January 11, 2012

72) Fab.com

危 wēi  danger

Jason Goldberg and Bradford Shellhammer founded a gay social networking site called Fabulis a couple of years ago, I was lucky enough to meet Jason as he was thinking it through. Within 3 months of launch the site had attracted 50,000 members, only to plateau 9 months later at 130,000 members, with only 30,000 active.  Facing this slowing of demand the team took the brave decision to go back to the drawing board, believing that they wouldn’t be able to iterate their way to a business model. Their one glimmer of hope was that a flash sale feature they had added to the site, a “Gay Deal of The Day,” had achieved some success – they had sold over $40k worth of product within 20 days of it being launched.  That  ‘feature’ became Fab.com and 3 months after its launch it was profitable with 600,000 members and six-figure sales days.

The potential was clear and Goldberg decided to raise a significant funding round last October in order to meet it.  However, he worried that fundraising would divert his management team’s time and attention away from running the business at a critical time (their first holiday season).  Instead of potentially losing focus and perhaps failing at raising the capital perhaps they should simply slow their growth?

机 jī opportunity

Instead, Goldberg decided to proceed with fundraising and saw the process itself as a design opportunity.  While redesigning the process Goldberg put off VCs that approached him with the message: “Thanks so much for your interest. Sorry, but we’re really heads-down right now running the business. Will circle back to you when we’re ready to have a serious chat about fundraising in the near future.”  He had learnt from experience that there was little value in spending time talking through his business until he was ready to raise.

Once he was ready he created a shortlist of VCs that added the specific value he was looking for: the ability to write a large cheque, recent success with ‘hot’ startups and experience scaling e-commerce businesses.

The team then approached its shortlist, giving each a login to the Fab.com metrics dashboard before agreeing to meet.  This open approach is wildly different from most funding processes I have seen in the past (in which teams go through rounds of meetings before metrics are discussed in detail), yet rightly VCs look at metrics closely. By providing full access to the data Goldberg sent a clear message to potential investors; “here we are, here’s the data, we’ve got nothing to hide, take a look and decide for yourself if you want to pursue investing in Fab.”

In the end, Fab.com had the choice of multiple firms that wanted to invest, ultimately choosing to take $40m from Andreessen Horowitz.  The process had worked well because they were able to pick the partner they wanted to work with while avoiding disruptions to their operations…

How About…

  • Looking out for features or aspects of your offer that are gaining traction even if it isn’t as a whole?
  • Avoiding wasting time talking to financiers before you’re ready to finance, you’ll have to go through the same process in due course anyway?
  • Being proactive rather than reactive in looking for funding partners?
  • Making your metrics available to funders before meeting them, ensuring they understand the business and traction in advance?

—

sources: Forbes, Betashop

June 7, 2011

71) Google Wave

危 wēi  danger

A couple of weeks ago an entrepreneur I respect told me that Google had “lost it”.  He pointed to the high profile failure of Wave, which was released to the general public in May last year as clear cut evidence. At the time, Wave was heralded as the future of communication.  It was billed as a web-based platform and communications protocol that would merge the best features of e-mail, instant messaging and social networking, enabling users to communicate both synchronously and asynchronously. Its launch was hotly anticipated, invitations were even sold for up to $70 on auction sites.

But, despite this initial buzz the uptake was poor, and Google announced that it was going to suspend the product’s development in August, just 3 months after launch.  As my friend said, surely this was clear evidence that Google was losing its way?

机 jī opportunity

I see the failure of Wave differently.  Firstly, I respect the fact that Google is still failing with product launches, albeit a high profile one in this case.  It appears that its Innovation Time Off programme (in which employees can use 20% of their time to work on any project that interests them) is still alive and kicking.  It would be easy for Google to sit back on its laurels and focus on its core business, after all its most recent quarterly profit was $2.3 billion.  But instead, it seems to retain its hunger: some launches end in failure but many of Google’s successes, such as Gmail, Google News, Orkut, and AdSense originated from Innovation Time Off.

Secondly, with the benefit of hindsight, I like the way that Google handled the ‘failure’ of Wave.  It made the decision swiftly, even though it had sunk significant resource into the project, and looked at the residual value in the product before choosing to retire the code absolutely. Much of the code was handed to the Apache Software Foundation and turned into Wave-in-a-box: it made sense to open up code that Google couldn’t obviously benefit from to the open source community as any developments would probably drive the usage of Google tools. In addition, Google held on to some of the code and I have started to see Wave functionality appear in other Google products.  Most obviously is its use in Google Docs “Discussions”. Discussions happen alongside documents, they can refer to selected parts of a document, and can be accessed both in the Google Docs interface and also by email.   You can watch a video on the product here.  Given that Google is now benefitting from many of the Wave features that were well received it seems odd to call it an total failure, and even more odd to point to it as an indication that Google has “lost it”.

At IDEO we enjoy developing sacrificial prototypes which we put in front of consumers to test hypotheses.  We call them sacrificial because they are designed for learning rather than as the final solution, we are never too emotionally wedded to them.  With the rapid compression of time and costs to launch startups the Wave story and Apple choosing to discontinue Mobile Me yesterday make me wonder if we will see a trend toward ‘sacrifical startups’ – launched to learn and test approaches with successful aspects rolled over into new startups or folded back into the core business swiftly even if the startup fails?

How About…

  • Judging companies not by their failures but by the blend of successes and failures and how they handle the latter?
  • Failing fast and looking for the value in the embers?
  • Launching sacrificial startups: specifically to learn from consumer reaction to individual parts of the offer?

–

April 13, 2011

70) Pure Technologies – remember option value

I was a little surprised yesterday by Cisco’s announcement that it would shut down its Flip video business and make 550 employees redundant – in part because I love the product and in part because I imagined that there must be an alternative, for example to spin the business out of Cisco.  It made me think through what made Flip previously great – to follow is a blog post on that and I’ll close out with some reflections on yesterday’s announcement…

危 wēi  danger

Pure Digital Technologies launched a line of disposable digital camera products in 2004 – customers would rent the cameras through drugstores, return them and pay for prints.  The product initially did well, however as the price of non-disposable cameras dropped Pure Digital’s sales tumbled.  “The market demand for that product just melted away, we found ourselves selling disposable cameras into a market that was shrinking by the hour” said Michael Moritz, an investor in Pure Digital.

The company pivoted into single-use digital camcorders, also distributed through drugstores but the customer uptake was poor.  Surely the company would continue to feel pricing pressure from the Asian manufacturers and would be forced to wind up gracefully?

机 jī opportunity

Jonathan Kaplan, the company’s CEO refused to roll over so easily.  Instead, he looked for option value in this apparent failure – he wondered if he could use his market learnings and company’s skills to identify a new opportunity.

Firstly, the company noticed that hackers were removing the memory chips from the single-use cameras so they could put videos onto their PCs.   Secondly, drugstores had been asking the company to limit the accessories it shipped with its cameras. With these market needs in mind Pure Digital’s staff hit upon the idea of creating a cheap, easy-to-use digital camera with a built-in USB connector.

The company initially launched a ”Pure Digital Point & Shoot” video camcorder in 2006 and then designed an even more minimal product – launching the Flip line of products in 2007. The device’s success was primarily attributed to this minimalism while all other camcorder manufacturers raced to add more features. As a result, the Flip grew the camcorder market: it held close to one-fifth of the total market at its peak.  It was announced in 2009, that Cisco Systems had acquired Pure Digital Technologies for $590 million USD in stock – it was on a roll.

The launch of the single use digital and video cameras hadn’t been an absolute failure – it had created the option for the company to iterate its strategy and develop the hugely successful Flip.

    —

    Fast forward to yesterday’s announcement.  Flip had succeeded previously by radically changing its strategy, I suspect this capability was lost once the business was folded into Cisco and so perhaps yesterdays announcement – to reverse years of efforts at diversifying into consumer products – might be the right one.  Not because there is no potential value in the Flip business but more because Cisco is not well designed to capitalise on the option value that the current challenges might hold.  After all, given the rise of the smartphone, the value in Flip must be in moving into offering services.

    Cisco failed to integrate Flip into its core vision of a networked world or to enable it to stand alone and retain its entrepreneurial spirit.  Had it chosen the latter Flip may just have found some new areas of opportunity and we might have seen entrepreneurs lead a management buy-out – instead the business fell between two stools…

    –

    How About…

    • Taking time to analyse market failures – examining what opportunities the learning opens up?
    • Observing the users that you do have – how are they really using your product?
    • If making an acquisition, assessing whether you need it to retain autonomy / ability to shift strategy?

    –

    Sources NYT article and yersterday’s announcement

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