Month: March 2013

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Hunger and Overreaction

Reading Nassim Taleb’s Antifragility.  More people need to write with his “bull in the china” shop speed:

How do you innovate? First, try to get in trouble. I mean serious, but not terminal, trouble. I hold – it is beyond speculation, rather a conviction – that innovation and sophistication spark from initial situations of necessity, in ways that go far beyond the satisfaction of such necessity (from the unintended side effects of, say, an initial invention or attempt at invention).  Naturally, there are classical thoughts on the subject, with a Latin saying that sophistication is born out of hunger (artificia docuit fames).  The idea pervades classical literature: In Ovid, difficulty is what wakes up the genius (ingenium mala saepe movent), which translates in Brooklyn English into “When life gives you a lemon …”

The excess energy released from overreaction to setbacks is what innovates!

This message from the ancients is vastly deeper than it seems. It contradicts modern methods and ideas of innovation and progress on many levels, as we tend to think that innovation comes from bureaucratic funding, through planning, or by putting people through a Harvard Business School class by one Highly Decorated Professor of Innovation and Entrepreneurship (who never innovated anything) or hiring a consultant (who never innovated anything).  This is a fallacy – note the disproportionate contribution of uneducated technicians and entrepreneurs to various technological leaps, from the Industrial Revolution to the emergence of Silicon Valley, and you will see what I mean.

Yet in spite of the visibility of the counterevidence, and the wisdom you can pick up free of charge from the ancients (or grandmothers), moderns try today to create inventions from situations of comfort, safety, and predictability instead of accepting the notion that “necessity really is the mother of invention.”

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The Complex, Yet Simple Alchemy of Network Markets

I missed this incredible post from Bill Gurley where he breaks down the online marketplace built on networks, with the expertise of Chris Collinsworth breaking down a pistol offense.  So many things stick out that I excerpt freely below.  There are so many great themes, but perhaps the biggest that — like any good dealmaker knows — to have repeated success, both sides of the market have to walk away from a transaction thinking that they have gained so they return again and again.

  • Great marketplaces do not simply aggregate a market; they enhance it. They leverage the connective tissue to offer the consumer a user experience that simply was not possible before the arrival of this new intermediary.
  • When this experience delta is great enough, it creates “wow” moments for new users. “Wow” moments lead to word-of-mouth viral growth…”
  • Another interesting example of this bi-directional advantage is AirBNB. For the property owner, the income is “found money” that simply didn’t exist prior to the marketplace. And in many cases the consumer receives a better price as well. If you can positively change the economics of an industry, you will find the participants on both sides rooting for your success. This gives you a huge head start when it comes to tipping the marketplace.
  • In many marketplaces, the technology offering greatly enhances the user experience…as well as increasing switching costs.
  • High buyer and supplier fragmentation is a huge positive for an online marketplace. Likewise, a concentrated supplier (or purchaser) base greatly diminishes the likelihood of a successful online marketplace. A highly concentrated supplier base will be reluctant to allow a new intermediary in their market, and as a result will likely fight rather than support your arrival. They will also be very reluctant to share in the economics of the industry…
  • In some markets signing up suppliers is relative easy. In others, it can be a painfully slow process that requires lots of touch and local presence. At companies such as Yelp, Uber, and GrubHub, new city launches are relatively quick after a process model had been established for how to launch those cities.
  • Remember, however, that supplier aggregation is the easy part. Aggregating demand is much harder and more critical.
  • Another potential error that can be made while analyzing TAM is to fail to understand that the features and enhancements of the new marketplace may actual expand the market opportunity for the whole industry. This may sound like a brazen claim, but certain marketplaces do indeed expand the market — by exploring new price points or enhancing convenience or usability…Uber’s ease of use and simplicity have led many of its users to greatly increase the number of times they use an alternative car service. Some customers now use it as a second car alternative. As such, the company is meaningfully expands the market for black car services, which is in turn a huge boon to the suppliers that share in the economic expansion.
  • All things being equal, a higher frequency is obviously better. Yelp, GrubHub, OpenTable, 1stdibs (for the designer) and Uber are all high frequency use cases, where the consumers can rely on the marketplace as a utility. Many failed marketplaces attack purchasing cycles that are simply way too infrequent, which makes it much more difficult to build brand awareness and word-of-mouth customer growth.
  • Payment Flow. All things being equal, being part of the payment flow is superior to not being a part of the payment flow. This is due to the fact that it is much easier to extract reasonable economics when you are in the flow of payment. The supplier not only looks to you as a provider of revenue, but they receive that revenue “net of the fee.” Contrast this with a marketplace where you add value first, and then send a bill to the supplier at later date for services rendered. In this latter case the marketplace appears as an expense, and it’s easier for the supplier to view it is a “tax” versus a distribution relationship.
  • Network effects are tricky and hard to describe but fundamentally turn on the following question: Can the marketplace provide a better experience to customer “n+1000” than it did to customer “n” directly as a function of adding 1000 more participants to the market? You can pose this question to either side of the network – demand or supply. If you have something like this in place it is magic, as you will get stronger over time not weaker.
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Good Decisions

From the Heath brothers new book on decision-making, as reviewed in the FT:

●Think “both/and” not “either/or” when deciding  between options. Decisions are rarely as binary or as neatly framed as you  think.

●Keep widening your perspective and your range  of expert advisers.

●Repeatedly test your prejudices and emotions  with facts. Ground your decision in reality, not bias.

●Prepare to be wrong. Chances are, you often  will be

 

 

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The Reputation Foundation

More and more, it is clear that reputation — built on reviews and other forms of validation and behavior constraint — is what drives the life and health of a community.  That could be a marketplace as we see with AirBNB, see here and here.

Another example is Quora, both on the site and in the curated list of question and answers sent out weekly.  Quora has worked on rescuing the Q&A site or discussion board from the inevitable trolling and flaming that it descended into.

Adam D’Angelo of Quora touched on how he thought of reputation in an interview with Om Malik in an interview from January:

Om: Do you see a problem with search and the internet?

Adam: Reputation is going to be a lot more important in the future especially as the internet gets bigger. It is clear that the web pages will have to get their quality up. I think there is too much focus on what is first, what is new. It has to be about what is actually worth reading that is going to become important.

I think as more people use the phones to access the internet, they have a lot less patience for trying to find things on the search engines. That is because you need to figure a lot of things out for search to work. In the past, when the web site was fast and didn’t crash, it was a pretty big deal. Now it is normal. Similarly, we will see the focus shift to quality and right information (and not the latest.) And that is why I think sharing of knowledge is going to be a lot more important in the future.

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You Green-Light Your Fucking Self

I have long said Kickstarter centrally fit into the talent elevation thesis.  Fast Company puts it well:

“”If you can raise money on Kickstarter, you don’t have to wait around to be green-lighted,” says Matt Porterfield, a Baltimore filmmaker whose Kickstarter-backed movie, I Used to Be Darker, premiered at Sundance. “You green-light your fucking self.”

You green-light yourself–the idea that creative people don’t need intermediaries–has long been one of the Internet’s great promises, and Kickstarter appears to finally deliver on it.”

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Doing What You Love May Be A Question of Where

Today on AVC, in response to “doing things you don’t like to do should be an outlier case. not the majority case”:

Yes, doesn’t have to be that way. a lot of times we love what we do but hate the structure in which we do it.

for example, i loved my geeky law practice, but just hated what the law firm structure had become.

talent elevation platforms like kickstarter in the arts, but others in other areas, have the potential to bring that enjoyment back by changing the existing revenue flows and the stagnating institutions that mediate them.

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Sniffing Out Talent

Second great articulation in the Keith Rabois regards finding hidden talent, a recurring topic on this blog. If you can find unrealized talent, you can have a winning attainable team, by looking forward and making forward-looking bets rather than chasing past success.

These are some characteristics for identifying that talent, per Keith:

  • The candidate can relay incredibly complex ideas in simple terms.

  • The candidate can see things you don’t see. Even within topics you’re fluent in, they’re able to convince you of new points of view or make you realize you’re missing something.

  • They’re relentlessly resourceful. There should be things in their history, whether it’s on or off the résumé, which conveys that they’re able to make things happen, against all odds. If there is a wall in their way, they’ll go over it, under it or become friends with it. They just make things happen and leave you wowed. Any time you have that “Wow!” kind of feeling you need to just hire the person.

  • They’re often contrarian. Peter Thiel now has a popularized way of figuring this out. He asks, “Explain something that you believe, that everybody else believes is wrong.”