I really like the theme of his most recent post, “Breakage“: you have to be careful with your customers.  You might go years upping prices bit by bit, then all of a sudden lose half your customers before you know it.  Massive swings like that can happen whether making just a slight change to your pricing, or what you offer, or your tactics.  Here’s the last bit of the post: (although you should just read it–it’s short.)

When you hit the breaking point with one person, it might be 1,000 or 100,000 people who do the same thing at the same time. And you don’t get a second chance. They’re gone.

It’s not just money. It’s service. Or trust. Or spam.

You can stretch a rubber band for a long time. But then it breaks.

I heartily agree.  But he neglected to discuss what that company should be doing differently: it’s something so many businesses should be doing, and _especially_ businesses with a big customer base, since it’s so easy in the internet age.  Test.

Test new products internally, then with a limited set of your customers, before offering them to everyone.  Test advertising messaging, test landing pages, test changes to your checkout process if you’re in e-commerce.  And if you need to make pricing changes, absolutely test those changes before rolling them out to every customer.  Testing is the clear victor over focus groups, surveys, or any other method of gauging customer preferences without them actually making the decision in question.  If you ask them how a change in pricing would affect their decision, you won’t get the right answer.  If you serve 5% of your customers a different price, you’ll quickly know if it’s a good or terrible idea.

Maybe Seth’s insurance company, in fact, was merely testing pricing changes, and he happened to be in the 5% of their customers randomly selected to get the highest price increases, year after year.  If so, then Seth’s departure has just given them some very valuable information they can now apply to their pricing model for their customer base as a whole.  My gut tells me Seth’s right, though, and they’re just raising prices for everyone by the same amount, year after year.  If so, then as he suggests, they may have made an unexpectedly costly mistake.

p.s.: There are plenty of businesses where testing prices often doesn’t make a lot of sense, for a number of possible reasons.  At basecamp, for example, simple and consistent pricing is part of what makes them who they are.  I wouldn’t favor pricing experimentation for them.  For amazon, definitely yes.  For a new startup still looking to hit its product/market fit: don’t worry about testing tiny changes–iterate on your whole product.

Since I was given the gift of free techcrunch, I thought the least I could do was give back just a bit with my opinions of companies I learned of that you actually might care to know about.

Each link goes straight to their tc50 presentation video, which is a pretty painless way to learn more, if you’re interested.

Fitbit.  These guys were one of 5 runners up, as were my next two highlights.  They’ve basically got a device about the size of a usb flash drive that you clip on your clothes and wear all day, every day, if you feel like it.  Using some sensors (accelorometer-type, not gps-type yet), it measures your movements and records your level of activity throughout the day and night.  It automagially uploads the data through a wireless base station in your home to their servers.  Anytime you want, you get on their website and see how many calories you’ve been burning, what your activity level has been like, what your sleep patterns have been like, in as much or as little detail as you like in very pretty charts.  There’s a tremendous amount more it’s capable of, in fact–watch the video if that sounds cool.  It’s a one-time $99 purchase. [sorry, realized they don't have a video available. their website is fitbit.com]

Grockit.  I’m not quite sold on using it myself yet, but they’ve made an incredible step forward in collaborative learning online.  Study for the GMAT with your friends, or with any number of people you’ll meet on the site.

Goodguide.  This is something I’ve been waiting for for a while now.  And these guys have seriously nailed it, it appears so far.  It’s an online guide and repository for health, environmental, and social impacts of consumer goods.  Their first focus is “personal care and household chemical” products, and already I’ve used it to decide I need to switch from Coppertone’s Sport Lotion to its Sport Gel sunscreen.  You’d be surprised at the tremendous difference between the two in terms of health risks.

Michael Arrington chats with Peter Thiel.  Great thoughts from Peter Thiel of paypal, facebook, slide, founders fund, and many more on technology trends, bubbles, and how much vc-backed startup ceos should get paid, based on analyzing the performance of past startups (his opinion, to break the suspense: 100k-150k).

Bonus: Tonchidot.  Not a company I would recommend investing in if you’re an investor reading this, but a video demonstration definitely worth watching, just to see what someone has been able to do with an iphone.  They overlay data from the internet on live video of the real world through your iphone.  You’ll have to watch it.

The two sentence version:

In futarchy, democracy would continue to say what we want, but betting markets would now say how to get it. That is, elected representatives would formally define and manage an after-the-fact measurement of national welfare, while market speculators would say which policies they expect to raise national welfare. The basic rule of government would be:

When a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law.

I haven’t yet digested this much, but I wanted to see what other people’s initial reaction was to the idea. Is it something we should be discussing more? Obviously it’s not realistically going to happen anytime soon, but with what we’ve learned about markets even in the past decade, what do you think?

http://www.nytimes.com/2008/08/24/magazine/24Obamanomics-t.html?_r=2&pagewanted=all&oref=slogin

Here’s an excerpt that sums up the gist of Obama’s views.  This came in response to a question, after an hour of economics discussion with the journalist, as to whether or not Obama “had a message that compared with Reagan’s simple call for less government and lower taxes.”  Obama’s reply:

I think I can tell a pretty simple story. Ronald Reagan ushered in an era that reasserted the marketplace and freedom. He made people aware of the cost involved of government regulation or at least a command-and-control-style regulation regime. Bill Clinton to some extent continued that pattern, although he may have smoothed out the edges of it. And George Bush took Ronald Reagan’s insight and ran it over a cliff. And so I think the simple way of telling the story is that when Bill Clinton said the era of big government is over, he wasn’t arguing for an era of no government. So what we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that the government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market. And it’s now a global marketplace.

Now, that’s the story. Now, telling it elegantly — ‘low taxes, smaller government’ — the way the Republicans have, I think is more of a challenge.

Read the article if you want more.  I solidly agree with the bulk of Obama’s general economics positions, at least most discussed in this article, and also that we all need come up with a pretty package for it.  If you come up with something great, let me know.  If you disagree, keep quiet let me know.

Reading through the online essays of Paul Graham, leader and co-founder of Y Combinator (and whom I talk about a lot here), and the blog of James Currier, leader and co-founder of Ooga Labs (my previous post mentions Medpedia, their biggest about-to-release project I know of), convinces me that both these guys have an understanding of how to achieve the biggest impact they can imagine doing something they love.  Despite what I think are similar goals and understandings about entrepreneurship and value creation, they use fairly different approaches.  Both, I think, will create tremendous value, but their different models will have a big effect on the businesses they develop.

Google and Apple are both great companies, and I have tremendous respect for their leaders.  What they do, they do well.  But they go about their jobs differently.  Larry and Sergei have from the beginning seen themselves as the ones with an eye on the vision, looking for the best creators they can find, and helping them unleash their creative energies towards the Google mission.  The  “20% time” engineers there enjoy, the fact that the wide world knows quite a lot about the general day-to-day goings on of the googleplex, and the amassing of talent and technology through dozens of acquisitions all point to a pair of leaders who see themselves as curators over designers.  Steve Jobs falls into the opposite camp, managing the direction of the organization much more directly.  Not to say that apple doesn’t acquire companies at all, but the roughly $1B Apple has put into the effort (compared with Google’s unknown but numerous billions), over a much longer history and with a recently fairly equivalent valuation, says that Apple’s acquisitions seem more designed around profit than innovation.  They prefer to innovate from within.  Even though the companies aren’t even in the same market, their familiarity and success draw these kinds of comparisons.

The same contrasts can be drawn between the self-incubator model of Ooga and others, and the pre-seed  model Y Combinator has pioneered.  Both companies aim to create as much wealth and value as possible by starting and/or growing startups to tackle what they see as important problems.  There’s a bit more emphasis on social value over profit at Ooga, but aside from that, the main difference I see is that of incubating in-house (aka designing) at Ooga, versus finding tiny startups with tons of potential, bringing them into the fold, then unleashing them (aka curating) at Y Combinator.

Which is better?  I’m personally right on the fence: I’m in love with both models.  On one hand, I love making things myself (the Steve Jobs way), and though I’m not foolish enough to think I’m the best at it, I’m smart enough to know that in many cases “just good enough” is good enough.  On the other hand, I love being a part of others’ success, and if I can create more value by helping others succeed, then that could be an even more compelling offer.

But which model is better, as in the one that will “win out”?  Not in the sense that they’re actual competitors in the marketplace–both models can coexist and take nothing away from the other.  But both are shooting for the same goal: generating value and propelling entrepreneurship.  And both have similar requirements to getting started: you need a lot of startup smarts and credibility, and some relatively deep pockets, to really get an incubator or a pre-seed funder off the ground.

So far the evidence is too slim to be very telling as to which can produce more value, just between Ooga and Y Combinator.  Ooga is more recent, supposedly having 5 projects under way about a year ago according to this article, but the Medpedia project looks phenomenal.  Y Combinator has already helped launch dozens of companies (see ‘investments’ here), many of which are widely known already (loopt, reddit, disqus, justin.tv, snipshot), and a few of which have already been acquired (reddit by conde nast, omnisio by google).  Of course, it makes sense that Y Combinator will have more and larger successes–since it picks up, pumps up, and pushes out startups, it scales to a lot more companies and is responsible for a much smaller share of the value created.  And that is the real difference, in my mind–incubators invent and develop companies; microfunders just help with the developing.

It’s also worth noting that these two companies don’t necessarily represent their entire breed.  Y Combinator perfected the pre-seed funding model, but TechStars and a few others belong there as well.  In the incubator camp, Ooga is hardly the first.  IdeaLab is widely credited with pioneering the idea incubator model in the 90s (see their massive list of insanely successful spin-offs, including citysearch, commissionjunction, compete.com, overture, …).  Not included in the category with Ooga and Idealab are the nonprofit “business incubators” that offer counseling, shared office space, and business services to pre-existing startups.  Y Combinator actually looks a lot like these nonprofit business incubators as far as the basic services provided and the startups targeted, but where the nonprofits are usually funded by regional government and incented to just provide support as needed, Y Combinator gets paid via ownership in the startups and does everything it can to make the startups as valuable as possible upon leaving the program at the end of 3 months.

A more abstract way to compare the underlying designer and curator models of starting and growing new companies to drive innovation is to look at which better fits the big trends that seem to be dividing strategic winners and losers recently–here are a few I can think of: open beats closed, listening beats talking, good beats evil.  I don’t have the answer to that, but rest assured I’ll keep working on it, and let you know as soon as I’ve got the answer.  =)  In seriousness, though, if you have thoughts on this, I’d love to hear them.  If you’ve seen a discussion on this elsewhere, please point me to it.  I care a lot about this stuff, as you can see from the incredible length of this post.

]]> http://blakeborgeson.com/2008/08/16/ooga-ycombinator-apple-google-designer-curator/feed/ http://blakeborgeson.com/2008/08/15/should-everything-people-use-be-free/ http://blakeborgeson.com/2008/08/15/should-everything-people-use-be-free/#comments Fri, 15 Aug 2008 21:31:29 +0000 blakeborgeson http://blakeweb.wordpress.com/?p=44 People justifiably have strong opinions on the “everything’s free” model that google, facebook, linkedin (mostly), and most of the biggest up-and-comers in the new web espouse.  The conversation reached mass proportions a while ago when it made the cover of Wired, but I found a couple more interesting perspectives this week, and they tie in well together:

• The economics of creativity - This post comes from James Currier, founder of Ooga Labs, the company behind the Medpedia project, which looks awesome.  He tells of how his great-great-grandfather married into royalty for his musical abilities, while today it’s tough for an incredibly gifted pianist to make ends meet.
• If someone can do it for free, it will inevitably be free - a discussion at Hacker News (of YCombinator) with (yep, you guessed it) some more good insights from Paul Graham.  [Click the link at the top of that discussion if you'd like to read the blog post the discussion references.]

[ I wrote this two weeks ago, so that discussion above at YC is a little stale.  Didn't post it right away for some reason. ]

The NYTimes and others write in detail about what the US says on one side, and what India and China say on the other, about what went wrong, and who’s the stubborn one that cares more about guarding against risks to their own pocketbook than moving forward the world economy.  But, like a lot of news, there’s very little discussion of why anyone should really care much about all this.

I believe the standard position I hear from economists: that the principle of free trade is good, just like free markets in general, but that it causes problems for the people on the losing side of the equation when wealth and jobs are redistributed within a country and throughout the world.  Still, it’s not second nature for me to think of what some real ramifications could be of free trade stopping its recent forward march, or of turning around and retreating.  But I happen to be reading a book that does a fine job of discussing that.  Saving Capitalism from the Capitalists, which generally is about the benefits, causes and curses of free markets, spends some time on free trade, and its importance to free markets and competition within a country, so I thought I’d share a few lines.

First, a huge problem free markets generally run up against is the whims of democracy.  To illustrate this, the authors discuss what happens once a country has had a free market for a time–long enough to have some very successful large companies that now dominate their industries.

Those in power–the incumbents–prefer to stay in power.  They feel threatened by free markets.

So you’ve got big, successful companies that now dominate their industries and have tons of cash, and these guys are looking to put a bit of a damper on the “free” aspect of markets and competition to maintain their position.  The winning firms want to hold onto their power.  They’ve got cash.  The distressed (to a large extent, the ones who lost their jobs) are numerous, loud, and rally in the name of reversing the damage.   In their words,

…incumbent groups ride the coattails of the distressed back into power.

The two groups combine their political influence to enforce regulations on the market.  For the dominant companies, the goal is to restrict competition.  For the distressed workers, it’s to bring about a system more like the old days, with less risk and less change foreseen.  The main defense against regulating away competition, which eventually makes the industry stagnate and under-perform compared to the industry in other more competitive countries,  is opening the country’s borders to allow trade with other countries.  Competition from the outside prevents our government from regulating markets out of existence in the name of smoothing risks and preventing further damage to the distressed.

Open borders limit the ability of domestic politics to close down competition and retard financial and economic growth.

Why don’t we hear about the effects of closed borders on developed countries more these days?  Mainly, the authors believe, because these days it’s quite hard for developed countries to successfully keep out foreign competition, given how open the world as a whole has become.

A country’s borders are porous.  When the rest of the world is open, it is difficult for any single country to put up barriers to the flow of goods, capital, and people.  … So when the world is open, its borders will perforce be open unless it is a police state.  Incumbent interests will be subdued.

But if we allow the world as a whole to drift backwards, we risk those rules of the game changing significantly. Countries have the ability to close their borders en masse and keep out competition to protect incumbents and ailing industries.  The Doha Round of talks, at the beginning, was supposed to outline a set of commitments among most of the largest economies in the world to continued opening-up of borders and freeing-up of markets that are currently not very free.  In the end, the hope was to at least get everyone to commit to at least keep trade about as open as it currently is.  Unfortunately even that failed.

So let’s do what we can to keep from rolling backwards on free trade.

[Update: As I should have expected, the Economist put out a piece in their latest issue, online just a day after my post, with a lot better treatment of specifically what the eventual goal of the Doha talks at the end were, and what that failure specifically means: The Doha round...and round...and round]

+ Launched 6 weeks ago, but I just heard about it: zembly.  Coming out of Sun Microsystems, zembly is an online social simple software development platform, for creating facebook apps, meebo apps, widgets, and iphone web apps.  To explain, you can go to their website (if you can get into the beta, which is somewhere in between private and public I think), see the top apps created so far, copy one over into your account, modify it and publish it to facebook right there, on the spot.  They host the apps for you.  Its functionality is definitely limited so far, but it seems incredibly promising.  We need easier ways for more people to develop and share better software to use all over the place, and the web as a true software platform (level 3 in Marc Andreessen’s world) is a big step in that direction.

+ More VCs, and more people in general, should publish their ideas openly like this: YCombinator: Startup Ideas We’d Like to Fund.  Paul Graham, point man and founder at YCombinator, writes essays about startups and whatever else he thinks is important, and they’re almost all phenomenal.  A few of my recent favorites:

• Lies we tell kids - unlearning the lies we’re told growing up is hard–are they worth the protection they provide?
• The future of web startups - web startups are easier to get going than any startups ever have been–what does that mean for their future and the future of the internet?
• How to disagree - to-the-point guide to constructive argumentation.

+ Writing a postmortem on a failed startup is incredibly valuable to the community, and I’m sure it takes guts.  They often contain excellent insights better shared than kept close, and this is no exception: Monitor110: A Post Mortem.  If you follow fred wilson or brad feld, you’ve seen this already.  If not, here’s the author’s list of the “7 deadly sins” that he believes together prevented the company’s success:

1. The lack of a single, “the buck stops here” leader until too late in the game
2. No separation between the technology organization and the product organization
3. Too much PR, too early
4. Too much money
5. Not close enough to the customer
6. Slow to adapt to market reality
7. Disagreement on strategy both within the Company and with the Board

Here are some excerpts, if you’d rather not click through.

The method:

The statistical test featured in the study is known as the “False Discovery Rate,” and is used in fields as diverse as computational biology and astronomy. In effect, the method is designed to simultaneously avoid false positives and false negatives — in other words, conclusions that something is statistically significant when it is entirely random, and the reverse.

The result:

… when analyzing their entire fund sample, with records through 2006, this proportion was just 0.6 percent — statistically indistinguishable from zero, according to the researchers.

Some likely explanations:

WHY the decline? Professor Wermers says he and his co-authors suspect various causes. One is high fees and expenses. The researchers’ tests found that, on a pre-expense basis, 9.6 percent of mutual fund managers in 2006 showed genuine market-beating ability — far higher than the 0.6 percent after expenses were taken into account. This suggests that one in 10 managers may still have market-beating ability. It’s just that they can’t come out ahead after all their funds’ fees and expenses are paid.

Another possible factor is that many skilled managers have gone to the hedge fund world. Yet a third potential reason is that the market has become more efficient, so it’s harder to identify undervalued or overvalued stocks.

A friendly reminder:

Whatever the causes, the investment implications of the study are the same: buy and hold an index fund benchmarked to the broad stock market.

[thanks to umair haque for including this in 'Essential Reading']

In this video, we learn about some pending legislation to retroactively pardon the entire Bush administration for certain violations of the Geneva Conventions starting 9/11/01.

via blurb.rahmin.com - press the button - President BUSH PARDON’s HIMSELF via congress for… ‏

I had been planning on using something like tumblr or posterous for that, or just posting that stuff straight to friendfeed, but since it seems like subscribing to people’s blogs is still the easiest way to see what they have to say, I’ll be using this blog to share that sort of stuff.

To start that off, here’s a pretty sweet site you should definitely check out if you use delicious for bookmarks:

http://favthumbs.com/blakeweb

It generated a nice looking thumbnail grid, like searchme, for all my bookmarks.  I didn’t even have to create an account.  I just went to that page, and it pulled up and thumbnailed all my delicious links from delicious.com/blakeweb.  Makes it super-easy for me to find something I bookmarked a while ago.

Oh, and I also rethemed this blog.

I didn’t plan on writing two posts about this, but there was so much to think about once I got into the topic that splitting up the two big questions Umair brings up seemed like the smart thing to do.

I’ll get right to the point.  Here’s another link to Umair’s post, if you’d like to read it first: A Manifesto for the Next Industrial Revolution.  The end of his post gets into suggestions for big sustainable opportunities to pursue, which goes beyond what I think I can talk about in a single post.  This post is about how an existing business can think about sustainability.

How can Businesses Make the World Better?

This question assumes, as Umair strongly believes, that economic progress doesn’t appear to be lining up with improving welfare and prosperity for everyone, as many of us have either hoped or assumed (or for cynics, doubted) it would.

The world is getting phenomenally richer – but the costs of that wealth seem to be endemic poverty for vast swathes of the world’s population, the poisoning of the water we drink, the pollution of the air we breathe, and the fraying of the social and cultural fabric that binds us together.

I agree with him regarding many aspects, (including allocating environmental costs), but regardless I don’t feel like you have to agree 100% with the above statement to appreciate a discussion of how to improve a system that could clearly stand some rethinking.

Restructure your Thinking around Sustainability

The first way to make the world better is a DNA (philosophy, mindset, fundamental strategy in Umair’s vocabulary) shift to sustainability–not just environmental, but people sustainability and market sustainability as well.  Umair says below that technology alone will not achieve a sustainable economy, and I’ll give him that, though as he admits, technological advancement will continue to play a critical role making the world better.  He just calls the DNA shift harder, and he may be right, since it’s a departure from the present course of most businesses.

Even if we invent a magic energy or food source tomorrow, it does the world little good if it’s in the hands of a Bill Gates 2.0 – the amount of new value that’s created is minimized. Conversely, it also does us little good if it’s in the hands of a Ford 2.0, who’ll just push-market next-generation gas guzzlers that put us squarely back into an energy trap.

The real problem is that the industrial economy is riddled with incentives to rip your head off, sell you lemons, maximize so-called “profit” at all costs, and exert power against you – not for you. That’s why it seems that pain, suffering, and value destruction are deeply embedded in the very DNA of our rusting, industrial-era economic system itself.

And that means that though technology is necessary, it’s not sufficient. What’s harder – and what truly unlocks new value – is new DNA. The fundamental question new DNA must answer is this: how do we organize and manage resources so they’re not depleted, crushed, strip-mined, and slashed-and-burned?

We need company and organizational DNA to get reinvented with a long-term view towards creating sustainable businesses and a sustainable world.  For a terrific perspective on that idea, Yvon Choinard’s book about starting and running one of the most sustainable companies out there (patagonia) really opens your eyes to what kind of a shift in mindset Umair is talking about.

Why be Sustainable?  Is it a Moral Imperative?

One reason to go the sustainable route is if you believe it’s a moral imperative–that it’s actually unethical for a business to operate knowingly in a way that is not sustainable, even if it’s legal.  However, as one of the commenters on Umair’s post points out, I think it’s going to be difficult for businesses to come together to agree with that until a new generation of business leaders, raised with all this talk of sustainability, takes hold.  That means you’re putting yourself at a competitive disadvantage by being sustainable, which means that, until the government steps in and regulates industries across the board, allocating environmental and social costs more effectively, sustainable companies are going to be on the down-and-out.

Should businesses sacrifice themselves for the ethical opinions of its leaders, even when not asked by the law? That’s a tough question for a private company.  As for public companies, in the US, leaders get taken to court for acting counter to the interests of shareholders.  To me, this means that the moral imperative is instead for both companies and individuals to push our government to reform the regulatory environment as quickly as possible, towards more effectively lining up with the realities of life on earth as we understand them now.

Long-term competitive advantage.

So how should business leaders, investors, and entrepreneurs see sustainability in our current business environment?  As a source of long term competitive advantage.  Work with politicians, if possible, to help them understand the costs and concerns associated with your business that aren’t accounted for in today’s regulatory environment.  Educate customers as to what needs fixing in your industry, what you’re doing about it, and how they can help, by voting at the ballot and with their purchasing decisions.

And think long-term.  Allocate costs correctly yourself in preparation for the day, hopefully not too long in coming, when the regulators force companies to do so.  Brag about it to your customers.  When you know where the business environment is headed, you can swim with the current instead of against it, and prepare yourself to be at an advantage when things settle out.

What does this have to do with most companies?

Loads of companies, especially in the internet space, can remain blissfully ignorant of greenhouse gases, global warming, and starving people elsewhere in the world with no consequences.  What should these companies and entrepreneurs make of all this talk about sustainability?

I think sustainability in the broader sense, beyond the environmental sustainability most people discuss, is about being honest about what you know–with yourself, your employees, and your customers.

Here are a few standard dishonest tactics:

• manipulation (hiding important facts for your benefit)
• bait and switch (say, introducing a new opt-out advertising mechanism without warning, like beacon into facebook)
• push marketing a product that you know destroys wealth or value in the long run (umair’s ford 2.0 example, though I know too little about ford’s history to point a finger specifically at them)

If you wouldn’t be comfortable explaining to an audience of friends and family why you made the strategic decision you did, to me that’s not a sustainable strategy.  To agree with that, you have to believe that in the end, the truth will out, and that trust matters.  This broader view of sustainability loops back into my previous post about employing “be good” as part of your company strategy.

In my next post I’ll look at the second big question Umair discusses: How should we go about solving the world’s big problems?  I’ve been thinking about it a lot recently, so it should be interesting to try to put into words.

Please comment if you like.

His talk was great in my opinion, and was really insightful for me since my exposure to business sales strategy is fairly limited.  His advice ranged from the highest level ideas about your strategic approach to sales down to how to best look the person in the eye to tell if they’re really a qualified prospect.

The general theme was how to break into a b2b market in a downturn as a new startup.  Below I’ve recounted the overall flow as best I could remember–next time maybe I’ll remember to bring a small paper notepad to an event like this.

• In good times, as a tech company you’re usually targeting the head of IT.  Usually you’re making a product for particular users in the company within a specific zone of the company, for instance you’re salesforce trying to break into supplying companies’ sales teams with saas crm.  IT in good times has maybe 15-25% of their budget to play with.  I can’t remember the term he used for that money.  But they’re basically supposed to use that to the best of their ability to make the company better equipped to be more productive and efficient.
  • In those times, you buy leads, and do any form of lead generation you can think of to dredge up lists of the IT heads who might be interested in buying your stuff.  A good indicator, for instance, is if they currently have a product of one of your competitors, and you think you have a strategic advantage for that organization.
  • Big established companies are extemely good at all this.
• In bad times, the excess money in IT gets cut before almost anything.  So now, there’s no money left to spend on new tech.  You have to have some method for getting money taken from somewhere else.
  • Big companies aren’t as good at this–it takes a more manual, methodical, personalized approach for each potential customer.
  • You’re still hoping to provide something of value to a particular zone of the company, say sales, but now, in order to make the sale, you have to target someone with the power to reallocate budget.  That person is generally going to be a top-level executive, tasked with profit-loss responsibilities.  In other words, only someone who’s responsible only for the profits they generate, regardless of how they’re generated or where they spend their budget, is going to be able to reallocate in bad times to buy something new.
  • You can’t find these people using lead generation.
  • You have to directly target the company, learn about the executive, then get referred for a meeting.
    • You must have a direct connection to the person.  Find one.
    • Convince that direct connection that you’ve got a hunch that this company could greatly benefit from your product for these reasons, and tell them how grateful you’d be if they could recommend to the target that a meeting be set up to discuss the solution.
    • Your highest level person (founder/head of sales) has to be the one doing this.  They need to get this first meeting and go to the first meeting, otherwise there’s basically no way to get a meeting with the top executive you’re shooting for.
  • The goals of the first meeting:
    • Sell them on the fact that they have a serious problem; read what kind of person they are
      • conservative: clearly beyond a doubt you have to save them tons of money
      • pragmatic: give them the symptoms you believe they might have in their company of a serious problem your product solves
      • visionary: show how your product will set them apart and open up tremendous new opportunities to pursue
    • Qualify them by getting a completely convincing confirmation that, if you do a week-long study with their people to figure out their situation, then present a convincing proposal for your solution, they’ll follow through and go to the mat for you to make it happen.  If you’re not convinced, they’re not qualified.  Don’t waste your time. Follow your gut.
  • The research period and proposal delivery
    • Learn as much as you can about everything you could use about the company and how they’ll benefit from your product.  That will help you in this sale and in honing your product and pitch for later sales.  Get a green light to speak with basically anyone.  This is when you send in your salespeople and I think work with them as well on site, helping them learn the lay of the land for your target customer and see how to put together the proposal.
    • Drag out the delivery date as long as absolutely possible.  Send an outline when you finally send something, not the final proposal.  Keep them wanting the proposal until they really need it and are ready to sign that day, because if you send it before they’re ready, they’ll hold onto it, and that will quite possibly be the end, but you’ll kill yourself waiting to hear back.
  • Close with your top guy.
• Once you’ve made a few good sales in this way, you have far more knowledge of your potential customers and their problems, and you have momentum to talk about, so you should be on the way to scaling up.  That’s about as far as the talk went.

Lots of great visual descriptions scattered throughout, like describing the barrier to entry in a new market as a membrane, with self-defense mechanisms built in to keep people exactly like you out until you’re a proven solution, made the talk entertaining and memorable.  If Geoffrey Moore is speaking at an event you can attend some time in the future, take advantage of it.

If you’re reading this and have a favorite book of all time on selling to businesses as a startup, please post a comment. Thanks!

Here’s the 2-pager that brings the point home. Here’s the Nick’s home page for the argument, with links to the full article and other perspectives and thoughts on the question, for the more curious.

Here’s the spoiler, if you’d rather have the 10-second version.

Let me state what the conclusion of the argument is. The conclusion is that at least one of the following three propositions must be true:

1. Almost all civilisations at our level of development become extinct before becoming technologically mature.
2. The fraction of technologically mature civilisations that are interested in creating ancestor simulations is almost zero.
3. You are almost certainly living in a computer simulation.

The big reason, in my opinion, why this idea isn’t more prominent in discussions today, which Nick also points out, is that whether or not our world is real or a simulation doesn’t really affect how we should lead our lives. I’m sure there’s a philosophical term for that kind of question, as there seem to be a lot of questions like that scattered throughout philosophy. If you know it and have some more examples, kindly let us know in the comments.

[Source: http://www.simulation-argument.com]

The West will not only face a dearth of water, but also large shifts in when it is available. Water supplies there will be transformed by midcentury, with mountain snows that provided a steady flow of runoff for irrigation and reservoirs dwindling. That flow will be replaced by rainfall that comes at times and in amounts that make it hard to manage, the report and authors said.

Also, to put this into context, “the report’s emphasis [is] on the next 25 to 50 years, when shifts in emissions are unlikely to make much of a difference in climate trends.” So there’s not much we can do about it, in the authors’ view.

So it’s understandable but important that not only will the amount of precipitation be changing a lot, but the type and timing of that precipitation is likely to change dramatically, so much so that I’d guess skiing in the rockies will be dramatically affected. And keep in mind that this conclusion comes from a review of recent climate change studies, summarized and signed off on by the Bush Administration. We’ve come a long way in a few years.

This is of course not to say that a good chance of not being able to ski in the continental US within a few decades is up there with the biggest ramifications of climate change. It just drives the point home that life is going to be measurably different a few decades from now in many ways we may not yet realize–we won’t just be able to crank up the a/c a bit in the summer and enjoy the milder winter and be done with it. And it seems it’s already too late to stop some of those significant changes.

[Source: New Climate Report Foresees Big Changes in Water Supplies and Agriculture - NYTimes.com]

Anyway, after reading this particular post, where Andreessen discusses a personal meeting he had with Barack Obama about a year ago, I realized he had a lot to say that I wanted to read. He only really started blogging in July of last year, but in the first 3 months he was extremely prolific. I thought it would do me good to go back through his archives, and the posts were so good I started summarizing them for future reference, and then I thought, why not post the summaries. Perhaps it will give you easier access to his great thoughts.

This is only the first 3 months of archives, but it hits the high points of most of his bigger essay-style advice posts. I’m crossing my fingers that this kind of summary is seen as helpful rather than plagiaristic in the blogging community. If I don’t have the plagiarism police knocking on my door after this, I’m thinking about doing the same thing with some of Paul Graham’s ‘essays’–I’ve gotten a lot out of those as well, but I imagine few people take the time to read such long posts.

I didn’t provide links directly to the posts, but they’re in chronological order, so you should be able to find them at blog.pmarca.com. And I’m sorry the formatting didn’t come out well, but unless I get a lot more readers here, there’s no way I’m reformatting all this. =)

• what apps to use on the mac 6/3/07

⁃ Get adium ⁃ blogging: marsedit ⁃ for php, use zend ⁃ delicious: cocoalicious or delibar ⁃ flicker: 1001 ⁃ twitter: twitteriffic ⁃ parallels with xp, never vista

• productivity porn 6/4/07

⁃ don’t keep a schedule: allows you to do whatever’s most important and maximize FLOW ⁃ 3 lists: todo, watch, and later ⁃ each night make a todo list of 3-5 items on a 3×5 card for the next day, keep it, write down anything you get done ⁃ structured procrastination - get stuff done while avoiding something you hate ⁃ strategic incompetence to get out of being responsible for stupid crap ⁃ email twice a day ⁃ don’t answer the phone. give a second number to all but the most important people (top friends, family, boss) ⁃ hide with headphones ⁃ not enough time to do everything - focus on what you love and turn the rest down ⁃ do what you love! that’s the point of all these tricks anyway

• web 2.0 isn’t a real thing

⁃ what defines success is a compelling product

• how to hire 6/6/07

⁃ what are you looking for
⁃ drive - what have they done to show it, and can you see it in their eyes ⁃ curiosity - love of learning, discovering ⁃ ethics
⁃ the process
⁃ write the process down! ⁃ test basic skills ⁃ plan out interview questions ⁃ pay attention in the interview to the little personality things ⁃ pay attention in the reference calls (do reference calls!) ⁃ fix bad hires fast, but not too fast

• vcs 6/8/07

⁃ who should get funded:
⁃ vc’s invest in 10: 7 strikeouts, 2 base hits, 1 home run if they’re good: they need you to be the home run ⁃ their investment horizon is 4-6 years, and they need a good chance of a 10x return, meaning you need a hockey stick growth model within 4-6 years and be ready to ipo or sell in that time ⁃ if you fit the bill, you should go for it - grow as quickly as you can ⁃ if they turn you down, it’s usually 1 of 3 reasons, and if they tell you which, thank them
⁃ don’t see the 10x leverage ⁃ idea doesn’t look proven enough ⁃ your team doesn’t look solid (usually either the tech lead or the ceo)
⁃ vc’s investors are largely institutions, largely nonprofits ⁃ assume you’re just getting the money ⁃ you should ask for any help, not assume they’ll give it without asking

• sci fi reading

⁃ read rainbows end now ⁃ true names is vinge’s earlier one from 93 or so about today ⁃ also put accelerando - best singularity picture - in my amazon list and on my reading list

• political analysis book recommendation

⁃ quote: I’m going to recommend a lot of books here on blog.pmarca.com, but this is one of the most important you’ll ever read: Philip Tetlock’s Expert Political Judgment: How Good Is It? How Can We Know?.

• movie recommendation

⁃ infernal affairs - the departed was a remake of this hong kong film 4 years later

• guide to startups 2 - when the vcs say no

⁃ you need at least 1 business person capable of running the company and one technologist, the genius ⁃ saying you can make lots of money by getting 2% of your huge target market is naive - if you’re saying the big guys will have 98%, then they’ll kill you ⁃ marketing - make sure you’ll get more in each customer’s revenue than sales and marketing will cost per customer acquisition (”especially true in small business market”)

• startups 3 - getting ready for vcs - find, prepare

⁃ pick the right ones - investigate their focus, and only choose the right ones ⁃ pitch 3, if they say no, then 3 more…after 8 if they’ve all said no, something’s wrong. 3 saying no means nothing possibly ⁃ read vc blogs ⁃ blog

• startups 4 - the only thing that matters

⁃ being in a great market trumps everything else ⁃ product/market fit is THE cause of success or failure ⁃ focus exclusively on that–you can basically ignore every other aspect

• startups 5 - about big companies

⁃ don’t do a startup that requires a deal with a big company - there’s almost no way to know what they’ll do ⁃ if you’ve got an opportunity, by all means take a stab at it, but don’t count on it–see first note

• startups 6 - how much money

⁃ as much as you can, just like venturehacks says, without screwing the liquidation preference ⁃ you want a lot because
⁃ you don’t know for sure what will stick ⁃ bad times might hit
⁃ if you get a lot
⁃ don’t fall into just hiring mode and get bloated and lazy ⁃ do tell everyone in the company that getting funding isn’t an accomplishment: you have to get a product/market fit ⁃ splurge on monitors and chairs ⁃ scrimp on everything else ⁃ don’t hire too many people (super-important); don’t pay people too much (not as important) ⁃ act like you have a lot less ⁃ stick to progress deadlines

• big companies: retaining people

⁃ people want to stay at a winning company, so start winning ⁃ lead like you mean it - here’s a good quote: You don’t need to be certain of all the answers! Colin Powell says, “You know you’re a good leader when people follow you, if only out of curiosity.” So project boldness, and have that glint in your eye where people know you’re up to something big. ⁃ don’t create a new ‘innovation division’ or ‘growth team’ maybe — that tells everyone else they’re not supposed to innovate, and they’re on the b-team - spread innovation everywhere ⁃ don’t give huge spot equity or bonuses - makes the rest feel like the b-team, and angry if they half-deserved it ⁃ 5 main causes of retention: strong coworkers, interesting work, learning and growing, winning, and a high stock price

• book recommendation 7/18/07

⁃ the four steps to the epiphany - steve blank - on reading list

• sold opsware to hp 7/23/07

⁃ thanks lots of people.

• brainstorming doesn’t work 7/31/07

⁃ a couple of studies quoted indicating that people come up with more and better ideas separately than together

• startups 7: intial business plan doesn’t matter 7/31/07

⁃ no battle plan survives contact with the enemy
⁃ microsoft: software->os ⁃ oracle: cia consultancy->productize database ⁃ intel: memory chips->cpu
⁃ the product/market combo that will work is really really hard to know, and you usually don’t when you start

• age and the entrepreneur 1 - 8/8/07

⁃ read this a while ago, and skimming again, picked up most i think ⁃ overall output value correlates strongly with quantity of output -> more quantity doesn’t mean less quality - productivity and creativity go together ⁃ the earlier you start, your lifetime creative output is correspondingly higher ⁃ intelligence beyond a pretty low bar (120) seems to be irrelevant ⁃ the peak of creative output varies with the field between late 20s and 50s ⁃ poetry, pure math, theoretical physics: late 20s - early 30s ⁃ writing, history, philosophy - 40s-50s

• luck and the entrepreneur 1 - 8/14/07

⁃ read a while ago as well ⁃ pmarca summarizes and reworks a main point about luck and discovery taken from a book he recommends called chase, chance, and creativity, which is in my reading list ⁃ 4 types of lucky discoveries
⁃ 1 - uncontrolled, but still favors movement over stagnation ⁃ 2 - brought about through something not directly intended to bring it out, but favors curiosity and experimentation ⁃ 3 - like 2, but also requires understanding, memory, and synthesis to put the pieces together - observation is not as simple ⁃ 4 - favored by a purposeful lifestyle, eccentric hobbies, etc

[update: I added in the links to the posts.  In looking through this list again, I should say again this wasn't meant to be all-inclusive in picking out useful information from pmarca's blog--just notes I made for myself to reference that I then decided to post.]

Disclaimer: I want to make the point that I don’t agree with every single argument the authors make. I think it’s understood in the blogging world that when I link to someone else’s post, I’m not saying I agree with it 100%, but I just want to make sure. I’m just pointing to something you should read and digest for yourself. Hopefully soon I’ll be comfortable leaving this disclaimer out most of the time.

First is Paul Graham’s most recent essay, entitled ‘be good‘. I guess he likes to write long blog posts, so he calls them essays so you won’t be turned off by how long it is–except that now it’s called an essay, which is equally off-putting to the people who avoid long blog posts. Anyway, I’m not familiar enough with YCombinator to say much as to what Paul Graham’s investment record is like with YC, but this essay (calling it that at least makes it sound more serious and sophisticated I guess) is very well written.

Overall Paul’s essay captures a lot of my own opinions on how valuable it is, to both companies and individuals, to be in the business of making the world a better place for everyone.

There’s a lot of external evidence that benevolence works. But how does it work? One advantage of investing in a large number of startups is that you get a lot of data about how they work. From what we’ve seen, being good seems to help startups in three ways: it improves their morale, it makes other people want to help them, and above all, it helps them be decisive.

He comes in at the end to reiterate that he isn’t just pushing the ‘be good’ mantra because he thinks it’s morally superior, and therefore the right thing to do in and of itself.

When you write something telling people to be good, you seem to be claiming to be good yourself. So I want to say explicitly that I am not a particularly good person. When I was a kid I was firmly in the camp of bad. The way adults used the word good, it seemed to be synonymous with quiet, so I grew up very suspicious of it.

You know how there are some people whose names come up in conversation and everyone says “He’s such a great guy?” People never say that about me. The best I get is “he means well.” I am not claiming to be good. At best I speak good as a second language.

So I’m not suggesting you be good in the usual sanctimonious way. I’m suggesting it because it works. It will work not just as a statement of “values,” but as a guide to strategy, and even a design spec for software. Don’t just not be evil. Be good.

Next, I’ve been reading Umair Haque’s blogs, bubblegen and his new hbs-located blog, for some time, and he is one of the most insightful writers I’ve found. He sometimes goes way beyond what he really means with sweeping statements and broad generalizations, but you get used to that and you realize he’s usually just in a hurry, which is why he’s often the first (I hear of) to make very original observations. In his most recent post on creating real value, he states very specifically that most of the ‘revolutionary’ innovation coming out of startups and venture capital these days is still focused on adding on useless features and providing new ways for people to waste time, despite some big problems in the global ecology and the global economy. As usual, he’s got some pretty harsh criticisms for the world at large.

The self-indulgence of today’s so-called revolutionaries in a darkening economic twilight is a recipe for strategic suicide.

So here’s my challenge. If you’re a revolutionary, then be one: put your money where your mouth is, and fix a big problem that changes the world for the better - if you really have the courage, the purpose, and the vision, that is.

At the bottom of it, both of these authors are talking about generating real value. The capitalism ingrained in the anglo-american core, at least for nearly everyone in the business world, tells us that the profit you make is the real measure of the value you’re creating. If enough people are willing to pay you more for something than it costs you to provide them with it, then congratulations, that’s value right there. You earned it, and now you get to buy stuff with it.

I definitely agree with that, as stated, but it leaves out at least a couple of considerations:

• If the rules of the game (capitalism; the market) are drawn incorrectly (e.g., apportioning the costs of pollution or other environmental damage), and in such a way that you can profit more by taking advantage of that error or omission, are you really creating as much value as your profit says?
• If you manufacture a sub-par or overpriced product, but you’re able to convince people to buy from you versus your competitors through manipulation (not presenting the whole truth), are you really creating value?

In the first situation, people look to experts and the government to set the rules correctly and adjust them as needed to keep value creation aligned with profit creation. Ideally that’s great, but is that a reasonable expectation, especially when people are saying that the government is owned by the companies, not by its citizens? In the second, you can always argue that your customers are responsible for their own buying decisions, and that obviously they’d rather have your product than the money they gave you–that’s why they made the purchase. In a world where full and complete information on companies and their products, sources, and practices is freely available and easy to use, I’d agree.

I think my main point is that, while it’s easier, in my opinion, to use profit as the judge of value in business, it can very often lead you to the wrong decisions. I think a better compass is impact, and by that I mean the change for the better you make in the world. And since that’s very difficult to quantify in full and think about in day-to-day business decisions, I think most of it is wrapped up in doing better than anyone else can for your customers and future customers and adding to their lives in a way you feel is really meaningful.

[youtube=http://www.youtube.com/watch?v=uIn-sMq8-Ls]

robots on youtube

(Thanks to NewScientist, via pmarca.)

The main point is that some things about the startup/vc world are pretty broken, and a secondary market for shares in private companies is an interesting approach to fixing them that Fred brings up for discussion. Right now, vcs operate with some stringent constraints on how they can invest and what returns they need to see in what timeframe–see Marc Andreessen’s first post about vcs here for a good rundown. The paths to generating a sufficient return to the investors in new companies within the first few years are 1) to grow the company large enough to sell off part of the company in an IPO, which is hard and uncommon, especially when the public markets are taking a beating, like now, and which also legally requires the company to jump through all kinds of crazy hoops to guarantee regular citizens have the information they need to make an informed decision to invest in the company; or 2) to sell the entire company to an acquirer, usually private equity or a big company like Google or Microsoft in the tech world. So really, the main way right now for the initial investors and founders to not only get money but also retain ownership is IPO, which is operationally challenging, and next to impossible when the market for it is like it is right now. So what ends up happening instead is that the company gets bought, the founders and investors get paid, and the acquiring company usually doesn’t care quite as much about the bright future the company had as it does about integrating the technology, the users, and the technical team into its operations.

So it seems like one way to solve this quandary is to let new investors come in and buy a chunk of the company. The original vcs get paid a good chunk, so their investors are happy. The founders get paid a good chunk, and also retain ownership in the company, keeping them very vested in its future. The new investor gets the chance to buy stock, basically, in an incredibly awesome startup before anyone else, because it really understands the market and is willing to do its homework to make sure it’s a smart investment. Rather than getting rolled up into a big company, the startup remains independent and has the chance to continue to pursue the market-changing or world-changing long-term vision its founders had when they started it in the first place (at least I’d wager they had a pretty good vision, if the company did as well as we’re talking here).

So here’s Fred’s blog post again where all the discussions take place, and that discussion in and of itself is extremely educational. If you want to see how a really great vc, both performance-wise and mentality-wise, thinks about his job, scan down the page and read Fred’s comments and the surrounding discussions.

And here’s a link to the short version: a video interview Fred gave a couple days after the blog post briefly outlining the idea.

[slideshare id=367863&doc=startupmetrics101aarrrpdf-1208898881815937-9&w=425]