Monthly Archives

June 2008

More thoughts on the advantages of being a serial entrepreneur

By | Entrepreneurs, Venture Capital | 6 Comments

Before I went on holiday I asked Are serial entrepreneurs any better than first time entrepreneurs? and got an avalanche of comments which raised some further points of interest that I have been meaning to share with you for the past week or so (or should I say re-share – and as ever a big thank you for your participation, it is a big part of what makes blogging worthwhile).

In the comments there was an extensive discussion about the difference that experience makes and some questions about the quality of data on the topic. I have condensed it into three areas here.

Firstly – musing on when experience is helpful it has become clearer that the value of experience depends on the pace of the revolution that you seek to participate in. This is a point made by James Penman in the comments to the original post, and encapsulated brilliantly by Clay Shirky in the following quote:

Those of us with considerable real-world experience are often at an advantage relative to young people, who are comparative novices in the way the world works. The mistakes that novices make come from lack of experience. They overestimate mere fads, seeing revolution everywhere, and they make this kind of mistake a thousand times before they learn better. But in times of revolution, the experienced among us make the opposite mistake. When a real once-in-a-lifetime change comes along, we are at risk or regarding it as a fad.

Additionally, as VC-turned-entrepreneur Bill Kilmer said in his comment, experience is also valuable in every day business:

Every day, there are a thousand sub-routines in our business that we execute the right way simply because we’ve done it before and we how it should be done. Each is a potential stumbling block for a new entrepreneur who hasn’t been down that road before and learned from their previous good or bad decisions.

If the vision is right it is generally possible to fix execution errors, but if you have the vision wrong that is pretty hard to come back from. As a result I would expect, as per Clay Shirky’s comment, that experience is less helpful in genuinely new areas, and that serial entrepreneurs would be at less of an advantage.

Secondly – there were a bunch of comments around the theme that first time entrepreneurs often don’t understand what they are letting themselves in for and as a result shoot for over-ambitious goals and perhaps sign themselves up for a world of stress they might otherwise have chosen to avoid. By this argument experienced entrepreneurs will often either avoid doing another startup altogether, target a lower but more achievable exit (say in the $50-100m range), or adopt a portfolio approach by working with more than one company so that they don’t have all their eggs in one basket.

The logic of this is undeniable, but it is not great news for me as a VC. We are seeking to work with people who want to build world beating companies, and that usually means that their goals will look over-ambitious in the early days. Some experienced entrepreneurs go down this route – particularly ones that made a good amount of money from their first startup and want to become seriously rich from the second one – Brent Hoberman and the founders of Skype spring to mind here in Europe – but I think as a result of this factor first time entrepreneurs will continue to often be the first to come to us with compelling business plans in new hot areas.

Finally – there were a number of well made comments about the problems with the FT research that I quoted in the original article. Matthew Banks was kind enough to dig out some more work on the topic that points to a similar, if not identical conclusion. This can be found in a paper published by the National Bureau of Economic Research titled “Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs”. According to the summary on Sanjay Parekh’s blog the research showed that previously successful entrepreneurs are marginally more successful than first time entrepreneurs (30.6% success rate compared with 20.9%) and that previously unsuccessful entrepreneurs have a very similar chance of success to first timers (22.1% versus 20.9%). The original paper costs $5 to download – so I didn’t, paywalls are too annoying.

Myspace take the next step in data portability

By | Facebook, MySpace, Social networks | No Comments

As reported on Techcrunch yesterday Myspace fully luanched Data Availability service. Going forward developers will be able to access a livefeed of Myspace profile information for use in their own third party services. Reading the Myspace Developer Team blog it looks to me like this will include friend lists.

What developers won’t be able to do is store the information or write back any changes to Myspace.

As Mike says:

This is a real step forward in terms of user data rights, and I expect we’ll see a ton of very creative implementations of Data Availability.

It will make life a lot easier for new social media applications if they can pull friend and profile data from Myspace, and if/when others follow it will be even more powerful. Imagine how easy it will be to build a great profile and get started on a new service if all you have to do is give it your logins for your favourite socnets.

For these reasons this is pretty exciting as it stands, but as pointed out in the Techcrunch article, and then vociferously in the comments it could go much further. If the data use rights for third party developers are extended to allow storage and write back we will get to a social web mesh with a dynamic vibrancy that could unleash a world of possibilities we haven’t even begun to think about yet.

Challenges with building a social media ‘business’

By | Social networks, Social software | No Comments

Andy Warren left a great comment yesterday in response to Social networks as entertainment. He wrote:

There’s been an interesting episode on Faceparty (see The Register for more details) where an almighty row has occurred between the users (who don’t pay anything for the service) and the providers (who don’t get paid to provide the service).

When a social network starts there seems to be a collaborative approach from users and developers alike, combining to build something they can all use and enjoy. A symbiotic relationship ensues. However, once a level of critical mass is reached the users start seeing themselves as “customers” and the developers as a Service Provider, almost expecting some sort of Service Level Agreement for a service they’ve never paid for. This in turn can switch to resentment and result in the users leaving for “someone who treats them better” such as another up and coming network. The resentment escalates rapidly when investment and increased valuations occur.

It will be interesting to watch how Twitter develops. It’s still in the position where users accept (and expect) that the service will be down on a regular basis but that is close to switching to resentment rather than a slight irritation. And they’ve just had new investment.

Social Networks need to be able to handle this change in the relationship with their users as part of any repositioning or transformation.

Spot on Andy.

Everyone else, if you haven’t seen it you really should read the Register article – it is hilarious, and not a little refreshing.

This is similar to the phenomenon of the user being in control that we have discussed before.

In the words of Clay Shirky communities are a ‘bargain’ between the users which determines what people will put in and get out of the service as a user. That bargain also needs to include the company providing the service. In most cases the company is looking to offer a service, usually for free, in return for making money in some other way, usually advertising. Users need to understand that, and sites need to help them get there, or ultimately people will stop building cool new services.

Faceparty is a bit different, because they are at all interested in making money, which is what puts them in a position to tell their users how it is, when many others are afraid to.

Small boards are usually better

By | Entrepreneurs, Venture Capital | 14 Comments

I was on a call yesterday with a subset of one of the boards I am on and one of the directors was talking about how difficult it is to add value on boards.

I agree with that. It is definitely difficult. Also definitely possible, but it usually requires a lot of care and forethought.

I should add at this stage that the director in question has been brilliant for us, and that he has an awesome track record of entrepreneurial success behind him.

One of the reasons I favour small boards is exactly because it is hard for NEDs to add value. Despite their best intentions many fail, and it is also common to see people destroying value by chewing up management time precisely because they are trying to help.

Keeping the number of NEDs small and choosing them carefully is my advice. One or two is a good number for non-investor NEDs, including the chairman.

As I have been writing this post I have been wondering why I haven’t named the director in question. I think the reason is that this is in some way a no-go area, and I was unsure how people in other companies he is involved with would react to him having this opinion – which makes me want to pursue this topic further.

So I will return with another post on adding value from the board. In the mean time I’d love to hear any thoughts or experiences you have had which would help frame my thoughts. This topic overlaps with a couple of previous posts on VC value add, but it is not the same.

The FLIRT model of crowdsourcing – an analytical approach

By | Business models, Innovation, Open Source, Social networks, Social software | 10 Comments

I write from time to time here about mass collaboration – and it is something I have been thinking about more recently as I read Clay Shirky’s Here Comes Everybody. In a nutshell I’m excited about this space because the way the internet lowers the cost and barriers to collaboration has the potential to unleash all manner of new group activities.

Crowdsourcing, and more specifically social shopping is one such activity, and one that I see as the natural next evolution for the tired comparison shopping space.

So when I came across the Sami Viitamaki’s FLIRT model of crowdsourcing I had to share it.

(Thanks to Taneli Tika for the pointer – for those that don’t know Taneli is one of Finland’s most talented web entrepreneurs and has been involved with a host of great web businesses including Dopplr and Sulake.)

The FLIRT model does two things:

  1. it describes the roles of different players in a crowdsourcing ecosystem – taking the analysis beyond the usual 1% create, 9% contribute, 90% consume – see the diagram above
  2. it also offers guidance on strategy for crowdsourcing companies

The guidance on strategy comes from the five elements that constitute FLIRT:

If you are an entrepreneur or investor in this area you really should read the original introductory post and the detail behind the five links above.

To whet your appetite (and finish) I will give a taster of what you will find.

From the discussion of focus:

Crowdsourcing efforts at present can be extended to various fieldsof doing business, including, but not limited to (some example companies in parentheses):

  • innovation (innocentive)
  • new product development, product design (threadless)
  • existing product feature enhancement (P&G’s vocalpoint)
  • production
  • evaluation of ideas, products, services, features, content, etc. (sellaband)
  • marketing
  • distribution (Fon)
  • customer support (many tech companies)

Clearly, crowdsourcing is not ideal for every field of business (Considering crowdsourcing your accounting? Think again.) and suitability varies across organizations. However, with developing
channels and tools, their innovative applications and resulting business models, the possibilities grow more diverse each day.

And from the discussion on incentives:

What’s in it for me? That’s a question everybody makes – implicitly or explicitly – when faced with a proposal to co-operate and co-create. Quite naturally, monetary incentives are widely used in crowdsourcing efforts (a few cents per HIT at amazon’s mturk; $2000 in cash and benefits for each design taken into production at threadless; up to $1,000,000 for a winning solution at innocentive) and are usually required, if only for justifying the intellectual property transfers that take place between the company and the customer. However, there is a plethora of other, often implicit incentives that many times have even more influence on the participation rates and intensity of community members. It is important ot note that people, at least in the developed world, do not participate in crowdsourcing efforts to support their living, but instead for e.g. fun, recreation and intellectual or creative challenge.

Social networks as entertainment

By | Consumer Internet, Facebook, MySpace, Social networks, Virtual Worlds | 6 Comments

There has been a lot of chat in the blogosphere recently about Facebook overtaking Myspace, then on the value of international traffic compared with US domestic traffic – both on Techcrunch and GigaOM, and finally asking if the implication of Facebook over-taking Myspace is that network effects for social networks have been overstated (this is a great post from Andrew Chen).

All of this has got me thinking that social networks are better understood as media or entertainment rather than a communications tool or network.

People talk more about ‘wasting time’ on Facebook than staying in touch with people or any other constructive activity. They profile hop, check out people’s pictures, and that sort of thing. Thought about in this way socnets can be seen as a game. The main activities are collecting friends and building out a profile. The brilliance of the Facebook API was that it extended the game by adding vampire bites and other similar activities.

Then like any game it started to get boring. The overall stats kept looking good because so many new people were playing the game that the growth kept going for quite a while, but as is well documented growth is plateauing now.

On this analysis socnets are vulnerable to the same here today, gone tomorrow, phenomena as any film or TV show. Their sheer size and presence in the lives of so many people gives them some protection – but if they don’t stay interesting they will start to fade away.

Om Malik put it this way in the GigaOM post I also linked to above:

In other words, Social Networks need to find new purposes for people to come back every day and be loyal. I had argued in my previous post that the world of social networks is going to be divided into two – the big players (MySpace, Facebook) and niche players (Dogster, Dopplr etc.) [I include the reference to niche, because niche drives interest]

The two main initiatives at the major socnets recognise this risk – data portability and open APIs are both attempts to become platforms that are an important part of some other interesting activity – that either happens inside the socnet via widgets of Facebook apps, or outside of it using the data from the socnet. Either way the socnet gains a relevance and importance that is lost once the user has finished building their profile, got bored of surfing other people’s photos and of sending vampire bites.

For a while now I have been saying that virtual worlds are best understood as media properties, perhaps analogous to TV channels. We all have favourites, but we have several that use regularly, and they all change over time. The good news is that this means there is space for lots of successful virtual worlds, the bad news is that none of them will be worth as much as Google, or probably even Facebook’s famed $15bn.

I am now thinking that socnets could be similar. Whether they are or not will depend on whether they successfully transform themselves into platforms.

The role of technology in advertising

By | Advertising, Business models, Google, Microsoft | 9 Comments

Executives at a conference in Cannes have been discussing the future of advertising. As reported in the New York Times:

executives harshly criticized Google’s recent agreement to place ads next to Yahoo search results. The move could strengthen Google’s dominance over the most lucrative portion of the fast-growing online advertising field.

Fair enough. I think we would all agree with that.

But the tone of this next quote suggests a mis-understanding of the role of technology in advertising:

Ad executives worry that Google and Microsoft, which is moving to bolster its capabilities in search and other areas of online advertising, will not stop there. They fear that the companies want to extend their reach into traditional advertising — transforming, as they see it, a business built on creativity to one controlled by the sterile algorithms of computer programmers.

I have long thought that the advertising industry could become more efficient and that ‘creativity’ is a smaller part of the value to clients than many ad executives think. It feels to me like this is like arguing for the benefit of hand made goods in the face of competition from mass production.

What technology might do is break the link between creative services and media buying. That would open up some interesting opportunities for new types of online market place and mass collaboration platforms.

lessons from Flickr

By | Uncategorized | 2 Comments

Posted by mobile phone:

This is a great post on lessons from Flickr. To summarise:
– great product (this can’t be stressed enough)
– great community management
– the power of the API

Disney shows the future for professionally produced video

By | Uncategorized | No Comments

Posted by mobile phone:
Disney are making their movies available for free on their website, starting with Finding Nemo, which is apparently already up.

I think this represents the future for professionally produced video because:
– it is free to watch, Disney make their money from advertising, merchandise, theme parks etc.
– it is streamed direct from their website, as with music, ubiquity of broadband networks will eventually make storing local copies pointless

Posted from my Blackberry, apologies for the lack of links.