Monthly Archives

February 2007

Uncertainty and the need to plan

By | Entrepreneurs, Venice Project | 8 Comments

Business plan 

I was reading JP’s post from a week or two ago Agile contracts versus covenants and was reminded of the challenges of dealing with uncertainty.  He wrote:

A short while ago I was musing over a classic problem to do with Agile [by which he means agile software development]: the traditional human desire for predictability, how that often influences the creation of flawed plans, how it is that the flawed plans then get funded, and the consequent militant standoff between the Plan and reality.

In my world this manifests itself in portfolio company strategy and business planning sessions.  I have previously posted some thoughts on the importance of not letting uncertainty get in the way of good decision making. 

I stand by that, but JP points to another sort of danger – that uncertainty is dealt with by denial, a plan is made and adopted without recognition that things will most likely pan out differently, and then the subsequent divergence between plan and reality is denied.

Trust and open-ness are the keys here.  If there is enough trust amongst a team, or around the board room table, then uncertainty needn’t be an issue.  Part of the reason we have the “desire for predictability” that JP notes is because we need to understand how other people will judge us – at a basic level we all want to know what we need to do to be loved, not to mention to get a good bonus.

This plays out every year in the annual budgeting cycle.  In most start-ups there is huge uncertainty about next year’s revenues – trying to minimise the uncertainty (or even denying it exists) leads you to take the risk out and lower your ambition levels.  That isn’t good.

By contrast, embracing the uncertainty, agreeing a stretch target with the recognition that hitting the plan is a great result and a near miss is still a good result gives you the best chance of making the most of your opportunity.

Doing this requires a lot of trust though.  Non-execs have to trust management to be grow costs more slowly than plan if revenues are coming in below target, and management have to trust non-execs to reward them for a good performance, even if it is off plan.  I like to work it so everyone is comfortable going for the big plan because the comp plan is structured so that rewards are still good if the end result is 80% of target.

In his post JP talks about contracts and covenants:

A contract tells you how to punish the other person if something goes wrong. In a covenant, at the slightest sign of trouble, you look for “repair”.

I guess what I am describing here is a covenant between management and the board.  A mutual understanding of how things will be handled if they are slightly off plan.  When it comes to compensation I am a big believer in writing things down as well – doing the hard work of thinking in advance what will constitute a good year, in terms of strategic development as well as the finances is very beneficial.  It forces real clarity on strategy and makes year end bonus discussions much easier.

Broadband TV – service layer separating from network layer

By | PCTV, TV, Venice Project, Video | 4 Comments

Interesting reading on Mashable earlier today that BitTorrent is launching a video store on Monday.  Not surprising I guess since P2P is becoming the transport protocol of choice for broadband TV, with Joost and Bablegum both on this model.

All the high profile IPTV and broadband TV plays out there at the moment combine service and network.  No reason those two should be in the same company.  In fact delivering a quality network, P2P or otherwise, is a very different business to building a good TV service, so you might expect them to be in different companies.  In the old media world where distribution was the scarce resource vertical integration made sense, but in a world of unlimited distribution I am not so sure.

What we are seeing here is BitTorrent moving up the stack in a classic play to capture value.  I wonder if they might be better making their network more TV ready and letting others innovate at the service layer.  They already have the experience, skills and critical mass to succeed as the network so why take the risk of moving into unchartered territory?

Chelsea – one down three to go??

By | Chelsea | 9 Comments

Chelsea - League Cup 2007 Drogba

I’ve so far kept my football pretty much out of this blog, but today I have got to say CONGRATULATIONS TO THE MIGHTY BLUES.

We have now taken the first (small) step towards a possible quadruple – which as well as being record breaking would be awesome to behold.

I was in Cardiff and it was a great game – BBC report here.

Future of web apps (FOWA) – great conference

By | Consumer Internet, London, Venture Capital | No Comments

But I missed it.  Gutted.  Conference link here.

Fred has a some great posts about it here on Arrington’s keynote, here on Ben’s VC talk, and for the techies amongst you here on Google, Amazon and Mashups.

And Vecosys have a good day one summary here.

Everyone I have met all week has been buzzing about FOWA and I’m off to a breakfast now with Sam where I’m expecting more of the same.

 

Start-up tips

By | Consumer Internet, Entrepreneurs, Venture Capital | 4 Comments

Check out Startupping where successful web entrepreneurs share some thoughts on what they did that was good and not so good.  (And thanks to Fred Wilson for the link.)

Picking out a couple of highlights:

Greg Linden, founder of Findory and previously of Amazon

Be cheap, but not too cheap. In retrospect, I think I have been too cheap running Findory. Budgeting is an exercise that has death by burning out at one extreme and death by resource starvation at another. Findory lived a long time with a very low burn rate, but has been starved of resources, slowing growth, restricting hiring, and limiting paths for expansion.

Wise words – I am all for saving money, but being too cheap can make everything take longer and suck all the fun out.

Mark Moore, founder of One True Media

I’m preaching to the choir here but the best decision a startup can make is to get the initial product out quickly, take feedback, and iterate rapidly. I understand that not all companies can work in this mode (some require longer time to create and iterate due to complexities around the product, etc) but the closer you can work to this methodology than the better chance you will have for success. In my experience, I have found that what you envision in your original business plan will not be true after six months. This is because you will understand the market better and have a better feel for what will really be successful after being in business for a while. So, get started as soon as possible by introducing your product to the market and then you can get to writing a “real business” plan that works and has been tested in the marketplace. For the entrepreneur who wants to be stealth for a year, I say good luck and make sure you have an extra year of funding.

This is exactly how I would operate if I was founding a start-up, and I enjoy his scepticism about stealth mode companies.  I just don’t see the point.

John Battelle – author of Search (which is an awesome book) and founder of Federated Media (amongst many other things)

Don’t skimp on hiring. Ever. I’ve hired folks who had the right resume, but I knew in my gut were not right for the culture of the business. I thought the skills/resume overshadowed the ability to work together as a team. They never do.

This is my favourite.  Hiring is a real challenge for small companies and there can be a lot of pressure to get bodies through the door as headcount (or lack of it) can be a real drag on growth – but you will be better off taking longer and getting the right person.  Every time.

 

Advertising on the BBC website

By | Advertising, Business models | 2 Comments

Critics are up in arms about BBC plans to put ads on their website when it is viewed from abroad. 

To me this is nuts.

The BBC is leaving money on the table if they don’t take ads and that money is yours and mine (for those of you that live in the UK at least).  If they get money from somewhere else presumably it can come off the licence fee.

I disagree with the both the arguments against putting ads on the site:

  1. People won’t trust the news if it has ads – only someone at the BBC could really believe that!  The overwhelming majority of news sites are commercially driven and we trust most of those to operate without bias.
  2. Putting ads on the site might weaken the Beeb’s hand when the license fee is next negotiated – good!  As we move to a long tail world the need for a public service broadcast starts to diminish, in my view.  Also – the notion that we somehow need a licence fee supported service more because it doesn’t put ads on its international site is seems a little absurd.

That’s my two cents.  There is a detailed post arguing against ads here.

More developments in DRM – music and video

By | Music, Video | 2 Comments

Regular readers will know that in my view there is a clear trend towards selling MP3 files with no copy protection – ie with no DRM.  Artists and record companies will hope to make back any revenue lost to piracy from increased merchandise and concert sales.  Independent record labels (admittedly those with the least to lose) have been coming round to this position, whilst the majors have been more resistant, although there have been some signs that there stance might soften.

The FT reported this morning that to soften opposition to its proposed acquisition of EMI, Warner has agreed to “fund a digital rights licensing platform for independent labels”.

IMHO this is a clear step backwards in the progression towards unprotected music.  I think they will find that what they are trying to do will be harder than pushing water uphill.

On the same day Viacom have cut a deal with Joost which shows they believe in their DRM platform and advertising plans.  This is an endorsement of P2P as the delivery method for broadband TV and maybe a step towards finding a DRM model that works for video.

As an aside I wonder if the delivery platform needs to be so tightly coupled with the service provider – this is the case with leading broadband TV players like Joost and Bablegum, but it doesn’t necessarily seem to be the best way forward.  Building a service on top of BitTorrent would be another option.

Consumer internet – early adopters, critical mass and offline activity

By | Consumer Internet, Social networks | 3 Comments

I have written a lot about getting consumer internet services to critical mass – here with lessons from Betfair on the value of identifying early adopters, here on the “del.icio.us lesson” that personal value must precede network value, here on the importance of distribution, here on the importance of offline interaction, and here on thinking of communities as emergent systems.

Stimulated by Nisan’s comment on the Betfair post yesterday where he proposed a guide for launching a consumer internet service I thought I would try and pull all my thoughts together.

The following is a bit of a wish list of indicators that a consumer internet service will get to scale:

  • Clearly identified group of early adopters/power users with well understood benefits from the service – at a personal and social level
  • A marketing plan targeted at the early adopters, probably including a significant offline component
  • An understanding of the ‘essence’ of the service and how to grow it – this is really how the service will operate as an emergent system – liquidity, status, buzz or UGC are common forms of ‘essence’ in consumer internet services
  • A clearly thought out distribution plan, probably leveraging partners
  • Features of the service which promote offline interaction between members

Lessons from Betfair about getting a consumer internet start-up to critical mass

By | Consumer Internet, MySpace, Social networks | 10 Comments

Nisan Gabbay’s Betair case study is up to his usual high standard.  He describes Betfair’s success (which has been spectacular – shares last changed hands at a valuation of $3.2bn) and what they did to get there.  The post is longish, but I highly recommend a full read. 

At the end he identifies five themes present at Betfair which are “common across successful internet companies”:

  • They offer a low cost alternative to a high cost service – bookmakers
  • Users are able to make money or even earn a living using their service
  • They targeted a niche which turned out to be larger than expected and built out from there
  • They jumpstarted user acquisition through a distribution partnership – they had a deal with Racing Post Britain’s leading horse racing paper
  • They had a story which lent itself well to mainstream PR

Last month Nisan suggested that I post about what it takes to get a consumer internet site to critical mass.  It is a difficult topic (if it was easy to get a new site to critical mass everyone would be doing it, right?) but Nisan himself has prompted me to write this half answer with his Betfair case study.

My thoughts expand upon the notion of taking a niche and building out from there, I’m also drawing on some of the comments on the case study.  It sounds like Betfair were a bit prescient/lucky in that the niche they targeted turned out to be larger than most people expected – emulating that might be tough, but the strategy of kick starting growth by identifying a niche group of power users and marketing to them aggressively is a sound one.  Running with that for a sec:

  • If you can’t identify a (potential) group of power users for your service then that might tell you something in itself – you should also have a clear value proposition for them.  On Betfair it is better odds than at the bookmaker for heavy gamblers, on LastFM it is more efficient discovery of new bands for music fans, on eBay it is an expanded market for small traders, on Flickr it is professional photographers, etc. etc.
  • Power users have the most to gain from a service and so will be most tolerant of glitches and early design issues, they will also help you iron them out – they will be your best early adopters
  • The tactic for attracting power users to your site will depend on where you are pulling them from – Betfair was pulling them from bookmakers so offline marketing was critical, MySpace was operating in a more established online market and so focused more efforts online – some more about that here.

Understanding what I would call the ‘essence’ of your service is important.  On markets like Betfair and eBay it is liquidity.  On a pure social network like Myspace it is a feeling of buzz and being in a cool place.  On applied social networks buzz is still important but a sense of authority on the content area is required as well.  On Flickr it is great photos, on LastFM the authority comes from being able to see other people who listen to the same obscure bands as you.

Designing the site to deliver this ‘essence’ in the early days may mean you don’t go for broad applicability.  To ensure adequate liquidity Betfair focused activity by starting with a limited number of betting categories.  Similarly UK based eating and drinking out site TrustedPlaces has focused initially on London to ensure there is enough buzz and content.  This is kind of like opening a small bar which is awesome with 200 people in it then growing by adding rooms.

Marketing should be micro-targeted at people who will provide the essence.  Betfair went after heavy gamblers with discount offers, for example.  DontStayIn does this well for clubbers in the UK by having photographers outside clubs – regular clubbers check back to look for their photo.