“Each product was an innovation that was one degree away from a technical or scientific ability that Procter & Gamble had from an existing product. For instance, P&G’s entry into Oral Care (Crest, etc) in the 1950’s was driven by experience in Laundry Detergent. And that holds true today where Swiffer was launched based on technology from Pampers (Swiffer Wet is basically a diaper on a stick).”
“The founder, he loves the users. He gathered them together. He tends to them. He’s a New Testament guy, concerned about the least among them, bound by his nature to those who have chosen to follow him.

The CEO, he does the Old Testament stuff, things that require locusts and the jawbone of an ass. Christian theologians, unable to reconcile the many faces of God, created a trinity: the Father is stern, the Son is love, and the Holy Spirit is everything else. It is hard to believe that the founders of our social networks would let us down, and so, at some point, the CEO takes over. He’s not just there to run the company; he’s there to keep the founder pure.”
“If you want to place blame for tarmac delays, bad airline customer service, and nickel & diming fees—look no further than how you yourself purchase plane tickets. As consumers, we choose to purchase services based on any number of criteria that are important to us. In return, suppliers of these services cater their strategies to try to meet our needs and win that business.

If we purchase things as a commodity, it will get sold as a commodity. Plain and simple.”

Evan Konwiser, How We Buy Plane Tickets and Why It’s Ruining Air Travel

Evan is one of the founders of Flightcast. Another little snippet:

The commodity phenomenon has created a perverse incentive system for the airlines. It means the activities that drives their business the most is cost cutting and ancillary revenue generating. Neither of those are productive for the industry. Yes, keeping cost low is a critical discipline, but competing for how low you can go means a disgruntled workforce, an underinvestment in capital equipment, and an operation without the appropriate protective capacity. Generating revenue from ancillary sources creates hassle and inconvenience for the traveler, and an inability to understand the “total cost of the trip” until it’s complete. This creates yet another incentive for the airline: Hide fees as much as possible.

I find scenarios like this interesting for two reasons: 1) Conflict between implicit behavior and explicit desire is always interesting and 2) Businesses with perverse incentives always seem ripe for certain kinds of disruption.

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).”’

Read More

OkCupid Blog, Why You Should Never Pay for Online Dating

This is an awesome look at how business models can create perverse incentives; I love the OkCupid blog. I wonder to what degree somewhat could write something similar about Zynga, etc

OkCupid Blog, Why You Should Never Pay for Online Dating

This is an awesome look at how business models can create perverse incentives; I love the OkCupid blog. I wonder to what degree somewhat could write something similar about Zynga, etc

“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?

“Bill Gates has pulled off one of the greatest hacks in technology and business history, by turning Microsoft’s success into a force for social responsibility. Imagine imposing a tax on every corporation in the developed world, collecting $100 per white-collar worker per year, and then directing one third of the proceeds to curing AIDS and malaria. That, effectively, is what Bill Gates has done.”
“Lots of people who start companies seem to think it will be fun to make something or to sell something to consumers. But it’s not that much fun to provide the cheapest product or service.”
Joel Spolsky, A Real Cool Customer

Joel on why it’s better to sell to businesses, why it’s better to charge them more rather than less money, and why healthy margins are hugely important to startups.

“When you scale animals you can’t just keep everything in proportion. For example, volume grows as the cube of linear dimension, but surface area only as the square. So as animals get bigger they have trouble radiating heat. That’s why mice and rabbits are furry and elephants and hippos aren’t. You can’t make a mouse by scaling down an elephant.”

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.

Net Neutrality & Mobile Neutrality

I borrowed this from Ben. We’ve been fighting a few small battles over at Mobile Commons and have ended up in the thick of this mess. We’re going to stay mum for a few days, but after that there is a serious blog post coming about neutrality, protocols, business, and what happens when there is too much at stake.

Verizon Wireless files suit over FCC auction rules

Verizon Wireless has asked a federal court to overturn open-access rules that the U.S. Federal Communications Commission is imposing on the winner of valuable wireless airwaves to be auctioned this winter.

In a lawsuit filed on Monday, Verizon Wireless asked the U.S. Court of the Appeals for the District of Columbia to strike down the FCC conditions, which would require the winner of the new spectrum to let consumers connect using any device or software.

Currently, wireless carriers restrict the models of cell phones that can be used on their networks. They also limit the software that can be downloaded onto them, such as ring tones, music or Web browser software.

Verizon Rejects Abortion Rights Group’s Messages

Saying it had the right to block “controversial or unsavory” text messages, Verizon Wireless has rejected a request from Naral Pro-Choice America, the abortion rights group, to make Verizon’s mobile network available for a text-message program.

“No company should be allowed to censor the message we want to send to people who have asked us to send it to them,” Ms. Keenan said. “Regardless of people’s political views, Verizon customers should decide what action to take on their phones. Why does Verizon get to make that choice for them?”

Messages urging political action are generally thought to be at the heart of what the First Amendment protects. But the First Amendment limits government power, not that of private companies like Verizon.

This is NOT OKAY!

(via Benjamin Stein)

Online Ad Revenue vs. Print Revenue for Newspapers (WSJ). Wonder why they’re scared as their online readership quickly outpaces their ability to make money from it? (yes—I dislike the word monetize)

Online Ad Revenue vs. Print Revenue for Newspapers (WSJ). Wonder why they’re scared as their online readership quickly outpaces their ability to make money from it? (yes—I dislike the word monetize)