Oh, Tellme Your History
With all of the fan-boyism around pivoting startups and customer development, I thought I would dredge one of the originals of the genre out of the murky past: Tellme. My personal history with Tellme is that I almost moved out to California to join them as an engineer and a very early employee in 1999 (at age 18)—and instead decided I didn’t want to move to California and ended up at CUseeMe Networks, basically building chat roulette (yes, we had penis problems back then too) and calling it CUworld.
“At the beginning of 2001, Tellme Networks was only a two-year old company, but had already raised $238 million with little revenue to show for it. Most of the start-up’s few customers were pulling out of the advertising business, and prospects for Tellme appeared dim. As a result, the company had recently shifted focus from selling advertising on its free-to-consumer telephone directory service (1-800-555-TELL) to selling minutes on a network for customer support for enterprise companies.
Even with the strategic change, sales were not ramping as management and the board had expected. Board advisor Bill Campbell, who was also the chairman and former CEO of Intuit, was frustrated by the limited information on which Tellme based its strategic decisions, particularly with regard to identifying prospective customers. Campbell challenged the vice president of marketing, David Weiden, to find the root of the problem with the new strategy. Weiden recalled, “Bill’s message to me basically was, ‘Look, if you can’t get your head around being more quantitative about this, we’ll get someone who can (and you’ll be out of a job).”’
“What is start-up purgatory, you ask? Start-up purgatory occurs when you don’t go bankrupt, but you fail to build the No. 1 product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company.”
Ben Horowitz, The Case for the Fat Startup
Ben Horowitz has been on a tear recently and I really enjoyed this article. This echoes some of the themes in Albert Wenger’s Winner Take All and Early Stage Valuations. I like a lot of the lean concept precepts, but the problem with that kool-aid is taking your decision making process away from always making choices that optimize for the chance of success (rather than capital efficiency, etc).
I think the point that’s often lost is the idea of product iteration. There’s often a huge disconnect between the big idea in the big market and what you initially release as your first product. I think one of the reasons that the lean startup ideas are so popular is that they give confidence to people that they may possibly be able to find their way to a good product. It’s probably a false confidence, but the push to innovation is a good one.
I guess I’d be really curious to hear from Ben how he used 100 engineers to R&D what eventually became the Opsware product offering, how that R&D operation was different than a big company, and whether the waste in the size of the team was absolutely necessary given the method of product iteration that they employed (beyond copying competitors features and being the junkyard dog in the marketplace).
I also think the thing that needs to be acknowledged by people like Ben is that first time entrepreneurs often don’t have access to “fat capital” until they have significant traction—which happens with a combination of luck, timing, and iteration. Famous entrepreneurs are not the mean.
I guess what I really want is a panel discussion with Ben Horowitz, Angus Davis (or Dave Weiden), Eric Ries, and Steve Blank. And it would be interesting for Ben and Angus/Dave (the Tellme team) to talk about pivoting a startup of considerable size and with considerable amounts of capital and contrast that to the product / market fit methods advocated by Eric and Steve.
If you’re looking for some interesting business reading, try to find out what you can about the RIfle framework employed by Tellme as it switched from a consumer business to powering the voice trees of major corporations. I guess the devilish follow up question to Angus/Dave/Ben is: how much of the acquisition value of Tellme was due to adopting a customer development strategy and the size of their business and how much of it was due to the size of their data asset (voice phonemes)—and if they had enough capital to capture the same amount of data as a consumer tool, what would have happened?
Standard Thinking About Business Deals
Recently read on TechCrunch: “Google’s corporate development group has been a bit of a revolving door over the last couple of years… Part of the problem: Google’s corp dev team is, according to our source, hesitant to step on toes or pursue deals that won’t have internal corporate sponsors for integration. Only deals brought to them by others in the company can be pursued, and the corp dev team chafed at these restrictions.”
I find this phrasing to be galling. Having known far too many people that try and do deals, they could learn a lot from the notion of having an internal champion (particularly a technical one). I’d be willing to bet that one of the reasons that Google has been successful with acquisitions is because they have employees that care about the acquired products, rather than people waving hands and smoke about the potential unlocking of value. The same goes for business and product partnerships.