Market the Vision, Build the Product

The recent notice that Metaplace.com is going to shut their doors and refocus the company is an all-too-often refrain where very big visions are not realized in their first or even second incarnation. I expect we will see the same from another big vision play, Trion, in pretty short order.

The phrase is a takeoff on the old enterprise sales mantra “Market the Vision, Sell the Product” which allowed sales execs to compete in an over-hyped market (remember E-Bricks?). Legitimate software companies could communicate big stories but sell much simpler products. We all know what happened to those who sold the vision.

Customers wanted to hear that you had a big vision — that your products would be around forever and that they would continue to benefit from your big, gamechanging vision.

But the second half of the charge was super critical if your sales exec and firm wanted to avoid unhappy customers and potential lawsuits. Customers expected your stuff to work. If you sold a vision, you had to install that vision. And who could do that?

Customer expectations were often very poorly set, lots of confusion reigned in the sales cycle and implementations became disasters of the first order. You can guess the rest of the story. Many, many companies fell from the sky because their ability to sell real product was completely lost. One of the best examples was I2 Technologies which once boasted a market cap of over $22 billion during the bubble and now has a market cap of less than $500 million after numerous reverse splits (last one was 1 to 25. ouch!!).

Fast forward to today’s startup market.

Replace the word customer with VC and you get the new problem that startups face. Startups need to communicate a big vision to suggest a big market, which VC’s expect.  But if entrepreneurs try to build that vision day 1, they will die. The trick that is often missed is to craft a big vision and lay out a road map (somewhat ill defined, of course) that indicates that day 1 will be a very simple product that is a mere nub or spec of the larger picture.

Look at any of the successful plays on the web, including social gaming, to understand that big visions are not built day 1. The most successful these days is Zynga, who started out with Texas Hold-Em Poker on Facebook. From the beginning, Mark made a concerted effort to be profitable, which meant that he had to ship a real product right away that consumers would buy. Despite his dreams of a big company, he practiced the art of marketing the vision and selling the product. Then over time he began to realize the vision.

Metaplace suffered from the reverse — trying to build the vision from day 1. While it was exciting to see the demos and prototypes, the product vision was too big to build quickly and get customers to use it.

Candidly,  I suffered this same fate with the first incarnation of Hangout. The vision for the concept of socializing online the way friends socialize offline is a big vision, but it could not be built as release 1. We understood that the big vision expected a community, but what we did not appreciate was the cost of generating that community. “Build it and they will come” would not suffice here. We learned that in order to have community, you need to have concurrency. And concurrency could only come by providing enough for people to do — by themselves — so that community could happen. We learned that lots of little products need to happen first in order to get the critical mass to enable this kind of vision.

This time around, our team built our first product (Fashion City) and the first tidbits of the big vision, in one half the time and cost it took to attempt to build a shaky first version of the big vision.

We are learning faster and cheaper from our users while keeping the VC’s excited about the downstream potential.

So as you the entrepreneur pitch VC’s, it is wise  lay out a product roadmap that can achieve results right away and evolves over time to the larger vision. Market the vision, Build the Product

We all know what happens if we try to build the vision. In this market of capital efficiency, its a recipe for failure.

Web moderation, Synchronous Communication and Entropy

Robert Scoble has a great piece on what he calls the chat forum effect and why Twitter and blogs are much more useful as an information source than say a chat forum http://bit.ly/2PqD0b.

And while he is absolutely accurate in his assessment, he is way too in the weeds to see the larger story.  Synchronous communication — as found in chat forums, or Facebook wall posts — are essentially synchronous forms of communication. No one owns the communication in the same way that someone owns the blog and also owns their Twitter posts — there are no comments and therefore no moderation needed.

Virtual worlds suffer the same problem as chat forums. Without an owner, virtual worlds descend to the depths of prurient or downright pornographic behavior.

Why is this? What causes synchronous forms of communication to descend down?

Perhaps its the law of entropy at work.

Call it Something They Understand

Juliet:
“What’s in a name? That which we call a rose
By any other name would smell as sweet.”

Romeo and Juliet (II, ii, 1-2)

We have all read that line in high school, or if we were really bright and possessed, middle school. But in today’s information overload world, names are harder and harder to come up with that mean something to the customer.

Forget the challenge with getting a URL that even smacks of English. That’s another whole topic that would end up centered on some of the inherent flaws in a free-market economy — squatters often win.

We are talking about product naming and solution naming.

There was a great piece in the NY Times a few weeks ago about naming and pitching products. It’s an important read because bad pitches or names can kill great products. (I can’t find this article. The Times’ search capabilities via Google are worthless.  You can’t specify a date range or drill down in just one section. Try as I might, I end up getting all kinds of crap from other parts of the paper.)

Hollywood is often parodied for their sometimes silly pitch lines -”it’s Batman meets Live Story” or some other weird set of associations. But what is really going on is a critical concept that entrepreneurs need to understand not just when they are pitching for money but even more importantly when they are pitching their audience.

Associations enable the receiver or listener to put the words and images into their own context so they can understand it and make a decision on the idea – “do I want this now”.

Given that we have less than 20 seconds in most interactions, especially on the web, to get a point across, the pitch by association is a very powerful tool.

And it’s easily tested. Try it out on 5 of your friends if it’s a consumer product. Do they turn their head at an angle as if you were speaking a unintelligible dialect or do they start creating their own associations out loud saying something like ” you mean like x and y”

If your friends do not get what you are doing after the associative pitch, scrap it and start again. In the consumer space, if your friends don’t get it, it’s unlikely anyone will.

It’s laborious to rework your pitch, but it’s cheap compared to launching and failing because no one couk understand quickly what the product or service did.

In my last company, we coined the term Data Services. We thought we were so cool. To be the first to coin a term that would live in the IT hall of fame was very cool. Little did we know that we were in the business of selling software that simplified the integration of XML payloads and webservices, not in the IT education business.

After at least a year of pounding our heads against the wall,  we retreated into a much simpler value proposition and pitch by comparing what we did to the state of the art at the time. (I won’t bore you with the details.)

Suffice it to say, the company took off and sold within 9 months of getting the pitch right.

Spend the time getting your pitch right. Its worth the investment.

Know Thy Demographic – The Web Turns Lead Gen Upside Down

Since the beginning of marketing time, there has been a high correlation between the level of segmentation or specificity of the lead and the price of the lead. The more discrete and specific the list for a given set of leads, the more the marketer spent for each lead. Asking for females in the US was was much less expensive than asking for females between 22-30 who lived in Boston.

The theory behind this seemed logical: the more specific the request, the more likely the result would result in success (eg more sales). With more success, you were likely to pay more. Also, there was an implicit assumption that more work was involved to provide the more specific list.

Like just about everything else on the web, the old rules have been tossed on their head.

In a complete reversal, the correlation is now inverted. When you buy leads on the web, through any of the various methods- cpm, cpc or cpa –, you pay less for each lead the more specific you make your request.

The rartionale – the owner of these web leads is concerned about their return on their cpm’s or the effectiveness of the ad. The fewer impressions it takes to get the user to click on the ad, the less the ad costs to the lead generator, who then passes that on to the buyer. The lead generator wants to limit the number of impressions it tales so as to avoid burning out the user.

So it pays now more than ever to know your demographic.

Does Waltham Matter?

Scott Kirsner has written a very provocative piece in Innovation Economy which questions the value of the many VC’s in the Waltham 128 beltway especially compared to VC’s in Boston.

Here is my response to his post….

Scott,

Its great that you are shaking things up, much like taking a baseball bat to hit a fly in a glass shop, but there are a number of elements that suggest your logic could use some refinement. Perhaps, go after the fly with a flyswatter and be a bit more precise.

First, with Nabeel I agree that location is not the issue — it is the partner and then the partnership. The same holds true with the West Coast. There are good and bad vc’s on every coast, regardless of the firm.

Second, blogging and/or tweeting and/or sharing information in general are no indication of an inclination to take early stage risk. I know of half a dozen top drawer, high-risk VC’s who don’t tweet or blog. Moritz among many do not blog, yet I don’t think you would suggest that they are risk averse. In fact, if you look at Sequoia’s new website it is the antithesis of your thesis – they don’t share any information readily.

Sharing info is a great way for new VC’s to break out of the pack and make a name for themselves and most of them have done it rather well. Kudos to them.

Third, passing on a deal is no sign of stodginess. A huge number of West Coast firms passed on Ebay. The question is more about how they learn from their mistakes. I would suggest that firms in Waltham have learned that they should not.\

The problem is less about who is investing in what but rather where do early stage entrepreneurs go to get funding.  I suspect Y-Combinator’s move was not because of a lack of local talent to start the startup – it is a lack of an ecosystem to grow and evolve it. The consumer ecosystem is not here. The big companies that startups can draft off of, steal great people from and beat at their own game are mostly on the West Coast.

My experience may be such an illustration. I had no trouble getting funding for Hangout from two great Route 128 funds here in Boston. But after a year of trying to find great senior level managers who could build a team in the Boston area, I gave up and hired a great team out of Disney and moved development to the West Coast.  I tried exceptionally hard, using three great recruiters to find the mid-level to senior exec who would move from the West Coast to Boston to no avail.

But I ask you, why would a director at Google or Slide move to Boston, except for personal reasons. The Boston area does not seem like the logical place to go to further one’s consumer career.

Any startup that leverages social networks should have a presence out there because the rules are changing too quickly and the talent that knows these new rules are out there – which creates a vicious circle that is tough to break if you are on the East Coast.

Paul Maeder at Highland was right to call out that the big failure of Boston VC’s was a willingness to sell too early, creating a dearth of large consumer firms from which an ecosystem is built.

It may take another 5 years before we can create a behemoth in Boston that will be the mother ship that startup barnacles like mine can grow on.

But its great that you are swinging the bat!!

The Limits of Vertical Integration — Microsoft Clip Art vs Google Images –

Microsoft created a vertically integrated product when they released Clip Art as an image repository for Powerpoint. For years, this integration worked beautifully, if for no other reason than there was no alternative or incompatible technologies.

But again, like in so many other areas of Microsoft land, their idea of vertical integration is badly outdated. If they want to be vertical, they need to dominate through ease of use, not technical imcompatibility.

All works well in PPT to Clipart land if you are using Internet Explorer. But if you use firefox or have a mac you are SOL!!. It simply does not work. Error messages are misleading. Its much faster to go to google images, find a free image and copy it into your PPT than go through the constant headache of poorly written error messages and obfuscation.

Because Microsoft does not seem to support Firefox or Safari with Clip Art gallery and the critical import function into PPT, they force users to go outside MSFT vertical stack to find a solution — and likely never to return. Thus, the benefit of vertical integration to the provider — more user stickiness and higher switching costs — is destroyed, not by competition, but by the provider itself.

Contrast this mess to Apple’s notion of vertical integration.  Itunes runs on every possible type of computer for a reason. They want to make it as easy as possible for every user to get the full advantage of the vertical integration. Who cares that ITunes is restricted on the Palm Pre. That is not a substantial enough user base to make a difference. Would that Microsoft wake up to the market penetration of Firefox + Safari and now Chrome to realize that in their misguided attempt to force users to use IE, they are making it easier for users to ultimately leave PPT — an otherwise very sticky product.

I can’t think of a better example of shooting oneself in the foot than this example. Its a small example. True. But Microsoft has forced me to look beyond their product stack, thereby lowering the cost of switching when a suitable replacement for PPT arrives (not yet Google Docs, but soon).

Differentiating in the Social Games Space

Its no surprise that the social gaming space is getting very crowded and getting more so every day. The latest social gaming stats shows who are he haves and have nots. http://bit.ly/NbnLM

So if you are competing or looking to compete in this space with a game or two, how do you compete against a Zynga, who is willing to copy what you build (Farmtown –> Farmville), a Playdom (who is crushing it on Myspace and now moving to FB), or Playfish, who makes higher quality games.

If other industries, including cars are any indication, the choices are:

1. Go better, cheaper games. Think Japan in the car industry in the 1970’s or Hyundai attempting to do the same to the Japanese today.
2. Develop games with more complexity and style, but with the same technology, creating a higher bar to entry, e.g. more expensive to copy the game.
   In some respects, Playfish has done that by building higher quality games with more pizazz than others have produced. In the car business. BMW or Mercedes might be really good analogs here in the car industry.
3. Develop games with a differentiating technology
   Some believe there is an opportunity here. Flash games are hard to distinguish from each other and are easy to copy. ON the car front, perhaps Honda is a good example. In the 70’s Honda came out with a very different car engine (CVCC) when they launched the Honda Civic in the US that got really good gas mileage and was the only manufacturer to pass the Clean Air Act without the need for other tech. http://bit.ly/4iPx5.
4. Conglomerate and become a big publisher with lots of games
   EA and GM come to mind here. Not everything has to be a hit for the company to be wildy successful for a while. But as both are finding, if you don’t have the DNA to build great games or cars, you will suck wind and eventually die
5. License exclusive IP
   This is an area of exploration as there is a clear barrier to entry if you are using unique, branded IP. They have lawyers to protect their brand and they are not afraid to use them.

   However, for every game company that has successfully licensed a brand (e.g. Madden), many, many have failed. Look at all the successful mob war games on the nets. EA tried to use the Godfather license to come out with a mob-style game but failed because, what really matters, the game play, was not good. If you get the gameplay right, like Scrabble today from EA (+500K monthly actives), then it will work.

   In the car industry, we know about numerous failed attempts for designers to make cars different (remember the Eddy Bauer Ford Expedition?). If the car sucks, no designer can help it.

And perhaps there are more ways to differentiate when building games. The good news is that there are plenty of examples in other industries who have faced the same challenges and have either risen to the occasion to compete successfully (Toyota) or not (GM).

Social Gaming Summit 2009

Kudos to Charles Hudson for a splendid job running the Social Gaming Summit. It was a great turnout, over 500 folks showed up well north of the 200 or so they expected.

A few big takeaways:

1. There is no ip in casual games. Duplicating each other’s games has been around forever, but now Zynga has turned it into a scaleable business, note Farmville copying Farmtown. Implication — the cost of development of social games is going to go up in order to create barriers of differentiation/e
2. Game developers are trying to figure out Act 2. Single games companies are turning into publishers and echoing the studio model developed by the movie and video game businesses.
3. Virality leads to scale, but monetizing scale requires engagement which is more about return rates than session time.
4. FB Connect is still unproven as a viral channel. FB connect shows great promise, but it does not have the functionality yet that is available through FB apps.
5. Transparency is a critical culture to create a rising tide and therein float all boats. The market is so large and monetization potential is so huge that everyone can benefit. The more information that is shared about what is working and not, will improve everyone’s chances to build great businesses.

There is no place like New York City

I have had a love hate relationship with NYC, having lived there for 20 years from 1983-2003, through some of the best and worst times NYC had to offer.
But there are moments like the one I experienced yesterday, which cover more than a multitude of problems.
I walked into the Barnes and Noble on B’way and 82 to hangout, killing some time on my laptop until my old friend Steve got off work.

Up at the coffee area, I was deep into email and board prep, when I started to notice the conversation of 3 elderly people next to me. They were clearly speaking in German but with a Germanic/Yiddish accent. I could not resist and asked them how long they had been in the States. Their English was heavily accented despite their answer — more than 60 years in the US.

I was in the presence of survivors of the Holocaust! They were not concentration camp survivors, but survivors nonetheless.

The elderly, distinguished woman had grown up in Belgium only to flee with her family when she was 14. She noticeably teared up when I asked her if she spoke to schools or other organizations as a way to help us all to never forget. She commented that it was pretty painful to recall.

The other two men both left Germany right after Krystalnacht as young boys around the ages of 14. They kept repeating to me that no one saw Hitler coming. Despite his book and the increasing noise, no one imagined how evil he was.

Where else but NYC would you meet Holocaust survivors in a Barnes and Noble, hanging out chatting in Yiddish and German?

I was very blessed to have my kids spend their formative years growing up in NYC. They met a number of people like the trio yesterday and homeless people as well — that’s another story — all of whom have left an indelible mark on their lives.

The diversity of NYC is like no other city in the world.

Freemium Model at a Gas Station

Who would have thought the freemium model would have hit the gas station business, but I saw it today driving back from a great team bonding trip white water rafting in Maine.

As I approached the gas station, I noticed that there was no credit card facility at the pump. Nor did they tell me that I had to pay first. They let me fill my tank of gas and then wander into the convenience store to pay.

When I asked the owner (it was a small store) why there was no credit card facility on the pumps (which I had never, ever seen on new pumps), he told me that he makes no money on gas.

By driving folks into the convenience store he can “upsell them” (my words) on much more profitable items.

Gas was not just a loss leader, it was a critical gate to get folks to spend more. But importantly, he understood the value of charging after the fact, so that people would get the ease of use pumping their gas first and paying afterward. (I wonder how many of us have been totally frustrated having to pay first!).

He had to special order the pumps because they don’t come that way.

Lessons learned:

1. He understood his customer acquisition costs and his margins at every step in the customer lifecycle
2. He made it as easy as possible for customers to get their top priority done quickly (key point here!)
3. He made sure they could pay (a lower priority) with some inconvenience, but not too much
4. He made sure he had good stuff for folks to buy in their path to paying for gas with minimum fuss
5. He went to the extra effort to special order the pumps to see his vision through.

How many times have websites denied me the ability to get my top priority done quickly. Who is likely to spend more — a happy customer or a pissed off customer?

I wanted to show the new pumps, but google maps only has the old ones.