7 Things you can’t think when brainstorming startup ideas

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A couple weeks ago, I wrote up several things to keep in mind when you’re dreaming of your next (or first) Internet startup.  Now’s here’s the other side of the story.  Here are things you might find yourself saying or find your co-founder/best-bud saying during your fantastical dreaming.  If you do, stop, back up, and try again.

  1. “I just found out that Apple/Google/NewShinyStartup.com is already doing that; we can’t do that.”
    Everyone in the valley says this so often, it’s completely trite, but it still catches people all the time: ideas are pretty much worthless.  It doesn’t matter if someone else has already done it or is about to do it; if you think you can do it better, it’s still a good idea.And doing something better doesn’t necessarily mean that the product is better. You just have to believe that you can beat the competition in one business dimension: product (Apple), price (Walmart), marketing (Coca Cola), service (Zappos), etc.  If you can beat the competition in a business dimension that matters for your chosen product/service, then you’ve got something.Then there’s the flip side to this…
  2.  “NewShinyStartup.com and AnotherStartup.com are doing something like this. This validates the space.”
    Startups are a dime a dozen; they’re falling out of trees, coming up from storm drains, like zombies that you can’t shoot in the head.  And like zombies, they take up all available space, even it doesn’t make any sense. You don’t need me to rattle off hot-to-trot startups that claimed to find a new market only to run out of money in months.You need to do enough research to believe that your market exists and is big. That research might include other competitors in the space, but that is only one factor. Those competitors may be on to something or just may be smoking something…
  3. “We’ve come up with this cool new technology/design/product that does ____.”
    This one’s a bit tricky because that statement sounds pretty good on its own. That is, until you realize that you haven’t said that your market actually needs or wants to do _____. This is the trap of coming up with a solution that’s looking for a problem, and many, many, many companies with really smart designers/engineers/business people failed here.Remember all of those browsers that showed your search results in a mind map you could fly through? Cool demo, didn’t solve a problem. And my latest predictions on failure on this one? Latest Techcrunch Disrupt winner Shaker. But I could be totally wrong: I didn’t think Twitter solved any problems either.
  4. “You know what (insert major product/service here) needs? A better way to do ____.”
    This one’s also tricky, because what you may have discovered is an opportunity to disrupt a major player. Or you may have discovered a missing feature, not a product. It’s happened so many times: a better way to organize your contacts, absorbed into your email service; a better way to backup your computer, absorbed into your OS.My latest prediction on failure here? Lytro.  Very cool, but are you going to buy a camera from an otherwise unknown camera maker because of it?
  5.  “Our product will post to the user’s wall/tweet something out on the user’s Twitter account every time they finish a task and then all their friends will try it!”
    Just read that again. Now with feeling. Realize how silly it sounds. Move on.
  6. “We just have to get the product right, and it’ll take off!”
    A lot of companies, big and small, have somehow developed a build-it-and-they-will-come attitude. Homestead had a lot of that problem early on. I saw many examples of that at Intuit. We want to be product companies, and we want to believe that in the end, the best product (design and technology) wins.This thinking often sneaks up on you because you don’t think you’re that naive. But watch out for signs: if your growth plan is based mostly on word-of-mouth, you might be headed for trouble. If you’re focusing almost all your energy on net promoter scores and user surveys, you may not grow at all.So come up with a launch plan and a growth plan. And, please, “marketing” isn’t a bad word. And that’s coming from a CTO.
  7. “We’ve got a patent on it.”
    Can you tell I have issues with patents?
Got anymore? Any good examples of companies that failed for any of these reasons?

7 Things to assume when brainstorming startup ideas

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This really is the fun time in a startup’s life; figuring out what you’re going to do.  You get to throw ideas around, you get to dream, and nothing feels like work. The sky’s the limit. And we don’t have to worry about silly things like failing yet.

While throwing around ideas in an early stage, you have to remind yourself to assume a few things:

  1. If you can imagine an interface for it, it can be built.
    OK, maybe we haven’t figured out teleportation yet, but in general, this is a great thing to remind yourself when your team starts spiraling into technical details.
  2. Disk space is infinite and free.
    Also not entirely true, but close enough to true and heading that way.
  3. Bandwidth is infinite and free.
    Like disk space, not entirely true, but it’s close enough for brainstorming purposes. I should add, though, that this is a good assumption for your online business, though not necessarily for your users, especially if your product/service is to be used on a mobile device.

    You may think that disk space and bandwidth isn’t free for little startups with no money. Even if it isn’t for you, it will be essentially free for your competitors. I can guarantee you Google and Facebook don’t think about those limitations.

  4. Patent? What patent?
    Obviously, don’t dump an idea because someone else has a patent on something similar. Note I said “patent” and not “copyright”. If your idea is based on plastering Mickey Mouses all over the place, good luck with that one.
  5. Consumers don’t worry about security too much.
    Unless your idea is specifically about security, I wouldn’t worry about users’ apprehensions about security. Mint.com got millions of people to give them their most sensitive credentials (financials) and weren’t backed by a big behemoth with a strong security reputation. People will give you whatever information you want, as long as they see value in your product and you look trustworthy.
  6. You can get more investment than you think.
    The VCs aren’t going to throw money at anything, but they all want to find the next big thing. If they put $100K into your company, and you get acquired for $10M, they’ll be happy for you, but they’re not going to do any backflips. They’re dying to put in $100M and you getting acquired/IPOing for $10B. You just have to give them a reason to do it.
  7. Think bigger.
    That all leads to the most obvious, but still understated point. Think (realistically) bigger.
Definitely leave comments if you have more.  I’ll follow this up soon with the 7 (or so) things I think you can’t assume when brainstorming ideas for your next startup.

From Web 2.0 Expo: How do you solve the IE6 problem?

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I attended the Web 2.0 Expo session where representatives from the major browser providers (sans Safari) talked about the future of browsers.

One popular topic was the IE6 problem; i.e., how do we get users off IE6 onto a more modern browser with more capabilities?

Douglas Crockford of Yahoo! had the soundbite quote of the panel: “The problem is that web developers are doing a good job supporting these bastards.” (I’m paraphrasing.)

He (and pretty much the rest of the panel) put the onus of getting users to upgrade on the web developers. Web developers need to force users to upgrade by serving error pages driving them to upgrade before they can use the site. He even suggested that the web developers of major sites agree to do it all on the same day to mitigate the business damage of doing it.

Unfortunately, to me, all this smacks of “we know what’s best for you, so do what we want”. In his suggestion of a simultaneous launch of IE6 blocks, Doug is really just admitting that the natural reaction of users would be to go to another site.

Similarly, isn’t the fact that users are still on IE6 stem from the fact that the browser fundamentally does what the users, the web developers of the sites they visit, and (in corporate settings) their IT managers want? It may be an old browser with limitations but it has enough capabilities and work arounds that the modern web delivers some great experiences on it.

The onus is on the web developers to solve the IE6 problem, but not to decide to block IE6. The onus is on web developers to come up with the killer app/experience that compels them to upgrade that can’t be implemented in IE6. Until that happens, we’ll have to wait through the slow progress of upgrades we curretly have.

Lean Startup in a Large Corporation

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I’ve seen Eric Ries speak before; Scott Cook brought him into Intuit to go over his Lean Startup message (http://www.startuplessonslearned.com/2010/05/lean-startup-intensive-is-tomorrow-at.html) that he’s been pushing around. It’s really good stuff and as someone who’s made all of the mistakes he talks about I highly recommend it.

In the keynote he gave at Web 2.0 Expo yesterday, he added something I don’t remember seeing the first time. He said the goal is to minimize the total time for one “pivot” cycle.

The important thing is the definition of a “pivot”. Paraphrasing and interpreting, a pivot here is a change in direction caused by something you’ve learned about your business, be it your market, product, customer, whatever. And there are three steps in the cycle: build (the product), measure (the result), and learn (the reasons behind the result).

This helps illustrate the problem I’ve experienced in a large company. Minimizing time through this loop requires cross functional thinking and objectives that is ubiquitous in startups but is disappointingly rare in larger corporations where employees tend to be over-specialized.

For instance, at Intuit, there is a lot of focus in the engineering community around faster build and launch cycles. It’s all about continuous deployment, unit testing, server virtualization, etc. All good stuff, but it’s all focused on pure product cycles and not business cycles. Tracking is an afterthought.

For many designers and engineers, there’s a mental milestone (and thus, relief) when the product/version/build launches. The real milestone for the business (and so it should be as well for all employees) is when we’ve learned what we need to learn and made the right business decision on the next step.

We’re getting better. Tracking and data are beginning to play a larger role, and business interests are creeping their way into product conversations (“No!!!”). The key for any org, large or small, in minimizing the time through the loop is focusing all employees on the higher level business objective and Eric’s framework is a great way to have that conversation.

Dropbox and Xobni at Web 2.0 Expo

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In the first session I attended on Day 2 of Web 2.0 Expo 2010, Dropbox and Xobni shared their stories and lessons from launch.  It was a really good presentation (Adam Smith from Xobni posted the slides on his blog post, linked above).

A lot of the advice is stuff we’ve all heard before: make sure you have a great product, test a lot, get user feedback, create scarcity to build buzz, be responsive and bold, focus on doing the critical few really, really well.  Even if that advice has been beaten to death, I still find startup success stories inspiring.

One thing that caught my attention was an almost throw-away statement that Adam (I think it was him) made at the end.  He said that users they acquired through PPC didn’t convert to paying at a very high rate, but they tended to refer a lot of customers who did.  He also mentioned that Zynga measures referrals through Facebook as well.  The interesting thing is not that the referrals happen, but that they measure it and account for it in the ROI analysis of their marketing campaigns.

I might be reading into his really brief comment, but if it’s true, that’s definitely an area where I could learn a lot more.

At Homestead and mostly at Intuit, we only do the first level accounting in measuring the ROI of campaigns. That is, we count the number of users who are directly attributable to the campaign.  It’s definitely easier measuring users by their propensity to sign up/purchase than measuring users by their propensity to refer others.  All referred sign ups are really just considered gravy. This first level of ROI accounting has been really successful for us as it still continues to scale.  But the question remains: are we leaving money on the table?

There are a lot of questions in the details of how you’d go about doing this “second level accounting”:

  • What are the best ways to track a second level user back to the referring user and then back to the originating lead gen source?
  • Assuming we would track using links of some sort, should we try to account for “offline” referrals (using untracked links)?
  • What is a reasonable time frame to count the referrals from a first level user?
  • Does a first level user get any credit for third level signups?
  • Do you account for the speed of the referral?  For instance, you could credit the first level user with all $ collected from the second level user within 12 months of the first level user’s signup, thus rewarding those who refer faster.

I’m sure there’s more.

If we can figure this out with any reasonable amount of accuracy, this could significantly change the economics of how we do acquisition marketing right now.

Thoughts from Web 2.0 Expo: Communilytics

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My first day at Web 2.0 Expo 2010 was spent in the Applied Communilytics Intensive workshop.  Basically, it was a look at how and why you should look at the analytics of social marketing campaigns and was headed by Alistair Croll and Sean Power of Watching Websites.  Here is their rundown of the day.

My take?  It was too high-level for me and didn’t really get into a lot of details.  Maybe I’ve been living in the world of web and business analytics too much but there really wasn’t much new or ground-breaking here.  But there were some interesting points.

For example: the primary point that Sean kept referring to all day was that you should know your business goals before you embark on any social campaign, so you know what to measure and whether or not you’re succeeding.  Seems obvious and, well, is obvious.  Ryan Kuder, one of the panelists who was recently laid off from his company due to an acquisition (awkward!) harped on that point, too.  This sounds like the gripes from marketers who are asked to do work because some exec thinks it’s interesting instead of knowing why it’s important.  I feel your pain; I know I feel it all the time.  But unfortunately, that doesn’t make for an interesting presentation about communilytics.  That’s really just Project Management 101: be very clear about your goal.

In the defense of the presenters, I think they really did know what they were talking about and if I had a particular question, I think they’d be great resources.  Which leads me to believe that the lack of detail in the presentation stems from one of two things:

  1. It’s difficult to create a detailed presentation with truly actionable ideas in this area for this broad of a group.
  2. Communilytics really is just a flavor of web/business analytics and there really is no other special sauce.  Know your goals, translate to KPIs, and you’re off to the races.

So which do I think it is?  At the end of the day, we joined with the Lean Startup Intensive by Eric Ries.  At the end of that session, Eric said that those of us in attendance were at the cutting edge of this stuff, the earliest adopters, the trail blazers.  If that’s true, then it’s #2.  And I tend to agree.

Here at Intuit, it really doesn’t feel like we’re doing anything that cutting edge in tracking or measuring our social efforts, but Kira Wampler  told me that everyone told her that we were cutting edge, too.  Maybe I’ve been living and breathing analytics and optimization so much that I’ve lost sight of that.

I’ll just spew out my other observations… uh… now:

  • Referring URLs are useless (or becoming more useless) as people follow links found in apps (like desktop/phone Twitter apps).
  • Alistair and Sean defined your message as becoming “viral” when the average number of people who repeat/amplify/retweet your message is > 1.  Maybe not a new definition, but I hadn’t heard it before.
  • A lot rides on your ability to get your followers/fans/users to “retweet” or otherwise amplify your message (in Facebook, would that be “like”?).  So watch and track that carefully; learn from what does and doesn’t trigger a retweet from your base.
  • Successful social campaigns are not about me (the company) or you (the user) but about something else. Get the user into a safe conversation where they don’t feel they owe you anything in return (money, time, etc.). Not terribly new, but illustrated amusingly by Alistair with a story about picking up women in Las Vegas.
  • Tactic: send meeting requests to bloggers to get on their calendars. Makes sense to me; that’s how to make sure I do something too!
  • You can’t really A/B test Twitter messages (it’s a broadcast medium so everyone gets it). One alternative: use PPC ad copy and measure click-through rate to test your message if you really want to.  Or as Hiten Shah from Kiss Metrics suggested, just send it out and apologize if it bombs.
  • Alistair predicted that we’ll go from a PPC to a PPA (acquisition) to a PP-change-of-opinion model.  That is, as social sites get better at measuring your brand value on their network, they could charge you based on that increase, not just per impression, click, or acquisition.  Interesting to consider.
  • And the people who impressed me were the presenters, Alistair Croll and Sean Powell, as well as Hiten Shah, Erin Hunter, and Dave McClure.

And that’s it!  Looking forward to tomorrow!

The Commoditization of Technology

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I’m a software engineer by training, somewhat by practice, and, in a sadly diminishing way, by mindset.  Maybe some of the real engineers around me can back me up on some of that. (Please?)

So it is with a heavy heart that I say that software technology has become a commodity.  Evidence is everywhere:

  • Increasingly, technical work is contracted out to third-party developers, sometimes offshore.  “Here’s a spec; how cheaply can you build it?”
  • Platforms are getting faster every day.  You can stand up a Rails site now orders of magnitude faster than what you could do just a few years ago.  Hell, you can configure a WordPress site to do almost anything you want orders of magnitude faster than a Rails site, for free.  Why stop there?  You can pick-and-click your way to a Ning site orders of magnitude faster than configuring a WordPress site.  (I know all those technologies/platforms don’t serve the same need, but you get the idea.)
  • Software technologist supply is increasing; i.e., there are more software developers now than ever.  The ease of building things is dropping the bar so low that a 17-year old kid can build Chatroulette in a few days.  Culture and technology is changing so that everyone can be, and is becoming, a technologist.
  • Costs of apps are dropping.  Mobile apps cost $0.99, not per use, not monthly, but once ever.  That’s because it takes a 17-year old a few days to build it.  If you make $500 on your app, you’re ecstatic.

There’s nothing terribly radical about this observation; I’m sure it’s out there everywhere.  It is very interesting to me, though, to take it to its logical conclusion.

Imagine if technology becomes so easy, so ubiquitous, so accessible that if you can imagine it, you can build it (or have it built) for nearly free.  I think we would all agree that that’s where we’re headed, amazingly quickly.  How would the software/internet industry change?

My take (thanks for asking) is you end up with something like the mass-market clothing industry (forget haute couture for this comparison).

Stick with me for a bit. Now, I won’t pretend to really know the clothing industry, but my naïve view is that it’s driven by designers and marketers.  The “builders” are outsourced to the cheapest suppliers possible such that if a designer can imagine it, they could have 20,000 units drop shipped to their warehouse in a week.  The success of a designer or a retailer or a brand is never about whether it can be built, or how efficiently it can be built, or how cheaply can it be built, but is only about whether enough people will buy it.

You can already say the exact same thing about the software industry, and I run into this all the time at Intuit.  An engineer or architect will have or hear about an idea and jump straight to the standard question: how are we going to build it?  They start thinking about data models, class structures, engineering processes, etc., stuff that I personally love arguing about.

But whenever I’m in these conversations I ask the same questions: what is the big unknown about whether or not this will be a successful idea? “Can it be built?” or “How efficiently can it be built?” is almost never the issue.  Put another way: if you ask the engineer/architect if they think it can be built, their answer is always “Of course”; if you ask them if people will actually use it/pay for it, the answer is typically “I don’t know”.  Voila, your big unknown.

I’ve rambled on for long enough, but I’d love to know what people think.  I actually have many, many more thoughts of what the software/internet world would be like with free technology, but strangely, they all have one common theme: we’re here already.

Making money in the app store

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So I finally got an iPhone (yeah, I know, I know…).

I considered writing a post about the pros/cons of it, but there are just too many of those and frankly, we all already know what they are (I still can’t type well on that thing).  By far the coolest thing about it is the App Store.  While the app discovery interface is incredibly bad, the sheer number of cool apps is amazing (as you already know).

The thing that has me scratching my head this morning is how to make money in the app store.

It used to be that consumer software was purchased and installed.  The software company created new versions from time to time, hopefully enticing you to purchase the latest and greatest.  Support was either really cheaply provided or was charged for.  In essence, the software company had little to no ongoing costs associated with previously shipped versions (occasional bug fixes were it).  Ongoing revenue was from upgrades and new user acquisition.  The company I work for (Intuit) is still partially there.

Then there were subscription models. Ongoing service for ongoing fees. Simple enough and very effective.  My previous company (Homestead) did this all day long.

The apps in Apple’s app store (and I imagine every other mobile device’s app market) are a different financial model altogether. Case and point: my current #1 time waster, Words with Friends.

First, the model starts simply enough: it’s free with ads, and you pay $2.99 to get rid of the ads. OK, while the price is high relative to what most apps cost, this is a model proven to work. Check.

Then, it gets a bit strange. This is not a standalone application but includes a service that connects you to friends so you can play socially. That means we are getting ongoing services (and the company is incurring ongoing costs) with out any ongoing payment.  Would the market accept an ongoing subscription to play Words with Friends?  I don’t know, but it’s not prevalent in the culture of the app store currently to charge a subscription fee for a game.

Then, it gets really interesting. Again, this is a social game where the company is paying for servers for the game communication. That means that while their revenue grows linearly with the number of users who play, their costs grow linearly with the number of connections in the graph (the number of games played).  Net results: their costs grow exponentially (roughly) as their revenue grows linearly.

The assumption has to be that the company makes enough money in the linear revenue to offset the exponential growth of the cost.  I hope that’s true because I love the game.

But put it all together:

  • You have a game that some users buy for $3 not monthly, not annually, but once. Ever.
  • You have ongoing costs associated with maintaining servers.
  • You have costs that grow faster than revenue.

In the short run, it works.  But in the long run, what’s going to happen?  At some point, revenue from the game will start to decline but costs will continue (fewer new users buy it, but existing users still play it).  And at some point, it will become unprofitable for the company to maintain the servers for this game. Maybe they’ll shut it down, or more likely, try to move to a subscription model ($3/year?).

Clearly, other models work (e.g., Zynga), but I think this one in particular needs work to survive in the long run.

Is it 2010 already?

Wow… has it really been that long?  I haven’t posted since… April 2008?

I’ll blame it on the recession. “In this economy, we’re all cutting back on the luxuries in life, like blogging. Which is free.”  OK, I feel better now.

Things for me here at Intuit have changed a lot, way too much to get into right now.  So I won’t even try.

This is really just a “I’m back” post.  I’ll be getting back to rambling really soon…