Category Archives: New Ventures

nTAG: Solving a problem that doesn’t exist

At the MIT Technology Review’s Emerging Technologies conference, rather than regular nametags, nTAG provided electronic badges. These badges weighed about a pound, had an on-screen display (that looked like an old cellphone), and could connect wirelessly to one another.

When meeting someone at the conference, rather than exchanging business cards, two electronic badges could be held next to each other and exchange the contact information automatically.

The renting the system costs $15,000 for a conference with 100 attendees. The value it proviedes is to solve the problem of….. carrying an agenda and exchanging business cards.

Unfortunately, I found myself still collecting business cards so I could write on the back of them. So essentially this is a $15,000 system that replaces a $0.02 agenda page, and a handful of business cards.

If the value isn’t clear for attendees, maybe it’s clearer for the organizer… nTAG provides big-brother quality data to the organizer, who can monitor which attendees talk to each other. But the value of this information? Unclear.

The factors that make a conference worth attending – engaging speakers, open environment to network with others in the field, good food and entertainment – have little to do with nametags.

Rick Burns, Sevin Rosen Funds and Pilot House Venture, which provided $14MM in angel / Series A / Series  B rounds of funding, thought otherwise.

Is it Tightwad Bank, or Peculiar?

The Washington Post highlights the latest entrant in the financial services industry. Tightwad Bank is a legit FDIC insured operation named after its hometown of Tightwad, MO. Current deposits are in the $1M range, and co-owners Donald Higdon and Jeff McCalmon plan on additional revenue through an internet site, and also selling hats, t-shirts and other memorabilia to curious tourists.

Opportunities about in this area of rural Missouri (just 90 miles from Kansas City) – where nearby towns are named Peculiar, Racket, Blackjack, Wisdom , and Fair Play.

ADVANCE REVIEW: Mastering the Hype Cycle

Title: Mastering the Hype Cycle: How to Choose the Right Innovation at the Right Time
Author: Jackie Fenn and Mark Raskino
Hardcover: 227 pp.
Publisher: Harvard Business Press (October 13, 2008)
Just as individuals are notorious for buying stocks “high” and selling “low,” companies make exactly the same mistake with technology adoption.

A new technology emerges. Experts squeal with delight over the possibilities this technology will allow. Companies rush to adopt…but too soon. There are still kinks to be worked out, bugs and issues not yet discovered. Implementation is behind schedule and over budget. And the first-adopters begin to bail out. The technology, they believe, has failed. But again they are wrong. Even as they throw up their hands in failure, the technology is maturing and evolving. It may not live up to the initial hype that was once described, but it often has a powerful role to play.

Fenn and Raskino, analysts at technology research firm Gartner, have seen companies fall into the same traps time and time again. They describe why this happens, how hype corresponds to actual technology developments, and most importantly, how to use this knowledge. They also introduce frameworks such as radar screens and innovation scorecards used at Gartner and elsewhere to improve the decisionmaking process.

Will this be sufficient? The “hype cycle” provides a clear understanding of why things go wrong, post-facto. “You were too early / you were too late.” But even with the frameworks provided, many will inevitably fall into the same trap of buying “high” and selling “low.”

Bootstrapping your way to Fortune 500

I recently met Mike Mecklenburg of Chicago Micro. They are a year-old startup going head to head against CDW, a behemoth IT hardware vendor with $8B in topline revenue.

How?

  • Negotiating credit lines with manufacturers and wholesalers.
  • Drop-shipping from partners’ warehouses across the country
  • Actively partnering with cutting edge manufacturers
  • Developing and maintaining strong customer relations by offering a dedicated service rep who is truly dedicated – and available by cell phone 24×7!

In the new world of startups, a company can focus on negotiating partnerships and managing service rather than developing in-house brick-and-mortar operations. Now even CDW competitors can be boot-strapped!

The Art of the Presentation

My presentations are bad. Very bad.

And here’s why:

  1. I like to improvise.
  2. I don’t stick to a clear, simple story.
  3. I get bogged down by details. When I know too much about something, it’s hard to stay at the 30,000 foot overview
  4. I’m bad at telling jokes or anecdotes.

Any one of those four flaws could turn a great presentation into a dud. Sadly, all four together becomes the perfect storm of tedium.

What can be done to improve? Here are some tips I’ve picked up from working with one of the best professional speakers in the country:

    • Practice always. Every conversation – even with a friend or ordering a hamburger – is a presentation. Live the role.
    • Develop a repertoire of anecdotes that can be pulled out as appropriate.
    • Tailor the material to the audience – understand and focus on their interests

      Finally,

      • More often than not, visuals are distracting

      Note the supporting materials for Bill Gates vs. Steve Jobs (courtesy of Presentation Zen). See if you can spot the difference.

      Steve Jobs Presentation

      Steve Jobs

      Bill Gates Presentation

      Bill Gates

      Which audience would you prefer to be in?

      How to Manage Investors and Limited Partners

      Whether it’s entrepreneurs “managing” their investors or investors “managing” their LP’s, there are similar steps that can create a good relationship and ease any tensions that naturally occur.

      Todd Klein has suggestions here, which boil down to:

      1. Regular updates. Even if nothing has changes, monthly or quarterly updates will ensure investors or LPs know the current situation
      2. Strategic reviews. Assess current operating practices, in-depth analysis of operations, market position, competitive dynamics, strategic initiatives, and benchmarking
      3. Immediate sharing of news (both good and bad). Make sure team gets credit for good news, and most senior person takes responsibility for bad news
      4. Ensuring flow of information within investor groups by sharing detailed summaries of meetings with associates and other partners within the investor group
      5. Enabling investors/LPs to contribute to the success of the organization by identifying clear, easy and actionable requests

      Note that all five suggestions require a constant flow of information. For investors/LPs managing a dozen or more investments, this would likely result in information overload. Fortunately, there are two factors that can alleviate this situation.

      First, not all companies will communicate as frequently as they should, so an investor/LP with a dozen investments may only be actively involved with a small fraction of those.

      Second, by clearly labeling, classifying and summarizing communications, investors can quickly determine whether each particular communication requires their attention.

      Massively Multiplayer Online Game (MMOG) Hosting Market Opportunity Analysis

      MARKET OPPORTUNITY

      The MMOG market is expected to double in the next five years. MMOGs differ from typical computer games because they are perpetual virtual worlds, meaning that users can continue to play forever building on previous play. New players are constantly starting to play these game and continue playing them, creating a snowballing user base.

      Traditional game developers are beginning to discover a new sources of revenue from MMOGs. The developers typically offer a free version or trial period to attract users, and then a subscription-based version (typically $10-$20/month) to keep the on going revenue stream. In the future, MMOGs are likely to generate additional revenue through advertising and non-traditional revenue sources such as virtual sale items.

      Overall, DFC Intelligence estimates the market will double by 2012, reaching $13B worldwide. Half the revenue will come from East Asia, 25% from North America, and the remainder from Europe and Japan.

      MAJOR GAME OPERATORS

      The 15 largest MMO Games are as follows:

      MMOG List

      Of these fifteen MMOGs, the fastest growing (based on 2006-2007 subscribers) are:

      • World of Warcraft
      • Second Life
      • Guild Wars
      • Dofus
      • Runescape

      Additionally, the following venture-backed MMOG developers are likely to launch in the next 1-2 years:

      • Real Time Worlds will be launching “APB” in 2008
      • Red 5 Studios is developing an as-yet unnamed MMOG
      • Areae is developing an as-yet unnamed MMOG

      MMOG HOSTING and IT REQUIREMENTS

      Leading MMOG Hosting companies:

      • AT&T
      • Online Game Services (OGSi)
      • Hypernia
      • Valve Software

      Additional hosting companies used by MMOGs:

      • APIServers (www.apiservers.com)
      • Go Daddy (www.godaddy.com)
      • JHServers (www.jhservers.com)
      • ServePath (www.servepath.com)

      Most game developers do not have the capabilities to host games themselves. Rather, they rely on outsourced MMOG hosting services. Even the largest MMOG developers such as Blizzard, Activision and Electronic Arts use third party MMOG hosting services.

      Whether an MMOG game developer is hosting a game in-house or outsourcing it to a hosting company, the following three issues are most important in selecting IT vendors:

      1. Price – minimize price of both hardware and bandwidth. A rough estimate for hosting prices for 100k subs requires 30 servers plus bandwidth and costs $50k/month. (Note this includes ammortized hardware costs, bandwidth, and managed services)
      2. System stability and scalability – ensure data isn’t lost or corrupted and system can scale to handle growing subscriber base.
      3. Bandwidth and latency – maximize uptime at all hours of the day, since most MMOGs are highly international and cross all time zones. Provide sufficient bandwidth for peak usage. Minimize latency by using NOCs collocated near major POPs and with localization in areas with large numbers of gamers.

      The largest IT vendors for the MMOG market are IBM, HP, and Dell.

      ENTERING THE MMOG MARKET

      A vendor seeking to serve the emerging MMOG market should take the following approaches:

      1) Target both large MMOG developers that do their own hosting and also outsourced MMOG hosting companies. To avoid competing on price, focus on system stability, scalability, and management tools that can support the MMOG environment.

      2) Focus on the development stage. Historically, MMOGs could be hosted on any vendor’s hardware, but as developers seek to increase system stability they are increasingly becoming platform dependent. This means that if an MMOG developer uses a specific vendor’s hardware for development and testing, they are likely to request the same vendor’s hardware for hosting.

      In order to assess exactly how a company can enter this market, it is necessary to understand how the company is currently positioned. The Ansoff matrix provides a basic framework to understand what type of entry is needed – based upon a company’s product portfolio and market space.

      Ansoff Matrix

      A go-to-market strategy required for a Market Development play is quite different from those required for a Product Development play, and different still from Diversification.

      One of the immediate next steps to take will be to benchmark your company’s current status along key dimensions. Using a “Points of Differentiation” graph, it is possible to tailor the go-to-market strategy to take advantage of the company’s strengths.

      Points of Differentiation

      In the example above, a company may be strong in performance, reliability, average in scalability, reputation, service and price, and weak in value-added services. After analyzing other vendors using a similar framework, a company with these particular points of differentiation might choose to focus on midsized MMOGs with 100k-200k subscribers.
      SOURCES

      MMOG Data
      http://mmogdata.voig.com

      DFC Intelligence – Online Game Market Forecast
      http://www.dfcint.com/game_article/may07article.html

      IGDA (International Game Developers Association) – Hardware and Hosting
      http://www.igda.org/online/quarterly/1_3/persistenthw.php

      GigaOM Top 10 Most Popular MMOs
      http://gigaom.com/2007/06/13/top-ten-most-popular-mmos

      MMORPG Developer’s Forum
      http://mmorpgmaker.vault.ign.com/phpBB2/index.php

      FURTHER READING

      IDC – ASEAN Online Gaming 2007 – 2011 Forecast and Analysis
      http://www.idc.com/getdoc.jsp?containerId=AP3221S4P

      IDC – China Gaming 2007-2011 Forecast and Analysis
      http://www.idc.com/getdoc.jsp?containerId=CN656102P

      IDC – India Online Gaming 2007–2011 Forecast and Analysis
      http://www.idc.com/getdoc.jsp?containerId=AP3221SSP

      Time for Innovation

      In a recent article, John Hagel articulates a remarkable theory regarding product innovation:

      1. The rewards for product innovation accrue over time, though with diminishing returns
      2. Product life cycles are becoming ever shorter
      3. Thus total rewards for product innovation will be smaller than in the past

      Hagel believes that given this change, product and process innovation no longer produce a positive return on investment; thus a new kind of innovation is needed – “Institutional Innovation.” The organization must become a living embodiment of innovation. This includes

      • Diversity of ideas – to create a Darwinian ecosystem in which the best ideas can rise to the top
      • Relationships connecting people across the organization, to enable interdisciplinary innovation
      • Modularity among processes and departments – this is a complex but often-used analogy that applies a successful technique in computer science to organizational design
      • Distributed decision-making
      • Feedback loops – a mechanism of measuring the success of a particular activity (in this case an innovation) and making corrective adjustments accordingly. My favorite feedback loop is the OODA Loop (Observe, Orient, Decide, Act) developed by Col. John Boyd for the U.S. Air Force. The technique allowed fighter pilots to react in combat situations faster and more accurately than the enemy combatants
      • Incentive structures – since everyone likes Christmas bonuses

      But before you go re-engineering your company, beware…

      “Institutional Innovation” is a path that few companies have successfully executed.

      Perhaps there is an easier way, an approach to product innovation that can still produce positive ROI, even in the current climate. The approach I’m thinking of is something I’ve called Growth Explosions. Yes, have diversity of ideas. Yes, have relationships crisscrossing the organization. Yes, have feedback loops. But more importantly – lean how to watch for and exploit once-in-a-lifetime opportunities. For they actually come along more often than that.

      With a little bit of product innovation, a strong tailwind of market demand, a good nose for opportunity and a dash of luck – a company should focus on cashing in on black swans as they drift by.

      Going digital: video surveillance and pulling teeth

      Industries have moved into the digital age at different speeds. As information capture becomes digital, a massive amount of data goes “live” and can be parsed and analyzed in real-time. This leads to a host of new possibilities. Here are two examples:

      First, in the world of physical security, digital video recorders (DVRs) are a relatively new phenomenon, only gaining mainstream support within the last five years or so. Initially, it was only large, sophisticated security companies that could develop such systems – for example, airport security could track individual passengers as they move throughout the terminal. (And can even detect if a passenger abandons a bag!) Now that digital systems are becoming more commonplace, startups such as Agent VI are able to enter the market as well and leverage the vast data made available by modern digital systems.

      Second, the field of dental laboratories is about to change dramatically, as technology moves from physical casts of teeth (for crowns, implants, etc) to digital imaging and CAD/CAM fabrication technology.

      The move towards digital technology leads to a wealth of information, which in turn enables secondary, value added services.

      One reason YouTube succeeded where others failed

      A recent WSJ article mentions that when YouTube tested “pre-roll” ads (i.e., ads that play before the video launches), more than 70% of viewers abandoned the site.

      Consider two startups entering the business of sharing videos:

      Startup A has a lot of financing, and has not chosen a “revenue model” yet – first it plans on building dominance in the market. Then it will figure out how to monetize the traffic.

      Startup B cannot afford to pass on revenue for very long, so it offers an ad-supported service. However, as in the above statistic, pre-roll ads deflect 70% of visitors – and many may switch to Startup A.

      If Startup A had a plan for making money, it would have caused them to shrink and fail like Startup B. However, a day will come when Startup A must also make money – and then it will discover that its market share is only the result of its ad-free environment – as soon as it advertises it will lose viewers, too.

      The difference between YouTube and most other “Startup A’s” -is that YouTube has a thousand brilliant minds at Google who spent ten months trying to find a solution. Most startups are not that fortunate.