March 16, 2011

68) Quora – innovation from recombination

危 wēi danger

Adam D’Angelo quit his position as CTO of Facebook to create Quora, an online knowledge market that aggregates questions and answers on various topics and allows users to collaborate on them.  He explained at the time: “Q & A is one of those areas on the internet where there are a lot of sites, but no one had come along and built something that was really good yet.” He’s right that Q&A has been around for a long time, with sites such Answers.com and Yahoo! Answers both receiving over 40 million unique visitors a month.  In addition there are more specific solutions such as Stack Overflow (for professional and amateur programmers) which has 250,000 users. Surely Quora would struggle to differentiate?

机 jī opportunity

On the contrary, Quora has had continued strong growth: since receiving funding from Benchmark Capital last year (valuing the start-up at a rumored $86 million) it has grown to nearly 500k users. This is all the more interesting because none of its components are revolutionary, instead the Quora team seems to have done an excellent job of spotting and tapping into emergent online behaviours and trends. Robert Scoble wrote this great post on why he thinks Quora is the future of blogging, in it he references some of the things that Quora learned from other sites, for example:

  1. Quora learned from Twitter – if you ask your social network a question they’ll answer it.  Twitter also taught us that alerts when new people follow you or answer questions you follow are a great way to pull users back to the site
  2. It learned from Digg – a voting mechanism (in which you can vote an answer up or down) enables you to have the best quality answers rise to the top
  3. It learned from Facebook – if you build a news feed that pushes new items to the user their average time on site and page views increase
  4. It learned from the best apps – we all want a sense of community instantly so it imports yours from Twitter
  5. It learned from RSS readers – curation is a valuable service so it allows users to follow topics in addition to people
  6. It learned from blogs about how to do great SEO – it’s amazing how often Quora shows up at the top of Google searches
  7. It learned from instant messaging clients – it shows who is answering a question while they are answering it
  8. It learned from Wikipedia – people are willing to suggest edits and the whole process can be predominantly user-administered

Although none of these features are necessarily groundbreaking the combination is completely novel. Often innovations are just a recombination of existing features to create a new offer – in this case the Quora founders call their offer “reverse-blogging”. In other words, it’s a content system that starts with an interested audience and then fills in the content to serve that audience. The question is whether Quora can maintain the quality of answer as it grows beyond its Silicon Valley early adopters – when the numbers of questions outstrip the capacity of the informed to answer them.  But that’s a whole other blog post.

How About…

  • When launching a new venture – look for emergent trends in adjacent industries?
  • What features can you recombine to create a completely new offer?

—

February 25, 2011

67) Y-Combinator’s application process

危 wēi  danger

Recruiting is tough. As Howard Schultz, the founder of Starbucks said: “Hiring people is an art, not a science, and resumes can’t tell you whether someone will fit into a company’s culture.”

The same is also true when selecting investments – Paul Graham, the Founder of Y-Combinator,  believes that finding the right people to invest in is more important than finding the right ideas, after all the idea often changes through the life of a startup whereas the founders are fixed.  When Y-Combinator launched in 2005 it invested in 8 startups, in the current cycle there are 40. Surely the seed stage investment firm has scaled so quickly it has compromised its ability to select the right people?

机 jī opportunity

To the contrary I think that Y-Combinator has kept the people selection bar incredibly high, partly because the team is getting smarter but also because of its creative application process.  Applicants are asked to submit their resume and to answer some specific questions, including: Please tell us about the time you most successfully hacked some (non-computer) system to your advantage. But the most interesting aspect of the process to me is that applicants are required to submit a 1 minute video, the application form states:

“In the video please introduce yourselves, explain what you’re doing and why, and tell us anything else you want to about the founders or the project.  The video should contain nothing except the founders talking. No screenshots or postproduction wizardry.  Just talk spontaneously as you would to a friend.”

I love the idea of making video applications mandatory.  It sets a hurdle to ensure the applicant’s commitment and enables the hirer to take a view on many skills that resumes only hint at: communication, sense of humour and interest.  It provides the best shot at assessing the thing Schultz recognised was so important, cultural fit. Although it’s useful to assess academic background with resumes it seems crazy to leap from that to in person interviews – video applications seem to be the smart middle step.

How About…

  • Why not require all applicants to submit a short video with their application?
  • And can you ask the candidate to answer questions that may give you a better idea of cultural fit?

Oh, and if you’re a candidate and need to create a video application – here’s how not to do it (remember – this guy might have actually looked good on paper):

January 30, 2011

66) SV Angel & Y-Combinator

危 wēi  danger

Y-Combinator, a startup bootcamp of sorts, provides seed money (generally less than $20k), advice, and connections to startups.  It has grown rapidly since its launch in 2005 and has had some high profile wins, including Posterous.

But the news this weekend that SV Angel and Yuri Milner are offering every Y-Combinator startup $150,000 in convertible debt, with no cap and no discount is still surprising.  Convertible debt is a common tool for early stage investment because it allows deferral of tough valuation decisions but investors usually include clauses to ‘sweeten’ the fact that they are investing earlier, for example a discount on equity at later stages and a cap on the valuation of their equity.  In this case there are no such clauses – there is no discount or ceiling whatsoever.

SV Angel is offering all 40 startups in this 3 month Y-Combinator cycle a free $150k loan.  Why would an investment firm ever offer such a large investment to 40 startups, some of which it presumably knows nothing of, with no preferential terms for investing earlier?  Surely this is investor suicide?

机 jī opportunity

The more I’ve thought about it the more smart I think SV Angel is being: this deal is all about access.  Paul Graham, the founder of Y-Combinator has always said “This is a hits driven business”, and SV Angel’s offer gives it access to the ‘hits’.

Counter-intuitively, the generous terms really help with this.  If the firm was offering onerous conditions surely only the least promising startups would accept the investment and the ‘hits’ would slip through the net, a sort of negative selection bias.  However, under these terms I imagine all the startups will take the investment.

So, this offer effectively becomes a broad bet on Y Combinator startups, and a means by which to access the ‘hits’ (and potentially invest in them in subsequent rounds).

When Y-Combinator launched in 2005 it invested in 8 startups, in the current cycle there are 40 – this growth rate and the high profile ‘hits’ to date , including Scribd, reddit, Justin.tv, Dropbox and Posterous make this a smart bet.  The offer may even improve the outcomes for Y-Combinator startups if it enables them to focus on the important stuff, like finding a business model, rather than worrying about fundraising.

How About…

  • Remembering to look for the hidden cost of driving a hard bargain – are you creating a negative selection bias?

—

Techcrunch article here

« Older Entries
Newer Entries »