Monthly Archives: May 2011

Dialing and Clicking to Success (Brad Keywell)

In FT, there is a profile of Brad Keywell, one of the two founders of Lightbank, who helped found Groupon with Andrew Mason.  Keywell, along with his Lightbank founder Eric Lefkofsky, have partnered to create 11 companies, most famously Groupon, since graduating from law school in 1993.  What’s interesting is their demonstration of how even unfamiliar industries can be quickly grasped with some brains, and a lot of hustle, with the amount of information out there.  I love his description of how he, because he just loves learning more, keeps dialing and clicking, while most others quit.  Sometimes, and particularly when building businesses, you have to go beyond the 80/20 rule which says that there are diminishing returns from extra effort.  Excerpt follows:

“He and Mr Lefkofsky immediately began trolling around for fresh ideas, and settled on freight logistics, not a business they knew but one that was ripe for modernisation. Their idea was to use technology to allow better co­ordination and efficiency among transport companies and their customers. ECHO went public in 2008, and now has a market capitalisation of more than $300m.

How does someone with no knowledge of the freight industry make such a dramatic entry? “I visualise and I’m resourceful,” says Mr Keywell. “I make more phone calls than most people and I go to page 14 on a Google Search when others stop at two or three. I like to learn more than others.” After ECHO came Mediabank, a data analytics platform for media buying companies.

Mr Keywell likes to be deeply involved in the start-up phase. “When I’m creating and building, I’m blissfully happy,” he says. As his companies find their footing, he pulls back.”

Sometime It’s Not The Engine; You Just Need A Different Racetrack

I’ve said before and will say again that those who say all you need to build a business are engineers are wrong.  Here is an excellent example.  This is not meant to be a knock on Google, but shows how great people can be underutilized if you hire (or promote) with blinders on regarding the right background.  This is from the profile of Sheryl Sandberg in BusinessWeek:

“Google has done so many things right, but the thing they screwed up more than anything was missing the import of people from nonengineering backgrounds and failing to appreciate the value such people can bring,” says Roger McNamee, a friend of Sandberg’s and a founder of Elevation Partners, which has an investment in Facebook. “As a consequence, a lot of people like Sheryl were not given an opportunity to shine to their true level. For all intents and purposes, Google chased Sheryl away.””

Go Solve Real Problems II

Mark Suster drops more brilliance on focusing your energies at real problems (some excerpts below).  I has posted previously on the limits of the “quick and easy” startup meme.  One version of this is the idea (see here and here) that good ideas come from straight-out-of-school smart developers gathering together, fueled with junk food, and hacking away.  There is a lot to this, but there is also something to be said for having some “domain knowledge” fueled grey hair, giving you the experience and chops to aim a problem at real problems and real markets.  One current example of this (as Suster discusses) is the Linkedin IPO.  Another relevant example is Gilt Group and Kevin Ryan (see recent interview by Chris Dixon).

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“No. It’s not all sunshine and candy canes. We are building a lot of stuff now that has no longevity. In a way, startups have become kind of like the video game industry. New stuff gets created, it’s fun to play with and talk about. You want to use it because your friends are doing it and you want to find out what it’s all about. You want to see what’s new. You want the dopamine rush.

You play with it for a few weeks or months. Then you stop. You stop because it was game like. Temporal. Non valuable. Not really helping you do something better. Not improving your life or business.

Not solving a real problem.”

“But what I do see in the market in 2011 is way too many “me too” solutions where a bunch of founders have brainstormed a way to do a better Groupon, a better Gilt Groupe, a better Twitter or a better Quora. When pressed, not enough of these entrepreneurs can answer questions about why users would still be using this product in 5 years, about why their product is going to solve a consumer or business problem that isn’t being solved today. They pitch me features, not value.

I play with features. I’m a tech junkie as much as the next guy. But next month I’m on to the next one.

I would encourage you to think bigger. The market is over-weight in companies trying to solve problems for bars & restaurants. Sure, that’s a fine category. I have no problem with it. But what about education? Healthcare information? Energy? Housing? Auto? Financial Services? There are so many big inefficiencies in this country that need tackling. I feel quite comfortable that our bars & restaurant industry will be just fine.

When you solve a real problem you’ll win the true battle. The battle for share of mind. Challenge yourself to think harder.”

This is where actually having some domain knowledge has some value, perhaps.

New Google Data on Display Ad Market Size

Last week, I posted about the wide variation in possible sizes of the display advertising market, and the potential for new tools like real-time bidding to be the driver for expanding the size of the pot.  Is display advertising a “Friday night with the boys card” game or World Series of Poker?  This is a huge issue for entrepreneurship, as the more money diverted to Internet advertising from other sources, the more opportunities there are, both for businesses directly related to advertising (think google) and those services that are made possible by advertising (think facebook).

Today, the FT reported a story where Neal Mohan, head of Google’s display advertising business, gives further evidence that the size of the display market is moving in the right direction, projecting a 8X increase in size, and revealing evidence of the growth of more effectively placed display ads:

““Our belief is that by Google’s participation we can grow the overall display advertising pie,” Mr Mohan told the Financial Times. “The fundamental problem we are trying to solve is how do we get from [being] a $24bn industry to a $200bn industry in a few short years.”

The digital display market could be worth even more than $200bn, as offline media such as television converges with internet technology, he added. Mr Mohan said the volume of ads traded on its DoubleClick exchange had tripled in the last year. “I have never seen a technology get adopted in this industry as fast as real-time bidding and I have seen dozens and dozens of technologies.””

Digging Deep, Dusting Off

Sometimes, you need to recharge and reframe.  Professor Rosabeth Moss Kanter has a great post — Three Tips for Becoming An Energizer — on finding your energy.  Below are heavy excerpts, please click through to read the entire piece.

“Some people become leaders no matter what their chosen path because their positive energy is so uplifting. Even in tough times, they always find a way. They seem to live life on their own terms even when having to comply with someone else’s requirements. When they walk into a room, they make it come alive. When they send a message, it feels good to receive it. Their energy makes them magnets attracting other people.

Just plain energy is a neglected dimension of leadership. It is a form of power available to anyone in any circumstances. While inspiration is a long-term proposition, energy is necessary on a daily basis, just to keep going. …

1. A relentless focus on the bright side. Energizers find the positive and run with it. A state government official in a state that doesn’t like government overcomes that handicap through her strong positive presence. She dispenses compliments along with support for the community served by her agency, making it seem that she works for them rather than for the government. She greets everyone with the joy generally reserved for a close relative returning from war. I can see skeptics’ eyebrows starting to rise, but judging from her success, people love meeting with her or getting her exclamation-filled emails. She is invited to everything….

2. Redefining negatives as positives. Energizers are can-do people. They do not like to stay in negative territory, even when there are things that are genuinely depressing… “Positive thinking” and “counting blessings” can sound like naïve cliches. But energizers are not fools. They can be shrewd analysts who know their flaws and listen carefully to critics so that they can keep improving. Studies show that optimists are more likely to listen to negative information than pessimists, because they think they can do something about it. To keep moving through storms, energizers cultivate thick skins that shed negativity like a waterproof raincoat sheds drops of water. They are sometimes discouraged, but never victims.

3. Fast response time. Energizers don’t dawdle. Energizers don’t tell you all the reasons something can’t be done. They just get to it. They might take time to deliberate, but they keep the action moving. They are very responsive to emails or phone calls, even if the fast response is that they can’t respond yet. This helps them get more done…

The nice thing about this form of energy is that it is potentially abundant, renewable, and free. The only requirements for energizers are that they stay active, positive, responsive, and on mission.”

Winning According to An Old-Timer

Words of wisdom from Swedish serial entrepreneur Leif Lundblad on being a repeat success:

● Focus on ideas, let others solve the details: “I’ve always had the ability to see a need and come up with a conceptual solution. Then I find the people who can help me develop the product.”

● Know when it is time to move on: “I have always had one business that is the bread and butter, one business I’m looking to sell and one that I’m developing.”

● Beware of wealth: “I have money, but it’s not good to have too much because you become a bit … I wouldn’t say lazy, but things become a little too easy.”

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Privacy, Real-Time Bidding and the Uncertain Market Size for Display Advertising

While I have posted estimates of the size of the display advertising market, those numbers are nothing more than a shot in the dark. The size of the market (like any market) is sensitive to both price and quantity. Moving forward, price and quantity of display advertising are variable to display advertising effectiveness. If it becomes more effective, prices for a display ad can go up multiple fold. Higher effectiveness also will draw in more advertising dollars from offline mediums.

A recent Economist article explores “real-time bidding,” a new model for selling display advertising. The article describes the response to a slump in display ad prices due to low click-through rates and general ineffectiveness in reaching the targeted audience for the ad. For example, an advertiser, seeking to reach young men for its product, buys ads on ESPN, but also ends up paying for the women who visit ESPN, not the advertiser’s targeted audience in this example. With real-time bidding, in the span of a heartbeat, an auction for the display ad takes place when a set of eyeballs visits a page. The auction leverages information collected about the visitor, utilizing “digital traces” about where the users has visited before. This allows the  middlemen auctioneers, who sell 60-80% of the ad inventory on a content site, to aim ads at more relevant eyeballs, using better user profiles, to reach better prospects such as those who have previously visited the advertiser. So, as an example, Zappos could pay to serve an ad to a reader of the New York Times, who has visited the Zappos website in the past, to tempt that user to go on a shoe-buying detour.

There are two things going on here: (1) the ability to buy ads on an impression by impression basis and (2) the ability to make that decision based on information about the user.

Google says “real-time bidding” also known as “retargeting” can raise click-through rates by a factor of five or ten.  There are a variety of effects.  The value and consequently the price of a display ad goes up as it delivers more value by bringing more potential customers. It potentially disrupts the value of ads on certain publishers (Facebook?) to the extent that one can reach the same customers by purchasing inventory on a cheaper publisher.  It also potentially moves more value to the middlemen auctioneer to the extent that the middlemen can build up better profiles about internet users.

This is a description from Google on the benefits of real-time bidding from a blog posting, announcing the acquisition of Invite Media last year:

“We’re big believers in the benefits and future of this type of display ad buying. But we’re all just at the beginning. It can, and will, be much bigger than it is today, which will benefit the entire ecosystem – advertisers and agencies who can run more effective campaigns, demand-side platforms who offer real-time bidding services to advertisers and agencies, publishers who will get higher prices and more competition for their ad space (while controlling what space they make available, and to whom), and users who will see more useful ads that load faster.”

All of these effects would seemingly increase the size of the display advertising market by orders of magnitude by increasing the value of a display ad and by drawing more advertising dollars in as internet advertising delivers bigger value. It will also redistribute those ad dollars in different way.

But, the big unknown is privacy law.  Depending on where the FTC and legislative bodies end up, the ability for the intermediaries to collect and use information about users (particularly to the extent even anonymous profiles can be de-anonymized) will determine how effective the targeting will become, and how big the market becomes.  Ultimately, there is a tradeoff between privacy and the size of the display advertising market.

Creating Value from Big, Messy Data

Information is power, so the saying goes.  Today, decades into the digital age, a transition that enabled the collection and creation of data on a previously unknown scale, we have enormous data sets.  These sets are growing today at a monstrous pace, even relative to the digital age, with social networks, blogs and self-publishing, and the data being collected by mobile phones. We also for the first time have the ability to cheaply (“bootstrapped startup” levels of cheap) use technology to search and find patterns in these datasets, opening opportunities to creating new markets by disrupting existing markets.  An article from the FT, excerpted below, provides an overview of these issues.  I am going to dive much deeper into this as it has personal relevance for my current project.

If information is power, harnessing the increased information available provides opportunities for unprecedented value creation/disruption/redistribution.

Excerpt below (bolding added):

“While “big data” has become the buzzword, a better description would be “messy data”, says Roger Ehrenberg of IA Ventures, an early-stage investor. Harvesting, cleaning up and organising raw data in a way that it can be processed is a large part of the battle, he says.

This has been complicated further by the big growth in unstructured data – information, such as text, that is not organised in a way that a computer can easily process. With the volume of user-generated text and video growing rapidly, this has become one of the main focuses of technological development.

Chief among the new tools are natural language processing, which enables a computer to extract meaning from text, and machine learning, the feedback loops through which computers can test their conclusions on large amounts of data in order progressively to refine their results.

Subjecting large data sets to analysis has also been made easier by two of the forces that have reshaped information technology more widely: the spread of low-cost, standardised computer hardware and the emergence of open-source software.

This has created a cheap computing platform for new technologies such as Hadoop – a piece of software architecture that is designed to handle massive amounts of data. The idea was based on breakthroughs at Google, which needed to find ways to conduct large volumes of intensive web searches simultaneously. It has since been taken up by companies including Facebook and Yahoo.

The rise of cloud computing – which centralises storage and processing power in larger data centres – has also brought big data within the reach of more companies. By tapping into the cloud computing services offered by Amazon, say, a company such as Color can get instant access to all the analytical power it needs without needing to take on the fixed costs of buying its own servers, says D.J. Patil, chief product officer at the IT start-up.

For business leaders, “the big skill in future will be to ask the right question”, says Tim O’Reilly, a technology commentator and publisher.

Besides smartphones, new sources of data include social networks, blogs and other sources of user-generated content; sensors collecting everything from traffic patterns to a user’s heart rhythm; and click streams generated by people spending an increasing amount of their lives online.

Much of the information is in unstructured form. It has never been collated in a traditional relational database, where it could be queried at will. Without techniques to harvest, verify and analyse it – often in real time – valuable commercial signals are lost in the noise.

It sometimes takes the analysis of massive data sets to detect useful patterns, says Michael Olson. His California start-up, Cloudera, is commercialising the type of technology used by companies such as Facebook and Yahoo to crunch through vast bodies of information. Retailers, for instance, might learn far more from the 10 years’ worth of customer data they can now analyse in one go than from the more limited runs to which they were once restricted, he says.”

Why Do It Now?

From The Next 10 Years Will Be Great For Both Founders And VCs:

“The valuations of today’s private tech leaders – Facebook, Zynga, Groupon and possibly Twitter – are such that I believe upwards of 50-75% of the terminal values of these companies will be captured by the folks who did the real work and took the real risks, those who quit their jobs and begged, borrowed and cajoled friends, families and angel investors to take a chance on their far-fetched idea.

Here is the important, and game-changing, point: in order to participate in the great wealth creation taking place in this and future technology cycles, you will have to be a founder, an early employee or a private investor. The so-called easy money will be earned before a company goes public. This is a radical shift from earlier technology cycles.”

Does this call for a better 5-10 year plan than what you are doing now?

Dollar Menu Houses (Frugal Innovation and Innovation Prizes)

What happens when one dreams up and sets out an audacious out of reach challenge?  In a bid to offer an alternative to hellish mud and cardboard slums around the world, this Economist Schumpeter column tells the story of a blog post by a Dartmouth professor and a marketer colleague issuing a challenge to come up with a $300 house, more durable and humane than slum housing, and the unexpected response to the post.  This story demonstrates two of the standout recent ideas in innovation: frugal innovation and innovation prizes.  Frugal innovation is the concept of radically redesigning widely available or necessary products to make them affordable to the lesser incomes of the developing world, which then leads to positive blowback to the developing world as the innovation seeps back into developed world products.  Much-discussed examples are the one lakh rupee Tata Nano car, cheaper medical equipment, water purifiers, etc.  Offering an innovation prize involves issuing a public challenge and setting a bounty to solve the challenge.  Prizes have been offered for reusable spacecraft, greener cars, and better Netflix collaborative filtering, and in many instances, have yielded impressive results by unlikely teams.