April 5, 2013
I was reading an article in the guardian titled “Microsoft threatened, as smartphones and tablets rise, Gartner warns” and another post by Fred Wilson/Christina about “Monopolies and Startups” both are connected to the theme of transformation that I have been referring to for sometime now. My colleague was telling me that someone asked him a question What about Surface? when they were discussing some device and technology choice, and his response was What about Surface? i.e who cares? That is the problem, when fringe products that are suppose to appeal to everyone usually does not appeal to anyone. Focus and niche strategy is the best way to launch a new product. It also goes back to the Innovators dilemma, on the new entrant. Microsoft is a new entrant in this space, and they should have acted like one instead they are acting like a big company they are which is sad to see because have many choices is good the consumer. In additino, the interesting part about these transformations is that everyone ignores it until it is too late. The Gartner report about the rise of Smartphones and Tablets is very interesting because few of us were seeing this before it has hit mainstream. IMHO, Microsoft lost out on this battle and Google has gained a huge advantage with their Chromebook, Android Ecosystem. This is the projection of Gartner and Fred Wilson actually wrote about this a while back. I believe the problem with the competition to the Android and iOS ecosystems should have been fought by Microsoft in a different way. They should have entered the low end market i.e a price point that works in large markets like India, China or Brazil or Latin America less that $150 like the Chromebook with their new operating system. The problem for Microsoft is that they want to be in the enterprise and the Enterprise IT is getting consumerized right in front of our eyes, Deloitte, one of the big 4 Accounting and Consulting firms allows their consultants now to bring their own device and they even subsidize a iPhone 5. I know because my wife just got a new iPhone and she DOES NOT like Apple products, but she now loves her new phone. I think it is a matter of time before the smartphone/tablet User Interface takes over the Laptop/Desktop. I think that is the inflection point that Gartner is alluding to. I think the biggest winner in this over the long haul is going to be Google, because they are very quietly innovating and coming up with Cloud based solutions that work seamlessly with their Android and Chromium ecosystems. Microsoft has found itself in a perfect storm, the assault by Apple in the high end devices and by Google, Amazon and many smaller startups in the lower end. To add insult to injury, enterprises are starting to see if they dont adapt their IT systems they will be left behind by their competitors so they are also looking for newer things that consumers are using. All the people who sell to the Enterprise continue to live in this dream world of yesterday. I have a strange feeling that in a couple of years, I will refer to this post to say I told you so. Consumers i.e employees in the enterprise will dictate what kind of software and device and infrastructure they want to run on rather than the IT department.
January 11, 2013
Saw the documentary “Something Ventured – The Risk, Reward and the Original Venture Capitalists“. It was great! loved it… it was so much fun to see or rather to get transported to a time when it all started and all the challenges that the industry veterans like Arthur Rock, Tom Perkins and Don Valentine talk about when they started. It is actually quite interesting to see the background of those who basically started the industry of Venture investing. Arthur Rock came from the Investment Banking business, Tom Perkins was an Engineer and Don Valentine was a Marketing and Sales Executive. The common theme that just got reinforced for me is that all these smart people almost 60 years ago faced the same questions and challenges.
The language that they use is quite reveling, for example “I was an accidental entrepreneur”, “We really did not know what we were doing”, “There was enormous risk when we started”. It would be even more interesting to see all those who failed miserably in this business, because that is the nature of this industry. We have a survivorship bias, ie only those who survive tell the story.
Someone had to see the opportunity, but none of them knew where it was going. And it is also very interesting to me that when they all ventured to raise capital they all got a LOT of NOs… that is how VC capital raise works.
The summary of the documentary for me was something very profund and simple, Entrepreneurs are the leaders without Entrepreneurs there is no VC business. To the credit of all the VCs who survived long enough to tell the story is that all of them were extremely hands on ie. they helped entrepreneurs in every and all ways they could. They brought in mentoring, expertise, business networks, business relationships etc. Even the Steve Jobs of Apple had to learn management, marketing and sales and distribution from Don Valentine and Mike Markkula, Marketing Manager at Intel and Don Valentine used to be the Marketing person in Fairchild Semiconductors. There is a huge body of knowledge that gets missed when we look at Entrepreneurs who have been successful, there are a number of people who help them, mentor them and guide them to reach that vision. That in my view is the art of Venture Investing.
All the VCs worked with the companies to build them and many of the VCs passed on opportunities. The classic quote was by Nolan Bushnell, the founder of Atari – “I could have had 1/3rd of Apple for $50.000… big mistake”, ‘cos he passed on the opportunity! Not just that, even Don Valentine passed on Apple until Mark Markkula took over Apple as its President and CEO and built a very powerful board with experience and expertise to guide the company. A lot of that information gets lost when someone looks at the shinny new iPhone. End of the day it is always People who make things happen and putting the right team together is an Art. Successful VCs know how to do it and when to do it and what is needed. It is not taught in School but through their life experiences. If you are a VC or an investor, ask yourself are you doing the same amount of work that these people did? and if you are an Entrepreneur ask yourself do you have the right board and advisors and investors who can help you to execute and achieve your vision.
Here is the list of pioneer VCs interviewed in the movie.
||Early investor in Fairchild Semiconductor, Intel, Apple and Teledyne
||Founder of Kleiner Perkins Caufield & Byers, early investor in companies linke Genentech and Tandem
||Founder of Sequoia Capital; early investor in companies like Apple, Cisco, Oracle, Electronic Arts and LSI Logic
||Founder of New Enterprise Associates, investor in companies like PowerPoint, Juniper Networks, Macromedia and Dallas Semiconductor
||Founder of Institutional Venture Partners
||Founder of Sutter Hill Ventures; Founder of Draper Richards
||Co-founder of Draper and Johnson Investment; Founder of Asset Management Company
||Founder of US Venture Partners
||Founder of Bryan and Edwards
||One of the early developers of the venture financing structure still in use today
September 18, 2012
English: Disruptive Technology Graph (Photo credit: Wikipedia)
Been reading the book Innovator’s Dilemma by Clayton Christensen. There are a couple of graphs in the book that really resonate with what is going on with the Mobile Device market. If you have not read this book, I highly recommend it. Clayton Christensen used the Hard Disk Drive Market to study a fundamental questions that were bugging him… the questions were:
- Why is success so difficult to sustain?
- Is successful innovation really as unpredictable as the data suggest?
It is fascinating to see how the evolution of the Hard Disk Market has been following the path that he wrote about 15 years back, the only thing that is different is that his prediction of disruptive technologies has just accelerated in their adoption in the market and making a number of “successful” of even “great” companies fail in the market place. I re-tweeted
@karaswisher: It’s Official: The Era of the Personal Computer Is Over http://dthin.gs/RT6rmo long live the PC
You read the article and it shows the slow decline in the demand for Personal Computers and the explosion in demand for devices that are Smart (read has a micro processor), Connect (read wifi enabled) and Portable (light and can be carried anywhere). These devices are distributing the work one used to do only on their Personal Computers. I believe Mobile First, Web Second paradigm which to me was first introduced by Fred Wilson through his avc.com blog is so relevant and crucial for the survival of many the currently successful software as a service companies. However, I am sure that the “currently successful” companies will face the same challenges as the previously successful companies did. There are 5 principles that is given in the book are a given they don’t change over time and if companies i.e. managers of companies ignore these principles, it will definitely lead to them loosing in the market place. The principles are:
- Companies Depend on Customers and Investors for Resources – key take away for startups and managers is that they DO NOT control the resources
- Small Markets Don’t Solve the Growth Needs of Large Companies - key take away for a large company manager is not to wait until a market is “large enough to be interesting” but invest in smaller companies that are going after these small markets
- Markets that Don’t Exist Can’t Be Analyzed – using proven market research and business planning to understand disruptive technologies leading to new markets have a dismal record of predicting the trajectory. Key take away for established organizations is don’t waste time in trying to analyze the market, adopt a lean startup or customer development approach or invest in companies that are doing that
- Organization‘s Capabilities Define Its Disabilities – key take away an organizations capabilities resides in two places, its PROCESSES and VALUES. The very processes and values that constitute an organization’s capabilities in one context, define its disabilities in another context.
- Technology Supply May Not Equal Market Demand – understanding the difference between Sustaining and Disruptive technology adoption in the market is key to understanding the technology supply to market demand interaction. Established companies are moving so high up the value chain that they underestimate the new market at the lower end of the spectrum thereby giving rise to disruptive incumbents.
May 9, 2012
Peter Singer makes a case for finding a business model that would make it fair for content creators in his article “The Ethics of Internet Piracy“. He goes on to say that he is fortunate enough to make a living off his salary that he does not need royalties of his work. It is an interesting argument, I wonder if every author starts out having 1 billion potential customers of their content. The economics of the Internet is not complex it is just different, it is hard to fit a model that has worked before into the new world. There have been many instances of debates and opinions around this and more recently by Open Rights Group with the title “We don’t have to choose between freedom and copyright“. There have been independent voices that say that most I mean 90+% of consumers on the internet would willingly pay for content, whether it is a scientific paper, music, video, movies or whatever the biggest challenge on the internet is determining the reservation price. To remind myself on what I learnt in Economics 101, that reservation price of a good is the price a consumer is willing to pay for that good. This is the basis for all of economic theory, the downward sloping demand curve, etc. The power of the network skews this model quite a bit. I am not smart enough to define a theory that would work for the Internet, but I can make some observations and try to tinker with the model. Lets take a first time author, what are the chances of her work being found and consumed on the internet when she publishes her work through her blog? well, depending on how big her network is and how good the content is and how many of the relationship she can influence to share, it can spread exponentially. So the pricing of the content should be a function of the network that her content is distributed through. Traditionally, the distribution mechanisms were monopolies, driven by the economic strength of movie studio, record production company or the circulation of a newspaper. That model is still valid and relevant but that model does not work for the millions no billions of bits of content that is being created by everyone who has access to the internet and an input device.
I fundamentally believe that those who create content and do not want to have it distributed through the internet should resort to the old mechanism of publishing, whether it is records, CDs, DVDs or paper books. But most of this content is going to be digitized by someone and distributed on the Internet, if the original distributor was not capable of using the Internet as a medium to find the right pricing to reach the billions of people online then too bad. Figure out a model, pricing plan to make the Internet work for you. I believe most of the people on the Internet would like to pay for content, but given the network effect, the pricing has to be driven by the network. Think of iTunes and the App Store by Apple. I believe they have solved the network pricing problem, 0.99 cents seems small enough that one can appeal to a large target audience and if the content is relevant to the target audience then it should enable the content creator to monetize the work profitably. I am not trying to say Copyright infringement is good or one is ok to steal on the internet, all I am making a case for is that the Problem is not out there, the problem is always with the content creator. If we start with working on ourselves, it actually leads to positive change in the environment. I want wrap this blog post with a quote “when morays are sufficient, laws are unnecessary. When morays are insufficient, laws are unenforceable”.
March 24, 2012
There is a fundamental difference between a business model and business plan. A Business Model defines how you will make your product or service economically viable. A business plan describe how you are going to make your business model work. One does not always know how the plan is going to evolve, so building detailed plans although a great thought or intellectual exercise adds no real value because you are wasting time making assumption about the world out there and hope that your strategies or “plans” will address those assumptions and hypothesis. The truth could not be far from it. Most people confuse this with the product development road map and the classic example I get is people saying “hey, Steve Jobs did not go and interview his customers before he created the iPod, iPad, the Mac Air or any of the products that has come out of Apple…” to that I have only one answer, unfortunately there was only one Steve Jobs and how do we know that Steve did not do that? he had a keen eye for design and detail, he spend considerable amount of time in Silicon Valley being part of the information
revolution and he had many fails to learn from. I try to remind those I am talking to that they need to spend 30 years in Silicon Valley, formed 2 or 3 multi-billion dollar companies, have the same network and experience of Steve Jobs before being able to compare themselves to what Steve Jobs did.
There is a simpler way, Steve Blank, has written books, taught classesand has done many things to showcase the Customer Development Methodology, which is nothing but a Business Model. If you approach problems with the Customer Development method, you can build a pretty good hypothesis and once you have an hypothesis, it can be validated and based on the results you can build a business. The trick is to get through that cycle as fast as you can and then execute based on the learning. It is never simple and straight forward you have change your hypothesis several times and build and re-build your business model that is why it is a startup.