Interesting post by Reid Hoffman on his rule of three for investing in internet businesses. Does the business have a strong distribution plan, a unique value proposition, and is it capital efficient.
I think the hardest part to assess for internet businesses is the uniqueness. For each business that is successful, there are many (with the same/similar proposition) that fail. Be it videos and youtube, or social bookmarking and digg. This is not to say entrepreneurs shouldn’t lay importance on this aspect, but my view is that how well the idea is executed matters far more. How well does it solve a problem, how easy is it to use, and so on – and you only get to know a lot of that once you’ve put the service in hands of customers. The good news is that its getting cheaper and cheaper to do that.
Great emphasis on engagement – mass messaging and “engineered” virality make it easy to get people onto the site – how well they stick is what creates value.
- Promoters or Entrepreneurs – A choice for Private Equity players - August 3, 2019
- Startup Marathon Mindset - March 25, 2019
- What’s your Customer Culture? - March 4, 2019
1. Execution
2. Execution
3. Execution
The rest do not matter. Google was NOT unique it was a search engine, we all started to use it because it did not have graphics and hence was quicker at loading than lycos on a 28.8K modem, not because results were better, we did not flick back and forth between the two to see what was better
I have question on twitter, how many startups in India would have got in through the front door of a VC if they had said
“I have a great idea, we are going to let me …kind of sms with 140 chars but using a PC instead of a phone….and everyone can see what everyone is saying, no privacy”……
Iqbal
We take the same examples all the time – these are successful as they have managed to create a market, sustain the market and continue to do so by providing new services – whether unique or not – because they need to reinvent and they have the money to do so. Such analysis overlooks IMHO very important features, execution and persistence are very, very important in almost every case.
Hoffman’s #3 of capital efficiency – doesn’t seem to be that valid (esp. in internet businesses in india); or I have to see some really bad & overboard spendings.
#1 – distribution is obvious one, #2 – UVP – is the tricky one. what is Unique, how much unique is unique enough ? how does the uniqueness effect distribution. On top of it there are wide variety of examples in the uniqueness bucket
a) google : not-much-unique+good execution + good luck / WoM based distribution
b) amazon : okay-unique, ruthless execution in favor of customer/ WoM based distribution
c) yelp : not-much-unique / SEO based distribution
d) Linkedin: okay-unique / SEO based distribution
e) rottentomatoes: unique/ SEO based distribution
f) Twitter: unique – culture changing / uniqueness+culture change feeds distribution
g) Facebook: sort of unique – culture changing / uniquness+culture change feeds distribution; great initial traction which was continously engineered and built upon.
In view of above, and in general, would like to make following observations –
I)I would think that execution is a common factor in all the above scenarios. Uniqueness is NOT.
II)uniqueness effects distribution, target market size and the probability of success (mostly has -ve effect on each of them). Twitter is a 3-6 yr old company depending on what you count as start, and is founded by creator of blogger. It is a once-a-while phenomena taking extraordinary patience and execution.
Twitter is not an immediate runaway success even though it may look like now.
III)an independent distribution is a safety net wherein lots of unique propositions can be tried till the right one clicks. rottentomatoes used their distribution to magnify their uniqueness. yelp and kosmix are using their distribution to incrementally build value.
IV) One measure of success is how much time does it take for a company to die if everyone in the company resigns – Twitter and Facebook may never die . Amazon/google in some time. Yelp may die soon enough. To me uniqueness defines the epitome of possible success. The average case scenario (of decently successfull companies) is lot more hybrid wherein uniqueness may not have that much of a play.
Let’s take builders of internet platforms. For internet businesses to succeed, the first test is whether it supports the long tail. Think Ning.com – despite pedigreed founders (Marc Andreesen of Netscape fame is on board) it still hasn’t gotten anywhere close to the reputation yielded by his earlier venture. And Marc certainly knows a thing or two about execution! It’s not enough to build a platform or an app that just boasts – no downloads required, no databases to manage, and no sysadmin headaches etc. – for their businesses to fly. Internet entrepreneurs will have to recognize and build something for 95% of their potential user base that aren’t code savvy.
Offering features like the freedom to run your own ads, map your own domain, and protect your source code if you’d like etc. are practically of no use to non-coder tribes. Ask instead can non-coders customize social apps or build new social app from scratch using components? And if so, how robust is that even as underlying assumptions change?
IMHO “need-to-code†turns away non-coder tribes that have great online ideas but don’t want to enslave themselves to geeks because it essentially means loss of control. And that’s bad enough.