Growth5 Blog

Friday, February 26, 2010

U.S. National Debt Clock

Check out this online US National Debt Clock

(screen capture below)

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Thursday, February 25, 2010

Getting to Know Our Banker

We've written a bit about our country's #1 banker, China, over the last year:
Nose / Spite / Face
A Different Perspective
Gaining Ground
This is the country/bank that holds a decent part of our financial future in their hands. We should get to know them better.

On Tuesday, Business Insider posted this informative piece, 15 Facts About China That Will Blow Your Mind. "Facts" might be too strong a word because some of these are predictions... Nonetheless, I've listed the 15 items below, you should check out the article for interesting charts, graphs and supporting info.
1. By 2025, China will build TEN New York-sized cities.

2. By 2030, China will add more new city-dwellers than the entire U.S. population.

3. China already consumes twice as much steel as the US, Europe and Japan combined.

4. If the Chinese, one day, use as much oil per person as Americans, then the world will need seven more Saudi Arabias to meet their demand.

5. There are already more Christians in China than Italy, and China is on track to become the largest center of Christianity in the world.

6. Chinese are far more likely to believe in evolution than Americans.

7. Chinese internet users are five times as likely to have blogs as Americans.

8. China has 150% more soldiers than America does, plus a high tech 'Kill Weapon' the U.S. can't deal with.

9. China still hasn't rid itself of Europe's medieval plague.

10. 40% of Chinese small businesses went bust or almost went bust during the world financial crisis.

11. China executes three times as many people as the rest of the world COMBINED... and uses mobile execution vans for efficiency.

12. China averages 274 protests PER DAY.

13. When you buy Chinese stocks, you are basically financing the Chinese government. Eight of Shanghai's top ten stocks are state-controlled arms of the government.

14. 50% of counterfeit goods come from China.

15. The majority of Chinese drink polluted water.

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Wednesday, February 24, 2010

Bloom Box

Bloom Energy is unveiling a fuel-cell product today that can power a small office building. Within the next decade they hope to power your home 24/7/365 with a unit the size of a shoe box that costs less than $3,000.

Other tidbits about Bloom from the article:
1. Bloom's technology gives users the ability to produce their own electricity, eliminating the grid.

2. Bloom Energy, financed by leading VCs to the tune of $400 million or so to-date, has been in stealth mode for eight years. Today, it's scheduled to announce that 20 companies, including Wal-Mart, Google, eBay, FedEx, Staples, Coca-Cola, Bank of America and Cox Enterprises, have bought Bloom's fuel-cell boxes. The commercial use boxes are about the size of a parking space and cost $700,000 to $800,000.

3. Bloom's fuel cell works by having air and fuel — such as natural gas, ethanol or biogas — fed into the cell. The oxygen ions react with the fuel to produce electricity. There's no burning, so the fuel cell is two-thirds cleaner than coal-fired plants, Bloom says.

4. Bloom's big breakthrough was reducing breakage by figuring out how to get the cells and the metal plates that go between them in the stacks to expand and shrink at the same rate at temperatures up to 800 degrees Celsius (1,472 degrees Fahrenheit). The high heat makes the fuel more reactive and the cell more efficient. The heat also enables use of different fuels, making the tech easier and cheaper to deploy.

5. Bloom's lead venture-capital backer, John Doerr, who also helped fund Netscape and Google, says Bloom's technology won't solve the USA's clean-energy needs. "It's not a silver bullet," he says, but a piece of an emerging clean-energy economy. "Everybody wants clean, reliable, affordable electricity," Doerr says.
You can watch the 60 Minutes piece on Bloom here.

Thanks Steve for sending me the article on this.

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Tuesday, February 23, 2010

10 Skills an Entrepreneur Needs to Get Funded

Serial entrepreneur, now VC at GRP Partners, Mark Suster listed the 10 skills he looks for in entrepreneurs before writing a check. He goes into detail on each of the ten over three posts - part 1, part 2 and part 3. Here are the ten skills with a brief synopsis for each one:
1. Tenacity: there will be people telling you 'no' everywhere you turn. Do you have what it takes to forge ahead?

2. Street smarts: someone who "gets it" – knowing how customers buy, knowing what excites them. Getting out there and talking to the audience. Not relying on book smarts, or established start up 'rules' – making their own way, trusting their instincts.

3. Ability to Pivot: Is the entrepreneur getting feedback and advice from multiple sources, do they have the ability to adjust on the fly when their audience wants something slightly different?

4. Resiliency: Sir Winston Churchill, “Success is the ability to go from one failure to another with no loss of enthusiasm.”

5. Inspiration: tenacity, street smarts, your ability to pivot and resiliency will only take you so far. Without the ability to inspire, you won't be able to convince the potential hires you need to get on board so you can make believers out of the VCs that are considering the next round of financing that will be used to build that great product you've sold your customers on.

6. Perspiration: Thomas Edison, “Genius is one percent inspiration and ninety-nine percent perspiration.”

Suster writes, "If you want a 'job', don’t be an entrepreneur. It’s not a job — it’s your life... For every person who comes into my office with a good idea I respond, 'Don’t worry about your failure, worry about your success. If you fail, you move on. But if your good idea pops big time then, trust me, there will be three Ph.D.’s from Stanford sharing a cheap apartment in San Jose working around the clock to beat you. They’ll be eating Ramen or Taco Bell every night and saving their pennies to pour into the company'...

It may be unfair, but it’s the reality of capitalism. It’s the dynamic that drives innovation. In the future, the competition won’t only be in San Jose, but also in Shanghai, Seoul, and Bangalore... You think China can’t build great Internet companies? Have you heard of TenCent? It’s more valuable than Facebook."

7. Appetite for Risk: How can VCs or Angels justify taking a risk on you if you're not willing to quit your job to work on this project full time. If you won't make that leap it probably means you don't your own project will succeed.

"Entrepreneurs are risk takers. Not wild speculators, but pragmatic risk takers who have a blind belief that they will find a way to make things work. If you put on paper what it would take to be successful in your company, you’d never take the first step, which is why most people don’t. It is often called a “leap of faith” because you jump from safety into the abyss with only the blind faith that you’ll find a way."

8. Detail Orientation: "One of the easiest ways to rule out an entrepreneur is when he doesn’t know the details of his business. There are tell-tale signs, and discussions about competitors often expose them. You can tell whether an entrepreneur has logged into his competitors’ products, talked to their customers, read news coverage of them and gotten the back-channel info."

9. Competitiveness: "Just ask Overture about Google ('Don’t be evil') and how they competed in international markets. It wasn’t all smiles, hugs and “let the best man win.” A lot was at stake, and Google competed fiercely."

10. Decisiveness: "There is no such thing as a startup decision with complete information. The best entrepreneurs have a bias for making quick decisions and accept that, at best, 70 percent of them will be right."

Bonus#1
Domain Experience: If you spent three years building relationships with senior executives at media companies, a starting point for your next business ought to be, “How can I exploit these relationships in the next venture I launch?”

Bonus#2
Integrity: "If I thought I could make a lot of money backing a dishonest person, I personally would pass. I know many private equity firms that would not."

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Monday, February 22, 2010

Assessing Value: A Metric that Can't Be Gamed

I was catching up on some reading this weekend and came across this article on a new business metric that is being used by more and more firms: EVA Momentum. The EVA stands for Economic Value Added.

The concept was developed by consultant Bennett Stewart (with Joel Stern) who claims the ratio can't be manipulated.
"It's the only percent metric where more is always better than less," he says. "It always increases when managers do things that make economic sense."
EVA itself is simply profit minus capital costs – here's how much we earned, now let's take out what we invested back into the company to recognize how much value we created.

EVA Momentum takes EVA and divides it by the prior period's sales. A great way to show the value momentum of a business.
"if a company increases its EVA by $10 million and the prior period's sales were $1 billion, then its EVA momentum is 1%. That's not bad, considering that for most companies this figure is zero or negative, and the average for many companies is generally around zero.

Stewart's firm, EVA Dimensions, has crunched the five-year data for firms with revenues of at least $1 billion. The three top performers by EVA momentum: Gilead Sciences (with an average annual EVA momentum of 24.3%), Google (22.7%), and Apple (12.1%).
What I like about this ratio is that it isolates real value in a simple way. Businesses would do well by incentivizing their management and paying them bonuses by focusing on this metric.

As the article points out, a lot of firms tend to focus on ratios that have potentially destructive side effects. Lehman focused on ROE (return on equity) for so long (and paid out huge corresponding bonuses) they didn't realize their people were actually incentivized to drive them out of business by taking on excessive leverage to increase their ROE more quickly.

EVA Momentum is either going in the right direction, or it's not – there's nowhere for management to hide. You are either creating value for your shareholders, or you are not.

Here are three ways the article points out on how to get EVA Momentum right:
1. Don't obsess about sales. Managers fixate on how to increase their company's revenues, but if it doesn't boost EVA, it does nothing to create value.

2. Bail out of EVA-negative businesses. Ford's sale of capital-intensive, EVA-sapping Jaguar and Land Rover shrank the company, but in the end increased its value.

3. Annihilate wasted capital. Cutting working capital, as Wal-Mart did in 2009, and offloading unproductive assets are great opportunities to build EVA when growth is slow.

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Friday, February 19, 2010

You Won't Pay for News Online - You Want to be Paid to Read It

Hal Varian, Google's Chief Economist, recently spoke at Berkeley's Graduate School of Journalism about the economics of online news. The highlights:
1. Online advertising revenue represents only 5% of overall newspaper revenue.

2. Newspaper circulation has been in decline since:
-1990 when looking at overall circulation;
-1960 when crossed against the population; and
-1945 per household (can't blame the internet for this 55-year decline).

3. Varian believes people won't spend money on an online product that they are willing to buy in hard copy.

​4. Google news access goes up during the day, down in the evening, and way, way down over the weekend. Americans still spend much more time with print newspapers than they do with news online -- one Nielsen study found that Internet users spent an average of 38 minutes total per month on newspaper sites.
People aren't reading news online at night or on the weekends. PAY FOR IT? THEY AREN'T EVEN READING IT.
5. Reading news online at work as a distraction is easy because you're being paid to do so.
Employers around the US cringe simultaneously.
6. To the extent that reading an actual newspaper is an activity in itself, Varian argued, people are willing to pay for it, in a way they aren't willing to pay for a couple minutes of distraction at work. So the challenge for newspapers would be to reinvent a way to make reading news a leisure-time activity. Then -- and only then -- will readers be willing to pay for content.
Is the iPad the solution? If online advertising is currently only 5% of newspaper revenue and newspaper circulation is in perpetual decline, the iPad would have to help newspapers overcome 95% of their current revenue by getting people to pay for online news while curled up with their iPad on nights and weekends. Not going to happen.

At some point soon, the majority of newspapers across the country will have to find a way to provide news online only. Making money on the production and distribution of the printed version is no longer a viable business model for most newspapers. It's similar to the perpetual decline of retail music sales vs. the perpetual increase of online music sales.

Once bandwidth increases, the same thing will happen to the dvd industry - replacing hard copy production/distribution in stores with digital files online.

Perhaps it's time to dust off Mark Cuban's suggestion from last year – it would be more cost effective for newspapers to shut down print production entirely and buy all of their subscribers Kindles. Now you can give them the option of the Kindle or the iPad.

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Thursday, February 18, 2010

Trademark Registration Around the World

Trademarkia recently announced that they are offering features "that will enable users to register trademarks in more than 50 countries including the US., European Union, Japan, China, India and Korea."

From the their site: "Trademarkia is the largest, most accurate and free global search engine for registered trademarks on the Internet, providing up to the minute contextual information about current use of brand names for trademarks filed since the year 1870."

Since the world is now flat, you might want to consider trademark protection in countries you aspire to do business in. Countries vary as to how serious they are about trademark protection, so do your research on the countries you are considering.

If you need to brush up on your trademark knowledge, this is a decent place to start.

The US Patent & Trademark Office site: www.uspto.gov

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Wednesday, February 17, 2010

Calculating Return on Investment

Fred Wilson provided this extremely helpful post on how to quickly and properly calculate a return on investment.

Disclaimer: this calculation is for small Angel investments – your brother-in-law is opening a restaurant, a neighbor has a hobby that can be monetized, etc... Fred and his wife use this calculation to assess investments they do together completely separate from his vc firm.

Some people think this is WAY over-simplifying return assessment even on a small Angel investment, I disagree. If the investment can't pass this simple smell test, there's no need to waste time putting language together for a small business plan or further revenue/expense Excel sheets. The investment will still end up in the same place - there will just be a lot more reading (obfuscation of the original smell test) and unnecessary estimated P&L spreadsheets that mask the fact that no money will be made.

It gets frustrating when entrepreneurs don't calculate estimated return properly in the materials they provide for you to make an investment decision on. "If they can't calculate what my return on this investment is supposed to be properly, how can I trust the rest of the numbers they are giving me?"

Fred provide screen shots and a Google Doc you can click on to see how he sets it all up. It's very straightforward. Check out his post first, then come back here; some of the items below might help if you get stuck.

1. Think of this calculation as a cash flow analysis for the investor alone (not the business). How much money are they putting into your business, and how much do you estimate they will get back each year over the life of the investment. It's that simple.

2. The reason you put the investors original amount as negative is because it is negative to the investor (it's additive to the business you are asking them to invest in, but we're focusing on the investor in this exercise).

3. The IRR function in Excel or Google Docs, looks like this (as defined by Google Docs):
Internal Rate of Return

"=IRR(values, guess)"

Calculates the internal rate of return for an investment. The values represent cash flow values at regular intervals, at least one value must be negative (payments), and at least one value must be positive (income). Values is an array containing the values. Guess (optional) is the estimated value. If you can provide only a few values, you should provide an initial guess to enable the iteration.
values: this is your row of annual cash flows. The first number is typically negative (the amount the investor put into your business) and the following numbers are typically positive, but varied, as the return each year will hardly ever be exactly the same.

This function automatically assesses how many years (or periods) the IRR is for as that is how many numbers there are in the array (B6:J6, for example).

guess: if you've ever used "Goal Seek" in Excel, you know why this at one point was necessary. Excel / Google Docs uses an iterative process to hone in on the IRR - back in the day it helped to get Excel started by providing an IRR guess of say, ".1" or 10 percent. I would bet this is no longer necessary at all, but I always put in .1 just out of habit. If you enter nothing as a guess, Excel/Google Docs automatically enters .1 in the formula.

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Tuesday, February 16, 2010

Southwest Airlines Social Brand/Damage Control; A Little Empathy Goes a Long Way

Twenty years ago if you had a complaint with a business, you might write them a letter, call them to make a complaint, write a letter to the editor of your local paper, at the very least you would tell anyone who would listen about your complaint. As a result, he company might take an infinitesimally small hit to their brand.

Today, if you're Kevin Smith and you have a complaint against Southwest Airlines you start to blog, podcast (his "smodcast" was over an hour dedicated specifically to the complaint) and tweet (200+ on the topic since Saturday) to your 1.6 million followers. [Warning: some of the language and subject matter in the tweets, blog and podcast by Kevin Smith are similar to what you would find in his movies. If you wouldn't go see his movies because of that, I wouldn't click on these links for the same reason.]

With today's "instant" real-time news cycle, Smith's story gets picked up by media outlets around the world (1,000+ on Google News) and Southwest has a brand/damage control crisis on its hands that has been put in front of millions and millions of people.

If you're Southwest, what do you do? Surprisingly to me, someone from @SouthwestAir started responding to @ThatKevinSmith's tweets almost immediately on Saturday evening. This person handled it as well as could be expected.
-@ThatKevinSmith hey Kevin! I'm so sorry for your experience tonight! Hopefully we can make things right, please follow so we may DM! 6:08 PM Feb 13th

-Hey folks - trust me, I saw the tweets from @ThatKevinSmith I'll get all the details and handle accordingly! Thanks for your concerns! 6:22 PM Feb 13th

-I read every single tweet that comes into this account, and take every tweet seriously. We'll handle @thatkevinsmith issue asap. 7:37 PM Feb 13th

-I've read the tweets all night from @thatkevinsmith - He'll be getting a call at home from our Customer Relations VP tonight. 8:14 PM Feb 13th

-@ThatKevinSmith Ok, I'll be sure to check it out. Hopefully you received our voicemail earlier this evening. 10:52 PM Feb 13th

-@ThatKevinSmith Again, I'm very sorry for the experience you had tonight. Please let me know if there is anything else I can do. 10:53 PM Feb 13th"

Taking a few steps backward, on Sunday afternoon, Southwest posted this "Not So Silent Bob" blog on the topic thinking they could shut Smith down with their policy logic. Yeah, not so much.

By yesterday (Monday), Southwest (who has less followers than Smith) realized they were treading in deeper waters than originally anticipated. They called and spoke to Smith directly and posted this quasi-apology blog titled, "My Conversation with Kevin Smith."

What can we learn from how Southwest handled this?

1. The Southwest tweets were timely and empathized with Smith's situation and promised action to resolve the issue. This was a decent start.

2. The policy blog Southwest posted with the "Not So Silent Bob" title erased any goodwill the tweets had created.

3. Unfortunately, Southwest waited to contact Smith directly until they had completed their own internal investigation. In today's real-time web, this ended up being a mistake. They lost two days of a nearly one-side social media onslaught.

Customers want to see some empathy towards their plight. Southwest should have contacted Smith immediately and at the very least recognized how upset he was, empathized with his frustration and let him know they were looking into it (the internal investigation) and would get back to him quickly with the results. The tweets accomplished this, but a voice conversation would have accomplished more, allowing Smith to vent to a Southwest human vs. thru his computer to the world.

What more could be expected from Southwest at that point from those following the story if they had done that? No company should be expected to admit they were wrong and apologize until they had the facts. However, a little empathy can go a long way while it is being sorted out.

I was boarding a Southwest flight recently where an elderly woman who wanted to sit in the front row was told she couldn't keep her bag on the floor in front of her, it needed to go in the overhead compartment. It was a sad episode because clearly the woman saw the bag as a security blanket of some kind and started melting down into a disturbing emotional episode.

The flight attendant kept reiterating Southwest's policy on the 'no bags in front of you in the front row of the airplane policy' which obviously wasn't helping at all. A more experienced flight attendant jumped in, sat next to the passenger and very quietly asked her what was wrong and what could she do to help. She assured the woman that everything would be ok and they could work this out. Brilliant. The lady calmed down, moved to the 2nd row, kept her bag under the seat in front of her – crisis averted.

When you're upset, the last thing you want to hear about is the policy, especially if the policy wasn't being followed properly in the case of the Kevin Smith complaint.

4. It took over 48 hours, but Southwest eventually came around to how they could have done this better. From Southwest's "My Conversation with Kevin Smith" post last night (Monday):
"I had the chance this afternoon to speak directly with director Kevin Smith. I let him know that in my 18 years here at Southwest, I have never dealt with a situation like what has been unfolding in the last 48 hours. I let Kevin know we have refunded his airfare. I told him we made a mistake in trying to board him as a standby passenger and then remove him. And I told him we were sorry...

Although I’m not here to debate the decision our Employees made, I can tell you that I for one have learned a lot today. The communication among our Employees was not as sharp as it should have been and, it’s apparent that Southwest could have handled this situation differently. Thanks, Kevin, for your passion around this topic. You were a reasonable guy during our conversation..."
If someone at Southwest had been able to have that conversation with Kevin on Saturday, the 48 hours of bad press for Southwest might have been able to be avoided. Southwest could have possibly turned this around.

5. Clearly the Southwest employee who is handling Twitter responded properly. Perhaps the executives that eventually got involved don't work on the weekends. They might want to take note that Blogs, Tweets and Podcasts don't work M - F 9 to 5. If you're going to be part of the conversation, you have to be ready to engage whenever and wherever the conversation is. And remember that a little empathy goes a long way.

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Friday, February 12, 2010

Dolphins Are Smart

... and have excellent mouth-eye coordination.

From the first episode (Challenges of Life) of the new BBC series Life.

Embedded below and also here.

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Thursday, February 11, 2010

We/You vs. I

Fast Company posted this article on the trend of followers on Twitter gravitating to tweets that engage them. The article points out that much like in "real life" people that constantly talk about themselves have a hard time making friends. Makes sense.

"After analyzing data from more than 60,000 tweeters, Dan Zarrella--the viral-marketing scientist who gave us nine scientifically proven ways to get re-tweeted--concluded that those who use social language ("we," "you") have more followers than those who self-reference ("I"):"

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Wednesday, February 10, 2010

Competition is Everywhere

I enjoyed this post by Seth Godin about the ubiquitousness of competition. He points out that you need to stand out against your multitude of competitors if you hope to succeed... agreed.

We wrote recently about focusing your business strategy and supporting marketing on solving a specific problem really well. Keep it simple and clearly understandable, thus differentiating yourself from the ever-present competition.

Where I thought Seth was going with his post was the failure of some firms to recognize that a good portion of their competition comes from places they have never even considered.

If your business is in the space of attracting eyeballs to convert into sales, you probably already know that you are competing against the the rest of the web to get the attention of the eyeballs you are targeting.

If your business is manufacturing products in Atlanta you might not know that a small plant in North Dakota with a popular industry blog, comprehensive online outreach and excellent conversion metrics is chipping away at current and potential customers of yours. Pretty soon they are going to be a large competitor that blows by you in annual sales. You're going to say, "how did that little company in the middle of nowhere get so big?"

Companies no longer wonder if they should have a web site or not, they know they need one. However, for whatever reasons, most companies are not concerned with driving traffic to their sites.

The clients we serve have realized – "if we build it, they WON'T come." You need to promote your site, drive traffic to it and convert the prospects that show up. If you're not - remember - you absolutely have hundreds of competitors you have never even heard of that are. And they're going to take business away from you, they probably already have.

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Tuesday, February 9, 2010

What is Real-Time Search?

Real-Time Search is not the entire world wide web searched in real time - not currently possible. Real-Time search should probably be called "Somewhat Real-Time Buzz" - not as catchy. As you read below, you might just want to call it what it really is in its current state: Twitter.

Google allows you to click away from their traditional search results (their PageRank algorithm of the indexed web) to choose the "Latest" search results: Twitter results (mostly), recent blog posts on the topic and the most recent news results. Google updates the results page as new items come in (mostly tweets on the topic you searched).

Bing offers a Twitter search with a tag cloud showing Twitter's top keywords, with sample tweets on the "hot topics" - you can search to see what the most recent tweets are for your keyword.

This article from CIO.com takes a look at five alternatives to Google and Bing for real-time search. They are:
1. Collecta: "what's hot right now" – a list of topics with related articles, tweets, blog posts, photos and comments about popular searches. They provide options to limit your results to just "blog posts and articles" for example.

2. Leapfish: allows you to search via "real-time" or traditional search. Results include top news, the topic's Wikipedia page, web results, video, images, Twitter results, blogs, top posts from Digg and a shopping section by that topic.

3. OneRiot: they have search results two ways, "Realtime" (attempts to bring you the most recent news and blog posts) and "Pulse" (the most socially-valued content by how often an items has been shared).

4. Scoopler: divides their results by "popular shares" and "live posts" to distinguish between videos, images and links vs. Twitter, Delicious and Digg respectively.

5. Thoora: identifies what's attracting the most buzz by indexing the blogosphere. Their results are broken into three parts: top related blogs, stats that show the popularity timeline of your topic, and relevant tweets.
So it's not "real-time traditional search" but Google and Bing's versions of real-time search and the five sites listed above do provide value by allowing you customized search options.

If you want the latest news, blog posts and buzz (tweets) about Iran for example, each of these sites can take you away from pages and pages of traditional search results that might have been indexed years ago to give you just the most recent items. I like having that option.

In the end, if you prefer "real-time search" you are just trading years of data that has been quantified to return the most relevant search results from a "group think" standpoint (traditional), to simply what are the most recent results on a certain topic (real-time) no matter the relevance.

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Monday, February 8, 2010

What Specific Problem Are You Solving?

Hey Startups:

A) Are you providing an end-to-end solution?
B) Do you have your customers needs covered from A to Z?
C) Are you a one-stop shop solution?
D) None of the above.

I hope it's D. A lot of startups we see think they need to have A, B or C in their presentation or we as investors will think they aren't comprehensive enough. The problem with the "catch all" strategy is that it often catches nothing, or whatever it does catch is not helpful to your business. Why? Both the strategy and the supporting marketing are too broad, it's not specific enough, it's not differentiable.

The well funded billion dollar competitor might have most of A to Z covered, but do you really want to compete with them for eyeballs and the corresponding sales that follow? You don't, you will lose.

Pick a very specific problem that exists in your space and isn't being solved right now - come up with a solution that people will appreciate/use and then market to them directly. If your solution works, your customer will complement your marketing strategy via word-of-mouth.

You can use iPhone apps as an example of this type of specificity. AroundMe and Shazam solve very specific problems for me. I use them and tell others about them.

From A to Z, maybe you will only have M covered, but so what - you can have a successful business and create value for your shareholders by being the best at M - your own blue ocean.

Our Chief Marketing Officer, Greg Conderacci, uses a hunting example to describe the difference between the "catch all" approach and the "specific solution" approach to both business and the marketing behind it.
You and a friend are competing against each other in a hunting competition that starts on Saturday morning at 7 am. You are busy, don't have a lot of time to prepare, but you have some money and a great solution that you are going to employ Saturday morning.

Your friend heads up to the hunting cabin a day early. She goes in the woods and does some research to figure out where the prey is. She sets some traps in the likely places and heads back to the cabin to catch up on this blog (she brought her MiFi, obviously).

You arrive at the cabin around midnight the night before, wake up Saturday morning at 6:55 AM, walk out onto the back deck of the cabin with your machine gun and start firing aimlessly into the woods at 7 AM for fifteen minutes. Confident you've won, you go back in the cabin and go back to sleep.
Shocker, you lost. It's not surprising you chose this approach because that's how you run your business. Unfortunately for you, the machine gun approach doesn't work in the hunting competition or for your business. You need to get more focused and start with one thing your business can do really well, perfect that solution, then tell people about it - don't confuse them with other ideas/solutions for things they don't care about - own that space and grow your business from there.

I was talking to a vc colleague this morning who is having a similar problem with a portfolio company and how they approach their marketing. The company is getting no results in their machine gun approach so they have decided to spend less money on it.

I reminded my colleague that this is the equivalent of being the back deck machine gun user trying to save money for the next competition by buying and shooting less bullets. It might save you money, but you're not getting any closer to winning.

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Friday, February 5, 2010

Cognitive Conflict

Conflict has a bad reputation - some people think of it as only negative.

When I first started investing in startups I used to not push certain points with the company's management to avoid conflict, steering away from an awkward moment or two thinking I might be hurting some one's feelings by simply disagreeing with them. Often one of the youngest people in the room, my upbringing suggested I was being disrespectful. This is no longer a concern, however, as unfortunately I am the elder feeling disrespected now ;-).

As I matured in the space, I quickly realized that a) if some one's feelings are hurt within a professional and courteous debate, that is a problem that exists on their side of the table, I can't own that; and b) I needed to concern myself more with the feelings of fellow shareholders not in the room that had asked me to represent them there and do my best to ensure the company's success and not lose their money.

Nowadays, one of my daily reminders is: "run head first at current and potential problems because history consistently proves that problems don't age well." Provided that the resulting "conflict" is cognitive, we're all better off.

This excellent post at GigaOM covers the fact that there is good conflict (cognitive) and bad conflict (affective) and that good conflict can even be a positive for you physically:
Research shows us that some conflict is good and some conflict is bad. Cognitive, or good conflict, helps companies eliminate groupthink and open up strategic possibilities. That’s because cognitive conflict is characterized by healthy debates about “what” to do and “why” to do it; it thus generates multiple strategic choices and allows us to weigh options. It also helps us think more clearly and broadly about our competition. And from a biological standpoint, it stimulates the parasympathetic nervous system, creating a positive emotional state which in turn supercharges our brains. Indeed, cognitive conflict has been shown to increase firm performance and shareholder wealth.

Bad conflict is sometimes termed “affective conflict” and is usually role-based, as it consists of heated arguments about “how” to do something or “who” should be in control of doing it. Unlike good conflict, it’s been found to destroy morale and decrease firm performance. Not only does it stimulate your sympathetic nervous system, kicking off the “fight or flight” syndrome, the chemicals released by your body in the process limit your thought processes, so focus is put on the conflict rather than the opportunity.

Let's endeavour to engage in more cognitive conflict when applicable situations arise. I have started trying to corral conversations that are roaming into the potentially problematic "How" and "Who" territory and bring them back to the more productive "What" and "Why" space. The conversations are far more energy positive, we get to a much better place strategically and as a byproduct we feel better. Who knew.

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Thursday, February 4, 2010

Dot-Com Crash Catches Up With VCs

The NYT posted this article yesterday about the dot-com crash catching up with venture capitalists' ten-year returns this year. What? The dot-com crash was forever ago.

VC funds are typically set up for ten years or more - a firm's 10-year return is important. For the last 9+ years the pre-crash years were included in 10-year returns for VCs, helping to prop up the crash year and the difficult years that followed. No more. Now it's just bad years - comparatively.

And it's a pretty big swing. According to the Cambridge Associates US Venture Capital Index, VC returns for the 10 years ending September 30, 2008 were 40.2 percent. For the ten years ending September 30, 2009 the number drops to 8.4 percent. Yikes! I wonder how many VC firms haven't updated their marketing materials in the last year.

Who knew how much the 1999 returns were carrying that 10-year return number. It makes sense, the NASDAQ composite peaked at 5,132.52 on March 10, 2000 and it's been all downhill from there. The NASDAQ composite closed today at 2,190.91.

However, we need to give the VC 10-year return (10/1/99 - 9/30/09) of 8.4 percent some credit. Over that same ten years, venture capital still outperformed the public markets:

NASDAQ: -2.5 percent
S&P 500: -0.2 percent
Dow Jones: +1.6 percent

If you feel like you need to brush up on the dot-com crash, check out Sean Carton's book: The Dot.Bomb Survival Guide: Surviving (and Thriving) in the Dot.Com Implosion. This is the kindle edition.

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Wednesday, February 3, 2010

How to Pitch VCs

TechCrunch posted this article recently on how to pitch VCs. The advice in this article is spot on. You'll notice some overlap here with the Five Things I Wish Were in Your Business Plan. Here are the ten items you should think about when pitching a VC, check out the article for more detail on each item:
1. What Do You Do?

2. Reveal Your End Game.

3. What is the True Size of Your Market? No, Really.

4. The Secret Ingredient is People.

5. Go-To-Market Strategy

6. Be Honest About What Stage You Are At.

7. Your Real Competitive Advantage is Being Different in the Long Term.

8. Product, Product, Product.

9. Plausible Financials.

10. The Ask.
If you're coming to see us, please pay particular attention to #s 2, 3, 5, 9 & 10. Thanks!

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Tuesday, February 2, 2010

China Set to Pass Japan in 2010

With 10.7 percent growth in 4Q 2009, and 8.7 percent gross domestic product growth for the year, China is on pace to pass Japan and become the world's 2nd largest economy behind the U.S. before 2010 is over.

The People’s Daily, the official mouthpiece of the Communist Party, had this to say about China's economy vs. the capitalist approach:
“When the financial crisis forced the neoliberal economic system into a dead end, the shortcomings of the capitalist system were exposed for all to see,” the editorial said. “But a China that was pushed to a crossroads proved its ‘national capabilities’ in taking on a crisis by answering with the advantage of the socialist system with Chinese characteristics.”
A healthy economy in China is a good thing for the rest of the world... not so sure it's doing much for the Chinese. Average income for "city dwellers in 2009 was 18,858 yuan ($2,700), while in the populous countryside it was just 5,153 yuan ($752)."

It's easy to see why China is so concerned about inflation. Even a slight tick in the wrong direction would damage consumer spending and drive up the price of their exports (their current advantage in the world market).

For better or worse, China is our banker. Almost a year ago, we talked about the problems our debt to China was causing us and them. But they need us and we need them, we'll figure it out.

Kudos to us, still number one by a large margin with almost exactly one BILLION less people (couldn't help myself after reading the above quote again).

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Monday, February 1, 2010

Sean Carton: What the iPad Means for Marketers

Sean Carton has an excellent ClickZ article today on what the iPad means for marketers. You can check it out here. The highlights:
1. A lot of people expected the iPad to be a computer replacement. It's not meant to be. "That's what makes it a game-changing device for both consumers and marketers. It's a device for consuming media... paid media."

2. "The genius of the iPad's design and features is that it's an all-purpose device for consuming media that has a form factor that lends itself to that purpose. What's more, it's a device for purchasing media as well. In terms of getting people to pay for content, this is where it's really going to start."

3. People aren't going to pay for content they can get free elsewhere. Consumers will pay for content that can be purchased and consumed conveniently. One click ordering, "bill me later" on my credit card and curling up with that magazine/newspaper or a good book on the iPad - can't really curl up easily with your laptop.

4. "What does this all mean for marketers? Primarily it means that immersive experiences are more important. As people move away from their laptops to media devices such as the iPad, marketers are going to have to realize that they're not marketing through the "Web" anymore (where models like search and banners dominate). Instead, they're going to be marketing through media. In many ways, the future might look more like the past of TV advertising than what we've seen."

5. Sponsored content, paid content via apps (more convenient distribution than the browser experience) and behavioral advertising (within the consumer's activity, not disruptive) will flourish on a device like the iPad.
At the Apple employee Q&A following the iPad reveal, Steve Jobs took a couple shots at Google saying in effect that their "do no evil" mantra doesn't apply in the world of technology and that Apple didn't get into the search space, but Google did come after them in the mobile phone space. I disagree. Apple never really got into the mobile phone space themselves with the iPhone, especially by partnering with AT&T (horrible service coverage).

Apple got into the mini-computer space (music, camera, web, email, apps, etc...) and distributed it through the mobile phone channel. Although the phone interface is cool, the iPhone is much closer to a computer than a phone.

As Sean points out, in a similar fashion, people are confused by the iPad because they think it's supposed to be a replacement for their laptop, it's not. It's meant to replace their magazines, newspapers, books, cable/satellite boxes, game consoles and their televisions.

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