Friday, February 27, 2009

Yet Another East vs. West Coast Startup Economy

"You know, it was interesting to see that Boston entrepreneurs are...umm..... older.... mostly in 30s and 40s. Many guys in Silicon Valley are younger".

No offense to the people in their prime 30s and above (including myself), hearing this from a venture investor from the west coast was somewhat demoralizing, though not surprised at all.

Some say Boston is still going strong, and others say it lost the edge already. I don't necessarily believe that Boston lost the edge, but c'mon, Silicon Valley owns a vast majority of big, successful latest high tech startups.

Rewinding a bit to
  • my conversation with a local recruiter in Boston....... "I sort of miss the good ol' enterprise software companies. I see so many mobile/internet companies, and they started to dominate the whole startup scene in Boston".
  • Another quote from a VC.... "We like backing serial entrepreneurs who's been there, done that". Yes, we heard this many times before.
  • Yet another talk with an entrepreneur.... "Yes, we are still hiring. But, it's extremely difficult to hire the right person to fill this role. If you know someone from Yahoo, Google, DoubleClick, or MySpace, please let me know". Really? Not someone from our very best EMC, Lycos, or AthenaHealth?

Hmmmmm.... what's going on here?

Here's my hypothesis. Since the dot com 1.0 revolution, Silicon Valley pretty much sucked in a lot of young talents into its ecosystem. Young, fledgling entrepreneurs dreaming of making a big time career at a cool company like Yahoo and Google flocked to the west coast. Why not? People complain about cold 60 degrees weather, many awesome restaurants, get to see legendary entrepreneurs on the street, etc.

While B2B software is still critical and remains to be a profitable business (when done right), the dropping cost of starting a company applied mostly to those developing application layers, thanks to cloud computing, Web 2.0, and iPhone. Many of these entrepreneurs are from New England. They used to work in a high-flying companies in MA and started companies to change the world.... in a largely irrelevant sector to their root. Then, venture investors figure that they are not really "the serial entrepreneurs" they are looking for. No money, companies die.

By the way, the young, fledgling entrepreneurs from some of the greatest educational institutions in MA can't find a good job, because the companies are telling them that they need to learn from the successful companies like Yahoo, Google, Microsoft, and Facebook before proving themselves to be valuable in the mobile/internet/media startups. They listen, buy an one-way ticket, and never come back. Then, they follow their dream where they build relationship, know people, and start rooting personal lives in the west coast.

Entrepreneurs in MA get older and not nearly enough young entrepreneurs fill the talent pipeline. The younger generation fades away.

The vicious cycle goes on and on.......

Stay in MA is a great program to mitigate the problem of mass talent exodus out of MA, but there needs to be more aggressive programs and effort within the whole startup ecosystem to take the risk of hiring and training less-skilled entrepreneurs and let the young entrepreneurs start their dreams here.
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Wednesday, February 25, 2009

Marc Andreessen is full of it

Okay. Probably not, but he definitely spat out the revenue generating potential of Facebook, because he had to right at that moment. Here's the transcript from his interview with Charlie Rose. BTW, very inspiring interview overall. Highly recommended spending the time to watch the whole interview.

MARC ANDREESSEN: The fallback position is to just take normal advertising.  And if
Facebook just turned on the spigot for normal advertising today, it would
be doing over $1 billion in revenue. So it’s much more a matter of long-
term strategy. The company has got (INAUDIBLE) cash...

CHARLIE ROSE: So if they wanted to make a lot of money instantly, it

MARC ANDREESSEN: Yes. Oh, very easily. It could sell out the home
page, and it would start making just a gigantic amount of money. Yes, so
there’s just tremendous potential in it, and it’s just a question of
exactly how they choose to exploit it.
Monetizing on social media is something that many startups are trying to tackle and will require some real innovaitons to make this happen. Yes, Google figured it out with their search engine platform. Facebook, with 175 million active users with half of them using Facebook daily, is a huge business. It's just amazing that Facebook turned into this monstrous internet giant in less than 5 years.

Revisiting my critism of the Facebook's advertising platform, the company really has not figure out the underlying platform to serve the needs of marketers.

Selling out the hompage? Are you kidding me? Since when marketers are willing to give Facebook billions of dollars when they know that non-targeted online advetising is a waste of money?

Will people click through and convert to sales?

Oh yeah, by the way, when was the last time you went through the Facebook homepage?

Marc is a legend, and I respect him very much. I just wish he just never said anything about the non-potential of Facebook on national TV. What's wrong with simply saying, "We are in the process of figuring out the magic" (which he did) or even a humble, "We don't know"?
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Tuesday, February 24, 2009

Distorted motivation of startups

I'm absolutely torn between choices and motivation of startups. I touched on the futile attempts to raise venture capital, and I'm a firm believer in fixing broken systems and making life richer, regardless of how money is raised.

Over the last several weeks, I met many friends doing all kinds of different things with their lives... mostly people sitting on the other sides of table: entrepreneur and investors.

The stunning contrast among their motivation was nothing less than stimulating, and I want to share the discussion with my readers.

Friend A - early-stage VC:
I've been bouncing some business ideas and wanted to get his feedback on products, features, and potential business opportunity out of a mere idea. He's a venture investor at a very respectable firm with vast knowledge of industry, technoloyg, and market. I thought he would be the right person to give some agnostic feedback based on what he knows about startups. About 15 minutes into the "pitch", his attention was already somewhere else, and he asked, "Do you think this is a $100M business opprotunity?" and it was an obvious no. My original intention is to fix some broken system based on my own experience from b-school. With very limited capital out of my pocket, I was going to solve it. If it happens that I can build loyal users WAY beyond my original target, I *might* consider runnning it as a business. Then, he said, "Why are you wasting time going after no market opportunity?"
Summary: Small dreams are futile attempts.

Friend B - Non-VC-backed-entrepreneur:
He started his business doing someting very fundamental. He takes a purchase order from website, manufactures and delivers the product. For every single order he processes, there's a gross margin and money to be made. The challenge is to scale the business to be profitable. The target market size? Not too big to be honest, but he can make a pretty good living out of this if it takes off. He went on to make predictions about the whole Web 2.0 implosion, and how forgetting fundamental business concept (a.k.a. revenue - cost = profit) will prove detrimental to many seemingly successful tech startups. His motivation: make profits and run businesses like business. Hype doesn't generate profits. Points taken!
Summary: Small dreams are NOT futile attempts. There's something grandiose about small businesses.

Friend C - VC-backed entrepreneur:
He runs a pretty well-known startup in the gaming industry. The first time I met him, he had a very, very long lecture on how raising venture capital is wasting his time while he could've worked on something very productive. He's going after a very big market opportunity with significant capital that already went into his business. He's still going for the >$100M market opportunity... the only problem is ... he's not making much money at all. For almost every transaction/deal he makes, he's still sinking money.... for more than 7 years now. What a contrast with Friend B!
Summary: Big dreams are way to go.... only takes much more money to be profitable.

I'm not saying any of them is right or wrong. It's just that the motivation of startups varies very much. We in the ventue capital ecosystem tend to think that small dreams are futile, because it's a homerun business after all.

Think Facebook, Twitter of the world VS. Craigslist and Wikipedia. Maybe a bad example, think Facebook vs. MIT Truck, what's wrong with MIT Truck? I don't see much.
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Wednesday, February 18, 2009

Why am I penalized for being "green"?

Six dish Stirling Systems developed by Schlaic...Image via Wikipedia

I'm by no means an expert in green stuff or clean tech, but the energy industry just has this strange behavior of penalizing green consumers.

"Green" spans from organic foods, consumer products (i.e. 7th Generation), wind energy, solar energy. I can understand the premium on the organic foods and consumer products. Many of these products are sold at Whole Foods where the shopping experience is better than other local grocery shops. Also, organic foods are supposed to be healthier for me anyways, so I pay premium to get the luxury of experience and health.

I've been trying to embrace green energy as a consumer for a while, but I just can't justify the price hike. Seriously, I'm all about being green. I sort all recyclables, trash appropriately. NSTAR (MA utility company) often sends me an email saying how good it must feel good to be green and how I'm improving the global warming and what not. Oh, Glory America, a country driven by the fear of world coming to an end. What NStar is doing is to induce fear and guilt to convince consumers to adopt green energy. But, but, where's the economic benefits? Not even that, why are you penalizing me with the additional ~10% increase in utility bill?

Where's the "premium"? Would my light bulbs be fluorescent? Am I being just too capitalistic and not environment-friendly?

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Tuesday, February 3, 2009

Online Advertising is Largely Broken

Chris Anderson's recent article "The Economics of Giving It Away" stirred the blogosphere and those of us in the startup world. Some prominent bloggers talked about it here (AVC), here (peHub), and here (OnStartups). I might as well say something about it.

The industry research forecast predicted a stunning growth in online advertising spending, only to chop the forecast when the economy doesn't seem so rosy.

Since Google proved the viability of contextual advertisement business model based on the search keywords, many companies all of a sudden started believing that the advertisement was and would be a viable business model. Internet audience take free content as granted, providers think free content is the way to go because advertisers are willing to pay for the service..... as long as the right advertisement gets displayed at the right moment for the right audience.

"The standard business model for Web companies that don't actually have a business model is advertising. A popular service will have lots of users, and a few ads on the side will pay the bills. Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform. Even if you could figure out what the right ad to serve next to a high-school girl's party pictures might be, she and her friends probably won't click on it. No wonder Facebook applications get less than $1 per 1,000 views (compared to around $20 on big media Web sites)."

Let me take this sliver of the WSJ article and relate it to my own experience to justify the $1 CPM in Facebook is probably the most it can charge.

Whatever the Facebook Grader tells me about my Facebook grade (basically, what they are telling me is that my friends are unimportant, uninfluential, and doesn't add value to my social media presence compared to other obsessed users), I like using Facebook. I love it, and my friends there are all important.

My Twitter, Facebook, Google Reader,,, and several other social tools are interlinked, yet I prefer to go directly to Facebook to reply to messages received inside Facebook. Long story short, I contribute to the Facebook traffic.

BAM! This is the advertisement I see today on my Facebook.

Am I ever going to click the ad? No.
Am I offended by this? Yes, sort of.
Has Jessica Simpson or IQ ever entered my consciousness? No.

What a waste of web property! If I were an advertiser, I'd be saying, "Facebook, you are wasting my money".

I'm sorry, but online advertising is largely broken and it needs to be fixed.

BTW, I'd never take this IQ Challenge out of fear that I fall below 111 even if I can tell tuna apart from chicken and know that buffalo wings actually don't come from baffaloes.
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