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?

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…

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?

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