Category Archives: New Ventures

Is it worth joining the Facebook fad?

Many developers are jumping on the Facebook bandwagon. The advantages are enticing: a stable platform that can potentially simplify product development and a large customer base to tap into. However, choosing to the well-defined Facebook route is often done in lieu of developing a well thought out business strategy. Let’s look at it from a few angles…

Advantages:

  • Using existing platform can potentially save development time – the more time it will save, the more reason there is to go with platform
  • Easier to acquire customers – does not require users to change existing habits, and only requires a one-time action (adding widget) rather than returning to a new website

Disadvantages:

  • Potential limitations of Facebook API
  • “Faddish” nature of facebook means your business will be dependent upon facebook’s continued success
  • Limited to facebook’s market segment (shouldn’t pose a problem for an evite-like service)
  • Competition intense with other Facebook apps

Critical Issues:

  • Is it easier to start with a Facebook app and later tie it to a standalone website, or to build the standalone product first, then integrate into facebook later?
  • How do we intend to monetize?
  • What flexibility might we lose from choosing either option?

Developing an app within Facebook should never become the sole product, however depending on the advantages/disadvantages outlined above, it may well make sense to develop the facebook app first in order to bootstrap the company.

One way to compete against Microsoft and Google

I was recently asked to comment on a startup that is attempting to compete against both Micrsoft Office and Google Docs & Spreadsheets.

Here is what I suggested:

“Historically, there have been any number of office products that performed better than MS Office but weren’t able to capture share. As a small player, it is extremely unlikely that your fate will be any different – don’t expect to beat Microsoft and Google at their own game.

“Your approach, therefore, must be to develop a fantastic product targeted at a specific niche. The weakness of Google and Microsoft is that they are mass-market products and serve everyone adequately, but no one well. Choose either a niche market segment or a specific functional area – and dominate it. For example, mid-sized law firms, or word process that integrates with CRM for sales folks. If you develop best-in-class applications for a niche, not only will you have a compelling value proposition and easily identifiable target market, but it is much easier to achieve critical mass and become the dominant player.

“One point to note: interoperability is key. There must be seamless, flawless opening and saving of Microsoft apps. There’s the old saying within Microsoft that the next version of office isn’t ready to ship until it breaks previous compatibility standards. It’s your job as a competitor to fight them in this arena – to stay up to date so that your users won’t experience any headache when interacting with the other 98% of users.”

A new fad: hyperlocal journalism

The latest efforts to revive traditional media involves hyperlocal journalism – i.e., local community news targeted at community members.

The Washington Post recently announced a foray into this space. The Tampa Tribune is cutting 70 jobs (of 1,200 total employees) in order to refocus on online hyperlocal content.

Venture-backed startups, such as NowPublic, a citizen journalism website, have been raising capital at an increasingly fast pace.

Low barriers to entry

Last week The Economist had an article about Tesco’s expansion into the U.S. grocery business. Tesco will not start small, but immediately begin with a $500M/year assault. Tesco can not afford to start small, since competitors could copy any successful tactics.

To me, this is yet another example of why I wouldn’t want to be in the grocery business: the need to take large risks in order to achieve high returns, rather than taking smaller incremental steps. On the other hand, Warren Buffet just bought 3% of Tesco.

Successful Innovation

What is the value of a good idea?

In a startup, a founder who comes up with an idea but is not involved with execution could expect to own 1%-10% of the business. Ultimately, success is not in the idea, but in execution.

Even though the good idea is only a small piece of the puzzle, it is a necessary and critical piece. A mediocre idea will flounder, if not fail.

How, then, can we characterize a good idea for a business?

  1. Potential of becoming large (“ability to scale”)
  2. Potential to grow quickly and absorb investment capital
  3. Solves a problem for customers that the customer is willing to pay for
  4. Customers are not satisfied with the products available through the competition
  5. Not easy for customers to execute a “copycat” strategy: note that the idea might be simple, but execution difficult (e.g., good customer service).
  6. Doesn’t require the market to change significantly from where it is now – people rarely change existing habits – so don’t bet your business that they will for you
  7. Not too many problems to solve – management must be able to focus resources on solving one or two problems. If crises are arising from all directions, there is low chance of success
  8. Strong management team – know thyself and they weak points. Build a board of advisers to compensate for weaknesses

Even a good idea is likely to face challenges. One of the keys to successful innovation is determining the likelihood/ease of overcoming any challenge. If there appear to be critical issues that might be impossible to overcome, one should focus resources to resolving that issue. If the issue cannot be overcome with the given resources, then it is time to abort and find a new idea.