest in and not one that was shaped by legacy.  

The cadence of change increased dramatically and we really got to work.

The first step was a phone call between Jeff and I that went something like this:
- "How far do we push this ?"
- "All the way"
- "You moving to Boston ?"
- "Provided we move out of Waltham :-) ... yes"

I can't remember who said what line, as Jeff and I tend to finish each other's sentences, but that was the gist of our conversation on the eve of Sonali's departure.

We promised ourselves that we would continue to embrace our own demise, not ever be reactive again but proactive.  The market would continue to change, and we would not just embrace change, we'd spearhead it.

The reinvention of Atlas Venture
In the end we've done nothing more than apply common sense.   Here are the foundations of Atlas today and why we think we're going to rock:

Equal Everything.  For a partner at Atlas, there is only one comp package. Same salary, same carry, same ownership in the management company (not that management company ownership matters, mind you, since we're not trying to accrete any value there).  We all float up or down with the vagaries of fund size and management fees.   The benefit ? We spend zero time discussing compensation issues.  Imagine that.  All our energy is focused on winning in the market.

Team first.  Individual track records be damned.  What matters is that as a team we generate 3X over the life of a fund. We will have each other's back and be relentlessly intellectually honest about driving reserves to the best companies, not the ones we (personally) happened to invest in.

Primus inter Pari. No one runs Atlas.   Jeff Fagnan deserves a special nod for being a relentless force in particular around fundraising, but he considers this service to the firm.   We don't have, want or need a boss.

If you suck, you go.  I will leave Atlas before I am asked to if I either lose the hunger or realize I start to suck.  We all feel the same way.   We're not there to maximize our net worth by raising funds forever, we're there to be the best at what we do and build awesome companies with top entrepreneurs.   The world does not need another average venture capitalist.

Single office. On the tech side, all five of us are around the table every Monday making decisions and meeting teams.   Same for our three partners in biotech. Decisions are fast; debates are engaged.   There is zero loss of energy between getting to know an entrepreneur and getting to term-sheet.   With entrepreneurs, speed wins.

Small funds. Given our maniacal focus on starting at seed and all the improvements in capital intensity vs. value creation in recent years, we can run our investment strategy successfully with small fund sizes.   Besides, being slightly capital constrained has done wonders for us.  We're sticking with small funds.

Alignment with LP's. By raising smaller funds we take care of the issue of inflated salaries.   We also upped our commitment to the fund and I think will up it again over time.  Some of the partners bought a secondary position in the last fund. We want to be in alongside our investors.  That is all.

Team, results
You cannot declare victory in a vacuum.   To make this happen, we were fortunate that some great talent joined our team, in the form of the best free agent in Boston (Ryan Moore, who backed Where.com and Enpocket), the commercial half of the Wu-Lynch clan in the shape of operator extraordinaire Chris Lynch as well as our homegrown talent Dustin Dolginow.

We're also looking at a number of juggernauts in we are generally the largest VC shareholder, including bit9, Veracode, Zoopla, Dataxu, Globoforce and others as well as good momentum in returning cash to our LP's in recent years.

The flywheel is accelerating.

Friday hoops
The bottom line of all this is simple.   We started playing hoops again every Friday.   Our passing game is getting pretty good, our drives are forceful, and we're scoring points.  When I got home with scratches and a bruised rib, I felt like the luckiest guy in the world.   I know the boys will kick my ass, but I also know they've got my back.

Now if only we could add a female Indian venture capitalist of the quality of Sonali, we'd even have diversity in the group :-)

In it she tries to define rules for entrepreneurs for spotting Zombie firms.  

Rise of the Zombie Firm

Entrepreneurs should be aware the we are, indeed, surrounded by Zombie Firms.  The largest shakeup ever  in the venture industry in resulting in:

• firms whose numbers will never allow them to raise again but who will continue to live on fees until the last man standing turns the lights off (a Zombie Firm)
• firms who bravely try but may take two years on the road to raise and be short of fresh cash to invest in the interim (a Trying Hard To Make It Firm).

In a newsletter from one of the most respected venture fund investors out there, the following statement was made: "in our estimation, there are only 100 truly active institutional venture firms out there".   Whilst that number feels conservative and does not seem to include the Super Angel funds, compare that to an estimated 1,000 firms active in the early 2000.  

To give you a sense of the shift, only 55 new funds were raised last year (per Thomson Reuters).

Both Zombie firms and Trying Hard To Make It Firms are going to give the outward signs of market activity.  In fact they may have more time than their funded brethren to be a mentor at TechStars or a judge at MIT Entrepreneurship Contest.

All this leaves entrepreneurs with the difficult task of weaving their way through a morass of people who can't actually give them, you know, actual money.

Have Suit, Won't Invest

Finding the Active Ones

First of all let me say that I applaud Danielle's initiative, accusations of sensationalism aside.  We are all know that countless entrepreneurs waste countless hours with folks who cannot invest.

Directionally her analysis is correct; a quickscan of your zombie VC list and one nods head in recognition.  There a few fundamental flaws with the current method though, though I am still very happy someone is getting the ball rolling in driving transparency.

She tries to use normative rules for what defines activity. Like any binary method it’s prone to fail, either because of inaccurate data or discrete / unannounced deals.  Ideally one would recognize that the data is inaccurate and instead of making an A and a B list would compute an index of activity and determine who’s “most likely a zombie” or "most likely active" instead of including teams Shasta Ventures in the "bad" list (given their new over-target fund was raised in late 2011, not a credibility builder).

Funds could be ranked according to their activity score or even better a holistic score that would take into account their own announced fundraising data combined with assumptions about investment period (few funds have more than a 5 year investment period).

Any zombie firm can make a few seed investments late in its life to maintain the semblance of activity. Conversely many highly respected firms like Benchmark indicate their strategy does not include doing seeds.   A bunch of firms will simply not do series A. How can Emergence Capital Partners appear in a blog post called Zombie Firms ?

How To Spot An Active Early Stage Firm

The bottom line : I love the initiative but the “Rules for spotting a Zombie Firm” should more accurately be turned around to say “Likely Indicators that you are talking to an active Seed or Series A investor”.  Less dramatic but probably more useful.

So how do you spot an active venture firm in the early stage world:

• Has raised a fund in the preceding 5 years at most (most firms have a 5 year investment period)
• Displays a regular pattern of activity in seed (if such is their strategy) and an active presence on AngelList
• Acted as lead investor or named new investor on a number of investment in the last [12] months
• Displays a regular pattern of thought leadership and ecosystem development activity not geared towards limited partners but towards entrepreneurs, indicating the desire to build mindshare and dealflow for the future

No hard and fast rule will tell you whether an investor is out of the market, but you're getting the clues.  Keep an open mind and remember that people without money may be ready to help in other ways.

Last piece of advice I would not use / waste VC meetings to try and "turn the table on them" and due diligence the crap out of investors.  Do desktop research and ask market players.  

However any venture capitalist should be able to tell you exactly how much they've raised and how much they're looking to invest in the coming year.

For us at Atlas Venture Tech, we're looking at approximately 12 seeds (average check $400K) and 4 or 5 Series A investments (average check $4M) ... if we can find the entrepreneurs to partner with !

After years of being forced into clumsy genuflections at the foot of Waltham's money hill before being allowed into plush, Four Season-esque offices, select entrepreneurs will even be allowed to cast their vote on who the best venture firm in town might be.  No word yet on what weighting their vote will carry in the final algorithm, but hey, Rome was not build in a day.

"I heard they were going to ask for our opinion and I thought, oh boy, talk about a poison chalice" says one astounded founder.  "I think i will just vote for the guys who backed me and make sure they know it, you can't really go wrong that way".  

"We've got to give the entrepreneurial community an illusion of freedom so they can continue to perform better and we can appear 'cool'" said one respected Waltham capitalist.  " So we thought an awards ceremony with a semblance of voting would appease these incessant calls to be 'more like Silicon Valley'".  

We are, after all, all about innovation that matters.  

Shockingly, the New England Venture Capital Association is throwing a party around this event that actually looks like it's going to be fun.  Under the impulse of C.A. Webb and her merry band of advisors, the NEVY Awards (a.ka. the Nevies, #NEVYS13) will be awarded during a modern ceremony at the The Sinclair involving cocktails and reportedly some humour.  "I heard there might be music, and jokes" said a stunned observer.

C.A. Webb of the Association of New England Venture Capitalists gets party training at a recent Lunchbeat event 

It is unclear whether a PR agency was hired to help the Boston VC community with this carefully crafted repositioning.  

Entrepreneurs interested are hereby gently instructed by their owner to nominate companies (preferably their own or one funded by their owner, of course) and get tickets for the actual event to support their hard hit bosses.

NEVY AWARDS - MAY 1 - THE SINCLAIR --> Click Here !

Nominate in the following categories: Entrepreneur of the Year / VC of the Year / Exit of the Year / Deal of the Year / Angel of the year / Rising Star (an entrepreneur to watch) /   Rising Star (an individual VC to watch) / Stealth Star (a.k.a., Best Company You’ve Never Heard of) / Best New Startup (founded in last 12 months) /   Hottest Startup (this company is going to set the world on fire)

And finally ... don't forget to nominate the best VC of the year amongst the good and the great of our distinguished community:

Leading Boston area venture capitalists

Lunchbeat is dead simple : grab a bottle of water and a sandwich and dance for an hour.  Beats were provided by the excellent Glow Kids & Fuse, organization by Dmitri Gunn, Rebecca Corliss at Hubspot and your truly.

See you at the next one !

Shark Tanking my way into Timbre

The man behind Timbre is Mark Kasdorf.  Mark is the founder of a top class mobile app dev shop in Boston called Intrepid.io.  He also turned the top floor of American Twine building in Kendall into one of the hottest co-working spaces in town, Intrepid Labs, which has Scott Kirsner wondering whether we have ourselves the new hub of the gaming scene developing a stone's throw from Hack/Reduce and Atlas Venture office.  They've done work for our friend and investee Steve Kane at LuckyLabs and shares offices with the happy crew of the Tap Lab, which we also backed.

The story of how I got into Timbre is unusal.  When the ever inventive Dave Balter suggested we throw a Shark Tank event in Boston with "live, on stage investment decisions", I jumped in. 

The actual Shark Tank event turned out to be slightly surreal, starting with Dharmesh Shah using randrange ($20.000, $50.000) or similar to determine his exact investment in Jebbit ($29K) and Coachup ($28k) ...  and finishing with Dave Balter and I negotiating with Mark real time on stage and prompting a huge F-Bomb from Nicole Stata as I attempted (and succeeded) in one-upping Boston Seed on deal terms.  It was all for fun of course and we ended up investing exactly the same amount (at the new terms).

 Irrational, me ?

As an outside observer you might think, where exactly does discipline into this kind of investment approach ?  The thing is, we vetted over sixty companies before the event and interviewed over ten finalists before the event took place.  I knew where I was putting my money (kinda).  As Dave McClure would say, yo due diligence ain't 4 shit anyways.

Still, showmanship aside, it was a bit of a jump into the unknown.

Timbre and the single purpose app

We work with a number of mobile-first or mobile only entrepreneurs, including Snapguide, Cinemagram, the Tap Lab, LuckyLabs, Splitwise and others.  What you'll find when you look across that group is a collection of generally extremely well designed, single purpose mobile apps.  

A decade ago when you were citing my personal hero Frank Lloyd Wright ("form and function are one"), people looked at you funny, wondering why you wanted things to "look pretty".  Today of course everyone can talk the lingo and the vast majority of people have embraced the fact that design lies at the heart of every great (online) experience.  To be more specific, design is the act of creating awesome experiences that inspire and move people whilst operating under constraints (physical, regulatory, and so on).

With mobile the constraints are higher and the question I always ask is "what exact behavior are your trying to incentivize with your design and does it serve the experience".  Mark answers this question well.  

There are a bunch of things I like about Timbre : the design choices are strong, quirky yet highly functional.  It's refreshingly different from the mainstream and puts the artists and their music at the center of the experience.  Most importantly, it does only one thing but does it really, really well.

There are also a number of questions I cannot answer right now about Timbre as an opportunity.  But that's cool.  I get to meet Mark and work with him, I get to play with early releases of a beautiful app and I get to be a headline on someone's blog.  Way to go, Freddie.

It got me thinking about what I learned in e-commerce over the years.  I've been involved in marketplaces (PriceMinister, sold to Rakuten for $250M, Seatwave), listings (Zoopla), an e-commerce delegation gone wrong (InspirationalStores) and nicely recovered as a simple e-commerce business (Motoblouz, the French #1 in motorcycle equipment) and a private sales site (SecretEscapes, #1 UK player for travel private sales) as well as closely following the development of Moo.com (custom cards, great business).   More recently I seed funded TechStars company FashionProject, but more on that later.

I've seen many investors attracted to the seeming ease with which top line can scale; but it's easy to underestimate just how hard it is to really generate value in e-commerce. E-commerce is attractive on the surface: it's big ($200BN) and early (10% of retail), but it's a hard game in which to build really valuable and/or highly profitable companies:

You need an angle.

A simplistic primer
Remember in this post I am only looking at businesses that are shifting goods.  If you think about the levers of the e-commerce business, the equation looks simple. You're trying to make the following math work : CAC – CLTV > 0.

Components of profitability and operating leverage are (simplistically) the following:

• Cost of Customer Acquisition
• Buy Side Margin
• Cost of Processing & Logistics, Fraud, Payments and Support
• Returns
• Recurrence

Say for example your Average Selling Price is $100 and your gross margin is 45%. If you spend $20 attracting a client, have low recurrence and 15% returns, you're contributing about $10 per order by the time all your costs are factored in. You can build a business on that but it takes a lot of orders ! Getting vastly profitable takes serious scale (cue Amazon) and control of every aspect of the delivery chain (cue eBay acquiring Paypal, GSI Commerce).

Plain old e-commerce is a thankless hard slog (and a scale game)
Commerce is about presenting the right product at the right price with the appropriate level of convenience. It's simple in theory but remarkably hard to do at scale in practice, especially if you're in the game of generating extremely valuable companies.

There's a bunch of challenges when selling online that can derail you. Customer Acquisition is ruthlessly competitive and can destroy you. Customers are generally blind to your brand and unless you're Amazon don't often fundamentally care where they shop.  Transparency is absolute, inventory fungible, and all shoppers care about is price and speed.   You can make assumptions about recurrence, but most of the time recurrence is a mirage and (because of weak attribution analysis) you end paying full CAC on your returning customers anyway. Grey markets, private sales, returns can finish off the job of killing your margins. In other words, it's easy enough to get off the ground with some capital but to build a profitable sustainable business is another story. You need an angle.

The top two e-players are two companies that nailed a specific angle each : scale (Amazon) and marketplace dynamics (eBay). Arguably Amazon was enabled by a visionary founder but also by capital markets that were incredibly supportive of extremely long periods of high burn (i.e. Amazon is the dot com that ruled the world).   Both started leveraging the amazing power of dynamic marketplaces early, to the point that Amazon has de facto become the totemic company of the Cloud age.

Creating angles when shifting goods
Let's take a quick rundown of business that have solved one or more of these issues in a creative way.

Solving CAC and Buy-Side Margin : CSN Stores (now Wayfair)
CNS stores started out by setting up tens then hundreds of bland single product sites that sold commodity products at attractive prices. Wooden beds for your kids, side tables, you name it. In the process they achieved two things: an SEO strategy that at the time they started was incredibly efficient and extremely attractive buy-side margins. Even though the average value of what they sold was probably low, net contribution per order remainder attractive because their CAC was super low and because they sourced directly in China and probably achieved 90% gross margins that way. If you sell stuff for $50 but you're making $45 gross and spending $5 to attract a customer, you have a business. They were one of the industry's most discrete mega operators until they rebranded as Wayfair and started playing the brand / destination site game. I hear their revenues are north of $600M.

Solving Recurrence: Vente-Privee, Gilt
Private sales are powerful and there is a reason they have proved so alluring. On the one hand they make inventory management easy (take consignments, shoot beautiful pictures, liquidate inventory fast, rinse & repeat). Perhaps more importantly, they leverage elements of human behavior that are effect in driving sales : limited availability, short sale windows, game-like competition mechanics.

They also rely on serendipity. I read somewhere that circa 40% of e-commerce buys are unplanned. Present me with a continuous stream of interesting and well curated products, add a price trigger, top it off with limited availability and hey presto, you've created recurrence. If a normal site gets 10% recurrence, they're lucky. I bet you Gilt and the like achieve 4-5 sales a year for their core client base, which would be in line with strong offline numbers (the store on your street in front of which you walk 100 times a year). Recurrence is a holy grail in e-commerce because suddenly you can start thinking CLTV and get off the treadmill of customer acquisition.

The founder of Vente-Privee, the original inventors of private sales AFAIK, refers to the "click-clack-Kodak" moment, referring to an old Kodak commercial about the opening and closing of a camera shutter and the capture of the magic moment.

This has since been leverage in re-segmenting every market under the sun, such as Zulily for kids. Whilst common logic will tell you the entire market cannot function on discounted flash sales, it's still powerful stuff.

Hacking your way to Scale: Fab.com
Having started as a curated list (solving the paucity of inventory problem) and establishing the reputation of being "the" place online to find hot products they suddenly found themselves selling $100M+ of merchandise and realized they had probably become the largest high design site in the world. Hey presto, play the scale game and be the Amazon of design. The smart move on the part of this company was to leverage highly efficient ways to get engaged users (a gay social network site) then leverage a highly efficient to start selling (flash sales) then switch to the scale play with $$$ from Jeff Jordan. Wow. I am not surprised by the pivot (after all, getting out of flash sales is one great way to improve your margins) but I am amazed by the speed. Here is the metric that has me falling off my chair : 2/3 of daily sales from repeat customers. Oh wow. What a machine.

Scale Scale Scale Scale or Die
If you take a 5-10 years view, scale players suck the oxygen dry from the market around them. If you're not playing the scale game, you better have a damn good angle. Getting your revenues from $0 to $50M means nothing. It's only when your business starts to really scale that you will experience the pain of decreased marketing efficiencies, inventory wars and so forth. And it's only when your competitors start achieving scale that you will really feel the hurt.

When you're shifting products on the web, it's scale or die. If you're niche, you better have a good angle.

Cool niche plays

Resegmentation and specialized plays
Take marketplaces:  the markets which e.g. eBay serves can be infinitely resegmented and large plays can be built.  If we look at the maker market, Etsy for crafted goods and CustomMade for, well, custom made products are good example.  I'll write another day about the really high hurdle to getting marketplaces to work : generating and sustained liquidity.   Marketplaces of course work equally well for services (TaskRabbit, Uber) and the sharing economy (Airbnb, RelayRides etc).

Betabrands : my customers are my brand
If you haven't visited them, see how the poster child of social branding runs its business. Its customers are the brand. Zero marketing, incredible tribe affiliation, fashion innovation, smart positioning, community designed products. Sweet.

Bonobos, Happy Toy Machine: the custom revolution
The ability to customize clothing's and other apparel is of course a megatrend and new manufacturers and brands are being built on that. Guys like Bonobos offer minimal customization in the areas that matter (fit) whilst startups like IdByMe (See www.moodbyme.com) plays on the little customization touches that will make your clothing unique. Nice.  Another nice example of templated creation: allow kids to design their own toy with the Happy Toy Machine.

Manpacks : the subscription plays
In my mind someone mistook a viral video for a good product (the famous One Million Dollar Shave Club), but otherwise I am sure we're going to some, not many, decent subscription plays. Manpacks (a SaaS company that happens to sell underwear) and Birchbox (a promotion company that sends boxes) both seem to have cracked some portion of customer behavior.  Subscription's a natural state for Netflix, it's less obvious for goods and I'm not super bullish on the concept, though I can see a few nice hits emerging.

Getting Social
By now your eyes are tired and so are my hands: we'll cover social later.  There's lot I wonder about: how does Pinterest move from this "wonderful hell" of poorly tagged pictures to become an e-commerce force, how can a former VC do something as cool as Ly.st, does anyone really want social shopping inside of facebook & how did theFancy get to raise $25M ? 
 

Bottom Line
If you want to win in e-commerce, you've got to be crystal clear about the dimensions on which you are going to compete.  Scale will crush you unless you fully understand your angles.  Without an angle that helps you achieve better margins, whether on customer acquisition, buy-side margins or recurrence, it's going to very, very hard.   We stand on the cusp of another 20 years of massive disruption in the commerce landscape that are going to yield huge opportunities, but don't be naive going in.

a happy betabrand customer

Many are laughing at the "naive users" who just should not post content if they do not want it abused, but I think they are missing the point : Instagram is violating an implicit social contract with its users in the latest example in a long list of "bait and switch strategies" applied by community centric networks.

From social profiling to content appropriation

We've been educated by our experience of the social web to understand that our data does not belong to us anymore (the now cliche meme "you are the product") and that said data can be used to profile us and deliver targeted advertising or offers; we've all learned to accept that.  Alexis Madrigal at the Atlantic is wondering it is time to get "back to paid".  For those with less cash and less propensity to pay, we accept that we are being extensively profiled, however stealthily, so that free services can become sustainable by effectively monetizing the great communities they create through "in context" advertising or through premium strategies.  

Instagram is breaking this mould in its latest move by not only appropriating content (that is not new) but by allowing itself to use and monetize our content in apparently any way it sees fit, in particular by using your content or your image in advertisements with any third-party: 

1. "you hereby grant to Instagram a non-exclusive, fully paid and royalty-free, transferable, sub-licensable, worldwide license to use the Content that you post on or through the Service"
2. +
3. "You agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you"

Not that unlike on Flickr it does not appear that the purpose for which you license the content to Instagram is limited to promoting the use of Instagram or Facebook.  Flickr ostensibly limits the purpose of the license for use on the Yahoo Network or the promotion of Yahoo services.

In the process, Instagram is breaking trust and tearing up the implicit social contract we all had with the service.  No wonder the community is erupting.  They're not the only ones who are abusing our trust though.

LinkedIn : your profile as a landing page

I always thought of LinkedIn as a simple place to keep my bio up-to-date and get a stable URL that I could just point people to.  I never had an issue with a clean freemium model where I knew my data would be peddled to premium users who need to recruit or develop their business.

LinkedIn, no doubt suffering from poor engagement metrics outside of its core community of premium subscribers, recently decided that my profile could in fact be used as a nifty landing page to force sign-in or sign-up.  In a classic example of bait-and-switch, it is using me for its own advertising (my face becomes an ad) and using its core service (my profile) as a conversion tool.  What I understood to be a core free service is now a user acquisition tool; walls are being erected.

facebook : we own all ur loginz

I understand why Wall Street is maniacally focused on making sure facebook can monetize its ad inventory, but I am patiently waiting for the real bait-and-switch from these guys.  Once facebook login is deeply embedded into every social service and the company effectively becomes the identity API for the world, who's really going to be surprised when they start monetizing the identity calls ?  Every startup that is today building on the social graph must know that some day, facebook will unleash its real monetization power by monetizing access to user data.  Don't act surprised when they do.

"We love our users"

In the world of innovation I love that we champion "disruptive entrepreneurs" who want to "change the world".  We're so far out there in assuming there is something inherently ethical or moral about beating the incumbents, putting the user first, building "awesome" product.  But you know what : there is nothing inherently moral or ethical about tech or startups.  There are only choices you make.  When companies raise a huge valuations or go public for $100BN, they are putting themselves on an inescapable path of margin maximization, and pretty soon these lofty goals of user empowerment get replaced by singular focus on ARPU maximization, users be damned.

No better than the record labels

If Instagram has suddenly become the new Getty Images, it did so by stealth.  When the founders decided to take money they did not need or sell out for $1BN, they were complicit in that action.  So before we go lambast the big corporations like Universal for how they treat their artists, I suggest we take a hard look in the mirror.  If you have a mission to "make the world a better place" you may want to consider building smaller, sustainable companies that can actually continue to deliver real value to their users instead of being totally optimized for shareholder value.  

Founder vision no more

I doubt that Kevin Systrom was ecastic about the changes in terms.  He's nowhere to be seen around this announcement and he certainly did not sign the now infamous blog post.  His last tweet is about @Mailbox.

Welcome to the faceless, nameless corporation called Instagram.  We hope you enjoy our new Terms of Service.

Banksy

Fred,

The horror of yesterday has us all revisiting what could be done. I'm an active hunter and gun owner who believes in the right to bear arms. As a New Hampshire yankee, I also have some of that militia sensibility ingrained in me. That said, I am also intentionally not a member of the NRA who I view as overly extreme in their stance.

As with most things, the devil is in the details. The pictures of weapons at the end of your previous post are menacing but technically they are very similar to many deer hunting rifles which have an very different image and use. So, changes to legislation must be carefully crafted to ensure we make it harder for bad things to happen while not impacting well intentioned, good citizens.

So, some of my thoughts. These are off the cuff - I haven't done all the research.

- make it harder to buy guns. increase the waiting period, make the background search deeper (maybe we need to tie into mental health/medical records?), make the rules apply across all venues for purchasing a gun including sites such as craigslist, gun fairs, etc.
- look at tightening the assault rifle (number of rounds in clip/rate of fire/size - etc) requirements

At the end of the day, we live in a free society which permits a wide range of beliefs and behaviors which also exposes us to risks. We have to look at the clues these shooters provide us before the horrible event occurs. Details will unfold in the days to come and I'll bet there was evidence that this guy was not right but nobody did anything. Heightened awareness to strange behavior and speaking up - don't let it pass - could ultimately be our most powerful defense against these horrific acts of violence.

What a senseless loss.

After the shooting news broke out I was like many people consumed by a mix of  physical pain, sorrow and anger.  Anger soon took over for a simple reason : events like these are predictable and systemic in American society today.

The question for all of us is what we do about it.   As a parent in particular, how do you react to this event when next week comes ?

Here are a few tweets from my stream yesterday: 

I get where Shervin and Saikat are coming from : how can you not want to protect the kids ?  I think they are wrong though, playing in the hands of those who have been successful at making sure guns are everywhere and available to anyone.

Here is what I believe, with an absolute and consuming passion: I have no interest in living in a world where the rational answer to irrational acts is to curtail my freedom with yet more guns and yet more controls.

Let me make two points:

• There will always be crazy people like Anders Breivik or Adam Lanza who will plan devastating attacks that will succeed.   There will always be criminals with guns.  There will always be the risk of a crazy crackhead coming into your house late at night.  That's just life.  You cannot eliminate risk altogether; what you can do, however, is meaningfully move the probability curve and reduce the likelihood that this ever happens.  However, more security is not the answer for obvious reasons.
• Indeed, there is no end to a cycle of increased security.  First we can store two guns at school and make sure we have a security guard on staff.  When that fails, we can get every teacher trained and packing a concealed weapon.  When that fails, we can add security to daytrips too or have a marshall in every class.   When that fails, we can ban daytrips altogether.  Maybe we can sue summer camps for not having trained and armed security personnel on staff ?  Where does this end ?  It ends with everyone armed and packing all the time.  
•  

Don't let Fear win you over

Terrorists win when they instill fear.  We did not let them win after Sep 11; in fact look at New York : it became a more open, friendlier, better city.

Gun violence does exactly the same : it instills fear.  Have a gun at home, have a gun at work, have a gun at school.  Live behind bars. Have metal detectors at school.  Feeling safer now ?

Let's not let fear win the day.  The NRA is sitting pretty right not commenting and waiting for the logical conclusion : if we had a security guard or a teacher packing he could have stopped the attack.  Is that the society you want ?  

Our kids deserve a world where they can take risks

So my response to Newtown is: it is a terrible random act of violence that highlights the needs for our kids to live in a society where the sanctity of human life is paramount, where the sanctity of human life is taught at school, where the sanctity of human life permeates everything that we do.

It is not to say that our kids deserve more security.  Our kids rarely walk anywhere, they get driven.  They don't get lost in the forest anymore, they play in a small gated playground.

What we need to give our kids is an environment where they are free to take MORE risks without thinking about the consequences.  Not guards at the gate.