Web X.0

The Lighthouse

A key to a successful startup journey is to always know where you're headed. The company has to always have a single lighthouse that it is pursuing. More importantly - everyone on your team has to know exactly what that lighthouse is. This might sound easy, but in reality most startups fail miserably on choosing a lighthouse, communicating it clearly to the team, and sticking to it obsessively. 

A healthy lighthouse can usually be reduced to a chart. Curiously, the most trivial chart - the revenue chart - is hardly ever a good lighthouse to choose... I'll explain why below. The lighthouse, if properly communicated to every single person in the company, should determine pretty much everything that gets done by by each team member. In a company with a clearly communicated lighthouse, everyone - junior or senior, engineer or biz dev, in NY HQ or in the Israel R&D - should prioritize tasks nearly identically. If your company is struggling often with priorities, your problem is extremely simple to diagnose - you are most likely missing a clear lighthouse.

For a web company, the trivial lighthouses are - page views, unique users, etc. Choosing trivial metrics as the company's lighthouse is acceptable, but the problem is that it will likely be the same lighthouse used by many other companies. That means that that the faster/bigger boat, not necessarily the smarter one, will likely win. If you are the biggest baddest boat around (aka "Google") - you should be fine. If you're among the 99.9% other startups, you might want to dig deeper and find your unique lighthouse.

A good lighthouse is also clearly actionable. A lighthouse that implies action will help everyone focus on the biggest opportunities. For example - when all search engines were focused on ranking sites based on keyword counts, Google's lighthouse was to perfect the ranking of results based on the site's authority. Later when Google was a late entrant to the PPC search advertising market, their lighthouse was maximizing the yield of each ad shown while their main competition was focused on maximizing the bids. 

Which brings me to another attribute of a good lighthouse. And this one isn't always achievable, but it's beautiful when it is -

A great lighthouse is fairly invisible outside the company. In Google's example, it isn't immediately clear to an outsider how search results are ranked, and is therefore very difficult to play the same game. A good lighthouse let's you compete in a crowded market while playing a game that's completely different from your competition.

Revenue is therefore almost never a good lighthouse. It is not actionable and it does inherently not let you play a different game in the same ball field. But unless you're doing not-for-profit work, revenues is probably a primary goal for you and your shareholders. The right way to reconcile this gap is to ensure that your chosen lighthouse has a reasonable eventual linkage to revenues. For example, if your lighthouse is to maximize unique users, that can later (if successful!) be translated to advertising revenues.

The lighthouse cascade

Most importantly for startups - a lighthouse is *not* permanent. It should change as the company grows and develops its product. The important thing is to know when to transition lighthouses, how to do it, and most critically - how to communicate to everyone what the current lighthouse is.

Each lighthouse should have a logical connection to the next one. For example, your 1st lighthouse might be to focus on building a big user base, while your 2nd lighthouse might be to maximize the page-views (so the actionable parts are to grow both the user base, as well as page-views-per-user). Each metric should eventually be a supporter of those future metrics.

The lighthouse metrics should not only cascade logically from one to the next, but also eventually have a strong connection to revenues. Choosing a good lighthouse and planning how your metrics will eventually cascade into revenues does not ensure your company's success, but it is nearly impossible to succeed if you (and your whole team) don't know what your lighthouse is at all times. 

{image CC - mischiru. thanks!}

Moneyball - highly recommended

Last week I participated in a roundtable organized by Carmel Ventures, with probably 20-30 entrepreneurs in the room. I recommended they all read Moneyball by Michael Lewis - a book I read a couple of years ago. I think most of the people in the room didn't have a chance to take note of the recommendation, so I'm repeating it here. 

Moneyball is a must-read for any entrepreneur. It has nothing to do with entrepreneurship (it's about baseball), and it's not a very good book (in the literal sense, I mean). 

But if you read it with an entrepreneur state of mind, there are great lessons to be learned... 2 have been particularly useful for me:

1. Look at the same game differently - Most startups compete with many other companies for the same market share. In the online world in particular you are likely to be competing with hugely successful companies like Google, Yahoo, Amazon, etc. You can't win by playing their game. But you can absolutely win by playing a different game in the same space. An example that comes to mind is Yelp - while all other yellow pages and review sites are focused on getting readers and selling to advertisers, Yelp seems to be playing a completely different game. It looks like they are focused obsessively on their reviewers - giving them tools, recognition, community etc. Yelp is looking at the exact same market as all other yellow page companies are, but playing a totally different game.  
2. Understand what metrics really matter for your business - the metrics that *seem* to matter for your business might not be the ones that really determine your eventual success. Moneyball shows how the Oakland A's found that most of the metrics that baseball teams have been using for decades (batting average, # of steals, etc) had little or nothing to do with how successful the teams were. Another example is a post I wrote recently about how PV's and ad revenues might not be the best success metrics for publishers. 

Bottom line - highly recommended. Get it here at Amazon or here at Audible. 

Exit strategies

Hey - back to blogging...

In nearly all the business plans I review for Tevel (the non-profit angel club I volunteer at), the last section outlines the company's "exit strategy". I was wondering if that's some sort of requirement in writing business plans for investors? I don't remember ever writing anything like this in any of my biz plans.

As I wrote a while back, I think it's alarming when a company that has not even been funded yet is talking (or even thinking!) about exit strategies. In my book, a startup can only have a single strategy and that's about how to grow it's business. If "exit" is your strategy, it is almost guaranteed that you're building for something small that will be easily swallowed (or worse - crushed) by the acquirers you're aiming for. That's a terrible strategy (unless your plan is to get hired to a company via an acquisition), and not one I ever want to invest in.

I've learned that exits have 2 inherit properties:

1. They hardly ever present themselves the way or at the time you'd expect in advance.
2. Real exit opportunities emerge only when you're focusing on building a great business, not on exiting.

So my advice to entrepreneurs (especially those applying for Tevel) - drop the silly nonsense 'exit strategy' section from your biz plan, and focus on the 'company strategy' instead...

{image CC by tracer.ca. Thanks!}

Rating VC answers, part II

Fred Wilson just posted about saying "No" to entrepreneurs. Reminded me of a post I wrote a while back rating VC answers from the entrepreneur's perspective.

As difficult as it is to have someone not share your excitement with your venture, getting a clear 'No' is one of the best outcomes of a VC meeting because it lets you move on quickly.

I'm looking forward to getting many clear "No's" in the near future!... ;-)

10 tips for greening your startup

Danny Cohen from Gemini started a great thread titled "All Startups should be Green" (disclosure: Gemini is an investor in my company, outbrain). I couldn't agree more (OK - I already confessed to being a tree hugger in the past...).

I thought the best way to promote this idea, is by listing 10 super-practical tips for things you can do in your startup and help the planet be a little better off:

1. Print double-sided: It never stops to amaze me how 99% of the office print-outs are done on a single-side of paper. You can easily save 50% of the paper consumption by simply checking the "print duplex" option in your printer settings (most office printers support this feature).
   The only documents that should be printed single-sided are: documents you need to feed into a fax or a copier, and final versions of legal documents (those will eventually end up in copiers down the road).
   
   
2. Don't do tchochkes[1] - This one is particularly annoying to me, because it's a classic lose-lose-lose situation. It's beyond me why any company wastes money on crap that no one even wants (who the hell uses a mouse pad?!?!), that reflects badly on your brand, and that absolutely sucks for the environment??[2]
   
   
3. Install a water filter - Bottled water is evil evil evil. There is not a single reason in the world to drink bottled water in an office environment. Instead, install a simple filter in the kitchen sink, and use that. You (or your employees) will also save a ton of money.
   
   
4. Print locally - I confess to making this stupid mistake many times in the past. If you're going to exhibit in a big conference, you're probably preparing a ton (literally) of marketing materials. The most obvious way to do this is - print everything with the printer closest to your office, and then FedEx it to the conference.
   But it turns out that boxes of paper are probably the most wasteful thing that you can stick on a plane. So instead, spend 10 minutes online and find a print shop that will take your PDF and run the print job locally (where "locally" means where you're going to use the materials, not where your office is located...). Again - you'll not only help save the planet, but also save big $$'s...
   This tip is especially true for companies in Israel...
   
   
5. ...or even better - don't print! - Even better than points #1 and #4 above is - don't print at all! PDF's are so much more friendly to the environment...
   
   
6. If you ship physical products, don't package them with crap - Packaging materials, especially most of the foams and polystyrene (Kalkar for our Hebrew-speaking readers) are the worst offenders to the environment as they use up a lot of volume, and never break down.
   
   
7. Embed green in your products - The best example I've seen recently is Google Maps. When you print a Google Map, this little message shows up on the paper... excellent! --->
8. Reduce junk mail - I use a service called GreenDimes, and I highly recommend it (though I think it's US-only for now).
   
   
9. Switch to CFL's - This is a real no-brainer... switch your office lighting to CFL's (compact fluorescent light bulbs), and you will not only help the planet, but also save $$'s on your electric bills.
   
   
10. Plant a tree - we sometimes get so obsessed with hybrids and recycling and forget the simple things. If you have a patio or a campus that allows for it - plant an occasional tree.
    

Have a good practical tip? List it in the comments below.

Also, if you found this useful, why not digg it and help spread the word?

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[1] I guess that 'promotional crap' is the best definition I can think of...

[2] I can guarantee you that the stupid stress balls you got for 2c-per-unit (logo slapping included) were not manufactured with sustainability as the top priority...

Waiting for the duck

What a wonderful quote[1].

Last week I was chatting with two old friends, each with a great product idea, and each one too afraid to go at it. Entrepreneurship is not about coming up with the-next-big-thing-idea... it's about jumping into the cold water and making it happen.

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[1] I borrowed this slide from Garr Reynolds' absolutely excellent Presentation Zen blog, who borrowed the quote from a Guy Kawasaki interview. I hope it's OK to post it here... in Hebrew we say "Hagonev Mi Ganav Patur".
 

Featuritis

From Wikipedia:

Featuritis is a term used to describe software which over-emphasizes new features to the detriment of other design goals, such as simplicity, compactness, stability, or bug reduction.

Featuritis is often accompanied by the mistaken belief that "one small feature" will add zero incremental cost to a project, where cost can be money, time, effort, or energy.

I recently met an entrepreneur who has been developing a web-based service for over a year, and was having trouble getting traction for it. He asked for my advice on how to improve his product so that users start flocking to it.

Two minutes into the demo, it was crystal clear what his trouble was - it was a classic case of Acute Featuritis. He was proudly showing off how his product did this, that, and the other 12 things, way more than any of his competitors ever dreamed of doing. He was shocked speechless when I told him I thought that the best cure for his product is to kill 99% of it and focus obsessively on that single aspect or feature that makes his product unique. That is the last thing in the world he expected to hear from me, and he seemed to be very disappointed with our meeting.

These are the common misconceptions about features, as they relate specifically to startups:

• "More features will impress prospective clients" - wrong! More features will create many more opportunities to disappoint and confuse clients.
• "My product has more features than my competition" - uh-oh! You are handing your competitors the biggest gift they could ever ask for - the ability to specialize more than you and do one thing really really great.
• "By having more features, I'm appealing to more potential users" - wrong again! By having more features, your product becomes less appealing to your best potential users, and probably not appealing enough to all the others you happen to address along the way.

The urge to add more features and appeal to a bigger audience always exists. But as an entrepreneur that's an urge that has to be fought daily. The best question to ask is: "What features can I afford to kill today?"

I find that the best way to think about it is this: If our users love the few things we do now, we can always add more features later; And if our tiny niche audience loves what we do now, we can always try to appeal to a broader audience later. Think about the alternative to this approach: "if lots of people don't really get all the stuff we're trying to do now, can we improve our focus later?....".

I think you know my answer...

outbrain, funding, bubbles, etc

This morning we announced the closing of our seed financing by LGiLab (www.lgilab.com),  GlenRock Israel (www.grg.co.il), and Sigma PCM (www.sigma-pcm.co.il) among others. We wrote about this on the corp blog, and more coverage is on Mashable, TheMarker (Hebrew only), alarm:clock, Ouriel's blog and StartupIsrael.

One of the reporters talking to me this week asked/hinted at outbrain being a bubble company founded with the intention to flip it to a Yahoo or Google in a few months. As I'm allergic to that notion of 'build-to-flip', I thought I'd share some highlights of my email response here:

I know this probably sounds to you like a Bubble2.0 thing, but -
My track record has been in building a long-term, sustainable, revenue-generating and independent company. That is the *ONLY* model I am aware of for building a company. I don't think there is such a thing at all to 'build a company in order to sell it'. The companies that are sold (or - flipped) are the very few that happened to luck out. Statistically I think you probably have better chances of beating a Vegas casino than you would in selling a company that was built to flip (and Vegas is much more fun than the blood, sweat & tears of entrepreneurship!!... ;-)

I think it's foolish to start a company without a clear path to making $$. Given my experience in building one of the only contextual ad networks in the world that's successfully competing with Google AdSense, I (and my investors) have a lot of confidence in our ability to monetize the outbrain service when the time is right. We all felt that focusing on that part of the business now would be a distraction, and I think our community members will agree.

Feel free to take the angle that will interest your readers, but you should just understand that my approach to building companies is very very very different from that of a 1st-time entrepreneur who's dazzled from acquisition like those that Flickr or del.icio.us had, and is starting a company that will be built with $50K and sold to Yahoo within a year for $10M. All that stuff is completely not in our lexicon... ;-)

What business are you in?

I recently watched Michael Eisner's show on CNBC (called 'Conversations', I think) in which he hosted Mark Cuban.

Mark had one of the best entrepreneurial sentences I've ever heard:

When I bought the Mavericks, everyone in the organization thought we were in the business of basketball. But we aren't. We're in the business of "Honey, what do you want to do tonight?"

Bingo!!

It's so easy to describe what business *you* think you're in. The trick is to define the business *your customers* see you in. It's not about what your product does, or which cool features it has. It's all about understanding which piece of attention of your customers you're fighting for, and who are the others trying to get that same slice of attention.

This has got to be the #1 mistake entrepreneurs make (and I'm speaking from personal experience...) - falling in love with their product/features and believing that the product is the business they're in. This must be the silent killer of startups because it's such a huge mistake that's so easy to go unnoticeable...

Cuban, as usual, nails it.

Jim Lavoie speaking at BIF

A few months ago I recommended a video cast of Jim Lavoie (Rite-Solutions CEO) speaking about applying wisdom of crowds concepts within a corporation. That video is available here.

Looks like Jim was invited back to speak at this year's BIF (Business Innovation Factory) conference in October. It's taking place in Rhode Island and if you're in the neighborhood, my guess is that this is well worth attending.

Registration for the conference - here.