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It’s All About the Team March 5, 2007

Posted by John Vrionis in advertising, browsers, Consumer internet, Digital Media, Ecommerce, Entrepreneur, Infrastructure, Internet, Security, Semiconductor, social networks, start-up, startups, Storage, Uncategorized.

As a venture capitalist, I often get the question, ‘Is it people or market?’

My answer is ‘Yes.’

There’s no doubt that great markets facilitate the building of great companies. But as we saw during the bubble, great markets can facilitate the development of some not-so-great companies as well. When talking with aspiring entrepreneurs I try to emphasize that finding the big idea or the big market shouldn’t be their first priority.

Building the right founding team should be.

In a recent Fortune interview with Jim Collins, author of “Built to Last” and “Good to Great,” he commented:

“Our research shows a somewhat negative correlation between pioneering a great idea and building a great company. Many of the greatest [companies] started with either no great idea or even failed ideas. Sony started with a failed rice cooker. Marriott started as a single root beer stand. Bill Hewlett and Dave Packard’s great idea was simply to work together – two best friends who trusted each other – while their first four product failed to get the company out of the garage. They followed the ‘first who’ approach to entrepreneurship: First figure out your partners, then figure out what ideas to pursue. The most important thing isn’t the market you target, the product you develop, or the financing, but the founding team. Starting a company is like scaling an unclimbed face – you don’t know what the mountain will throw at you, so you must pick the right partners, who share your values, on whom you can depend, and who can adapt.”

A great team in a bad market can still build a successful company, perhaps at small scale. More often, like Sony, Marriott and HP, a great team will change course as they learn that their initial market is a difficult one, and they will find their way to a bigger and better opportunity.

A second rate team can also build a successful company in a great market. But they will find themselves facing increasing competition and the company may not stay successful for long.

There’s no substitute for being part of a great team. Resist the temptation to settle for second rate co-founders or employees, or for divergent visions. The extra time to find the right people to work with is always worthwhile. I firmly believe that teams of great people, firmly bound together by shared ethics, vision and values, will always find a way to be successful.

Seven Ways to GO VIRAL March 2, 2007

Posted by ravimhatre in Consumer internet, Internet, social networks, start-up, startups, user generated content, VC, Venture Capital, viral, viral marketing, web 2.0, widgets.

Viral marketing has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies have used to successfully “go viral” in the past.

1) Communication. Same side positive network effects have driven virality for companies like AIM, Skype, Facebook, MySpace and even Fax Machines. Since you can’t communicate with others who have the tool until you get it, virality works very well. (I’ve listed Facebook and MySpace as communications tools and not self expression communities because I believe it is the Wall/Comments that drives a lot of the virality and high PVs of these sites)

2) Email invitations. Make it easy for your users to invite all of their friends. Make it hard for them not to. Tagged, Hi5 and Flixster (LSVP portfollio company) do this extremely well.

3) Widgetopia. Reid Hoffman refers to this as “invading a community”. Rockyou (a LSVP Portfolio company), Slide, Photobucket, Snapvine and others have done a great job here. Increased penetration in an existing community makes it more likely that a new user will see one of your widgets and want to get something similar. Increasing returns to scale means that the big get bigger faster.

4) Platforms. Cross side positive network effects as Jeremy posted about a couple of weeks ago can also create virality as groups on both sides of the platform flock to the greatest numbers of the other group. Ebay is the best example of this.

5) User Generated Authority. User generated content can result in high levels of traffic from organic search. This can result in more user generated content and the virtuous cycle continues. Wikipedia and Yelp are probably the best examples of this. We’ve been seeing similar behaviour at a smaller scale at Stylehive (a LSVP Portfolio company)

6) Everyone’s favorite topic. Quiz based content that tells the user about themselves (and often compares them to other people) has worked to drive virality in the past. Tickle, Quizilla, Classmates, Friend Reunited/Genes Reunited all saw big growth by getting users to input some data and gave them information about themselves (whether it be an IQ test, which sort of Superhero you are, or contact info on old friends).

7) Pay me. There have been several businesses that successfully grew by paying both new and inviting users. The economics can make this more difficult for media models than commerce models. However, it can drive a lot of new adoption, and did for AllAdvantage and Paypal.

Just about every site that has gone truly viral has employed at least one of these tactics, and sometimes several. I don’t have a detailed understanding of Netvibe‘s growth at this point and it doesn’t appear to fit into any of these categories. If you can think of companies that don’t fit these models, or other approaches that have also worked, please note them in comments!

Comments on Insider Pages sale to CitySearch March 1, 2007

Posted by jeremyliew in advertising, Consumer internet, Internet, local, user generated content, web 2.0.

There is lots of coverage today of the acquisition of Insider Pages by CitySearch. My first job in the internet industry was at CitySearch, in 1996, and some of the lessons I learned about how difficult it can be to build an online local media company have been seared into my brain.

In 1999 CitySearch bought Microsoft’s struggling Sidewalk cityguide business so this is not the first time that it has acquired a competitor. CitySearch is the dominant online cityguide business today, but it hasn’t all been beer and skittles along the way. Although quite profitable now, some have quoted that over $200m was invested into CitySearch before it ever turned cash flow positive.

There are two reasons that the online cityguide business is difficult.

The first is that the cost of building fresh, high quality local content is quite high, especially if it is done by professional editors. The new generation of online cityguides (Yelp, Insider Pages, Judy’s Book as well as CitySearch itself, Google, Yahoo and Ask, have all been addressing this problem by turning to user generated content over the last couple of years. While some models (Yelp in particular through its use of social networking incentive mechanisms) seem to be better tuned for producing high quality user reviews at volume and at low cost, this problem seems to be solvable.

The second problem is the cost of sales problem. This is a harder problem. An outside sales force tends to be too expensive a channel to use to sell online local advertising given average price points and churn rates. (It can work for high end advertisers, and for cross selling to local advertisers who already advertise in another medium).

The self service model that works so well in search advertising is harder to implement in local advertising. Unlike in search, there is often no clear link between advertising and transaction in the local space. Despite your best efforts of tracking, the vast majority of local offline transactions can’t be tracked back to a marketing source (whether online or offline). This makes self service CPC models difficult to implement for local merchants. (There has been some innovation on cost per call models and lead gen models in this space). Furthermore, many local merchants don’t have the time, nor the inclination, to actively manage their marketing budget. They prefer a predictable flat monthly fee. This also works against the mindset of many self service models.

This leaves inside sales (telemarketing). Most local online companies have settled on this model. The key challenge in local ad sales is always “getting to the decision maker”. The owner of a local business is often very busy, and talking to sales people on the phone is not high on their list of priorities. This is a viable sales channel, but it isn’t easy. Companies that have an advantage in their ability to get to the decision maker will find the most success in selling to local merchants. This is not about the value proposition of variable costs vs. fixed costs – you need to get to the decision maker to even be able to make that distinction! As this problem hasn’t changed much in the past 10 years, this isn’t about better sales training or tactics, but usually requires some fundamental shift in the marketing/sales message.

Insider Pages has healthy consumer traffic (2m UU/mth according to Comscore), a strong management team and reasonable review density across the verticals that it focused on (mostly services). Although I have no Insider Pages Insider Information, I suspect that it ran into trouble on the cost of sales problem. CitySearch can likely help with this issue given its scale and experience in the space.