In the bad old Web 1.0 days, VCs in New York uttered this truism when looking at new companies with the krishna-like reverence: Is it a feature, function, application or business? Google apparently showed that knowing what the business is doesn't matter. But has the not-so-old saying bit the dust - or does it still mean something? The lucky few will reach Web 2.0 nirvana with a healthy cash buyout, but for the less lucky, does that mean that giving up is the solution? Or does it mean that most online businesses need to address whether it's a feature, function, application or business?
One of my favorite questions to ask first-time entrepreneurs is "What are you reading?" It always surprises me when the answer is a puzzled look, then a mental reach for CNN.com, or the New York Times.
About a year ago, my friend Chris Muscarella encouraged me to start reading Paul Graham's blog. I had never heard of Paul or his investment vehicle, Y Combinator. But Chris was so passionate about it that I took the time to find Paul's blog and haven't stopped reading since.
Now when asked, "What are you reading?", you can now say "I'm reading Paul Graham."
I previously wrote about Markus Frind and his free online dating service, Plentyoffish.com. This is the third and probably last in the series on Markus. I borrowed the first half of this post's title from Guy Kawasaki's blog post of the same title that features a must-see video of Markus and other social network founders at the CommunityNext conference. As Guy points out, one other founder on the panel, Drew Curtis of Fark, also runs a one-person company.
Aiden Henry writes about Markus on his blog, Mappingtheweb,
Who’s the king of the net? You can argue for any number of individuals from Tim Berners-Lee to Michael Arrington to Sergey Brin and Larry Page, but let’s get down to the facts. Who runs the single most successful website (in terms of page views) on the Internet as a one-man operation? Markus Frind.
Markus Frind is a one-man wrecking machine. He has single-handedly disrupted the world of online dating with a super-easy-to-use, free dating site - PlentyOfFish.
In the old dot-com model, disruptive technologies/companies required multiple tens of millions of dollars of venture capital to realize their potential. Because of the scale of the spend, carefully choreographed business plans were de rigueur. In the new dot-com world, the kingpins are doing the following:
"Everything good that's happened has happened by accident," says Sean Suhl of SuicideGirls.
Technology has become cheaper, easier to use, and therefore more prevalent and faster. With greater numbers of people creating a plethora of solutions at greater and greater speeds, the pace of innovation is increasing.
In this environment, venture capital is certainly not dead. But there is a growing base of anecdotal evidence that venture capitalists are finding it difficult to take advantage of many of these new opportunities. It's not for lack of scalability or the potential to exit. The ethos of founders has changed to fit the reduced capital needs permitted by the technologies. Not surprisingly, most of these new founders are also technologists.
VCs should be concerned because these new startups will take markets away from much better capitalized companies. But the bigger the company, the harder it will fall. The biggest danger is to large, capital- and people-intensive companies in traditional media.
Consider the stats behind Plentyoffish:
The key to Markus's success is buried in his first blog posting (emphasis mine):
I spent every waking minute when I wasn't at my day job reading, studying, and learning. I picked out "enemies" and did everything I could to defeat them which meant being bigger then them. I refused to accept defeat of any kind, and I constantly forced myself to test new things. I never tried to perfect anything it didn't matter if things didn't work 100% as long as it was good enough I would move onto the next thing. In 2003 the dating market was growing 80% a year unlike the -10% in 2006 so growth was a LOT easier. When 2004 rolled around and word of mouth REALLY kicked in and as they say the rest is history.
I look back now at how ill prepared I was, I didn't know anything about SEO, Advertising, community and I didn't even know what Venture Capital was. Just goes to show you anyone can do anything.
Nothing more to say, Markus. Couldn't be a better description of what we look for in picking our clients.
Forget disruption. Think industry-wrecking.
I had the privilege of having Markus Frind on a panel I moderated at the Wharton Technology Conference. I think I saw the future. It's simply, well, nuclear in its potential. Pure productivity increase, with the resulting potential for an unbounded economic payout.
(If economics bore/terrify you, skip to [A] below.)
Years ago, as a first year MBA student, I took a marvelous Macroeconomics course from Charlie Himmelberg. I learned from Charlie two important lessons. First, you should figure out the one thing you want to remember from each course, a memory that you would want to stick for the rest of your life. The rest didn't matter (great relief to me but not to my grades). Second, (all real economists, please forgive any errors in my rusty memory), this is the one thing he wanted us to remember from Macro:
GDP = f (A x N0.7 x K0.3 x G?)
In plain English, GDP is a function of A (Productivity), N (Labor), K (Capital) and G (Government), where labor is less important than productivity, and capital is less important than labor. If one takes the first derivative of this equation, change in GDP is a result of the change in productivity, labor, capital and government, where changes in productivity, labor, and capital have decreasing importance.
I have found this concept useful in thinking about all economic systems, ranging from large entities to small companies and even my individual economic existence. Thanks, Charlie.
[A]. Pure productivity. Imagine a system that requires no additional labor, no additional capital, is free from government assistance/regulation.
Impossible, one might say. Productivity doesn't exist in a vacuum.
But nearly unbounded productivity can result from technologies inventively combined by one entrepreneur/programmer/marketer, who can be a one-person company, global in scale, with literally millions of customers and millions of dollars of revenues. See Plentyoffish.c0m.
"When Companies Do The Mash" ponders BusinessWeek, software development is done more quickly and cheaply using off-the-shelf components, but many companies aren't doing it. As BusinessWeek describes it, mash-ups could be viewed as replacements for offshoring of tech dev.
"Mash-ups as product" make sense to me, that is, products to be purchased shrink-wrapped or custom-ordered by corporations from vendors.
But mash-up products are the result of mash-up processes. Those processes are something few corporations can do. It's a cultural thing.
Companies also result from mash-ups. The process of creating a start-up is often a mash-up in which technology is but one component, where prototypes of businesses are quickly assembled, disassembled, smashed, tweaked, and smushed together in an improvisational collage whose ingredients can include economic unit analysis, human capital, money, customer needs, infrastructure and entrepreneurial passion.
This flies in the face of corporate hierarchy, tradition and education.
The whole idea of synergy is related to mash-ups. Putting
magazines, cable, Internet and Hollywood together is a great idea IF a culture were designed to support creatively-oriented accidents that could eventually result in an entirely new corporate model obsessively focused on addressing known and unknown customer needs. But I guess it might not then be a Corporation. It would be a mash-up.
It is also at the heart of capitalism. One of its flavors was known as Creative Destruction.
Mash-ups. It's how we do what we do.
The most important asset to a creative artist of any kind is your fan’s email address.
It has the power to make what you do profitable, to allow you to do it longer, to control your own destiny, and maybe, just maybe, make a sustainable living and more. It has the ability to create a symbiotic relationship with your fans, gives you a way to hear their dreams for and frustrations with you.
Skeptical? O.A.R., Clap Your Hands Say Yeah, Dan Zanes will tell you that it’s achievable by a mortal artist, today.
The email address represents the deeply personal relationship between the artist and your fans, to be managed with both the emotional care of a relationship and also the financial value of an asset. Techies will call it a data asset. When linked with other data like the shows attended, songs purchased, favorite songs, zip code, age, other favorite musicians, it truly becomes a valuable asset.
Allowing your email list to be built inside a social network has the potential to supercharge the power of the email address and more sensitively interact with that list, focusing on issues that require action or direct response, like special tickets for an upcoming concert, private parties, etc. MySpace is only the first framework for the artist-fan-oriented community and a hint at the possibilities. For musicians and their fans, Haystack takes the artist development potential of the social network one giant step forward. I don’t need to repeat what others have written. Check out what Trendcentral and Daily Candy say.
And keep in mind the power of the email address.
I am the financial advisor to Haystack.
"We lose money on each transaction, but make it up on volume."
The success of Google in actually making it up on volume has apparently spurred legions of companies - and their venture capital investors - to try offering free services. In particular, this is another example of upstart tech services sucking high-margins away from incumbents.
But will it do anything other than convincing consumers that the best things in life are free?
For 800Free411, the gamble seems to be that the captive,valuable audience will drive high advertising rates and that volume will drive down per-call interconnect fees to the carriers' wireless network. FuturePhone will need to pick - or offer consumers a choice - between a subscription model or an ad-supported model. In either case, volume will need to drive down FuturePhone's even more expensive interconnect fees with both wireless carriers and fixed line owners.