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Archive for January, 2008


Posting posts in comment threads

Sunday, January 27th, 2008

Greg Yardley actually came and commented on a post peripherally about him and then I proceeded to spew all over the comments with a bunch of different topics. Make sure you go read the last posts comment thread!

If you like my mechanical turk idea and would pay me to outsource moderation of comments and trackback, send me email so I can start the business with customers in hand!

That was a good idea! So many big sites have closed off comments and don’t support trackbacks due to spam. If I bazaarvoice’d it all and shipped it to India, that is a huge value-add that would increase page views and engagement with the community.

Blogging about topical topics is hard

Saturday, January 26th, 2008

Great post by Susan Mernit discussing how hard it is to blog about work because there are risks.

This is definitely an interesting challenge.  Personally, I have tried to avoid blogging about my personal life here, although I could easily fill gigs of disc with that stuff.  (i.e. I am not being Ayako.)  That leaves professional interests, without my actual professional work in many instances.  I have reached to give my opinion on some industry topics, but generally, a tiny fraction of what I see going on gets commented on.

I am probably the most visible person that works for my employer blogging on issues that are remotely related to our business/industry, and no one really knows who I am, so that says something.  Notice how I self-censor and do not mention my day job employer in this post due to the risk of SERPs, although virtually everyone who probably reads this blog knows all too well.

The result is a lot of posts about Cogmap coding by me, a lot of posts about Macs by Rob, and a lot of posts about WordPress by Matt.  And those are the bloggers in my department.  What are we all working on day-to-day?  Couldn’t be further from this stuff.

I also think this is what kills the blogging efforts of some of my co-workers.  Between not blogging about what you ate for breakfast, and not blogging about what you worked on all day, sometimes blogging can be a grind.  Jon and Greg are good examples of people struggling to overcome this, I imagine.

This is probably why so much of the Internet is people blogging about blogs…

P.S.  I got pointed to Susan’s blog post by Greg Yardley, and yet there is no trackback.  Is that his mistake, poor blogging software, or something else?  Trackbacks are the essence of the Internet!

Monetize: A superfluous word that is fun to use!

Saturday, January 26th, 2008

The blogosphere must be buzzing with the latest post to 37Signals blog: Monetize: A word we didn’t need

I know this because when you query “origin of the term monetize” on Google, this is currently the #1 search result, despite the fact that it is not really relevant to that particular question.  Clearly, the Google algorithm is currently regarding a spike in queries for the term monetize as indicative of breaking news in the results it shows.

I actually have to align myself with the commenters that disagree.

Overuse of any term is poor form, but this term by itself is relatively harmless and kind of funny.

Technically, I think monetize is actually the verb for “converting to currency”. Like you may have a bunch of zinc and copper, but until you monetize it, it isn’t a penny.

So when you monetize X, you are literally turning it into the coin of the realm. That is, IMHO, actually a much funnier way to say “make money” than saying “make money”. Funny is basically the objective when speaking, right?

(Hence the use of the term “coin of the realm”!)

Inflation in MMORPGs

Tuesday, January 22nd, 2008

I used to be a big Medievia player.  Yep, I played text-based MMORPGs, so I have a lot of opinions on what makes a good MMOG.

I just found out about Massively, a blog about MMORPGs, and while I am not adding it to my feeds, some of the articles reminded me of one of my pet issues: Inflation.

Inflation in MMORPGs causes wierdness.  As equipment gets tweaked and becomes more or less valuable, or as new “elite” equipment is introduced, it can dramatically affect the net worth of players.  Also, as new player introduction rates increase or decrease and/or game difficulty is tweaked, the speed with which currency (“gold”) is introduced into the economy changes.

The result is that long-time players can rapidly discover that their hard work has made no difference in-game financially for their character.  They could rapidly be reduced to subsistence.  Alternately, people that started playing early, before the game was “hard” could find that they now have generational wealth and will always be the richest players in the game despite a lack of effort going forward relative to other players.

Managing the effects of inflation in games is something frequently overlooked by game designers, yet is something that must be considered and managed to provide for fair game-play.

Interested in Beta Testing?

Friday, January 11th, 2008

The next release of Cogmap is a big one and could use some interested testers.  Leave a comment with your Cogmap user name if you are interested in messing with our next big release a little bit.

Wrinkling the Chasm: How the Innovator’s Dilemma can guide the strategy of entrepreneurial businesses

Friday, January 11th, 2008

The Innovator’s Dilemma by Clayton Christensen (1997) and Crossing the Chasm by Geoffrey Moore (1995) are two of the most influential business textbooks published in the last decade. Scores of large businesses talk about the challenge of the Innovator’s Dilemma and how to recognize and adapt to discontinuous innovation in the face of customer demands for sustaining improvements on existing technology and customer aversion to new discontinuous technology. Every start-up in Silicon Valley uses Moore’s technology adoption life cycle as a model for understanding their business.

To date, there has been minimal analysis of the interaction between these two theories. In The Innovator’s Dilemma, Mr. Christensen mentions Geoffrey Moore’s work, but only to point out that there are many models for segmenting technology markets. Mr. Moore cites Mr. Christensen’s work several times in Living on the Fault Line (2000), but only in the context of that book, which concerns itself with the lessons big companies can take from Chasm theory. Mr. Moore uses the Innovator’s Dilemma to demonstrate that large companies need to understand the Chasm also. Finally, in Donald Norman’s The Invisible Computer (1999), Mr. Norman indicates that the Innovator’s Dilemma shows that products only need a limited amount of performance to be successful in the market before they need to focus on issues such as human-centered design. He then goes on to say that this human centered design is exactly what a business needs in the tornado phase of the Chasm theory, as businesses push to simplify their product and distribute it to the mass market. Norman sees an interaction between the two theories but only sees this as further justification for his theories of human centered design being critical to serving mass markets. He does not acknowledge broader possible synergies between the two theorems.

Determining the path by which a firm can navigate to a critical mass of customers and achieve mainstream market acceptance is the single most important task facing an entrepreneurial firm. There has been essentially no work looking at how entrepreneurial businesses can apply the concepts of the Innovator’s Dilemma to help them more effectively cross the chasm. This article will serve as an overview of a fruitful new area of exploration in the science of start-up marketing and management. It will attempt to look at approaches to crossing the chasm and introduce concepts that demonstrate how the rigorous principles of the Innovator’s Dilemma can provide a sturdy framework for an entrepreneur’s decision-making process.


Figure 1: Norman‘s perspective on interaction

Innovator and Chasm Interaction

The Innovator’s Dilemma and the challenge of crossing the chasm are two sides of the same coin. The Innovator’s Dilemma defines disruptive technology as technology that has a low level of performance in the area that is the primary criteria for measurement by customers in a market yet excels in a different performance area, including aspects such as less expensive architecture. In the Innovator’s Dilemma, large, smart, visionary companies fail to successfully exploit disruptive and discontinuous technology change because they are so busy making steady, sustaining improvements in their products for their most challenging, largest, and most profitable customers. These customers receive no value from disruptive products that perform poorly in areas key to their value proposition. Smaller start-ups selling “imperfect” technology are forced to find under-served, tiny markets that allow them to grow their business and mature their technology until, at a certain point, the technology is “good enough” for the larger markets and more profitable customers, who recognize that the product is now good enough and with no warning to their long-time suppliers switch to the new technology.

One of the many examples that Christensen identifies is the transition from 5.25 inch disk drives to 3.5 inch disk drives. The companies providing 5.25 inch drives developed 3.5 inch drives but were told by their best customers that what were needed were faster, larger disk drives that fit the designs they had already established for computers, namely 5.25 inch drive slots. The customers had no need for smaller, slower drives. 5.25 inch drive makers ceased development of smaller drives and redoubled their efforts to provide improved 5.25 inch products. When new companies that produced only 3.5 inch drives started-up, they were forced to find new markets to sell these products too. They found a customer in the then emerging start-up Compaq and its laptop computers. Laptops were willing to sacrifice all the power that the current 5.25 inch drives offered for the smaller size of a 3.5 inch drive.

This is how 3.5 inch disk drive makers and Compaq crossed the chasm. Large computer manufacturers and hence 5.25 inch disk drive manufacturers were unsure of the laptop computer market opportunity and did not pursue this market.

Figure 3: Moore‘s Technology Adoption Lifecycle

Geoffrey Moore’s theory about how to cross the chasm is that start-ups must find tiny under-served markets they can leverage to “bowl” through a set of niche markets, hide in while they perfect their technology, and build a set of relationships with pragmatic, value-based customers. Moore hypothesizes that once a certain amount of under-served niche markets are captured the market will spontaneously shift to the new (disruptive) architecture, putting the start-up in the center of a technology “tornado”.

In the disk drive market, the 3.5 inch disk drive makers, fortified by the profits they generated and the relationships they developed were able to rapidly improve the performance of their products, overtake 5.25 inch disk drives and eventually drive the 5.25 inch drive producers out of the market. 5.25 inch disk drive customers, once 3.5 inch disk drive performance was acceptable, rapidly changed to the less expensive 3.5 inch architecture, with only the most demanding 5.25 inch drive customers not making the switch.

The synergy between these two theories, long overlooked, becomes plain. Christensen’s book describes a dozen industries and how the established incumbent was pushed out of their markets. In each example he focuses on why the incumbent failed to target the new markets exploited by the disruptor. What Christensen fails to observe was that each of these stories was also a tale of how a small company crossed the chasm to dominate an industry. Moore’s book is considerably less rigorous from a research perspective, but each story of how a company crossed the chasm is also the story of how another large, entrenched competitor let them. Exploiting the Innovator’s Dilemma is a critical strategy to effectively crossing the chasm.

How to Wrinkle the Chasm

Moore’s breakthrough was recognizing that the chasm exists and that a start-up that fails to cross the chasm and build relationships with pragmatic customers eventually runs out of early adopters and dies a slow, painful death. He also recognized that the best tactic for crossing the chasm is to pick a very small market that you can deliver a complete “whole product” to and dominate that market. This is because pragmatic buyers, the vast majority of the technology market, only want products from the undisputed market leader. The only hope a small business has for establishing a position as undisputed market leader of a market segment is to choose a segment that is small enough that it will not be targeted by competitors. What Moore lacks in his concept of crossing the chasm is a model for how one should identify the initial market segments/applications that the business attempts to build around. The only advice he gives regarding choosing a segment is to pick an underserved market where you deliver extraordinary value. To most entrepreneurs every market looks like this!

In Christensen’s work he articulates an “after the fact” perspective of how many start-ups crossed the chasm by building what he called “value networks”. He defines value networks as the context within which a firm identifies and responds to customers needs, solves problems, reacts to competitors & strives for profit.

Building value network models sheds insight into market needs and reveals the key aspects of any given industries “whole product”. Defining value networks is effectively an exercise in accurate B-to-B segmentation. Christensen broadly segments a market into industry known criteria (PC’s, processors, laptops, etc.). Within each broad market segment he identifies key companies serving that market and the value proposition they offer. This exercise is only somewhat interesting in a historical context. In hindsight, it is easy to see notebook computers have different needs then PC’s and mainframe computers. What is not clear is how to identify the characteristics of a new market with brand new needs when you are an entrepreneur crossing the chasm.

We have developed a model called Value Network Analysis to address this challenge and offer hope for emerging businesses identifying new markets to pursue. Value Network Analysis is a lightweight model designed to be easily implemented by entrepreneurs and emerging companies. We have chosen not to develop more rigorous models because the very firms that would use this information cannot afford to substantially invest in making this decision. This is the very nature of the chasm. The most important decision that the company will make will be made when the business is at its weakest and involves markets that are small, under-researched, and not well understood.

Value Network Analysis is a three-step process designed to build “before the fact” analysis of market opportunities. The first step is Market Analysis. Market Analysis, in this model, begins with ideation around the key markets that the entrepreneur could target. The primary characteristic of these markets is that a vision for a whole product exists. This is usually based on the fact that the company already has a “visionary” client in the space that could act as a reference and provide industry insight. Associated with each market in the analysis is information about key benefits the market values and key competitors serving (or under serving) the market today. The focus on benefits as being distinct from features is a key aspect of this process. Features exist to provide certain benefits that a market values. Other features in other products may serve the same purpose and new features and new technology in the future may also have an effect on the nature of the benefits the client receives. Conceptually, benefits are the performance aspect that a client seeks in Christensen’s Disruptive Innovation Model and features are the sustained growth path that continues to provide that benefit in ever increasing amounts.

Once the Market Analysis is complete, we begin the Competitor Analysis. Competitor Analysis attempts to identify based on the Market Analysis and original research, which benefits in the market today are targeted by each competitor in the marketplace as their key Product Performance aspects.

This is critical information because The Innovator’s Dilemma tells us that if we focus on providing higher performance in an area that competitors are also focused on providing high performance in the victor of that battle is always the established firm. They use their tremendous market power and cash flow to invest in R&D that enables constant improvement in these sustained performance factors. The markets they are targeting are asking for ever higher performance in their key benefit area. In a market where there is no undisputed market leader, most pragmatic customers will simply delay purchasing. The few who do purchase are likely to choose the larger, more stable company as the most likely survivor of the competition. Start-ups must seek out new benefits that are not viewed as key to the market by competitors, but are viewed as key by a set of potential customers that are currently undervalued. This allows the start-up to focus on the most disruptive aspects of their new technology and maximize the likelihood that competitors would not try to mimic the entrepreneur’s strategy.

Now that we have information about what our competitors value and what the market values, we can complete the final step of our process and develop the Opportunity Analysis. Here we plot our knowledge of what markets competitors’ value based on the benefits they are most aggressively pursuing. Then, recognizing that our ability to execute and deliver varies from market to market, we add an axis that correlates with our ability to develop whole products that serve any given market. Finally, we overlay on that model information about how we value that market across a number of dimensions:

  • Market size: Is this market big enough to provide revenue and small enough to not attract attention from competitors?
  • References: Do we have strong references in the market
  • Lead generation: Will we be able to identify target customers quickly in this market?

All of these are essentially a proxy for revenue and profit potential in a market segment. The result is a model that might look like this:

In this example, Market 4 and Market 2 are the opportunities that this firm has to cross the chasm. Market 4 is the least attractive to competitors and the firm is able to build the most complete whole product for it. Market 2 is slightly more difficult for us to attack and slightly more attractive to competitors but it has certain features from a sales perspective and market opportunity that may appeal to the firm and make it worth choosing.

Our model represents Value Network Analysis as a circle because this data can now be fed back into the model to choose additional markets to target as “bowling pins”. The new whole product and new sales generated will drive the creation of a new Value Network Analysis model that suggests further market segments and applications for the entrepreneur’s products, enabling the bowling alley concept that Moore describes. Each market success creates new market opportunities which the start-up can conquer one niche at a time. This process continues until enough markets have been entered and bowling pins knocked down that critical mass is achieved and the company enters the “Tornado” phase of the technology adoption life cycle.

Case Study: How Not to Cross the Chasm

Transmeta was a company that technologists believed was sure to successd. With $100 million in capital raised from George Soros and Paul Allen, among others; a team led by David Ditzel, who invented the Sun SPARC microprocessor and Linus Torvalds, the inventor of Linux; and an IPO that doubled on it’s first day, Transmeta was one of the best known companies in Silicon Valley. In the fall of 1999, after 5 years of super secret research Transmeta announced its first product, an ultra low-power computer chip for powering computers, capable of doubling battery life in products such as notebook computers.

Simultaneous with their launch, Transmeta announced their plan to initially target the notebook computer market, a $5 billion market, and compete directly with Intel in Intel’s fastest growing market segment. Intel immediately announced plans to re-focus on low-power designs.

The error that Transmeta made was choosing to “Evil Kneivel” the chasm, assuming that computer manufacturers would choose their product over Intel instantly, without taking the time to build credibility with the market. Because their products were slower than Intel chips, their utility was limited. Each time Transmeta released a faster processor, Intel released a lower-power processor. The $100 million that Transmeta invested in its first product was easily matched and surpassed by Intel, which could not afford to lose the notebook market.

Even customers that might purchase Transmeta’s product and sacrifice speed for a lower power processor have been paralyzed by Intel’s competitive response. They have taken a wait-and-see approach to the market. This has had the effect of starving Transmeta to death. 2002 completed Transmeta’s third year of sales. Its revenue was less than $25 million, down from $35 million in 2001 and $16 million in 2000. Linus Torvalds left the company. Losses exceeded $100 million for the third year. Transmeta’s cash is slowly draining away.

Transmeta should have identified a less competitive smaller market that it could own. By targeting an enormous market, Transmeta could never hope to establish itself as the market leader. Transmeta needed to capture loyal customers to survive, but chose to attempt to pry companies like Compaq and IBM away from Intel. Those are Intel’s biggest, most valuable customers. Intel was responsive to their customer’s needs and prepared to dramatically outspend Transmeta to effectively serve these customers.













Battery Life






Battery Life





Sun Microsystems


Battery Life


Figure 7: Simple Market Analysis

















Battery Life




Figure 8: Simple Competitor Analysis

This Value Network Model demonstrates the challenge of targeting the notebook market. While Transmeta was best suited to attack the laptop market segment, it was also the market that Transmeta’s most dangerous competitors were targeting.

Figure 9: Simple Value Network Analysis

Transmeta would have been more successful if the company had attempted to “cross the chasm” in a market that was related but less competitive than notebook PCs. For example, Transmeta could have targeted the personal data assistant (PDA) segment. By targeting a less competitive, yet relatively compatible segment, Transmeta could have improved its opportunities to cultivate a dominant, industry leading position, allowing them to possibly have more of an impact on the early adopters. The PDA market is filled with companies both large and small using non-standard processors because Intel was not optimized for their product needs. By building relationships with customers in this space it could have developed revenue, profit, and partners that would allow it to target larger markets in the future. Unfortunately, because Transmeta directly challenged the market leaders in its targeted segment, the company provoked strong defensive reactions from the competition.

This reaction prevented Transmeta from establishing the relationships that would provide a sustainable foothold in the market. Their failure to cross the chasm and develop pragmatic relations has doomed a company funded and run by some of the brightest technology minds in the world.

Case Study: How to effectively Cross the Chasm

As Transmeta continues to struggle to cross the chasm, stands as an example of a company clearly focused on gaining pragmatic customer acceptance. is currently the global leader in the web-based customer-relationship management software (CRMS) market. The company appears to be reaping the benefits of careful and successful market segmentation as well as the competition’s inability to exploit disruptive and discontinuous technological changes. is offering what its larger competitors such as Seibel, Oracle and SAP cannot—effective and affordable CRMS applications for small and medium size companies. It gives its customers the ability to manage their accounts, track leads, and evaluate marketing campaigns for thousands rather than millions of dollars. This segment has been largely ignored by large CRMS companies as they fall victim to the Innovator’s Dilemma.

Before, smaller firms did not view CRMS systems as a practical option. The CRMS systems offered by companies, such as Seibel, required the installation of customized hardware and software applications, extensive transition assistance, and continuous system maintenance. These systems were very complicated, expensive and completely unsuited for smaller companies. However, because hosts all of its CRMS applications on its own servers, the company has minimized the associated hardware and IT labor costs. Accordingly, clients only pay as they use the application. All product upgrades and improvements are included in their service fee. Before, the industry only focused on companies that could afford to purchase and maintain an expensive CRMS systems onsite. Now smaller companies can outsource and leverage’s expertise and operational efficiencies at drastically lower costs.

The larger CRMS leaders such as Siebel found themselves unable to focus on the market for a number of reasons. First, Siebel and its competitors had developed large direct sales forces that were designed to sell their products to the Global 2000. These sales forces were compensated primarily based on dollar volume and were never interested in speaking to smaller customers who might be just as hard to sell to but realize much smaller revenues. Smaller companies tend to value their few dollars just as much as larger companies value their incrementally higher ability to spend. Second, their best engineers were continually asked to focus on and address the needs of their largest and most profitable customers. This is the essence of the Innovator’s Dilemma. They were never able to focus product development or sales on the needs of this smaller market. Finally, cost structures inhibited competitor’s response. When Siebel considered how to respond, they were continually forced to ask themselves “what features can we take out of our products?” because if they offered their current products at a much lower price their customer base would revolt. Instead they stripped out as much as they could to keep their current customers happy, but each feature removed made their competitive offering that much less interesting to potential new customers. Meanwhile, each feature adds to their product further enhances the value proposition for the entire customer base. This is possible because their business model and cost structure is already designed to support profits at this price point. The result is a customer base that is happy to see improvements in this area and supports as they move upstream in the market.

In February 2000, when the company was officially launched, it had 150 small customers. As of September 2003, boasts service to over 7000 companies and nearly 100,000 users, positive earnings, and an increasing presence with larger companies seeking’s inexpensive, efficient and effective CRMS services. is now scaling up their product to address the needs of larger customers. Siebel and other companies are attempting to refocus their business on the smaller market that is attacking from, but the cost structure they are saddled with has inhibited these efforts. It is likely that they will instead abandon the low-end of the market and increasingly focus on the largest and most profitable customers they serve, such as the Fortune 100. has crossed the chasm, achieved a foothold with the early majority, and proven itself a threat worthy of continued attention from the competition.


Strategies for market selection for entrepreneurial businesses will be increasingly scrutinized in the future. Firms recognize that the “Evil Knievel” approach that so many start-ups attempted in the era rarely succeeds in gaining widespread market penetration. Technology companies will only be successful by effectively penetrating pragmatic markets with complete products that have compelling value propositions for that market. This requires effective analysis to determine what markets to target and what strategies and tactics are most likely to effectively exploit these markets. Hypotheses must be developed, tested and validated to allow us to continue to evolve management theories that will guide companies to success in the market.

Value Network Analysis allows a start-up business to develop a “back of the envelope” model for selecting an approach to cross the chasm that recognizes that competitor product strategy is just as critical as your product strategy and market. When crossing the chasm, if your product strategy is not effectively differentiated on a unique dimension from competitors then the competitors have historically been able to effectively defend the market segments that value that product strategy. This application of the Innovator’s Dilemma just scratches the surface of the how our understanding of technology markets will influence the approach entrepreneurial firms take to growing their business.


Christensen, Clayton. The Innovator’s Dilemma. Harvard, MA: Harvard Business School Publishing Corporation, 1997

Christensen, Clayton. The Innovator’s Solution. Harvard, MA: Harvard Business School Publishing Corporation, 2003

Gray, Douglas, F. “Transmeta Confident Under Intel Pressure”

IDG News Service 2001 <,aid,71284,00.asp (15 Nov. 2001)

Leyden, John “Intel reacts to Transmeta threat” 2000 <> (14 Jul. 2000)

Moore, Geoffrey. Crossing the Chasm. New York, NY: HarperCollins Publishers Inc., 1991

Moore, Geoffrey. Inside the Tornado. New York, NY: HarperCollins Publishers Inc., 1995

Moore, Geoffrey. Living on the Fault Line. New York, NY: HarperCollins Publishers Inc., 2000

Neel, Dan “Reluctant RLX falls for Intel.” Info World 2002 <> (17 Feb. 2002)

Shankland, Stephen “Secretive start-up Transmeta takes aim at Intel.” CNET 1999 <> (30 Sep. 1999)

Shankland, Stephen “Transmeta chips to cool off Intel.” CNET 2001 <,39020645,2085234,00.htm> (23 Mar. 2001)

Spooner, John “Compaq drops Transmeta’s Crusoe” ZDNet News 2000 <> (6 Nov. 2000)

Spooner, John “Intel cuts low-end chip prices” CNET 2003 <,39020354,39115903,00.htm> (26 Aug. 2003)

Vance, Ashlee “Intel Slashes Mobile Chip Prices” PC World 2003 <,aid,108782,00.asp> (14 Jan. 2003)

Preview: Wrinkling the Chasm

Friday, January 11th, 2008

I was recently contacted asking some questions about a paper I wrote in 2003.  It brought back such fond memories of that work that I have decided to post it on my blog.  It is huge, but this is good SEO, right?

NDAs are Not Documents i Agree to

Friday, January 4th, 2008

I know, I should have come up with a better acronym, but as you should realize from all of my previous posts, I don’t put that much thought into posts.

I feel like once a month I have a conversation with an entrepreneur about why they shouldn’t make everyone and their mother sign an NDA before hearing about an idea. With this in mind, I wanted to start my running list of URLs that help me explain why this is probably not worth doing.

Don’t ask people to sign an NDA.

Update: Now that I have an extra second, I wanted to spend some time documenting my own feelings on NDAs to supplement the blogs I point to.

First, it is unlikely that someone will steal your idea. No one loves your baby as much as you do. No matter how good your idea sounds to you, it probably doesn’t sound as good to everyone else. How many people have you told something to and they said, “That idea is so good, I am going to quit my job to do it, whether you quit or not!” That basically never happens.

So let’s postulate (an unlikely hypothesis) that there may be some minor risk.

When you are looking at raising money, doing some interesting strategic deal, or whatever, the first X meetings usually don’t involve looking at code. It is usually about the business model and strategy. A business usually has one of two strategies:

  1. We have this super super secret, unduplicate-able secret sauce
  2. We have a little twist on a broadly known idea and are going to out-execute people

If it is #1, I would probably not show your gene sequencing engine/search algorithm/death star plans to anyone. But you can tell them all about how you have a crazy engine/algorithm/death star and there is nothing they can do about it. So who cares if they sign an NDA. You have a death star, they don’t. End of story. Lot’s of people would like to build a better search algorithm and hearing that one exists – even hearing how it works at a high level and what makes it better – won’t change the fact that they can’t.

If it is #2 (more likely, so we spend more time here), then a) doing the whole NDA thing is slowing your execution, and that is bad! And b) you are saying “I think everyone can out-execute us, so I am praying that no one finds out.” That is called “playing to not lose”. Play to win! Honestly, in 99% of these situations the issue is that you are extremely early-stage and probably under-capitalized. If you show someone the idea and they steal it, even with the NDA, what recourse do you have? Do you wait until they are rich and you are not and then you hire an army of lawyers? Good luck. Do you sue when you both are poor? Smart! The only way there is a positive outcome is if you make it happen.

Furthermore, what are really the odds that someone steals your idea? That would require that they both love your idea enough to steal it and hate you enough to not want to do it with you. This combination of outcomes is unlikely. If it did occur, then would having them sign an NDA really protect you? They hate you and love your idea enough to steal it! Will a piece of paper stand in their way?

Not my best written post, but good enough to post and move on.  I know this is a post that will be updated over time!

Moral of the story: If they want to steal your idea, they will. Generally speaking, nobody loves your baby as much as you do, so it is extremely unlikely they will want to steal your baby.

Denton’s TMZ drives new employees insane

Thursday, January 3rd, 2008

Speak of the devil, great article about how a new employee quit after one day, not because he realized he would never make any money, but because the pace of online blogging was too intense.

Nick Denton faces extraordinary challenges.  As I have discussed in previous posts, building a company using editors is extremely hard online due to the high fixed costs.  Denton overcomes these by aggressively promoting his blogs, pushing his team extremely hard, and managing the business very closely.

In the big scheme of things, such a rapid departure probably doesn’t say that Denton is a completely terrible person.  Cultural non-fits just don’t happen sometimes.

Denton goes all TMZ on people

Thursday, January 3rd, 2008

Nick Denton introduces a commission on traffic with a guaranteed draw on all of his properties. Fun fun. Clearly the goal is for people to write insanely popular posts. If I were Valleywag, it would be one “Lindsay Lohan in scandalous pose with noted Silicon Valley VC – pictures after the jump” post after another. “Top 10 easiest VCs to raise money from” – many people have mentioned the desire to create more Diggbait based on this.

The real tragedy is that Paul never discloses the page rate that Valleywag people get paid. Knowing this and knowing the average CPM of the site would allow you to take a stab at the economic model getting applied here. People have pointed out a couple of interesting things:

1) The home page is “free page views” for Denton

2) When people quit, their page views become “free”

3) Denton does a poor job monetizing RSS feeds today. Those are essentially worthless views that he is getting for free. Once he starts to monetize those effectively, the value will have to be reflected in the page rate or in some other mechanism.

But the economic value of those page views could, at least partially, be redistributed to current employees by bumping up the marginal page rate for their views.

Blogonomics implies that new hires get the short end of the stick, but that can be easily remedied. First, sites that have more transitory news value can simply have higher page rates to compensate for less long term value per post. One would hope that on a site with breaking news that is valuable, the CPM is higher? Second, you could have a larger guaranteed draw to start, slowly reducing it over time. That is Sales force 101. Finally, maybe that is less valuable? Pages that never get link love and long term traffic probably are less valuable. Compensation reflects that.

What I don’t want: I hate Diggbait from non-experts. Reporters cranking out top 10 lists for momentary bursts of Digg love would upset me.What I want: I hope a reporter proves the value of doing good investigative work and demonstrates that it is worth spending more time than he would have at $12/post to do a bang-up job creating some great posts!

It will be interesting to see how such a visible experiment works out. Newspapers never directly compensated reporters for increasing readership. This is a great example of aligning goals that is only possible digitally.