Idea, Product, Business

Your division starts off on a new project with a bang. And months later ends with a whimper. You shut the thing down, your folks are terribly frustrated but you don’t really know what went wrong. From my experience, here’s probably what happened:

First, there’s the idea.

Then, there’s the productization of that idea.

Finally, there’s the business built around that product.

But you cannot make money off an idea. You can only make money from a business. And you cannot take an idea to market. You can only take a product to market.

Too often, Management doesn’t see the difference between the three and misses asking the right questions at the stage those questions need to be asked. The result is usually a shoddy product, reactive execution, management by crisis, a demoralized team and money down the drain.

Been there before?

If you rush to build a business around nothing more than an idea, you’ll probably find that

Your audience doesn’t understand your product because you don’t understand the audience. Or you spent so much time early on thinking about monetization you didn’t think enough about adoption.  Or by the time you launched, your product was a year behind its competition. Or you built your mobile app for a platform your early adopters don’t use. Or you launched without customer support or the ability to collect feedback.  Or you give up on the product too quickly because it didn’t really really excite you to begin with.

Seem familiar?

Here’s what I think might help avoid these holes:

When evaluating an idea you’d ask

  • Has this problem already been solved?
  • Does our organization – firm, company, startup – understand this space?
  • Is this way of doing business in our DNA?
  • Does it personally excite you, o ringmaster?
  • When the product will be ready, will it still be relevant?

And then, once the idea’s passed evaluation and you’ve begun to build,

  • Who are your early adopters?
  • How do we put together the talent needed to get this out the door?
  • What platform do we develop for? (mobile platform, web platform)
  • What features do we bake in/leave out?
  • What is our go-to-market plan?
  • What kind of customer support should we have (phone/email/in-app form)
  • How will we collect feedback?
  • What parameters will we monitor?

Once you’ve launched, gotten traction, feedback and momentum,

  • How do we make money?
  • What does our product roadmap look like? How often do we release?

You’re likely better off asking these questions when they really matter. Not too early, not too late. #Ilearntthehardway.

Among the most challenging advice I’ve received

… is this (at the very start of building a new product):

Assume your product’s already been built. Now think about how you’re going to get adoption and usage among your audience.

Too often you get so caught up in the excitement of building something cool, you don’t tackle the hard problem of seeding it and getting usage among early adopters until you’re very close to – or at – launch. Then you’ve got a product that’s ready and no one but yourselves using it. Your go-to-market guy’s under tremendous pressure and your developer’s twiddling his/her thumbs. Your team can run out of momentum and enthusiasm really quickly and it’s very hard to get your mojo back.

This has happened to us before. And I’m still working on that advice.

(Ir)relevant: (Mobile) Safari and Opera (Mini)

The tech staff and I just exchanged email about the updated list of browsers that MyToday and Phone.cc should support.

Reading back, I noticed that for PC web, we essentially supported Firefox, Chrome and IE. We explicitly excluded Safari and Opera.

But mobile web? For maximum coverage, we needed to support – yes – Mobile Safari and Opera Mini.

Such is the disconnect between the Webs.

Doing life in software is hard

Google+ is like a VCR. I know exactly what I can do with it. But I cannot figure out how. Maybe I’m slower in the head now, but I remember within minutes I was using Orkut in the same way that I would always use it. Ditto Facebook. Then again, it was probably because they’re such simple, single-textured attempts at replicating real connections. + is more ambitious.

+ is supposed to be the notFacebook network. The gentleman hero that gives back to the meanings of ‘social’ and ‘share’ the nuance they had lost for the last five years. To create social circles of people that really matter to you. To share with them pictures, plans, numbers, confessions that couldn’t make it to Facebook. To boldly go…, so to speak.

But now I find myself being ‘added’ by the same people I’d spent time weeding out of my Facebook friends in an attempt to create those private spaces that + was supposed to let me create in the first place. I herded the party out the back only to have them stagger in the front door.

And what does ‘added’ by someone mean? Would I begin seeing things they shared? Would they see what I shared? Was I part of circles I didn’t know about? Frustratingly, for a network that was supposed to let you create social connections on your terms, I couldn’t even refuse to be ‘added’. Logging in to +, for now at least, seems like walking into a party blindfolded.

But you can retreat into your own circles, can’t you? Yes and No. Maybe I’m the social weirdo here, but I can’t tell just what my today-in-real-life-circles are. I mean I can group/circle the guys from school, the folks from IBM, my first roommates, my then-close friends at IIMK. Each group corresponds to people in distinct phases of my life, people that have remained prominent as the others have faded.

The group reveals itself only after the phase has passed.

And then it also strikes me. That I can only recollect a single group for each phase should tell me something – I really _belonged_ to only one group at a time. It tells me that groups like ‘work’ and ‘family’ and ‘cousins’ and daily commute gang’ and such are really just only contexts for interactions. You can force-create + circles for them, but they’re really freeform amoeba-like shapes, and will change. Not even snap, just thin out at points and separate into other blobs without much emotional ado. Attempts to share ‘stuff’ with them on services like + will peter out in weeks. Or days. I mean what would you share with your ‘work’ circle that you wouldn’t share publicly on Facekut? And how long would you keep sharing with ‘cousins’? Google weakly suggesting ‘Acquaintances’ as a possible option demonstrates just how hard it is to find more than one meaningful, binding circle in your life.

Maybe I don’t get it. It meaning having real-life connections. Maybe + is really a move-to-the-next-curve improvement in social networks, and I’m a bottom-of-the-curve hermit.

Or maybe doing life in software really is hard.

Always tinker

I learnt recently that even when all indications are that your business (or life. or city. or whatever) is running fine, something could be wrong – in plain view – that those indicators can’t tell you.

The only way to discover these problems is to tinker around with data. Ask questions of it.

Here’s what happened.

Ours is a prepaid subscriptions business. You sign up, put money into your account and pick your subscriptions.

Our signups, payments and new subscriptions – the three primary indicators of our health [1] – were growing at expected rates relative to each other. Nothing seemed to be wrong.

Until one day, I discovered that many new signups didn’t have any subscriptions. That was unexpected. It meant that most of our new subscriptions were via older subscribers.

That meant – and this was quickly confirmed – that most of our payments were also made by older subscribers. This is a problem, and we commissioned a quick survey to find out what was wrong with our new signups.

But then we tinkered further. We plotted a histogram of (normalized) new subscriptions started (all of this is excluding renewals) versus how long ago the subscribers had signed up, and we found this:

 

Click for a larger image - bet you can't read the tiny text

 

Astonishing. The older the subscriber, the more the number of new subscriptions they started recently [2]. We had a larger problem than we expected; our older subscribers were so active, they’d hidden how un-engaged our newer subscribers were for several months.

While we took immediate steps to fix this, we also realized that it’s hard to build a dashboard for stuff like this. You can – and should – track primary measures of success, results of specific campaigns, and suchlike. But under-the-surface stuff like this – we’d never have figured it out if we hadn’t tinkered with data.


[1] There’s also ARPU and churn, but they aren’t material to this discussion.

[2] The data for months 8 and 9 is skewed by a small set of people with a lot of subscriptions each, but they’re still much higher than any other month, and the trend is the same

(Cross posted from the MyToday blog.)

Cost of acquisition versus lifetime value

A post on Fred Wilson’s excellent blog about cost of acquiring each customer versus the lifetime value of that customer. And it’s pretty simple: “LTV has to be greater than CPA or you won’t be able to scale – or, for that matter, survive.

This seems obvious. But when you’re preparing a revenues-versus-costs estimate for a business plan, you often overlook how much you earn versus spend per customer over time. Here’s a slight variation of that from a few weeks ago:

The CEO of our firm shot down a recent plan I presented, one that involved both the mobile web and SMS working in tandem. The product was different, compelling, and the estimates said we’d be profitable in a year on the gross. But our SMS costs were 80% of the revenue we would have earned from advertising.

“Keep SMS out; figure out the mobile web part. If you’re spending 80% of your revenue on acquisition and retention, you won’t have enough to spend on content and infra and operations and product innovation – and that’s not even counting people.”

And this was true not just in the month we acquired the customer. Month on month, the SMS costs kept pace with the ad revenue per customer [1], so we’d never have enough money to spare. In other words, the CPA was lower than the LTV. But not nearly low enough [2].


[1] It was also likely, I realised later, that over time the customer would yield less ad revenue as he/she tired of the service, but the SMS costs would be the same. So we would have to evaluate the customer’s worth and adjust SMS quality of service constantly, making things rather complicated.

[2] As an aside, these costs also grew linearly not just over the lifetime of each customer, but also with the addition of every new customer – there were no economies of scale to be had. If there were, the total lifetime value of all customers would have grown faster than the total (SMS) cost of acquisition and retention, and it would’ve been viable after a point of time.

The unbearable burden of Facebook

From TIME magazine’s Person of the Year profile of Mark Zuckerberg:

“We’re trying to map out what exists in the world,” he says. “In the world, there’s trust. I think as humans we fundamentally parse the world through the people and relationships we have around us.

And you begin to understand why Facebook remains controversial in spite of its everywhereness. Mark Zuckerberg views Facebook as a digital analogue of our real-world relationships, and a way to make the Internet a better place because of those relationships.

But that is a huge responsibility to place on people. Your friend list on Facebook is likely nothing like ‘what exists in the world’ for you. Very few among you have enough self-awareness to know who you really have a relationship with. Fewer still have the strength of character to decline friend requests from your extended family, current and former colleagues, former batchmates, acquaintances from the city you used to live in, your old boyfriend or girlfriend – all people who you had some relationship with, perhaps a very close one, but no longer. And even fewer will un-friend people in your list who no longer matter (with equanimity, I mean. youdumpedmeyoupigunfriendthere doesn’t count).

Hence the different ways people use Facebook: a professional marketing tool for yourself or your company, or a way to peek into the life of your former crush, or while away boredom at work through gameaftergameaftergame, or to share random blurry photos from your phone camera, or channel every semi-conscious thought into a status update directed to no one in particular but one you always expect comments on. Ways of using Facebook which betray everything about you – desires, insecurities, biases, sparks of geniuses, likes – but rarely reflect your your real-world relationships.

It emerges in the article that Zuckerberg does possess such confidence, such self-awareness, such integrity. This is rare, and it is probably only such who can use Facebook as Zuckerberg intended it, with no conflicts – of privacy, time, expectation or obligation.

As the writer of the TIME profile points out, “Facebook is still a painfully blunt instrument for doing the delicate work of transmitting human relationships”. Indeed, we inhabit so many imperfectly formed, constantly changing personas (some of them semi-conscious) that any such Facebook alternative would have to be so complex as to be completely unusable. So like any sufficiently complex issue, we make Facebook a binary decision – log in or not.

Oh, how much is that second-hand app on the home screen?

Frédéric Filloux in his Monday Note column describes a rights-based (as opposed to files-based) future for managing digital content (whether magazines or books):

A first phase is likely to consist of an extension of what we have today, i.e. a transaction system based of book files: text-based books or richer media products. The main players will remain Amazon, or the Apple iBooks store. But, in five to ten years, this way of dealing with intellectual content  will be seen as primitive.

The true revolution will be a shift from a files transaction system to a rights transaction system. This transformation involves radical changes in the way we think of digital content, books, videos or even games.

Today, Joe can’t share a book that he bought (rented?) from an e-book-store, can’t give it back, can’t pass it on, can’t re-sell it – nothing. He can either keep it or delete it. – what a waste! The publisher and technology industries, for all their talent, have created a form that, in important ways, is less convenient than even the original physical book form that it is based on .[1]

They will be forced to fix this state of affairs as more people read their books, magazines and more online, and competitors with saner policies enter the market.

But even in a digital rights-based world, what about a second-hand market for digital books – and apps? If Joe purchased an email program for his Nokia smartphone, and a year later bought an iPhone, he could

1. return his app (the rights to the app) to the store he bought it from. In this case, does Joe get a full or partial refund? Unlike a physical good, there has been no wear. And it’s fair to say he’d be refunded whatever the current price is (or maybe the price he bought it for, whichever is less). But this is flawed – since the number of rights are infinite, they are worth nothing themselves. The store gains nothing by refunding Joe his money, so there’s no incentive in a return-refund.

2. transfer his app (the rights) to Jane’s Nokia. Unless Joe’s gifting the app away, a transfer means Jane will need to pay Joe for those rights. How much are those rights worth to Joe?

This is the second-hand market for digital goods.

An eBay for digital goods sounds about right, and about time [2].

[1] And when we attempt to set the digital book/magazine free, the limited corral of policies we build around it is maddening in its clumsiness: you-can-only-share-with-so-many-people, you-can-only-share-so-many-times, you-can-only-share-with-an-identical-device, you-have-to-pay-extra-to-share. This is when you know that from among the inventors, engineers, marketers, lawyers and accountants, the first two have left the room.

[2] This market will need support from app stores and developers, of course. There’s no way – over-the-counter or otherwise – for Joe to transfer his app to Jane (or any other bidder). This is regardless of whether it’s bought from an app store (Apple/Android/RIM/(ugh)Nokia) or from the app developer itself.

The Social Media types need some perspective. Now is a good time.

Over the past fortnight, the social media echo chamber has found three reasons to be up in arms about: Friendfeed’s acquisition by Facebook, the folding of URL shortener tr.im, and the Denial of Service attack on Twitter. Personalities have been apparently outraged, insulted, dismayed and betrayed. Yeah, betrayed by a startup. Imagine.

Most of the brouhaha seems to be about the lack of data ownership. More specifically, about the permanence of the conversations that these social media mavens were increasingly having over the web (and not so much about their online photos and documents). They lament that should a startup like Friendfeed fold, all the stuff they’ve shared, all their comments and likes, all their conversations with fellow Friendfeeders, indeed their entire network would disappear too.

And suggestions for action have included going back to the Age of the Blog (that is, centralizing all your content on a self-hosted server and hosting conversations there) and building distributed social applications (think Google Talk as opposed to Twitter.com and Friendfeed.com).

Of course, the vast majority – and I mean the overwhelming majority – of Internet users didn’t even know about these upheavals. (All right, the Twitter episode might have made its way onto the evening news, with parents turning to their kids with “What’s Twitter again?” and exasperated teenagers beginning, with a deep breath, “For the last time, it’s like this…”) Anyway, this majority doesn’t seem bothered by the prospect of not being able to preserve their conversations and shared stuff for posterity. They’re OK as long as they have email. And Yahoo! Messenger. And now Facebook. Some of them might have a Twitter account. Or one on Google Reader, or even Friendfeed. But if any or all of these new services were to disappear – poof – tomorrow, taking all their data along, Life As We Know It wouldn’t change.

Then why is the social media echo chamber in such a tizzy? What’s with all the frothing and “we can’t trust anyone anymore”ing?

Because for the average Web user, these social applications are distractions, entertainment or casual education. For social media mavens they are quasi-business. They are places where they build their brand, their standing, their reputation, where they gain their legitimacy.

They are influencers of opinion, and Twitter and Friendfeed are their pulpit. Their network is their audience. URL shorteners are how they direct their followers to what they deem noteworthy. No wonder they run contests to see who reaches the most followers and who makes it to the Suggested Users list. And that they get their favorite handles on every shiny new service.

For them, such applications must provide industrial-grade integrity, availability (and data portability). The founders of most social media applications, though, are just not at that stage yet. They’re merely testing new ways of sharing information and connecting users and figuring out how to define their newly popular application. Building a stable, always-on, scalable service that early on is a secondary priority. But social media mavens, by virtue of being early adopters, begin expecting this secondary priority too quickly for the founders to keep up.

Sometimes the startup infrastructure may be too weak to withstand even legitimate peak load. Sometimes the service might fold. Sometimes founders may decide to abandon their startup to take on similar challenges at a larger company.

And for almost everyone out there that’s OK. Because for them it’s not life-and-death. Social media mavens – the so-called A-listers – need to get some perspective. Fast.