Continue Reading]]> In the early days of the App Store, search wasn’t really that important. With relatively few apps (and very few good apps), the directory/browse experience was ideal. For those of you who were around/pubescent during dotcom #1, that might remind you of a nimble upstart at the time– Yahoo. They proposed to categorize and organize all of the worthwhile content on the internet and did a truly outstanding job– for a while. Eventually, the web got too big and Yahoo Directory collapsed under it.

Enter: Apple. Proposing to categorize and organize all of the world’s apps. You can see the cracks forming. So what will Google do?

Mark my words, Google will onebox mobile app results. Hell, it might (should?) add an “Apps” vertical. If it did, it’d almost instant eclipse the App store in importance for most developers.

I know, I know.  It’s a bold prediction.  Hear me out.

Google has been working on search innovation for a decade and they’re getting damn good at ferreting out intent from your search queries.  In recent years, they’ve done what’s called oneboxing.  If they can confidently guess what information you want (or at least what search vertical you’re interested in), they tack it onto the top of the search results.  You’ve seen it thousands of time now.  Search for “weather seattle”, a stock ticker symbol like AAPL, or append the word “video” to any search.  Despite their brutal campaign against the folks in the world of SEO, Google is still better at search than anybody.

If you’re searching in a mobile browser for “Angry Birds”, there’s a pretty good chance that you’re looking to download it– and Google can trivially know what platform you’re searching on and which version might be best for you.  If you search for “currency converter” from your mobile phone are you well-served with a JavaScript-driven converter on an ad-infested web page (or worse yet, a non-functioning Flash/Java applet)?  Or would you be better served with a link to the best native app for the job?

You’re probably as disgusted with App Store search as I am– it’s fine for brand searches (like “Angry Birds”) but painfully bad for category searches.  The App Store is using ridiculous algorithms, forcing developers to stuff keywords into titles and giving us the equivalent of meta-keywords to help our cause.  Hell, the App Store even uses the developer’s company name as a meaningful factor (congratulations, Currency Converter, Inc., your shot at ranking for that search term just went up!).

What it should do (which would require a Google-sized index of the web) is the same thing that Google does– rank based on number of links (to the app store page), the quality of those links, and the anchor text used for those links.  It could also layer in social data, ratings, active usage data, and other things that only Apple has at their fingertips.  But they probably won’t– Apple is not a search company.

But Google is.  They could be a better way to find/buy apps almost overnight.  And it’d be a huge boon to app developers for all platforms.

The Rub

The big problem here, of course, is that Google will be helping Apple sell more apps (at least when people are viewing onebox results on an iPhone).  And Apple will still be hauling in their rapacious 30% (a fair fee if Apple is bringing the customer to the table– less so if all they are doing is handling the purchase/update process).  So even if Google includes a paid spot or two in their onebox, is there enough revenue room for Google make a buck?  With game developers paying $3-5 per install on the marketing front, I think so.  Outside of games, it’s a little less clear.

So what do you think.  Will Google do this?  If they do, would it be the right move? If Apple manages to do something productive with their Chomp acquisition, will it matter?

Continue Reading]]> A great developer I once worked with was kvetching at lunch one day. He’d been working at a well-funded startup for about a year and had come to terms with the fact that the startup was really a pretty dumb idea. He’d wasted a year of his life and had a pile of stock options that weren’t very interesting. His last two jobs had been similar. He asked me a question that, at the time, I didn’t have a good answer for. “How can you possibly know when joining a startup if it’s going to be successful?” In other words, how can you spot a good startup idea?

Since I’ve announced that I’m moving on in the coming weeks/months, I’ve been bombarded with cool offers at existing startups, larger companies, and, of course, I’ve been pondering some of my own startup ideas. So his question which I didn’t really consider very carefully at the time is now one that I’m thinking a LOT about.

So without further ado, here is my “checklist for good startup ideas”. No startup will do great on every aspect of the checklist, but this allows me to put startups/products to a sniff test that I think is pretty darn useful. Note, this list is in rough order of importance.

1. How deeply do you think the startup will effect people’s lives? Can you imagine them using it every day? Can you imagine them being royally pissed if they couldn’t use it? This can range from utility (gmail) to emotion (twitter), but if a product isn’t in the “I’d rather chew off my own arm than lose it” category for a meaningful percentage of it’s users, it should be a non-starter.
2. Are the hypotheses that form the basis of the startup tractable? In other words, can test the idea(s) in a short period of time? I’ve talked about the importance of tractability before (hat tip, Ev Williams). Bottom line is that most initial hypotheses are wrong to varying degrees. Twitter was very tractable. Tesla is not. I’ll re-use the money quote from Fred Wilson: “…Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold. That means there a 2/3 chance you’ll have to significantly reinvent your business between the time you take a venture capital investment and when you exit your business.”
3. How does the cost-of-acquisition, cost-of-goods-sold (COGS) and revenue-per-customer stack up? Most software startup have a pretty low COGS, so this question generally comes down to, “How much does it cost to buy a customer and how much revenue does that customer represent over their life?” This obviously requires a lot of guesswork early on, but experience is a helluva teacher here. If you haven’t been on the wrong side of this ratio a few times, find a mentor who has. Any way you slice it, you need to fine a “scalable, cost-effective way to get your customer’s attention”. I can’t count the number of startups that aimed squarely at small businesses or “prosumers” with sub-$100 price point and have no idea on how they’re going to buy a customer (other than word of mouth, SEM/SEO, and PR).
   
   I love extremes here. Zynga, Twitter, and Facebook has nailed one extreme– their cost of acquisition is free and nearly infinitely scalable. If you can build a service that grows virally (free and growing customer acquisition), you can focus most of your attention on value creation and revenue-per-user. With a little success there and a little time to let the virus spread, and you can almost not help but succeed. I think it’s hard to overestimate the power of free marketing/customer acquisition.

   There are certainly extremes on the other side. What do you think Oracle’s revenue per customer is? How much can they afford to “buy” a customer for? What about Groupon?

   Pro Tip: If you’re raising angel or Series-A money and you say you’ll be using the proceeds for things like magazine ads and wrappers on busses, you’ve probably already lost.

4. How MANY lives could you imagine touching in 5 years? This is different than asking about total addressable market (TAM). Craigslist started as a classified ads mailing list for San Francisco. Amazon started selling books. Have some imagination and consider what your company could morph into. Is it interesting enough to justify the opportunity cost and the fact that you’re looking at a drastically reduced salary for 2-5 years?
5. Is it an invention or re-invention? Hats off to you inventors out there, but I strongly prefer an existing market to creating one from scratch. The companies whose equity I covet didn’t build anything NEW, they just built something BETTER (Google, Facebook, Apple, Amazon, Craigslist, eBay, Zynga etc). In short, the first mover advantage is a crock of shit (most of the time).
6. Is it worth talking about? Can you tell a story about the product that would make a blogger say, “Holy crap– I could write a story around that that would get tons of links, tweets, and comments?” One of my favorite products is Visual Website Optimizer (it’s a brilliant A/B testing tool). The founder (a great product designer who I’ve had a few conversations with) sent out a barrage of emails to major tech bloggers and heard nothing but crickets (he appealed to Hacker News readers for advice– I think the discussion is interesting). His fundamental problem is that he doesn’t have a story that will drive links/tweets/comments/pageviews– all of the metrics that pro-bloggers care about. Oftentimes, clever PR people can create a story out of something that has nothing to do with the product (see: 37Signals & Zappos), but it certainly helps a lot if your product is funny, controversial, unusually useful, or inherently exhibitionist.
7. Are you passionate about the end-game? This one is hard to rank. All of the points above assume you are a “mercenary” founder (maximizing for opportunity) rather than a “missionary” founder (passionate about a vision that keeps you awake at night). Great video on that point here. Regardless of whether your end game is a vision realized or a big pile of cash (or some combination thereof), you need to be passionate about it… You need to have something that powers you through the bumps in the road where a rational person would cut and run. Both motivations are dangerous, by the way. If you’re motivated by cash, you might have a hard time sticking through tough times when you realize what you’ve built might only be a single or a double. If you’re motivated by vision, you might not like the pivots your startup needs to take to survive/succeed.
8. Is the market moving in the right direction? Can you imagine there being a LOT of growth and consolidation in the next 5-10 years? I just saw my first RedBox the other day (it’s a cool box outside of supermarkets that allow you to rent DVDs). They are currently on the wrong side of a market shift away from physical media– can you imagine people renting DVDs in 10 years? I think this one is particularly hard to get right (which is why it’s low on the list).

That’s my list. Am I missing something that’s on yours?

Continue Reading]]> 15 years ago, you couldn’t even BEGIN to look for a house without a real estate agent (who takes 6-7% of the purchase price from the buyer). Today, the internet has changed that. 10 years ago, someone starting a small business had to eat a cost of thousands of dollars to get a solid looking logo– often more if they didn’t want to roll the dice on just using a solo designer (of if their first designer didn’t create something that they loved). Today, a small business can get dozens of designers working in a public forum for $500. I think that’s AWESOME. But like real estate, there are casualties. And, like real estate, there is anger. But to me, “transactional design” (the kind of design that can take a few hours to net a good product and doesn’t require a lot of consultation) is an inevitable casualty of the global economy and the evolution of the internet (see 99Designs).

It’s a Global Village Now

I was in India for 3 weeks last year and was STUNNED at the cost of labor. We rode in taxis for the entire trip and spent less on them than the 1 way trip home from the airport in Seattle. Talented tailors would throw in manpower of tailoring a shirt if you just bought the cloth. If it’s unfair to pay $500 for a logo, was it unfair for me to pay Indian market rates for a taxi ride (usually less than a buck or two)?

The $300 bounty for a winning logo design is a kings ransom for a young designer in most of India (and the rest of the world). Guess what, Western world? You’ve got to compete– and Walmart has taught us over and over again that consumers aren’t going to pay 10% more (much less the 1000% more that an onshore hourly designer would cost) just so they can feel good. Some of them will- but most of them won’t. We can’t put the genie back in the bottle here. You’re better off trying to find creative ways to compete than bemoaning the unfairness of it all– it’s like a cottage seamstress complaining about the existence of the new textile factory down the road– technology changes markets.

For a rural Indian designer, entering 10 contests per week and winning one for $500 might be a huge win (and he doesn’t have to write a single proposal!). And that designer might be damned talented. How different is this than a services business investing $500k in sales effort on 10 different $10m RFPs and ultimately winning one? In fact, isn’t this just a different sales investment/risk than costly networking, proposal writing, advertising, etc., etc? Heck, the designer doesn’t even have to issue a Net-30 invoice– 99Designs drops the money to the winner pretty instantly.

So I’m assuming that the gripe with design contests isn’t that people are getting paid LESS than they used to, but rather that they could get paid NOTHING even after expending the time and effort of producing a logo. Which brings me to my next point:

Whether you are a Business or Freelancer – getting paid requires that you risk time and money.

If you want paying work without spending time/money or taking risks, you should go find a job with a paycheck.

My first business (a technology consultancy) was CONSTANTLY investing staggering amounts of money and time to get customers…. We had sales guys, who made healthy base salaries and some commissions. We went to networking events to establish relationships with people who could be customers someday. We took existing clients to lunch to chat about projects on the horizon. We sent out custom holiday cards to every client every year to keep us visible. We built and maintained a web site with a rich and updated portfolio. We had snazzy business cards that had to be kept up to date. We had really nice business clothes for the clients that cared about such things. We cooked up gorgeous custom proposal documents for customers– and these proposals required considerable analysis work and consultation with the customer (spec work!). We even responded to RFPs sometimes (rarely). All of these efforts can come up empty, of course. Many of them did, but in aggregate, my business grew like gangbusters. Software is no different. I heard that Salesforce.com spends 60-70% of their topline on sales/marketing. Much of that is probably wasted, but I’m sure they are in a constant state of making their marketing spend more efficient (just like 99Design entrants are probably in a constant state of gauging the kinds of contests that will net them the most bang for their effort).

In short, getting paying work cost TONS of time, money, and risks (how many freelancers do you know who average 100% billability in a 40 hour work week over a year?).

If you are a fresh-off-the-boat designer (or a rural one), you should expect your costs and risk here to be higher than if you’re not. You’ll have to invest more and get less as you build up relationships, your skills, and a portfolio. If there are too many designers eager for work (as I believe there are right now– the design world is NOT growing as fast as were churning out design grads), the market is going to make this harder for you. Don’t like markets? Get a paycheck-job or go learn Ruby on Rails (then you can fall out of bed and land on 2-3 lucrative freelance offers).

The nature of design

The best work general comes from seasoned professionals who engage in a deep discovery process, run through a lot of iterations, and work closely with the client. That being said, you can see flashes of brilliance without all of this, especially in the world of “transactional design”. Some of the stuff on 99Designs is GOOD. For a logo, book cover, or smallish web site design (especially for a smallish business) the difference in value received between a $30,000 engagement and a $500 contest is not worth $29,500. In fact, the contest might (on some occasions) yield better results faster. Even if it doesn’t, it’s CERTAINLY faster and can help with brainstorming. From a purely economic point of view, rolling the dice with a contest is a quick experiment to run that might yield exceptional results. I could design a good from-the-hip book cover in a few hours and it MIGHT be great… Design can be random and certain design tasks are 90% inspiration and 10% perspiration rather than the inverse. The bigger the design project, the less this is true, obviously. Again, I think logos (for small businesses) is the sweet spot.

Supply & Demand

As a business, we try to be as fair as possible with vendors, but we’re in business to be profitable. If I look at the winning designs on 99Designs and I generally like them more as much as any designer’s portfolio, is eschewing the cheaper option really the way to go? Paying bottom dollar prices CAN mean that someone somewhere is being exploited. I’ve seen no evidence that the 99Designs designers are exploited however, though it’s obvious that there are designers with higher costs of living in the US who simply can’t compete on transactional design services.

If you answered “yes, as a matter of principal” to the last question, how do you feel about internships (unpaid or crappy pay)? How do you feel about buying sneakers that were made in a Chinese factory with awful working conditions (check your feet, please)? How do you feel about the fact that the average Google employee generates over $1m per year in revenue but gets paid less than 10% of that #? Shopping for the best dollar-to-value ratio generally means that someone gets a disproportionate cut of the wealth in the transaction (even just a little bit)… Though are Google employees really getting screwed? Is an Indian designer getting screwed if she’s pulling down $20k year on 99Designs? And where is the outrage about things like iStockPhoto? Or 99Designs’ Logo Store? Is responding to a clear need in a design contests for a speculative chance at pay really that different from a photographer tossing up a speculative photo on iStockPhoto and hoping that someone might eventually buy it? The ones that have great photos make a ton of money. The ones that suck probably need to take photography classes. Heck, is it really that much different from my startup, where I spent a big (expensive) chunk of my live to launch something hoping that someone would want to buy it? Isn’t a startup in the “spec-work” category?

Design contests are a meritocracy in the extreme– good designers can probably make good money and (with a track record of winning and a great portfolio), eventually graduating to less-speculative lead generation if they so desire (though I bet GREAT designers could net thousands a day on 99Designs). Bad ones don’t and have to seek other marketing avenues or other lines of work. Again, welcome to business. Given the huge number of designers that enter contests OVER AND OVER again, clearly many have decided that they’d rather roll those dice than roll the dice associated with RFPs, Adwords, hiring salesfolks and other lead-generation efforts.

These are just some thoughts. As a designer, I’ve never done spec work (unless proposals count– they probably should). As a business, I’ve never asked for it… But from either side of the table, I’m not sure I have an ethical problem with it. So from one (admittedly kinda mediocre) designer to the rest of you– how are design contests “damaging” designers beyond the way that Google News is “damaging” newspapers?

Continue Reading]]> One of my biggest frustrations with Twitter is that it’s a pretty clumsy mechanism for 2-way conversation (IM style) as well as “one and a half way” conversation (commenting on a tweet that may or may not elicit discussion). I posted a tweet the other day to see what other people think:

I quickly got two responses from two people whose opinion I really respect (@sacca and @andrewchen).

@Sacca’s Response: “@webwright Speaking for myself, it seems like that could induce some lame behavior in asymmetric networks.”

@andrewchen’s response “@webwright inline replies work best in 2-way friending environments. Otherwise ppl you don’t follow show up in your main feed”

I found myself vehemently disagreeing with them, so I figured I’d blog through it as an product design exercise. Disclaimer note: armchair quarterbacking is easy. The Twitter team (note: @sacca is an investor/advisor) has more brain cells and a helluva lot more time invested in designing Twitter than I do– I have no illusions that a little rumination over Christmas makes me smarter than they are. I also know that there are (were?) some technical hurdles. For a while, Twitter wasn’t TOO good at understanding when an @ tweet was actually a reply, and which tweet it was replying to. Still the case, or no?

So here are some ideas for your consideration. I’d love to hear what folks think in the (delightfully threaded) comments.

1. Twitter would do better to think about their site as a content/microblog network than as a social network.

This is my fundamental disagreement with Andrew and Chris’s response. They’re thinking of Twitter like a social network with asynchronous/2-way friending (maybe it’s because the media is constantly comparing them to Facebook?). It isn’t, IMO. In fact, I think Twitter would have more success if they acted more like WordPress.com (or LiveJournal?) than like Facebook. Twitter followers aren’t friends. They are subscribers. The people you follow aren’t people you know– they are microblogs that you find interesting. Twitter is a fabulous distillation of blogs and an RSS reader all rolled into one. It’s 10x easier than blogging. Following is 10x easier than subscribing via RSS (and following is a lot more grok-able than RSS to begin with). But they’ve crippled/marginalized one of the key features that make blogging so damn sticky (for bloggers and readers)– comments and discussion.

2. The problems of Chris, Andrew and (to a hugely lesser degree!) me are not the problems that most Twitter users (or bloggers) have.

To many/most Twits/bloggers, they are doing it because they want to be heard. I remember when I first started blogging what an absolute rush it was to get a comment on my blog. Heck, it still is. Similarly, I confess to checking my @replies fairly often. Is anyone listening? Did my breathtakingly insightful/amusing tweets result in anyone replying or retweeting? I think this changes when you get to the follower count that some celebrities enjoy (Chris, who mentioned above that inline comments might result in too much noise, has ~1.3 million followers). Similarly, there are some pretty famous examples of prominent bloggers shutting OFF comments… They’ve transcended the “I just want to be heard” problem of most twits/bloggers and have graduated to the “holy crap, discussion is a nightmare to manage/moderate” problem. My guess is that the higher up you get at Twitter, the less the product managers empathize with people who have less than 100 followers, who often feel like they are talking to an empty room.

3. Regardless of whether you want Twitter to be a social network instead of a content/broadcast network, it’s more VALUABLE as a content network.

First of all, look at Twitter’s big pile of 4th quarter revenue (high five, Twitter!). That’s for content. That content would be more valuable if it was richer. Let’s take Paul Kredosky’s “Dishwasher” scenerio, discussed on Fred Wilson’s blog. He’s looking for a dishwasher and finds that Google’s organic search results are lousy. I empathize– after a 6 month home remodeling effort, I am aghast at how bad Google is once you move outside the realm of the “linkerati“). Paul searches for a dishwasher, and now that Twitter content is featured in Google results, he sees a tweet that says, “Just got a new Bosch ScrubGunner Dishwasher installed today. Amazing!” That tweet would be way more useful if it also had associated with it the three @replies that said stuff like “The ScrubGunner starts off strong, but has a record of exploding about 3 months after you buy it”. Added bonus– this would make Twitter’s permalink pages quite a bit richer in terms of indexable content, which would increase traffic dramatically. Permalink pages with lots of comments could actually be VALUABLE pages.

Even taking the search deals out of the equation, Twitter is a consumer web service and its stock and trade are things like pageviews, # of tweets, retention cohorts, return visits per day, etc. In short, it wants lots of addicted users using it a LOT. Nothing does this better than conversation and Twitter is lousy at conversation. There are very few emails I open more reliably than the Disqus comment notifications for my blog, the WordPress.com notifications for the RescueTime Blog, or Facebook telling me that someone has responded to one of my status updates. Further, nothing brings me BACK to a blog like a reply to my reply. Take a look at Fred Wilson and Neil Patel– they pretty religiously reply to every commenter on their site and it generates return visits, more (valuable) content, and happier “customers”.

In short, if Twitter made conversation easier and noisier, it’d help engagement, retention, and growth (or that’s my guess anyways). New users would graduate from the “empty room” feeling quicker.

4. To keep things simpler, they should consider punting retweets for replies/comments.

Retweets are interesting and certainly help Twitter and API-wranglers understand the value/popularity of a tweet. But they don’t feed the core need that Twitter is filling for most twits… To feel HEARD. Further, the retweet feature is simply too smart and assumes too much understanding of how Twitter works. I’d wager that if you took 10 “newborn” Twitter users and asked them to explain retweets, you’d get a fair bit of confusion (humble hat tip to Twitter though– I can’t imagine retweeting being implemented clearer than it is). Comments/conversations, on the other hand, are as old as the Internet. People grok that right out of the gates.

Beyond just “grokability”, retweets just aren’t as approachable as replies. While Facebook’s “like” feature is the lightest way to endorse a status update, the retweet FEELS heavier. It’s saying, “I like this– and I like it enough to broadcast it to others”. I personally @reply folks about 10x more than I retweet them (and I imagine I’m not alone). If this is true for most people, who not focus on enabling what most of your users are doing more often?

Discussion would also help with user discoverability. @replies are often a source of followers for me (replies to me as well as others when I bother to dive into the clickfest necessary to track a full conversation on Twitter).

5. How I’d implement inline discussion on Twitter.

Obviously, comments/discussion would accelerate the number of tweets dramatically, so I think slamming them all into the main feed might be bad. I’d:

- Add the text “11 replies to this Tweet” as a gray link at the bottom of any applicable Tweet (when shown in a stream) to i
- Add threaded replies on the tweet’s permalink page. So Tweets like THIS ONE would actually be rich/interesting/engaging conversation and clickthrus to tweets from search engines would actually have more meaningful content.
- present @replies that are actually replies to other tweets as part of a conversion. So the “in reply to…” text below reply tweets could be a bit richer/more enticing, like “reply to @username (13 other replies)”.
- Maybe present a “thumbs up” or “like” button (a la facebook) for light endorsements of a tweet (easier and less noisy than “I agree” or “this is awesome” comments). Would this be better than a retweet option?
- Allow people to turn off the above display of @replies if they want.

Twitter is obviously a public IM client/chatroom for some. For others, it’s a microblog broadcast platform. For still others, it may actually be a social network. But I’d contend that serving those first two audiences FIRST (by making conversation easier) would create happier users, gut-punch their early attrition problems, and create a more valuable business. What do you think?

(You should follow @sacca and @andrew_chen and maybe even me on Twitter!)

Continue Reading]]> I love games. While I did wear a letterman jacket through most of high school, I surreptitiously played Dungeons and Dragons every week with my brother’s gaming group. I’ve played a wide variety of games on every computer I’ve ever owned. I like board games like Settlers of Catan, and (god help me) I even futzed around with Magic: The Gathering.

Like a lot of software folks, I have a secret wish to punt everything, run into the hills, and make GAMES.

So it’s exciting to see this gaming renaissance. Casual games, social games– whatever you want to call them– there are new ways to make money making games and it’s no longer the big budget hit-driven madness that we’ve grown accustomed to.

But boom times like this can be messy and noisy, and this one is no exception. One of the key elements of this new gaming revolution is the potential to be VIRAL. As a developer, it’s fairly trivial to have your game automagically announce itself to a player’s Twitter followers, Facebook friends, whatever. “[friendname] just found a +11 Sword of Evisceration, but he needs your help to consecrate it in the blood of the Celestial Dragon – click here to join [gamename]“. Or, on Twitter, “I’m now the Mayor of Baskin Robbins. Bask in my benevolence! [insert bitly link here].”

The cost of shooting out these messages periodically as a user plays is trivial and there’s only upside, right? If 1,000 users play to that point and they each have 100 followers on Twitter, well– you just got 100,000 free ads for you game, packed with the kind of social proof that advertisers can only dream of.

But, at the end of the day, it’s SPAM. As a developer, they shouldn’t be asking themselves whether the cost/benefit analysis works. Heck, it costs me a billionth of a penny to send an unsolicited email and I’m sure I could craft an email that would convert more than a billionth of the time. WIN! Instead, they should be asking themselves the following questions:

• Does the player WANT to tweet about this? If they do, encourage them but let them opt-in every time and do it in their own words.
• How many of the players followers gives a rat’s ass? If a game auto-tweets on my account, 99.9% of the people are going to get no value. 99.9% aren’t going to find it interesting. I’m looking at you, Foursquare.
• What percentage of the players would, once they realized that they just blasted their friends with this promotional tweet would say, “Ooooh, I didn’t know it’d do that! That’s GREAT that I just told all 1500 of my followers that I’m the Mayor of Hooters!”

Yes, social game makers, your spammer math WORKS. 99.9% of my followers will consider it noise– if they read the tweet, they’ll want their 10 seconds back. But you’ll get your 0.1% clicking the link, and those clickers will convert (some of them). And THEY’LL make noise too and you’ll have your virus.

But because this works so well, we’re going to have more and more of it. If you’d told the first guy that sent an email that 95% of the world’s email would be spam in 2007, I think he’d be pretty horrified. While I tend to like federated models like Email more than walled gardens like Facebook and Twitter, in this case I’m glad there are some sensible folks at the helm who can shut this stuff down (or at least give users the tools to turn the noise down).

For what it’s worth, if I wasn’t in the weird and wonderful world of time management software, I’d be doing social games. Hell, maybe I’d suck at it because I took the high road. But I think I’d just focus on making really fun games, making it MORE fun if people invited friends, and giving them the tools to tell the world should they want to.

Continue Reading]]> I admit that I am a bit of a contrarian. For a long time, the contention that “if you’re doing a startup, you HAVE to be in Silicon Valley” didn’t sit well with me. Sure, talent is important– but for many startups you need only a few talented folks to prove that you’ve got something and companies like WordPress have proven that you can build a great team (literally) anywhere and everywhere (they are virtual and across the world). Sure, energy is important– but the biggest source of energy isn’t your peers– it’s the people who are finding value in your product (users and customers). And sure, you need money… Well, the Valley wins hands down here. If you need to raise money, that’s where you need to be. But more and more early stage investors seem willing to invest outside of their little patch of Californian dirt. After our stint at Y Combinator and a bit of fundraising, the decision about our startup (an employee time tracking tool) was pretty clear to us. We headed back to Seattle, where we had a rich network of geeks to work with and talk with and (more importantly) we could live cheaply and not die.

So it was with great glee that Jim Karsten took the gauntlet I threw down in my last post and mined the vaunted CrunchBase for some real live data. Now, CrunchBase is obviously NOT scientific… But it’s the biggest and most consumable dataset that I know of. Without further ado, here is a table showing startups by location and the percentage of startups in that location that have been acquired. Note: Jim has kindly put up the full scrape of data here – there are other interesting bits worth looking at.

Startup Count & Acquisition Rate, by State

	Startups	% of Total	Acquisitions	% of Total	Acquisition Rate
CA	2739	41.2%	188	53.3%	6.9%
NY	692	10.4%	34	9.6%	4.9%
MA	386	5.8%	20	5.7%	5.2%
TX	323	4.9%	19	5.4%	5.9%
WA	317	4.8%	26	7.4%	8.2%
FL	254	3.8%	3	0.8%	1.2%
NJ	227	1.8%	8	2.3%	6.6%
IL	180	2.7%	9	2.5%	5.0%
VA	164	2.5%	7	2.0%	4.3%
CO	133	2.0%	7	2.0%	5.3%
PA	131	2.0%	2	0.6%	1.5%
GA	117	1.8%	2	0.6%	1.7%
MD	94	1.4%	4	1.1%	4.3%
NC	80	1.2%	1	0.3%	1.2%
AZ	77	1.2%	1	.3%	1.3%

Disclaimer: Yes, CrunchBase is flawed for this. No, ~5% isn’t REALLY your chance at getting bought if you start a company tomorrow, etc., etc. Please don’t troll about the quality of this data. It’s still thousands of records, which is better than the alternative.

At first glance, the key number (acquisition RATE) doesn’t seem markedly different. Heck, if you live in Virginia, CrunchBase tells you that you have a 4.3% shot at an exit… Why move to California for a measely 6.9%? But I think it’s better to focus on the fact that you’d be increasing your exit shot by *over 50%* with such a move. With acquisition rate being as vanishingly small as it is, nudging up a few percentage points is a huge deal.

But overall, as a contarian (AND as a resident of Washington State– the big winner by a nice margin), I was pleased by the results. The bottom line? It’s hard to quantify the COST of moving to a startup (months of distraction, expense, stress, loss of social network, etc), but my gut says (as it always has) that if you live in a technology hub like Seattle, NYC, Boston or Austin– hunker down and start building value- your success is based on how much value you can give versus how much you take.

Edit: some interesting insight from John Cook over here.

Continue Reading]]> In the past two months I’ve been on two different panels with other entrepreneurs. The first was at WTIA in Bellevue, WA (“Cashing in on Web Services“)– the other panelists were very clearly what I’d call “business entrepreneurs”. All of them had relatively successful funded startups, but not a one of them had probably written a line of code, moved a pixel, wrangled a server, or written a line of copy in months or years (some probably never had).

In contrast, the most recent panel I was on (at the O’Reilly Web 2.0 Summit) was with what I’d call “builder entprepreneurs”… All startups with great traction, some funded, but all of the founders were directly engaged with the creation of the product. They designed, coded, played sysadmin, and played all sorts of other production roles for their startups.

The contrast was startling, and it made me think hard about my earlier contention that the “business guy” doesn’t really have a useful role to play in the very earliest stages of a software startup. The first panel had a pile of examples of business guys leading startups to some significant (sometimes dramatic) success.

At one of the other panels at the Web 2.0 conference, Dave McClure (master of 500 hats and 473 font colors– and one of the smartest guys in the game) summed up the life-cycle of a startup in a great way. “There’s the product development phase, the market development phase, and the revenue development– or revenue optimization– phase.” Rings true to me.

So with this in mind, let’s track the value of a “product entrepreneur” over the early life of a company:

Now let’s track the value of a “business entrepreneur” over the early life of a company:

(note: I’m talking about one person’s ability to make a major impact with a startup– I’m not saying that either person is useless at any stage of the startup… And, of course, exceptions abound)

As I’ve said before, the business guy often doesn’t have a lot to do in the early stage of product development– especially if the builders are building something that they actually want themselves. If you’re a bunch of hackers building a simple photo sharing, you don’t need a business guy telling you what the market wants. Of course, if you’re a bunch of hackers building business time management software, you might well need that. Your mileage may vary.

But what I haven’t said before (and what I’m coming to learn) is that the product entrepreneurs have an increasingly marginal role as a startup evolves and becomes more successful. In fact, I’d argue that they are in a rude awakening– they either need to evolve into business entrepreneurs (as Gates and Jobs did, for example– both shrewd business guys) or hire people to play that role (a la Eric Schmidt at Google). Building an asset is the first (and most important) challenge. But finding the customer for that asset and maximizing the revenue/profit is also a challenge (and one that many builders are ill-suited to handle).

It feels like product entrepreneurs are oftentimes “cowboys”. Flying by the seat of their pants, they rally a small team to build a product that people want. It’s no surprise that this is really freakin’ hard and requires a mythical combination of brute force time and effort, insight, customer empathy, and a huge pile of luck. Saddling the product team with a biz guy who chases big customers and locks in the product direction too early can be deadly, as the Wizard points out:

This is one reason I hate to see very early stage companies sign a big customer before the product is baked. You are encumbered by product commitments and customer support before you truly know what the market wanted. You have to be passionate about a customer and the product when you should be laser focused on the product. The customer’s needs and your goals vis a vis the market may diverge. In an effort to show progress, however, the marquee customer is attractive in the belief it will help attract investment (and this may indeed be true). In a previous life before FeedBurner, my founders and I made the mistake of signing a big name customer to a paid monthly contract before we really knew what the product’s place in the market should be. Won’t ever do that again.

The product development phase of company needs product development people and precious little else.

But as the market development phase sets in, builder entrepreneurs are oftentimes increasingly obsolete. It’s no longer time to hurl features willy nilly at your users– you’ve already built something that they like. No you need to measure the hell out of it and turn it into something that they love. You need to iterate on it and turn it into something that confuses 4% of your new users instead of 7%. It means finding a way to tune your viral loop and conquer your SEO enemies to increase the organic flow to your product. And you need to start expoloring the market to figure out who they hell is going to pay for all of this. That means crafted adwords campaigns. That means cold calling. That means price experimentation. That means exploring the world of direct ad sales. Well, it can mean all sorts of things, depending on whether you are a free web service, a freemium product, a pure b2b play or some combination thereof.

But you are firmly out of the world of building products and drifting into the world of iterating a product and exploring a market. And, likely, you’re in the world of sales, marketing, and instrumenting the hell out of your app/site.

As Papa PG says, if you look at the leaders of successful tech companies you see more CS degrees than you see MBAs. That makes sense– geeks are critical to conquer the first (and most important) problem of a startup… Building a badass product. But if you look at these same tech companies, you see CS geeks who’ve actually set aside their geeky roots (though maybe not their geeky instincts) and become very very shrewd business guys. And you also see inferior products kicking the crap out of superior products through better sales/marketing/and distribution.

So to all of you builders out there… Beware! When you reach a challenge in the evolution of your business, the most natural thing in the world is to frame it as a product problem. “If we just build this new feature/product, we’ll be off to the races and we’ll never have to do any of that business crap!”. Keep your eyes peeled for the time when you have to personally evolve and start tackling business problems, or step out of the way and let someone else do it for you.

Continue Reading]]> This will be a small post, but I stumbled onto some interesting data that I thought I’d share. As a background, we’re currently searching for a great C++ dev to work at our startup here in Seattle. I decided to do a bit of research to see other job postings, compensation packages, etc.

I was startled to find that (in Seattle) C#, C++, and Java jobs are hotter than everything. Period. By a monstrous margin. Take a look (numbers in parentheses are the results counts as I write this):

Jobs with C# in the title (759)
Jobs with C++ in the title (537)
Jobs with Java in the title (307)
Jobs with ASP in the title (209)
Jobs with Ruby in the title (85)
Jobs with PERL in the title (50)
Jobs with PHP in the title (46)
Jobs with Python in the title (26)

Wow. C++ jobs almost end up being more plentiful than all of the major scripting languages combined. C# jobs are even more plentiful. Toss the word “startup” into your search query and it reduces all of the results, but the big-iron languages still win by a wide margin. Really interesting to contrast these numbers with San Francisco, where you see fewer C++ and C# jobs (predictably as you move away from Microsoft-country), more Java jobs as well as a few more Rails and PHP jobs (but Java wins in SF by a landslide).

So if you could snap your fingers in Seattle and be a rockstar/ninja programmer in one of these languages, which would you pick (from a career perspective)?

(nota bene: recruiters who use the word “rockstar” or “ninja” in a job posting deserve to be flogged. While we’re at it, anyone using the phrase “FAIL” or “EPIC FAIL” deserves a healthy thrashing as well.)

Continue Reading]]> Christian Anderson (a former colleague at Jobster) had an interesting (and well-researched) post on his blog called “How to Pitch Robert Scoble — HINT: No Direct Tweets“… , which led to a discussion on FriendFeed (with Robert himself weighing in) that was pretty interesting.

I had a contribution bouncing around in my head but held off responding until I read an absolutely fabulous quote from one of my favorite books on marketing:

““No one ever got anywhere by lavishing calls on Oprah. The only time I’ve succeeded in my career with Oprah was [when] Oprah called us.”

— Barry Krause, in Made to Stick

This advice can be generalized to getting PR, blog coverage, angel and VC interest, and more… And can be summed up in one tight little phrase: “Be worth talking about.”

So how do you get to be worth talking about? Redirect every bit of outgoing energy you’re spending on getting noticed to being worthy of notice. Near as I can tell, this isn’t just a matter of building something great… It seems to be some arcane combination of:

1. Building something people want.
2. Find a parade that’s forming and start walking in front of it. We’ve (by pure luck) done well from PR perspective by diving headfirst into the “information overload” meme that seems to have growing interest and press coverage. Whether you’re building a comfortable lifestyle business or shooting for the moon, it’s great thing to be topical. A great contempory example of this is FriendFeed– they’ve (perhaps accidentally) inserted themselves into the Twitter conversation. If Twitter had never existed, would FriendFeed have gotten a tenth of the organic PR?
3. Figure out the best way to deliver your message– find a way to make it sticky (“Made to Stick” espouses being simple, unexpected, concrete, credible, emotional, a story). Entrepreneurs (especially if they are web geeks) notoriously marginalize this step, but there’s all sorts of great stories about simple messaging shifts making a huge difference. I don’t think we’ve nailed the perfect message for RescueTime, but I’m in a fairly constant state of brainstorming and experimentation… I’ll tell our story with a new permutation just about every day to see if I can find something that resonates just a little better (this is one of the many reasons that “stealth” companies are so often ridiculous).
4. For God’s sake, get some freakin’ traction. Bloggers and reporters are in the business of reporting on the metaphorical parades that I just talked about. The best way to prove that you’re at the front of a parade is to have an army of enthusiastic users who are already using assorted channels (word of mouth, blogs, twitter, etc) to tell the world how important you are to THEM. It doesn’t take MUCH traction– two or three vocal users is often enough to convince a blogger than you’re worth a second look.

I’ll finish with a great quote from Seth Godin on “grand openings“:

“The best time to promote something is after it has raving fans, after you’ve discovered that it works, after it has a groundswell of support, [ed: and after you've figured out how to effectively talk about it]. And more important, the best way to promote something is consistently and persistently and for a long time. Save the bunting for Flag Day.”

Continue Reading]]> A lot of people are damn religious about bootrapping businesses. Especially nowadays when it’s so easy to start a software business– you just need a few hackers, Ruby on Rails, a cheap virtual server and you’re ready to roll, right?

Sure.

But just because it’s cheaper to start a software company, doesn’t mean that it’s that much cheaper to make it from when you launch a product to the point where you’re sitting back, drinking a margarita, and marveling at the recurring revenue machine you’ve created.

The way I look at it, there are three bars that matter to me.

1) Making enough money that the business brings in enough money to pay the overhead. Rent, servers, lawyers, whatever. Hopefully you keep this really lean.
2) Making enough money that the founders get an insultingly low (but still existent) salary.
3) Making enough money that the founders can take home roughly what they’d make if they went and got a real job.

Bootstrappers are woefully bad at guessing how long it’ll take to get over these bars.

Let’s look at everyone’s favorite example of bootstrapping: 37signals (whose products and philosophies I love, by the way). According to a recent post, it took them about 6 months to build Basecamp, with DHH spending 10 hours a week (they don’t mention how much time other folks invested, but let’s assume it’s 2 other people at 10 hours a week). It turns out that with a really popular blog, a very successful consulting firm, and all of the attention that they got with Ruby on Rails, it took them about a year to get to the point where they could give up consulting and work on it full-time. I assume that they were somewhere between the 2nd and 3rd bar (mentioned above) before they made the leap, though they might’ve taken a pay cut as a leap of faith in the growth that Basecamp was experiencing. DHH sez:

“It didn’t turn into a smash hit overnight either. We ran Basecamp for a year alongside our other obligations before it was doing well enough to pay all the bills and afford our full-time attention. Most good businesses didn’t become great ones within the 12-18 months that the poster boys of the startup lottery did.”

Amen!

I’ll give you an example closer to home. RescueTime (my baby) was on TechCrunch 3 times, LifeHacker twice, and add in a few thousand other blogs (of varying flavors and colors). We are a Y Combinator company, which gives us plenty of geek cred. We’ve been [edit for clarity] mentioned in an article on the cover of the New York Times, and have gotten mentions in PC World, US News and World Report, BusinessWeek, and more. More important than that, we’ve got happy users who seem to like telling their friends (the old fashioned kind of viral marketing!). I think most SaaS startups would feel very lucky to get this kind of attention– we certainly do. But for all of this attention, I really don’t expect to clear that second bar for many many months (we’re only a month or two into having an offering that people can pay money for, so give us time!).

Let me be clear about the type of startups I’m talking about– I’m talking about low-cost (or free) product companies with price points low enough that having a human being actually SELL the damn software would be inane. Whether it’s a payout of $.83 for an ad click or $24 bucks a month for BaseCamp– having a human being wandering around selling this stuff doesn’t scale, and chances are your founding team doesn’t consist of anyone who is a motivated (and skilled) software/ad salesperson anyways.

On the other hand, if your price point is high (generally requiring a more complex or premium offering) or if you have a services component (web development consulting, managed hosting, etc)– you’re golden… Or at least you have great potential to ramp up revenue fast (as you can justify a sales effort and fairly easily convert time into money). Of course, there are the obvious downsides– for enterprise software you have to build… enterprise software (capital intensive and damn ugly). And then you should expect to spend 60-70% of your cash on sales and marketing. If you go the services-heavy route, you’re simply selling time for money… You can make a nice business out of this (I ran a consultancy for 7 years which I eventually sold out of) but there’s virtually no equity to be built– no one wants to buy a consulting business.

In my opinion, if you aren’t prepared for 18-24 months before you actually get your first paycheck (either through savings, doing it part-time / half-assed, or seed funding) you’re setting yourself up for disappointment.