Energy Conserving Laggards
I used to say that “people are lazy” when thinking about the challenges of getting customers to try out my company’s latest software. I would push to make demos as simple as possible, ensuring there was a positive result for the user as quickly as possible. I knew people wouldn’t spend much time on something that didn’t register with them immediately giving them a glimpse of the benefits they would receive if they adopted. A decade ago I used to refer to the “golden five minutes” that someone would give to test a new product. Today it’s probably more like a “golden five seconds”.
I mentioned my “people are lazy” theory to my friend (and author) Joel DiGirolamo a couple of years ago and he aptly offered that “people conserve energy” was more appropriate. That makes a lot more sense and maps into my optimistic lenses better than the lazy theory.
People aren’t lazy, they rightly conserve energy. It’s biological. It helps explain why people act the way they act. In tech, it supports Clayton Christianson’s Technology Adoption Life Cycle and the biological basis for Rolf Skyberg’s Eternal Truths and Dangerous Curves presentation.
If you think of tech adoption in biological terms the “Innovators” are most likely to get eaten by the lions. It’s the “Laggards” that are playing it safe, conserving energy, and probably stand the best chance of survival. Why waste energy until something has proven to be of substantial benefit?
For me, this also ties into why emulating familiar things generates quicker uptake in the tech world. If you throw a new paradigm out there you have to convince people that it’s worth a look. Start with something they are familiar with and you’re already half way there. I wrote recently about Google’s mimicking of Facebook’s “Wall” in their new Google+ “Stream”. I claimed it was a smart move because everyone was already familiar with that paradigm and they immediately felt comfortable in the interface, ready to explore new features.
For entrepreneurs, this theory of energy conservation should be understood else it could prove to kill your company if you don’t build it into your customer adoption models. You’re an Innovator and you think everyone should jump at the chance to improve their life with your new whiz-bang. It will make them more efficient after all. I’ll claim if it’s not an order of magnitude improvement adoption will be slow. Don’t get frustrated because everybody doesn’t jump at your innovation, it’s biological and most will wait to make sure the king’s taster survives before they adopt.
I’m a visual thinker so I’m constantly writing down ideas and drawing diagrams. I make a lot of diagrams. At some point in this process “it” becomes clear to me. I’ve often thought about the way I go about this process as some form of pattern recognition.
Recently, I’ve started thinking about my view of the world as a series of lenses. I’ve formed theories and biases that become themes that I map the world into. Those are my lenses. We all have them.
My lenses drive the way I think about developing software products and business models. They allow me to quickly evaluate scenarios and provide guidance for making the thousands of decisions I make when starting a new business. I think the lenses are part of the pattern recognition. It’s a mapping process.
You can cultivate your lenses. It’s what you read, who you talk to, the places you visit. Invest in your lenses.
Are We In A Tech Bubble?
I was talking with my friend Jim D’Amico (@jamesldamico), founder of oncampus.com, the other day about the oft-mentioned tech bubble. Jim and I were both questioning whether or not there is a bubble. A lot of angel investors and VCs are claiming one as investment terms swing in favor of entrepreneurs.
With any surge in the availability of investment capital there will inevitably be winners and losers. Entrepreneurs should be careful not to inflate their valuations too early in their growth cycle. It will likely come back to bite them even if they find early investors willing to pay at a high valuation. It is unlikely they’ll be able to grow (revenue) as quickly as their valuations suggest and could make it difficult to raise subsequent rounds of capital.
It seems to me there is a big difference between the high flying companies from the last tech bubble and today. The high fliers today like LinkedIn and Demand Media have hundreds of millions of dollars of revenue each year; facebook and Groupon generate billions! Jim suggested that there is a lot of revenue that has yet to be unleashed as consumers begin relinquishing small monthly payments for web services they value. I agree with Jim. We’re already seeing this in the B2B SaaS market as dozens of startups are replacing incumbent services for a fraction of the cost.
It also seems counter intuitive to me to have a runaway bubble in a down economy. Imagine the frenzy to some of these new startups if the economy were doing better! There are probably some runaway valuation but there aren’t hundreds of millions of dollars investing in sock puppets. We may very well be in a bubble but I don’t think it is anywhere near the levels we saw a decade ago.
What do you think? Bubble or not?
Rear-view Mirror Lies
At last week’s IN2LEX meeting we were discussing how communities like Austin and Boulder gained the regard they have as vibrant, creative, innovation-hospitable communities. I’ll claim it was not a grand plan but rather heavy doses of successful start-ups and it is futile to try to emulate these communities without the runaway successful companies that makes a community fertile for growth.
Dell is the second largest employer in Austin with over 17,000 employees (The State of Texas is the largest employer in the area - source). IBM and Motorola spinout Freescale Semiconductor are the other non-government/healthcare companies making up the top ten employers. Boulder’s largest private employer is IBM with Sun Microsystems, Level 3 Communications, and Seagate falling in the top ten.
The success of Dell set the stage for the growth of SXSW and Austin’s “Keep It Weird” theme. Keeping Austin weird is only “cool” because they have had several ultra-successful tech companies in the region that created an environment hospitable to growth. I’ll claim we probably wouldn’t be talking about Austin if Michael Dell hadn’t launched Dell Computers out of his dorm room 26 years ago.
I’ll challenge you to name a community you’d like to emulate that isn’t built on a modern, successful private employer or employers. Better to concentrate on building successful companies (employers) than to look at the “cool” things that become emblematic of a community and yearn to emulate that aspect. Chic follows runaway entrepreneurial successes.
Which companies are going to breakout in your region and help create the environment needed to grow a community that everyone wants to emulate? What are you doing to help them?
Importance of Storytelling
I attended a public presentation last week for a local development project called CentrePointe. The presentation was led by Jeanne Gang of Gang Studio Architects. For those that live in Lexington you know the history and controversy. For those that aren’t familiar with the project it is a proposed major private development in the heart of downtown Lexington.
What struck me about the meeting was the importance of story telling. Gang did a masterful job of drawing the audience into her world of contemporary design. She explained the genesis of Gang Studio’s design response for the project and its origins in central Kentucky’s equine constructs and natural landscape. Those stories provided context for what I’m sure many people in the audience would question as an ”appropriate” design for Lexington. The overall mood of the room seemed upbeat and supportive of the design and project in general, a stark contrast to the venomous opposition that surrounded the project just a year ago. Yes, the design is different but so was the way the project was explained to the public. I’ll claim the story is as important as the design in winning the audience.
I practice my own story telling too. A local tech group called IN2LEX that I’ve been involved with recently hosted an entrepreneurial conference in Lexington called the Startup Advantage Conference. I picked up a couple of our speakers from the airport and took them to the Gratz Park Inn, a local boutique hotel in the heart of downtown. For those that haven’t had the pleasure of flying into Lexington it is a spectacular landscape. There are beautiful thoroughbred horse farms for as far as the eye can see. The picturesque rolling terrain, white fences, and star equine athletes are unique to Lexington and make for great conversation on the ride from the airport to downtown.
Over the years I’ve learned some of the reasons Lexington became the center of the world for thoroughbred horses. During the Revolutionary War wealthy horse owners on the east coast moved their prized possessions inland to prevent their theft by the British. The rolling natural terrain surrounding Lexington is perfect for exercising the leg muscles of thoroughbreds and the natural limestone underlying the bluegrass is good for bone strength making central Kentucky a perfect spot. My little bit of knowledge about the history of “why” the thoroughbreds are in Lexington makes the 20 minute ride from the airport to downtown fly by and gives my passengers context to accompany the natural beauty they see when they arrive in Lexington. I’m “selling” Lexington in a very authentic, unassuming way.
I think storytelling is one of the most important aspects of a startup. Stories about what value your product offers and why anyone should care become the primary means of interfacing with potential customers and garnering much needed feedback as you measure the accuracy of your assumptions. Refining a good story or stories as backdrop to your shiny new product or service will help take the edge off what might otherwise seem confusing when first encountered.
I’ve been telling stories every day over the past year about my new startup Punndit. The stories have evolved and through practice are getting easier and more exciting to tell. Context matters, and a good story, be it to sell a building, a community, or a new product, is key to moving your vision forward.
The Netflix Pivot Is Not About DVDs
Seemed like the world was in an uproar today over Netflix’ announcement that they are separating their streaming and physical delivery services. For customers that are using both parts of the service I’m sure it came as a big surprise. But I’ll bet that’s a small percentage of their users.
I’ll claim its a smart move on their part and shows why Reed Hastings (Founder & CEO) understands that in order to stay on top you have to continue moving. This inevitably will alienate some customers.
I’m a Netflix subscriber but I only use the streaming service. I’m guessing that if we could see their internal metrics that this part of their business is the growth engine. Besides customer uptake there are other compelling structural/business model issues with the opposing services. According to previous interviews with Reed Hastings they always wanted to be in the streaming content business. Technical and licensing issues forced them to start with the physical DVD model.
When Netflix started shipping DVDs to your home it was a creative way for them to not have to procure distribution rights to any of the content. They skirted copyright violation of distributing any movie they wanted to carry and offer to their subscribers by actually purchasing commercial DVDs in the same way you could at Walmart. Not the same with their streaming service. Netflix has to negotiate the rights to steam content directly with the content owners. This is why there is a wide discrepancy in the Netflix catalog between what you can stream and what you can have delivered via DVD. It’s frustrating to the end users of the service but makes sense when you look at how different the models are of procuring the content. I think this is the main reason they are separating the services.
The cost of shipping the atoms on the DVD side will continue to produce thinner and thinner margins as those costs continue to rise while the cost of streaming you a movie (approximately 5 cents per 90 minute movie) will continue to decline. But the bigger difference is in the attention to procuring and delivering content. They need to separate (and eventually purge) the DVD business so they can concentrate on procuring content for their streaming services.
Rumor mill has it that Netflix is pursuing licensing original content for the network. At that point they are a little MSO and a little HBO :) They’re a new form of MSO (Multisystem Cable Operator). Negotiating the content rights is a tricky business and will take several more years to completely shake out. The traditional MSOs (Comcast, Time Warner Cable, Insight) pay large upfront fees to the content providers. The content providers are addicted to these fees which makes it difficult for Netflix to compete for the streaming rights. If a content owner like HBO makes their content available to Netflix they know the MSOs can then argue they can’t pay the upfront guarantees they have in the past. This is why you see the content rights staggered. The traditional staging of content by an owner goes from Theatrical release to DVD release to streaming release which has normally been over several months. Netflix is pushing the time cycle of these releases and in some cases is negotiating streaming rights ahead of DVD rights.
Sound confusing? It is, and it will take several more years to straighten out. Multiple parties with billions of dollars at stake. I say we should praise Netflix for pioneering these changes. Don’t chastise them too much for separating these two very different sides of their business. And remember… it’s only $8! Unbelievable value.
Product ≠ Business
I’m helping out the next couple of months with Awesome Inc’s summer interns. Three teams are spending the summer working on starting new businesses. One of the things I’m trying to impart on the teams is the need to fight the urge to focus entirely on their products. It’s an all-too-easy place to retreat.
In the tech world it’s easy to become enthralled with the promise of your new product and forget that your ultimate goal is to build a business. Cool Product ≠ Successful Business. A good product is one component of building a successful business and delivering value to customers.
One of the resources we’re using is the Business Model Canvas (BMC) designed by Alexander Osterwalder and the team that delivered a great resource called Business Model Generation. Every entrepreneur should have that book on their desk.
The BMC provides a framework for thinking through the critical components of a business. For me, one of the best things about the book and the canvas is a reminder that there are multiple ways to deliver value. The BMC helps guide you through the ramifications of making changes in your business model. It’s a great tool for playing out “what if” scenarios and seeing their effect.
Building a successful business is more challenging than building a cool product. Building a business encompasses many components that play a part in delivering value to a customer. The Business Model Generation book is a great resource for guiding you through the process.