My Life and Digital Musings

Dharmesh's 2008 Startup School Takeaways

Great advice from thought leaders of several different verticals of the startup world. Of the advice below, I think the three most important are: Jack Sheridan (get legal topics sorted out correctly from the get go), Greg McAdoo (back great entrepreneurs that know the market) and Marc Andresson (become indispensable and don’t give up)

It would be interesting to see others thoughts - reblog with what you think are the 3 most important topics. 

navajeet:

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David Lawee, VP Corporate Development, Google; founder, XFire.

Main take-away:Hurry Up. David emphasized the role of speed in a startup, and how the modern timetable is considerably shorter than a more traditional “2 years until product launch” strategy. Your ability to turn on a dime and do things quickly is highlighted as a major advantage for the startup.

Sam Altman, Founder, Loopt.

Main take-away: If you can avoid having to raise money, then don’t do it. If you do need to raise money, get it out of the way and get back to work; many startups have been sidetracked by the money-raising process, even fizzling out along the way.

Jack Sheridan, Lawyer, Wilson Sonsini.

Main take-away: Some legal decisions that you may make early on never go away; pay close attention to these sorts of issues.Know:

* Who owns the company

* Who owns the technology (IP)

* Who controls the company

* Who gets what in a liquidity event (sale, IPO, etc.)

Paul Graham; Founder, ViaWeb, YCombinator.

Main take-away: Build something people want + Don’t worry too much about money = Non-profit. Doing “good” is a strategy. The “Tamagotchi” effect — making something that attracts users and a community gives you something to take care of; this can be a powerful motivator.

Greg McAdoo, Partner, Sequoia Capital.

Main take-away: Greg’s wave & surfer metaphor. It takes a great surfer (entrepreneur) to ride a great wave (business/social/technology trend). The surfer has to pick the wave, but can’t control the wave.
Know your market; as much about it as possible.
Have a market “whose hair is on fire” — who needs your product badly, now.

David Heinemeier Hansson, creator, Ruby on Rails, partner, 37Signals:

Main take-away: Your odds are better to not try to be the next Facebook/YouTube/billion dollar acquisition. You can do very well just creating a great product and charging money (gasp!) for that product. Don’t be in such a hurry, don’t try to be so big, don’t look for a wave.

Paul Buchheit: creator, Gmail, founder, FriendFeed.

Main take-away: On listening to users; listen != obey. Listening to your users, you don’t necessarily do exactly what they tell you they want; interpret their feedback to try to determine what the real problem is. Then find a solution to that problem.

Jeff Bezos, Amazon.

Main take-away: Cloud computing will be increasingly important, and doesn’t need to be an industry with a single winner. Unfortunately, aside from this, his talk was largely a commercial for Amazon Web Services. The insight into why cloud computing could be important was more interesting than the commercial; would have been nice to have more of that, or more practical entrepreneurial advice.

Mike Arrington, blogger, TechCrunch.

Main take-away: Getting press for your startup: have a compelling story. Stand out; stand out in a different way than other people have stood out (used Seth Godin’s purple cow analogy).

Marc Andreesson, Founder, Netscape, Ning, etc.

Main take-away: Be so good they can’t ignore you (via Steve Martin).
Be prepared for everything to look like it will fail… and nearly doing so. Don’t quit.
Have a business model that doesn’t depend on a great economy (especially right now).

Peter Norvig, Director of research, Google.

Main take-away: Start small, go fast, iterate rapidly. Leverage data; especially other people’s data. A challenge: anyone can go out onto the web and get 1.7 billion words. Go get them and do something (analysis, algorithms, searching, etc.) with them.

Investing in Advertising Based Business Models

Over the past few years, investments in companies with business models that monetize (or plan to) through direct ad sales are increasingly common.  In terms of these investments, I am specifically referring to companies who do content creation (Funny or Die) and / or have consumer facing products (Facebook) where advertising based business models are appropriate.  

Ad based businesses can be tremendously successful - I do not have anything against them.  That being said, I believe that building a successful, scalable direct ad sales business is more challenging than building an underlying product or technology that can differentiate itself in the marketplace.  Based on the investments that I have done and seen over the past few years, I thought it would be interesting to highlight some of my challenges and learnings about these companies and ad sales teams in general.  

1. Building and scaling a successful, effective ad sales team is MUCH, MUCH more challenging and time consuming than one thinks (even conservative thinking).

2. With few exceptions, startups relying on advertising based business models will take longer to scale and will not scale as quickly than underlying technology plays (obvious, but often understated).

3. Trying to introduce new ad units into the market rarely works.  Agencies and advertisers go with what they know works.

4. A poor economy makes advertisers and agencies risk averse.  Marketers and agencies will go with television, DR and other true-and-tried advertising forms - at the end of the day, they can still say to their boss - “Heck this has worked in the past, now is not the time to change.”  Note: this is the same logic often why companies select Goldman as an investment banker - if something goes wrong, the company decision maker can always say “hey - what did you want from me, I chose what has been successful in the past.”

5. Even an effective sales force is costly and expensive

6. Good ad sales teams can be amassed through trial and error, GREAT ad sales teams are very, very few and far between (even with many tries).

7. Even great content takes work to sell. 

 Just a few conclusions that I thought were interesting when looking at the challenges behind startups that have a direct ad sales based business model.  I would be interested in hearing others thoughts, so please send your thoughts my way.  Unfortunately I haven’t had time to focus on this blog over the past month, but one of the things I am dying to add is comments.   

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Calacanis on ad networks - one size doesn't fit all

Jason Calacanis recently wrote a piece discouraging publishers from using ad networks, saying: a) it creates channel conflict (when you have an ad sales force) and b) it lowers the prestige of a publisher’s site, since the advertisers on ad networks are crap.  Jason is a smart and successful guy, but I totally disagree.

Ad networks serve as a useful part of the online advertising infrastructure.  Publishers should not really on ad networks solely, but not using ad networks at all is simply leaving money on the table.  There is only so much direct advertising that can be sold: 1) because of constraints on an ad sales force and 2) because some advertising is not attractive enough to advertisers to pay direct ad sales type of CPMs. 

It takes time and money to do direct ad sales.  A team of 3 (as Jason alludes to) will not be large enough for a decent size publisher to sell a large amount of its advertising via direct sales.  Even with a team of 20, some advertising will go unmonetized via direct sales, which is where ad networks come in.  Dodge, for instance, wants to directly advertise on ESPN.com (and will pay for it through high CPMs) but not on the Oakland A’s message board within ESPN.com (but are probably fine doing so at lower CPMs through an ad network). 

Some advertising inventory will always go unmonetized if you don’t use ad networks.  Even if you use Google AdSense (they tend to take about 30%), the eCPMs are often too low and you are leaving money on the table.  A publisher can sign up via an ad network, allow the ad network to promote it within its Sports or Finance category and receive higher CPMs - especially versus it being unmonetized if you don’t use an ad network. 

To Jason’s point about AdultFriendFinder or advertising damaging a brand, a publisher can set rules and embargoes around advertisers it does not want on its site - in the old days of “blind” ad networks (Adbrite comes to mind) this was not how they worked, but today things are much more transparent.

So while ESPN might stop using ad networks (which by the way, it used Specific Media, which is part of the reason it lost confidence in ad networks), the concept of an ad network will for a long time serve a useful purpose in the online advertising infrastructure.  In a world where inventory is almost infinite (although direct ad sales inventory is definitely not infinite), ad networks help publishers monetize otherwise unmonetizeable inventory.  A hybrid approach of direct sales and ad networks (with rules and embargoes for certain advertisers) is the best and most profitable way to go.

Text of official Gubenatorial Declaration of Emporer's VIP Day

adamelend:

I wasn’t able to get my hands on the original… but here’s the text:

WHEREAS Client 9 has been an Emporer’s Club VIP for nearly a year, and

WHERAS the designation of VIP signifies that Client 9 is indeed a major player kicking it in DC for the night, and

WHERAS Kristin retains the appropriate level of junk within her trunk, and

WHEREAS Client 9 cannot maintain a turgid state without a fist full of viagra and the freedom to call his partner obscene names, and

WHERAS Client 9 maintains that he is not at liberty to “smack it” unless he has “paid for it”

WHERAS the wife of Client 9 maintains that several of the fetishes ascribed to said client are inconsistent with her standards for cleanliness, and furthermore,

WHEREAS said wife lies there like a sad sack of potatoes, 

NOW THEREFORE BE IT RESOLVED that Client 9 will compensate Kristin at a rate of $1,000 per hour, plus a guarantee of “a bull ride she won’t soon forget” in turn for her services as an escort on

THIS, the 23rd day of FEBRUARY, 2008.

BY THE AUTHORITY OF Client 9, Governor, State of New York.