Wednesday, December 13, 2006

Craigslist and Communism

Isn't it great how Craigslist keeps getting weird looks from established capitalist institutions? Always makes me laugh.

The idea of a company which doesn't exist to maximize profits, or even make profits, is intriguing because at heart we all want to make our services and just enough to live off of. We learn in finance classes and business that it's essential to maximize shareholder value and issue the largest dividends possible and blah blah, but that's hardly inspirational.

Nobody gets inspired to start a company with 'Someday, i'll issue large dividends to tons of people I don't know.' The point of a business is, first and foremost, to provide a service. Of course, sometimes the service is maximized profits, but our deliberate, well-structured financial system has skewed investing away from the original point.

Business is a test. It's a test of how well your idea scales to the general populace, a test of your ability to capitalize on opportunities, a test of how well you can build a team to build and improve products, and yes, a test of your ability to maximize investment. But before all of these things, Business is a test of whether you want to test your idea.

Craigslist represents the "new" for-profit charity model at its finest; the company exists to fulfill a niche, build a product, and test an idea first and foremost, and revenue only exists to maintain its hardware and equipment. I use the irony (read: quotation) marks because this philosophy is a return to the basics of business, not something new at all.

Non-profit charity is the fundamental process that drives every entrepreneur to invest time and effort into a risky idea. Entrepreneurs succeed when they have a drive to build something useful that they want, and to scale it so that other people can use it too. It's not about maximizing revenue, or it would never get off the ground.

The new environment is great for encouraging entrepreneurship of this sort because frankly, the internet's nothing special anymore. Ut's a big deal, but it's not a magical land where anything's possible. It's a tool, an environment, a part of the real world. There are so many fledgling services and companies out there right now that you can't jump in with both feet hoping to maximize revenue. Even if you can find the motivation to start the company based on that, there are dozens of companies stealing your market share and customers' attention.

From the view of established companies like those looking askance at Craigslist, this makes a bubble because there are too many companies trying to take advantage of too small of a space. But really, it's just the long tail again. Everybody's going out and making their own for-profit charities, offering their services and hoping that if other people like it they'll come and visit. And because of AdWords and other similar services coming out (some of which are really cool), this is actually a viable model without relying on non-profit status and handouts.

Tuesday, December 12, 2006

Innovation and Speed

Innovation and Speed are two key components of startups in the web 2.0 world as well as any modern industry. A recent Businessweek Article highlighted some of the trends of modern business success. I'll summarize for the ADDled blogosphere.

Common features of successful, innovative and speedy companies like Richard Branson's Virgin group and Google include;
At their Fingertips
"The Internet has become ubiquitous, so companies can connect with talent anywhere in the blink of an eye, inside or outside the company. Open-source software can be plucked off the shelf to become the foundation of new software programs or Web sites. Algorithms can be used to slice and dice market information and spot new trends.

Perhaps most important, today's fleet companies are embracing a management approach that would have been heresy just a decade ago: If you don't fail occasionally, you're not pushing hard enough. Executives tend to try lots of things, expecting a number of them to flop. It doesn't matter as long as you produce a steady stream of hits. Even losers can burnish a company's reputation for innovation if they're seen as exciting experiments. "It's not just O.K. to fail; it's imperative to fail," says Seth Godin, a marketing expert and author of several books, including Unleashing the Ideavirus."

Companies are reaching and stretching out toward increasingly distant and strange opportunities, knowing that failure is inevitable in these new arenas.

Businessweek's strategies for finding quality new opportunities included;

Finding new ways to spot hits
"Electronics retailer Best Buy Co. has begun checking with venture capitalists to find out what their startups are working on. Procter & Gamble Co. uses online networks to get in touch with thousands of experts worldwide."

P&G highlights a particular finding from a little known Italian professor through the internet which allowed it to print jokes onto pringles.

Keeping your Launch Team Agile

This example seems lacking in strong case studies... but the description of Raving Brands and their "SWAT team in chinos and polo shirts" is good for a laugh at least.

Breaking your unwritten Rules

I'm not sure if this is supposed to be a list of features of newly successful companies or ancient cliches... Think outside the box, anyone?

Hand off tasks to Specialists

Anyone who needs to be told to outsource should really be trying to invest in speedy companies, not become one.

Once you have it right, repeat

Hm... Apparently Franchising works. Who knew.

Nothing amazing, but some of the case studies bear thought. I'll be keeping my eye on a few of these companies to see what real, new strategies they pick up and whether they thrive or die based on those.

Monday, December 11, 2006

Screw Finals: the 80/20 rule and Simplicity in Design

I've been ignoring my finals (as hard as I can), and found some interesting articles on Design and Simplicity in between my customary perusal of my feel-good websites.

A nice highlight comes from Joel Spolsky, software developer in NYC, who says
"Devotees of simplicity will bring up 37signals and the Apple iPod as anecdotal proof that Simple Sells. I would argue that in both these cases, success is a result of a combination of things: building an audience, evangelism, clean and spare design, emotional appeal, aesthetics, fast response time, direct and instant user feedback, program models which correspond to the user model resulting in high usability, and putting the user in control, all of which are features of one sort, in the sense that they are benefits that customers like and pay for, but none of which can really be described as “simplicity.” For example, the iPod has the feature of being beautiful, which the Creative Zen Ultra Nomad Jukebox doesn't have, so I'll take an iPod, please. In the case of the iPod, the way beauty is provided happens to be through a clean and simple design, but it doesn't have to be. The Hummer is aesthetically appealing precisely because it's ugly and complicated."

An interesting perspective on design. It definitely helps me to grab onto the crux of this question of simplicity and what features are essential to look at Apple's design philosophy, as they've consistently been design trendsetters in electronics, software, and hardware. Steve Jobs says "Design is not just what it looks like and feels like. Design is how it works." Definitely in agreement with Joel S., they're both saying that the design is everything and the features can't be separated for convenience purposes without losing the entire intent of the project.

But wait, this is in direct disagreement with The Man! Conventional philosophy on product design says that you can separate the items and pick and choose. In fact, Joel's article specifically brings up the 80/20 rule, which states that 80% of users use 20% of features. The conclusion businesspeople draw from that is you only need those 20% of features and your product will do well, hence the argument for simplicity within the product. By picking out those specific features, you make only the product people will use. Brilliant.

An excellent example of how picking a target market can hurt is the Newest Console Wars between the PS3, Xbox360, and Nintendo Wii. The consensus on this round is that the PlayStation3 and Xbox360 are gunning for the hardcore gamers, releasing more powerful systems and hoping to make up for lost profits on peripheral sales. (note; source states that the Xbox 360 is now profitable with each unit sold, last year at initial release they were not.) The Nintendo Wii, on the other hand, has said Screw it, and gone for a system without comparable capabilities to the 360 and Ps3 in favor of an innovative control system based around motion sensor technology.

While the ps3 and xbox360 are focusing on the 20% of features that hardcore gamers care about, the Wii has gone for a more holistic design philosophy and decided that all the features of a great system were there in the last generation of hardware. So they just kept the gamecube, invented a way to make it more accessible to non-hardcore gamers, and are doing quite well.

IMHO, the strategy of Apple and Nintendo has a lot in common and actually does follow the 80/20 rule. The reason why it doesn't look like they're following it is because they have a much larger target market in mind. They're saying screw the arms race, instead of better nukes we'll go into biological warfare. It works because nobody else is prepared to deal with Biological warfare and they'd have to change their entire industry to do so.

While a company might look at MicroSoft(MS) word and say 'Nobody's using this and this and this,' cut them out, and suffer because of it, a better design philosophy would look at MSword and say 'Who isn't using it yet? Why?' or 'How could people use MSword better?' or 'What features is MSword missing and who would use them?'

Once you assuming that the entire world is your target market, it's easier to figure out which features are important and which ones get the axe. Dozens of features within MSword are used by different groups for different reasons, so trying to cut the huge programs that MS puts out into more palatable chunks and market them separately are neglecting the fact that MS doesn't need to be efficient or have certain target features; it's got momentum and a huge company on its side. Trying to get a chunk of MS's market without acknowledging that the market isn't actually built on the strength of specific MSword features anymore is what makes me cringe whenever new companies release an open-source MSword or office killer based on the 80/20 principle.

Companies who try to look at the 20% of features people use in a product and focus on those aren't looking at the Long Tail. The 80/20 focused companies are leaping to cater to a hypothetical ideal customer who doesn't exist. Joel makes the excellent point that different people use different 20%s, so the trick is in

1. You don't need the sheep; Recognizing that you're not trying to take the entire existing market share

2. Finding a real market; Clarifying your end goal and the spectrum of people who would use your product
3. Making a real product; Making enough features to give them the utility they need and the diversity they want.

The reason why this strategy is superior to trying to compete on the same market and level of the big boys is that generalization is always cheaper than specification. The Wii is immediately profitable because all the expensive parts have already been made cheap by the last round of console wars, people can make games for it right off the bat, and all they had to do was aim for a totally unaddressed market. Anything they made would be better than what was out there.

To quote Richard Kiyosaki, "anything worth doing is worth doing poorly". Because of this, the 80/20 rule is best applied to the world as a whole. And it's terrible at determining target markets.

Sunday, December 10, 2006


Blog is on hiatus for Finals week.

We'll be back for regular postings on the 18th.

Tuesday, December 05, 2006

Microsoft's American Idol

Businessweek's What Entrepreneurs need to know is a decent synopsis covering first, Microsoft's push for the small business market with its Ultimate Challenge, described in the businessweek article as a
nationwide small-business plan contest that's part marketing push, part business-idea roundup, and part American Idol.

Interesting description... it sounds more to me like a Microsoftian (read: Embrace, Extend, and Extinguish") attack on the recent trend in Venture Capitalism from companies. While at least one prominent tech company has managed to deal with the evolving Venture Capitalism climate in an Interesting way, most of the other high-flying tech companies are using the customary strategy of wait, then devour in a hugely expensive manner.

While this decision by Microsoft might be described by Businessweek as nothing more than a marketing scam with the potential to pick up business ideas and get the american audience off their couches for something business related, I think it's a clever way to take advantage of the Web 2.0 trend toward user-generated content.

For a business to get onto a web 2.0 news portal, say, Digg, it has a much better chance if it's cited by a fairly reputable source. But most small companies in the modern investment climate are simply getting lost in the static of all the new startups. If Microsoft uses its ability to make news with every sentence of press release to give these startups the initial eyeballs for the seed money they need to come from Google, they can take advantage of their ability to simply make news to a) fund a new startup with what can be a surprising amount of money, b) develop a good relationship with a new company which has decent funding already and improve their contactability by , c) market their new office suite's ability to work within a small business and d) increase the popularity of their own website as a new web 2.0 news portal.

In other words, this could be one of the opening salvos of Microsoft's new plan to take over the internets. It satisfies their yearning to seem cool, their desire to profit from web 2.0 (not die from it), and does it all without seeming like anything but marketing fluff or spending a lot of money.

A clever innovation on Microsoft's part.