The 3 Needs

Having spent the last couple of posts focusing on self-improvement, I thought I’d transition back to the business side of things for a bit.

The past 2-3 weeks a few of my friends reached out to me regarding concepts that they’re working on, and as is usually the case, it got me thinking: assuming all else is equal (e.g. a great founding team, seed capital, discipline, a bit of luck etc.), what exactly makes for a viable business idea?

If you ask me, all great companies have one essential ingredient in common: they all address three fundamental needs.

Philosophical Need: On a macro level all companies, large and small, must address an overarching “philosophical” need. For Google, it’s ensuring that search is as intuitive as possible, even as content on the web continues to proliferate; for Twitter, it’s enabling people to broadcast what they’re doing whenever they want, wherever they want; for Boeing, it’s making flight as cost-effective, and safe as possible; for Toyota, it’s manufacturing more fuel-efficient automobiles without sacrificing standards; and for Ikea it’s providing consumers with quality furniture at a discount – just to name a few.

Practical Need: Of course, addressing a macro-level need, while powerful, is not nearly enough. There are practical considerations as well.

Take Twitter for example. The social media upstart would have never become a phenomenon, if its value proposition was solely predicated on enabling users to publish status-updates (i.e. answer the question, “What am I doing right now?”); after all, what’s the point in telling people what you are doing, if nobody is there to listen?

Thus, not surprisingly, it wasn’t until Twitter addressed an even more basic need – the need to integrate with existing social media applications (e.g. Facebook, AIM, gchat etc) – that it started to realize its potential as a tool that could empower people to concurrently reach out to an audience with a megaphone while engaging  individuals  in a “coffee-shop.”

Mechanical Need: Finally, no concept can truly succeed unless it addresses the most elemental (and forgotten) need of all:  the need for a simple mechanism that will make the philosophical and practical solutions feasible.

In Twitter’s case, the mechanism is obvious: SMS technology (i.e. text-messaging). However, what about more traditional companies like Ikea or Toyota?

If you think about it, they too have distanced themselves from the competition by addressing mechanical needs. Ikea is able to provide furniture at a discount (“philosophical need”) by using material comparable to its peers (“practical need”) because it transfers the majority of its assembly costs to its consumers by selling ready-to-assemble goods (“mechanical need”).

Toyota on the other hand is able to consistently manufacture top-of-the-line fuel efficient cars (“philosophical need”) by employing some of the automobile industry’s most advanced technology (“practical need”) because of its world famous Toyota Production System (“mechanical need”).

In short, when considering an idea, ask yourself one question: how many needs does it address?

The Basics are Good

If you don’t know of Umair Haque, the director of the Havas Media Lab – “a… strategic advisor that helps investors, entrepreneurs, and firms experiment with, craft, and drive radical management, business model, and strategic innovation” – you should; the man is an absolute genius.

His post, “Why Ideals are the New Business Models,” is unquestionably one of the most impactful reads I have come across in a while. Not so much because it’s profound (though I assure you it is), but more so because after years of having the “merits” of business models shoved down my throat (seriously, I was almost gagging!), it is refreshing to see someone take a stand.

He argues, in essence that:

Business models aren’t today’s fundamental economic challenge.

If there is a silver lining to the current economic crisis it is that the complex, cumbersome business models of yesterday are slowly being supplanted by the basic ones of tomorrow; and as President Palmer (for all of you 24 fans) declares in a recent AllState commercial: the basics are good.

Twitter for example has become a world-wide phenomenon for two reasons. For starters, it enables people to answer a basic human question: what are you doing (thinking) right now? Secondly (and perhaps more importantly), everything Twitter’s engineering team does reinforces that notion. From emphasizing the concept of followers, to building robust back end functionality (e.g. integration with mobile phones and other social media platforms), they are dedicated to making the act of tweeting (i.e. sending and receiving simple status updates) as easy for their users as possible.

In contrast, Facebook’s latest redesign marks a troubling departure from and obfuscation of its original objective. By making a conscious effort to mimic Twitter and focus on “conversations” rather than life-streaming many (including myself) believe that Zuckerburg and company have created two distinct challenges for themselves: first, to impose a seismic shift in philosophy will not be easy considering Facebook has over 120M users (the majority of whom are used to interacting with the interface in a particular manner); and secondly, in trying, they will effectively dilute much of the value they had previously created.

In other words, instead of doing one thing well (i.e. enabling users to engage in each other’s lives), Facebook is on the precipice of doing two things “poorly” – though of course it remains to be seen if that has any effect on their long-term strategy (or viability).

My guess is no.

Creating something valuable in the first place is.

In his book, “Four Steps to the Epiphany” serial entrepreneur Steve Blank writes:

“If you want to get my blood pressure up when you invite me in to see your newly formed startup introduce me to someone with a Business Development title. This is the most ill used and ill-abused title in a startup. By itself this function and title more than likely decreases the probability of success when used early in a startup more than any other single factor. When I hear it used in an early-stage company I question the competence of all involved.”

The point is, if you can’t convince consumers of your product/service’s value before or during production, chances are slim to none that you will be able to sell it to them (i.e. via Business Development) once it’s completed – irrespective of its merits or your efforts.

“Monetizing” + “business models” = zombieconomy

Though I fundamentally believe that you must become ramen profitable in order to have any chance of creating value for your customers in the first place (unless of of course you’re Twitter), I do agree with Haque in one key respect: innovation and consistent long-term growth derive from a customer-centric approach.

It’s not about beating the snot out of your competition in order to achieve higher margins anymore. It’s about building lasting reciprocal relationships with your end user.

Forget business models. Focus on ideals

If creating value is today’s “fundamental economic challenge” (and like Haque I believe it is),  then nothing will empower us to rise to the occasion more than pursuing concepts founded in our ideals.

Freedom. Peace. Fairness. Justice. Principles like these not only create “authentic, deep, meaningful value” for the customer, but also (as I can tell you from experience) equip founders with: the focus to navigate a difficult competitive environment; the stamina to stay in the office until the wee hours of the morning; the determination to cold-call hundreds of prospects in an effort to pre-sell; and the humility to listen to and learn from users and mentors alike.

Thoughts?

1 to 100,000

The other night I was scrolling through my Facebook news feed, mindlessly glossing over pictures, posts, and status updates, when one headline in particular caught my eye. My friend and mentor Mukund Mohan (founder of a new do-it-yourself PR company called Buzzgain), had posted a talk by Matt Mullenweg, the visionary genius behind none other than WordPress, entitled, “The First 100K Users Are Always the Hardest.”

Having spent the better part of 18 months working on two start-ups, and having experienced firsthand just how difficult it can be to attain 100 users – much less 100,000 – I felt compelled to hear what Matt had to say. If not to gain an intuition for achieving critical mass (though of course, I thought that would be nice!), then at least to audit what I had learned from my time as an entrepreneur.

Much to my surprise, the lessons that I had gleaned and the teachings that he bestowed were, for the most part, one and the same.

1) Be your most passionate user – If you can’t spend hours a day using your product, you cannot possibly expect anyone else to.

More than a year after we decided to close up shop, my former partner Ryan and I still chuckle about the mistakes that we made at The Freight Exchange. Not because we made them (for it’s always difficult to manage unknowns and succeed in spite of them when you’re doing something for the first time), but because we made them trying to start an online load board for shipping carriers and brokers.  If the concept doesn’t sound particularly interesting, well, it’s because it isn’t!

2) Be anal – Everyday is an opportunity to be a new user.

One of my fondest memories working with Ryan came in early August of 2007, when after a particularly grueling and mind-numbing afternoon of work, Ryan and I decided to step outside onto the fire escape adjacent to his apartment to get some air. However, no sooner had I come to my senses, than Ryan took a deep breath, directed my attention to the brick edifice across the way and said, “You know, if you think about it, the only reason that building is still standing is because every brick was laid just right, every ounce of mortar was applied just so…” That’s when I knew I had a like-minded partner.

3) Get off the “computer” – Reorient yourself!

Like many first-time entrepreneurs (or so I tell myself), Ryan and I figured that superior technology, class room theory, automated processes, and the illusion of credibility would be more than enough to propel sales. However it wasn’t until we began cold-calling, sending out surveys, and meeting folks in person, that we realized albeit too late that: there is simply no substitute for human spirit, insight, and interaction.

4) Do your own support – Every time a current or prospective user contacts you is an opportunity to impress them.

The problem with expanding too quickly is that it marginalizes a founding team’s usefulness. For instance, at Smart Genetics our CEO oftentimes found himself with the unenviable task of prioritizing  between the launch of company’s flagship product Alzheimer’s Mirror, acquiescing to the demands of board members, seeking financing, forging partnerships, creating a physician outreach program, running operations, and testing different revenue generating strategies all at once! So alas, instead of pushing a customer first approach (which is the way it should be in my opinion), we were forced to spend the majority of our time focusing on making sales.

5) Have a tagline – Distill what you’re doing in 5 customer-centric words or less.

Post. Find. Deliver. If not for those three simple words, TFE would have nose-dived in less than four months instead of gliding to a halt in seven. For, not only did they enable us to frame our value proposition both internally and externally, but they pushed us to recognize inconsistencies in our overall strategy as well. So even though the result was ultimately the same, I’d argue that we were able to stay in afloat long enough to learn how to build a company “the right way.” Not bad for a $5000 investment if you ask me!

6) Get version 1.0 out ASAP –  Nothing beats real users using your product, even if it sucks.

If only Ryan and I had internalized that truism a year and a half ago! Maybe then we wouldn’t have burned through our funding pursuing speculative development projects that ultimately provided little or no value, and actually engaged and catered to our target audience. (But hey, look on the bright side; had that been the case, I wouldn’t be sitting here writing this post.)

7) Measure EVERYTHING – Do as your users do, not as they say.

Despite the tremendous feedback that Alzheimer’s Mirror received from media outlets and customers alike, it became abundantly clear once we filtered through the noise and started focusing on actual analytics, that in order to succeed we were going to have to overcome three distinct challenges. For starters, the $399 price point was simply going to be too high, especially in a down economy; secondly, older and less tech-savvy consumers were  going to be reluctant to purchase a direct-to-consumer risk assessment over the web; and finally, in spite of the test’s merit, 70% of our consumers made health-care related decisions in conjunction with their doctor.

8) Simplify  – Period.

To say anymore would be to, as Matt says, defeat the purpose.

9) Start strong, finish strong – Create a synergy of expectations.

Though I can’t be certain (for unfortunately with so much on my plate, I never had a chance to prove or disprove my theory), I’d be willing bet my right pinky finger that we could have gotten a few more sales at Smart Genetics if our landing pages didn’t look like we were selling used car insurance instead of a genetic risk assessments!

10) Be a painkiller not a vitamin – People don’t care if you make their lives marginally better; they want you to help them kick butt now.

Part of the problem with Alzheimer’s Mirror was that the test itself had very little inherent value. For starters, Alzheimer’s has no cure, and so even if someone is at increased risk for developing the disease, there is little if anything they can do to prevent it. Secondly, even if there are things one can do to delay the onset of AD, they are no different from the life style choices physicians already recommend to their patients regardless of genetic disposition (e.g. eating healthy, exercising regularly, challenging the mind, socializing etc).

In short if there is anything I have internalized in the past two years it is that business, like many things in life, is a journey into the unknown: the more you understand what drives you, the more readily your path and destination will reveal themselves.

Mimicking Reality

It seems like everyone and their mother likes to make predictions around this time of year; and so clearly, being the fun-loving guy that I am ( really, I am!), I thought it only appropriate that I join the party. However, as is usually the case with me, there’s just one slight problem: a key prerequisite to making predictions is that you have to have something to make a prediction about in the first place! So okay, let’s see here. How about sports? Eh, considering Seattle just completed the worst year in sports history that’s not likely (seriously, Oklahoma Thunder?!). Fine, then how about women? Ha! Yeah, no I’m not touching that one, sorry mom.

*Sigh* so I suppose that wasn’t too hard after all. By process of elimination that leaves me with: web-based business, specifically as it pertains to social media. If you ask me, many of the largest and most reputable social media companies today have achieved critical mass because of one thing and one thing only: they mimic, consolidate, and expedite what we do on the web. For instance:

1) Facebook – If you really think about it Facebook and other social networks like it became ubiquitous because they enable people to connect and communicate with contacts from their past and present through one simple, yet powerful interface. Rather than through instant messenger and email, which are inefficient and fragmented mediums at best.

2) Digg – Next, Digg has become a phenomenon because it successfully leverages its large user base to create a repository of “interesting” content. So now, instead of browsing through sites and sharing content one at a time (which is what people used to do on the web), people can simply sign into their Digg account, and find/submit content for all their friends to see.

3) Twitter – Finally, for its part, Twitter capitalizes on the interconnectivity of the web/mobile phones to faciliate micro-blogging through multiple mediums (e.g. AIM, gmail, Facebook etc). So instead of updating their friends one person at a time and one medium at a time (which, again, is what we used to do), people can now chat with and provide real-time status-reports to all their “bffs” at once (e.g. “OMG. The Jonas Brothers are sooooooo HOT! xoxo”).

Of course, I’m oversimplifying things for the sake of brevity. Facebook, Digg, and Twitter each provide far more value than I give them credit for above. However, my sense is that at some point, if not in 2009 than shortly thereafter, mimicking the web (i.e. increasing the proximity of information) will simply not be enough; and in order to succeed, the next generation of social media companies must and will learn how to mimic reality.

For, as useful, wonderful, and mind-blowing as some of these current sites are, I predict that one day soon we’ll look up blurry-eyed from our monitors, iphones,  blackberries, blueberries and strawberries; and realize in a moment of (ironic) clairvoyance that there’s just no subsitute to engaging and impacting others in real-life.

Thoughts?

Taking the Plunge

It’s funny how life works. Sure, inspiration strikes when you least expect it; but who knew that inspiration strikes when you are least willing to accept it as well?

To illustrate, the other day I decided to message social media/marketing goddess Shannon Paul on a whim really, if only to make an introduction. She, being the gracious, wonderful person that she is, wrote back immediately offering words of encouragement and support: “…Please let me know if there is anything I can do to help you. Do you have a blog? If so, please send a link.”

In retrospect, my reply was rather embarrassing.  I wrote, and I quote, “Unfortunately, with [job-hunting] the way it is, I haven’t had a chance to put together a blog yet…” with the implicit assumption being of course that searching for a job was simply taking far too much of my “valuable” time to devote energy to writing (I mean come on, who DOES that?). Besides, I (stupidly) reasoned, what could I possibly say that would hold Shannon’s interest for more than 30 seconds!?

Ugh.

I kid you not: the second I clicked “send,” viscous black guilt started to seep into my lungs, effectively replacing all the “hot air” that I had let out until I couldn’t breathe (okay, so maybe I’m exaggerating  just a tad).  But was job hunting really taking that much of my precious time?  Did I really not have the mind-share to dedicate to a blog? Or was I just being a big wuss? Was I simply too afraid to admit to myself and to others that the real reason I had never decided to join the blogosphere was because I was terrified of what people might think? Petrified that I would not be thought-provoking or interesting enough…

Of course if you know anything about me, you would know that I could have gone on analyzing and rationalizing forever, and probably would have, had I not been slapped lovingly in the face by an epiphany: the point is not to be interesting, the point is to be interested. For, as uncomfortable and naked as you might initially feel, only in pursuing that which you are passionate about do you truly become relevant.

So there you have it. Here I stand on the precipice of the unknown, willing myself to take the plunge – all because some incredibly smart, kind soul guilt-tripped me. The nerve!