Tag Archives: Technology

Will Enterprise Startups Require Different Entrepreneurs?

VentureBeat ran an interesting article today about how startups are learning that the “Dropbox Effect” is a myth. That is, corporate IT departments will not adopt a consumer-driven solution just because users like it. There are too many issues around security and support for CIOs to be swayed by consumer products, no matter how sexy they are.

In this article, CEOs from very hot Silicon Valley startups are talking about the need to add executives with enterprise experience, from established companies like IBM and EMC. My question is whether, if going after the enterprise requires traditional enterprise approaches — security, support, sales & marketing — does that mean that we’ll see a move away from the 25 year old entrepreneurs who are currently the rage in Silicon Valley? I don’t know; part of the reason young folks can make good entrepreneurs is that they are willing to break the product mold, and that can be just as valuable in the enterprise as in the consumer market. But as the VentureBeat article points out, and as our QWERTY keyboards remind us on a daily basis, the best products don’t always win. If the way to sign enterprise customers is to have an enterprise-ready organization, maybe entrepreneurs will need to have enterprise experience.

Outsourcing Parenting to Technology?

I was at an event the other night featuring a panel of education technology entrepreneurs talking about how their companies teach kids skills beyond the traditional three R’s of the school curriculum. For example, Class Dojo is supposed to use gamification to improve kids’ behavior, with the founder talking about the importance of improving self-control (the famous marshmallow experiment). EverFi teaches kids financial literacy and Mindset Works is meant to change the very mindset, or self-conception, of children.

Then I got home, and saw on TV that Verizon commercial in which a kid’s family can’t be at his French horn recital, but they can watch him via connected devices. It’s a sweet commercial, for sure, and someone sitting on my couch (not me) got a little misty eyed. But it got me thinking that maybe we are outsourcing too much parenting to our technology.

I mean, yes it’s sweet that the kid’s dad uses a tablet camera to watch the recital, but wouldn’t it be better if the dad were actually there? And to the extent that self-control can be taught, shouldn’t parents be teaching it rather than some technology company? Especially since most of these education tech companies are started by entrepreneurs, not educators or child psychologists (except for Mindset Works).

I’m not trying to criticize any of these companies or entrepreneurs, all of whom are doing good work trying to help kids. And I’m not criticizing parents or teachers who use these tools. I’m not even definitively saying that I think using these tools is bad. After all, leveraging technology is something that we all do. When I use Excel instead of green ledger paper, am I outsourcing my financial analysis to Microsoft? No, I’m just using a tool that makes me more efficient. So why does it feel different when it comes to parenting?

Perhaps I am just hopelessly retro, thinking that parents should manage kids themselves, instead of using every tool available. Perhaps it is because I am not (yet!) a parent, so don’t fully appreciate the desire to do everything you possibly can to improve your children’s lives. Or perhaps I fear that parents who outsource teaching their children aren’t using the found time to be with their kids, but on themselves. I can’t rationally pin down why this parenting technology makes me uncomfortable; it just does.

Readers, what are your thoughts?

Viral Growth & User Base Do Not a Business Make

Everybody in business wants to “go viral.” If you create a funny YouTube video, or tweet cleverly, or create a web service that people invite their friends to join, then you will spread like a flu pandemic, generating massive growth in users without massive marketing expenditures. Whether you are Old Spice or Dollar Shave Club or Instagram, growth without marketing expense is a good thing. And I agree: it IS a good thing. Going viral is awesome for a business, of course. Achieving growth without buying it is clearly good.

But companies are also learning that growth itself is not enough. A user base is not a business. If you can’t make money off those users – both revenue and profits – then all your viral growth is kind of a waste. We saw this last week with Facebook, which has had huge viral growth over its lifetime, and now has a billion users, but is having problems turning those users into money, leading to a stock chart that looks like this:


Ouch!

Or take the Dollar Shave Club. Their video is definitely hilarious and it went viral, which allowed them to sign up lots of users. But if their razor isn’t good enough to keep customers ordering more, or if they can’t sell the razor for more than it costs to make, no amount of viral growth will help them be a successful business. I haven’t heard anything about their razor quality, or their margins; they could totally succeed, and I hope they do. My point is that a clever viral video is only a means to an end. The end is a profitable business.

In the social bubble we have seen this year, people have been losing sight of what really matters in business: profits. User growth and virality are to 2012 what eyeballs were to 1999. Having lots of users is good, and your user base is an important metric to track, but at the end of the day, you need to make money. Not making money is what pops bubbles.

Move Fast And Break Things. Like Your Customers’ Hearts?

Move Fast And Break Things is Facebook’s unofficial (or maybe official) motto. It’s part of the hacker ethos, and I get it. You need to try to new things, not follow established patterns, if you want to create really innovative products. “You would never build something great doing it the same way others have done it,” said Mark Zuckerberg.

Except, what if you move so fast that you break essential things? Facebook’s replacement of user emails with Facebook email address was not only a typical Facebook PR disaster, but it turns out that there was a bug so that some smartphone users had emails replaced not just in Facebook, but in their contacts too. So that they were sending emails to people’s Facebook addresses without knowing it. Facebook addresses that recipients don’t check. It was a complete clusterfuck, and users are rightly pissed. How many users ripped their Facebook app right out of their smartphone after that? And how many other users who were thinking about installing the app decided not to?

“Breaking things” is great unless your customers actually rely on those things. Then you are just breaking your bond of trust with your customers. And you never get that back.

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How to Change Corporate Culture

I was recently at an all-day retreat for an organization that is working on changing its culture. Like many fast-growing companies, this group is finding that what worked when it was smaller is no longer working. Ad hoc lines of communication break down as organizations grow. Old timers don’t trust newcomers, and the newcomers chafe under the mistrust. This is a common problem here in Silicon Valley, where growing companies are the norm.

Part of the challenge at this company, and at most companies in this position, is that founder who has gotten the company this far, often by being involved in every decision, is unable to let go even as she brings in experienced managers underneath her. Note that I am using female pronouns here, but this is definitely not a gendered issue.  If the corporate culture is one where nobody can act without founder approval, it will be challenging for the company to grow, no matter the gender of said founder.

More broadly speaking, this raises the question of corporate culture in general, and whether it can change without the people at the top also changing. Generally, corporate cultures reflect the personality of the founder; thus Oracle has a reputation as aggressively cut-throat, like Larry Ellison, while Microsoft long had the reputation as heartlessly numbers-driven, like Bill Gates.  James Baron, a professor at Yale, is one of the leaders in studying organizational change, and he notes that “founders impose cultural blueprints.” With older companies, a culture develops over time; IBM built a culture that was bureaucratic and risk-averse, and only an outsider like Lou Gerstner could change it.

Studies seem to indicate that corporate cultures will not easily change unless that change is driven from the top. This often means a founder ceding control to an outsider, but it can also mean a CEO committing to change and making that commitment public and real. Here are some factors which are essential to a CEO successfully changing a corporate culture:

  1. The CEO must announce the new values
  2. The CEO’s direct reports need to be on board with the changes
  3. A plan should be in place to drive these changes to all constituents
  4. There has to be a cost to violating the new norms; apostates must be punished.

The most important thing, however, is that the CEO needs to live the changes. Corporate culture comes from the top, and if the top doesn’t change the rest of the organization will see the announcement as empty words.

For example, what if a company has a culture of people showing up late for meetings, or not at all? Everyone at the company might agree that this is a cultural artifact they want to change. But most likely this culture exists because the founder is usually late for meetings, if she shows up at all. There are a number of reasons why a founder might act this way, but it doesn’t really matter why; what matters is that as long as she shows up late, everyone else will too. The only way for this culture to change is for the founder to embody the change.  That’s the thing about leadership; it requires you to lead.

Ozone Pollution More Dangerous than Previously Thought?

We’ve all heard about the ozone layer, but I reckon that most people know very little about ozone. I knew pretty much nothing about it until I read an article published by the National Bureau of Economic Research which tied ozone levels to reduced worker productivity.

It turns out that ozone is a molecule consisting of three oxygen atoms. It also turns out that ozone is known to cause respiratory problems. It is chock full of free radicals, and ozone doesn’t react well with cells in your lungs. Yuck. Health organizations (EPA, WHO, etc.) set exposure standards levels that should prevent long term effects. Of course, those standards are based on the science at the time of promulgation, and science can change, as is true for all health regulations.

However, as the NBER article shows, sometimes economics can reveal patterns that medicine doesn’t. Economists from UCSD and Columbia studied ozone levels in California’s central valley (a huge farming area) and compared those levels to farmworker productivity. It turns out that increased ozone levels are correlated to decreased productivity. Moreover, this productivity impact happens at levels well below the federal safety standards. So maybe the standards are wrong, and ozone is more toxic than people think.

I admit that this study is a little on the Freakonomics side of things: it runs a regression, sees a correlation and assumes causality. I have been critical of Freakonomics in the past (although not on this blog), because I don’t think you can just regress a boatload of data and then decide that you know why result A happened. There could be all kinds of other factors at play in this data; for example, maybe ozone levels are high when the weather is really hot, and farmworker productivity was down because of the heat, not because of the ozone at all. Hopefully the economists doing the study adjusted for that sort of thing, since zeroing out the noise of exogenous variable is a standard procedure in studies like this, but the article doesn’t say. Any way you look at it, this certainly is an interesting correlation that could bear further study.

As an aside, here is a critique of Freakonomics from the American Scientist; they are more qualified than I am.

Marc Andreesen Finally Calls The Tech Bubble

After months of saying, contrary to all evidence, (like this, this and this) that there was not a tech bubble going on, super-VC Marc Andreesen has finally publicly pulled back from investing because valuations are too high. Duh.

Lean Startups Aren’t So Lean

There was recently an article in PE Hub (that’s Private Equity Hub, for those of you who don’t subscribe) about the breakneck growth of internet darlings like Groupon, Zynga and LinkedIn, and about the massive hiring and marketing spending required to support that growth. Written by the ever insightful Connie Loizos (disclosure: I know Connie and her husband both socially and professionally), the article pointed out that these companies are forced to raise huge private equity rounds (as in hundreds of millions of dollars) to pay for the marketing that drives growth and the hiring that supports it.

As Connie points out, this is a great flaw in the “lean startup” model. Sure, you can build a company with $3 million now instead of $30 million. Open source software and cloud hardware resources allow you to bring a product to market without raising gobs of venture money. But those same trends allow anyone else to bring a competing product to market just as cheaply. So then the race is on to see who can grow the fastest. And that race demands capital, lots of it.

So startups can be lean, but growth companies are fat. All this trend has done is move the locus of capital raising competition a little later in the lifecycle of companies.

Folder People vs. Non-Folder People

In reading reviews of the new Apple OS X (Lion), I was struck by how many reviewers mentioned the All My Files, Mission Control and Launchpad features, all of which display files and applications in a way so that users don’t have to organize their work in folders. I was reminded of when Gmail first came out, and everyone talked about how it didn’t have folders, because you could just search for whatever email you wanted to see.

This was alien to me. I have always organized my work in folders, both in my computer and in real life. When I worked in finance, each new deal got its own accordion file into which went a series of manila folders: due diligence, projections, legal issues, etc. So organizing my computer files and email into folders and sub-folders seemed completely natural to me. How else could you display your work on a computer?

Folders. Very neat, very organized. Even with a mustache.

And there I went, blithely assuming that everyone was comfortable with the folder metaphor. Sometimes I would look at someone’s computer where the desktop was a mass of unorganized icons, but I assumed that was an aberration; I must have just caught them in the middle of a crazy project.

It wasn’t until I read about computer scientist David Gelernter that I realized there might be other ways to look at your information. He developed something called Lifestreams in order “to minimize the time users spend managing their documents.” Lifestreams dumped the file and folder metaphor in favor of “a time-ordered stream of documents.” That seemed crazy to me – I would much rather look for documents “from Project Neptune” than “from sometime in 2003, which I think is when I worked on Neptune” – but it was clear that other people, even computer science people, didn’t think that way.

It appears that lots of people don’t think the way I do. Maybe most people. But whether the count is lots or most, clearly many would prefer to avoid the folder metaphor. To quote from one review of Lion, “The addition and prominence of “All My Files” is yet another vote of no-confidence in the user’s ability to understand and navigate the file system.”

So let’s add another dichotomy into which we can divide people: folder people vs. non-folder people. While improvements in search technology may eventually make this distinction obsolete, right now it seems like the non-folderites have the upper hand, with user interface designers catering to them. That’s fine, as long as folder capability still exists. But if that capability disappears, folder thinkers will have no choice but to rise up and let the Lifestreamers tremble. We have nothing to lose but our files!

More Tech Bubble Datapoints

Here are two more items showing that Silicon Valley is in the midst of another startup bubble:

  1. TaskRabbit, which has A) a dumb name; B) a terrible premise; C) the ridiculous idea that it won’t need to staff up in order to grow (because it has a terribly inexperienced CEO); and D) NO REAL BUSINESS MODEL.
  2. A WSJ article about how PR firms are now turning down clients and taking equity in lieu of cash compensation. Since the main value of PR firms is hiring cute young women who flirt with male reporters to ensure that their clients get press coverage, any time PR firms start feeling as powerful as VC funds (like they did in 1999), you know that you’re in a bubble.
  3. San Francisco apartment rents are skyrocketing, to the point that local real estate people are calling it a bubble.