Cogblog

Another blog post I have been meaning to write for 6 months.

If the FTC asked me for my opinion on the Google/AdMeld acquisition, I would tell them that they are actively reducing competition in a market and that Google should not be allowed to do it.

What proof have I? Look no further than the DoubleClick acquisition. With DoubleClick owned by Google and the free Google Ad Manager product, I got the distinct impression that the life was sucked out of the ad serving market. When you talked with investors, they would tell you that no one valued ad serving – it was a commodity product. When you talked with customers, they would tell you how ad serving was a commodity and they expected to pay virtually nothing for the product.

This, despite the fact that ad serving products basically sucked. (Apologies in all these regards to OpenX, 24/7, AdTech, etc.)

I suspect that we will see much of the same now with SSPs – AdMeld, probably the market leader from a technology perspective, will now be a part of Google. How could someone fund a competitor? And AdMeld is good (I know Ben, etc.), but DCLK was good 5 years ago.

Lot’s of people I talk to feel like the industry is going through a period of maturation and consolidation – I see very few (none?) companies that blow my mind like that first meeting with Invite Media did when they were 8 guys in an apartment in Philadelphia.

And let’s face it, online advertising still sucks. I laughed time and again at the new commercial for Siri with Santa Claus. I made my wife come watch it. I haven’t seen a good online ad since subservient chicken. Online advertising is good at bottom of the funnel, not so good at the stuff that TV excels at. Big opportunities out there remain unrealized.

Of course, Google recognizes that this is where they will make their money so they are land grabbing left and right. I can’t blame them, but it does make our industry less interesting.

I realized recently that my  perspective on “what is interesting about daily deal companies” is different than most people, so I wanted to articulate it.

Lot’s of people worry that consumers will suffer daily deal burnout and they say, “these daily deal companies whole businesses are built around email marketing lists, when consumers burn out, they are doomed”. That drives headlines like, “BURNOUT IS HAPPENING”. Don’t get me wrong, that is a concern, but this is not what makes the daily deal companies so interesting to me, and it is precisely what I find interesting about them that makes them so valuable in my opinion.

For a decade, Internet start-ups bemoaned the challenge of penetrating the local market – no one had the sales force. Everyone dreamed of partnering with people like the Yellow Pages that had 10,000 feet on the street. Every start-up had a product that, if they could somehow magically motivate a third party salesforce of thousands of people, they could turn into a mint of money. The problem was, building a sales force was super expensive. Only one company really did it: ReachLocal. They raised huge chunks of money at extraordinary risk and successfully made it happen. But they were the exception, not the rule.

With the advent of the daily deal, several companies have had the chance to build out giant sales forces – Groupon and LivingSocial now have sales organizations that dwarf ReachLocal and they are rapidly going international.

Sure, there is a finite limit to the amount of daily deals a vendor will offer. And a finite limit to the amount of daily deals that consumers will buy. But that is not bad. All they need is more product. LivingSocial and Groupon suffer today because they have this huge sales organization, but they really only have one thing for them to sell. They go to all this trouble to build a relationship with a business, they do a daily deal, and they are done. Can’t really sell them anything else for six months or a year. What they need is MORE STUFF TO SELL THEM.

That is easy. Go buy companies. You have the equity to do it. You have cash in the bank too. I predict that Groupon and LivingSocial will start munching up companies left and right in the next few years. They need more product in the pipeline for their salesforce. And being a salesforce, they will always want something new. Now the ideas will meet distribution in a beautiful marriage and tons of early stage companies will be gobbled up to feed the hungry maw of sales. And many entrepreneurs will get to see their dream fulfilled as their idea is used by thousands of small businesses.

Check Crunchbase out: Groupon has already done 10 acquisitions. LivingSocial has done 7. This is just the beginning.

It’s been a while since we had an irrelevant post, but here we go:

In today’s modern NFL offenses, for a team to really tear it up, you need two #1 receivers.

It used to be that you had a #1 and you had a #2. But then, you rarely had more than two receivers on the field at any one time. Now, with potentially 5 receivers lining up, you need more receiver talent to make a team super awesome. If you look at the trend in the NFL, it is very much towards acquiring a critical mass of receiving talent. Cases in point:

• Jets have Braylon Edwards and go get Santonio Holmes
• Patriots had Wes Welker and Randy Moss
• Eagles have DeSean Jackson and Jeremy Maclin
• Falcons have Roddy White and draft Julio Jones
• Ravens have Anquan Boldin and go get Lee Evans (then Buffalo’s #1)
• Cowboys have Miles Austin and Roy Williams and go draft Dez Bryant
• Steelers have Hines Ward and Mike Wallace

I was at lunch the other day with a very skilled engineer and I was bemoaning the difficulty in finding skilled engineers to get involved in start-ups. My buddy responded that he would just go to tons of coding oriented meet-ups if he was doing a start-up and wanted to meet skilled, motivated junior engineers.

He had two great reasons why meetups are a great place to recruit for start-ups:

• People that attend meetups for coding clearly think of coding as an avocation, and not simply a vocation.
• People that attend meetups are probably single.

I love Founders Institute’s new Founder Advisor Standard Template. I am on the advisory board for several companies – most of them very early stage – and one of the things I have always done is have a “conversation” about my compensation, without putting anything in writing. Given my desire to be an asset to the company, one of the things I have always done is say, “let’s defer getting this all legaled up”. I don’t want my start-ups wasting money on lawyers pre-fundraising (or even post, frankly) – and I have always felt that I am both a little bit willing to risk getting screwed and a little bit willing to demonstrate my value and worth. Once I demonstrate how hard I work for my companies, I have yet to be screwed, so in that respect my approach has tended to work out well for me. But I have always thought, “It would be nice to formalize this”.

Founders Institute’s attempt to create a “seed series” standard document for setting up advisory boards is a brilliant idea and very valuable to early stage start-ups. I also am a fan of the approach that they have taken to recognizing that various advisory organizations will have varying levels of commitment.

It is getting easier and less expensive than ever to build a high-performing start-up.

Man, John Ebbert didn’t call me on this, but I have an opinion and here I go:

AdExchanger recently asked a bunch of people about the value of “First Look” at inventory.

I felt like the answers reflected a range of sophistication on the topic, but I am here to tell you that first look is the whole ball of wax.

In fact, first look is so important that it drives home the value of RTB as a disruptive force in advertising: the chance to see every impression is incredibly valuable.

I have blogged a fair amount about the incentives and value of front-running inventory, but let me recap in brief:

• Getting “Frequency 1″ users allows a network to have more reach than competitors – a powerful lure for brand sales: This was one of the keys that helped (and continues to help) people like Yahoo! and Ad.com dominate the market.
• More visibility improves the reach of behavioral campaigns – if you see more of a user with a given behavioral characteristic (e.g. retargeting behaviors), you can show more impressions and make more money.
• The more ads a person has already seen, the worse an ad performs: The chance to use earlier impressions has a powerful impact on conversion
• More reach – particularly low frequency reach – is a key driver of monetizing CPA campaigns.

The result is that both DR advertisers and brand-focused ad networks reap substantial benefits from peaking at inventory.

RTB has been a great equalizer here – suddenly boutique companies that have very low fill rates or occupy a tiny niche in the market have the chance to peak at huge volumes of impressions without committing to purchasing them. This capability has helped drive the success of many of the ecommerce companies that have sprung up in the wake of the evolution of online advertising.

Being in sales is incredibly difficult. If you are not in sales and you wonder why some sales people make crazy money, the answer is that sales is hard. Most of sales involves experiencing a steady stream of belittling and rejection and your average person simply cannot cope with that. I, for one, am on the record as being a terrible cold caller. Calling 99 people and hearing how dumb I am so that I can get to that 100th person who will hear my story is very tough.

The result is that if a sales person has a good relationship, that is like a gold vein to them. You treasure it! Someone that you can call on again and again and they will buy from you repeatedly is incredibly valuable.

The result is that, at some level, a sales person will treat a new job with suspicion. They simply cannot afford to burn their valuable relationships if it turns out their new employers products suck. Many sales people would rather fail at a new job and keep their confidence and relationships intact than risk blowing up a customer.

The result is that for a company to get a salesperson going, they must instill 100% confidence in their products in a salesperson. Particularly for early stage businesses that are just building their sales organization, this can be very difficult.

Instilling that confidence is not second nature to most people. In fact, I would say that the average person wants to:

1. understate and overdeliver
2. be honest about capabilities

These two things can be deadly in early interactions with a sales organization.

Selling a tiny bit ahead of capabilities is critical for the success of most organizations.

Quick sidebar: I was working at a publicly-traded company at one point in my life and I was listening to the earnings call and I heard the CEO describing some capabilities we were developing. I turned to my boss and said, “Oh my god, that was a complete lie the CEO just told.” To which my boss responded: “About time he started competing with everyone else.” My bosses point was excellent: Everyone else in our industry packed their calls with lies. We knew this. Turnabout was fair play in this situation.

Similarly, I was confronted with an interesting challenge recently: We are building a large sales force basically from scratch. We had a product that is coming out in 30 days and during a sales presentation, I presented it as such: “Regarding X, This product will be available in a 4-6 weeks, I will give you plenty of details then.”

I do this for two reasons:

1. I am a believer in building my organizational credibility through meeting my commitments. If I say, “X will be done by Z”, it will be done. If I lack confidence, I refuse to give dates because I want people to know that when I give a date, they can bet their bottom dollar that it is going to happen.
2. I like sales to sell what we have. One of the things that drives me nuts about sales people is that when you tell them what is coming, they tend to tell their customers – which can cause a customer to hold off on placing an order – which can cause a salesperson to say that the reason they can’t sell is because “X product isn’t done”. So I always tell people, “Tell the salespeople that the product will never get any better. If they want to work here, they have to figure out how to sell what we make.” Of course we want our product to get better, but a good salesperson should figure out how to sell what we have. To be all Glengarry Glen Ross about it, if you can’t figure out how to sell our crappy product to these good leads, I don’t want to give you the good product to sell. Make it rain!

Regardless, my boss came over to me afterwards all fired up: “You need to go back to the sales force and re-characterize our capabilities in this area as being available today.” My response was, “But it isn’t!”. To which he replied, “That is not germaine to this conversation!”

Great line.

Moral of the story, if we waited 6 weeks to start selling a capability we will have in 30 days, we won’t see a deal for the next 90 days. And it is Q4! Now we have the capability and our team is actively closing business around it. Win/win.

While many product people, and many people in general, take the same approach I typically try do – organizational credibility development through constant under-promising and consistent over-delivering – it is critical to success in life and in business that you recognize moments where this philosophy serves you poorly and a little over-promising and then going out and making it happen is actually what it takes.

Furthermore, it is important to recognize that sometimes your organizational credibility isn’t what is important. If the business needs you to take a body blow – hey buddy, that is why you get paid the big bucks.

One more story: In my first company, I remember closing our first six-figure deal. Prior to that deal, our biggest job had been around $70k and this job was for $250k. My partner said to me when they offered us the business, “We might not be able to do this!” My response was, “If we can’t do this, we will never have the kind of company we are trying to build.” We took the job, we made it happen, we built a company I was proud of and led it to a great exit.

It is easy to always under-promise. Easy. Just push back whenever people push on you to over-commit. It can be a habit. But don’t think that just because you are always making your commitments and managing expectations that you are doing the right thing. What is hard is recognizing moments when you need to demand more of yourself and your team to catalyze change.

http://www.flickr.com/photos/metabolico/809618775/sizes/m/in/photostream/

When I worked at an ad network, many of our publishers wanted to be “blind” – that is, not identified as available inventory in our network. Let me give you an example: Yahoo might give an ad network some of its excess ad inventory to monetize. Yet Yahoo does not want other sales organizations out there telling advertisers, “Oh, I can get you on Yahoo inventory, buy from me instead of that Yahoo sales guy”. Yahoo wants the ad networks money and the network values high-quality, good performing inventory, so the best of both worlds is to be “blind”. The ad network promises not to use Yahoo’s name and Yahoo gives them the inventory on this “blind” basis.

As a product guy, I always respected the desire to be blind, but I always wondered how effective it was out in the field. People have to get paid and a lot of people will do what it takes. I generally imagined there was a fair amount of “wink, wink, nudge, nudge” that took place when agencies and network sales guys talked about inventory – “Let’s just say that I can get you a lot of inventory on sites about Yodeling”. It always seemed like there was a lot of potential for miscommunication about what was blind and what was not as well.

Now that I am in a product role as a company that is first party to a lot of inventory, this has tempered my thinking about a lot of network interactions: I don’t trust “being blind” as a panacea for channel conflict. I was already involved in a situation where one network that I gave inventory to on a blind basis told an agency that they had our inventory – we fired them the next day.

One of the amazing things about networks that don’t respect blind status is how the desperate sales guy – who may indeed close that one sale – thinks that it doesn’t get back to the publisher. OF COURSE IT GETS BACK TO THE PUBLISHER. Generally speaking, the agency has no horse in this race, so when the publisher asks why they aren’t getting a buy, the agency invariably tells them, “Network X said I could get your inventory through them”.

I would love to hear Ad Networks perspective on how they make sure that blindness is respected. Similarly, are there publishers out there that have a “system” to make sure that blindness is honored?

If you are a non-technical founder of a company similar to the kinds of companies that I might start, your job is to be a talent magnet. You have to convince awesome people to quit their jobs and join your start-up. If you can’t do that, then you probably aren’t doing your job. Your job as a non-technical founder in a very early stage software start-up is three things:

1. Get critical talent to join the team
2. Sign up a few customers
3. Raise money

If you can’t do #1, #2 is hard – customers like products.

If you can’t do #1, #3 is hard. As I told a group of entrepreneurs at a recent Founders Institute event: “If you go to a sophisticated investor and ask him to put money in, but none of your friends have joined your company, that is a huge red flag: If you can’t convince your friends to quit their jobs and join your company, why would a complete stranger trust you with their money.”

One thing I think about a lot when I think about what my next company might look like is Steve Newcomb’s “Cult Creation” essay. One section in particular is very compelling to me, so I am going to quote it in its entirety to give context to the rest of my blog post:

Create a Dominant Market Share – one of the things that I took notice of was Google’s move to develop a lot of their tools in Python.

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Curious, I thought.  Why would they do that?  At the time Python was a new(ish) language, although growing quickly in popularity.  Then it hit me.  They were going for a dominant market share in a specific talent pool. If you can get in on a new talent pool trend, the benefits can come back ten-fold.

Here’s the strategy.  Get the first luminaries in the field, then as that language grows in popularity you are labeled as the de facto place to go if you want to code in that language.  Then hiring get 10 times easier.

Brilliant.

In 2005, when we founded Powerset, we realized Ruby was the new Python, so we went after some A-level people in the Ruby community.  The top two we went after were first, Kevin Clark (a 20 year-old wiz-kid who we were trying to convince to quit school) and second Tom Preston Werner (now the founder of GitHub).

We got both of them, and within a matter of months, we had one of the largest Ruby teams on the planet.

Anyone who wanted to code in Ruby knew about Powerset simply from the Ruby meetups which were dominated by either Powerset or Twitter people.

We then did the same thing in the field of computational linguistics.  At one point we estimated that of the 200 or so people that really understood computational linguistics in the world, we had about 40 of them.

What’s the benefit?  Once we knew we had this level of talent market share penetration, we had almost a guaranteed worst case scenario that most startups would dream about.  We knew that our talent pool was so strong, that even in the event that we just ran out of money, one of the big three search engines would simply buy us for our team.

At that time we knew that a talented engineer in a tough to get tech was worth about $1.5 million per head.  Thus, I knew with relative assurance that since we were going to hire at least 70 people with our Series A money, that our worst case scenario was about a $100 million exit.

If anyone is paying attention, you are now saying, wait a minute!  Didn’t Powerset sell for $100 million to MSFT?  …. Yup, we nailed our worse case scenario!

That really struck home with me. Recruiting engineers is incredibly difficult and this implied that it might be easier: All you have to do is pick a language that you can dominate the market in and you are positioned to easily recruit engineering talent – one of the hardest parts of growing a company.

So what language should I choose if I am starting a company in the Baltimore/DC area?

Interestingly, Baltimore has a very large Rails community: So many Rails people that RailsConf has come to Baltimore several years in a row. But of course, that means there are already places that are Rails nexi for the community: 410 Labs and Smart Logic Solutions come to mind.

I think of Clojure or Scala as relatively specialized languages – probably inappropriate for whatever start-up I may one day have in mind. What choices do I have? PHP? Python?

I am interested in hearing people’s thinking here. What are the best languages for me to try and build a cult of ninjas around in this area?

Some of my favorite people have already responded, but I had been planning to write a blog post for so long that I feel like I still have to get it off my chest:

An article in Ad Age Digital, “The Dangers of Online Advertising’s ‘Math State’“, struck me as verging on irresponsible. I know people love a contrarian view point – look, I am blogging about it – but c’mon!

I had two immediate reactions:

1. I am as online quant geeky as it comes. But even I recognize the value of great creative. Making great creatives has not gone down in value – I predict it will be the primary driver of the growth of online advertising over the next 20 years. But there is science there. Everyone who has written software knows that “great process provides a framework that can unlock creativity”. We have not yet determined how great creative can be expressed online – there will be an element of math and science to that – but that is no reason for a creative person to be scared.
2. Kendall devalues what we have done online in the worst way. If I told you that we had developed tools that could determine with amazing precision, person-by-person, at an individually targeted level, the effectiveness of TV ads, would Kendall have said, “All the creativeness has been removed from TV advertising.” Not at all. We are introducing amazing new targeting and measurement in a new advertising world. That is good. The fact that the creative format is not as good today as it should be does not take away from the value of what has been constructed.

One of the things that I loved about this business from the moment I got started in 1993 was that we have the opportunity that John Wanamaker dreamed of: The chance to figure out what advertising is working and what advertising is not. And make it work better.

And I love math. Math is beautiful. Working with numbers is a beautiful act of creation and discovery that is fun and makes you a better person. Math is a gift to humanity that we have been given to explore our universe. Take that.