Cogblog

http://www.uwplatt.edu/web/presentations/ar/heweb09/

The blogosphere is buzzing with the story of how Google is working on building out maps and pictures of the insides of stores now.

Lots of people act like they have no idea what this means, take this quote from Alley Insider:

Stupidest idea ever. Pictures will never do a good merchandising effort justice. The only people who would benefit from the pictures are thieves.

And my first reaction was “will I pull out my phone to find the ‘kids clothes section at Old Navy’”?  But I think this really pushes us towards a future filled with augmented reality meta data.  These pictures are the first step to tagging things inside stores and I can imagine a world where I walk into Walmart, grab my phone and say, “Where are the snow shovels” and it gives me a HUD to guide me there.

They could even throw in specials in the store and be adding additional information to the HUD based on geo-targeting data.

This is the future and if Google owns all that data, that probably puts it in a pretty good place.  Much like the cable monopolies and telco monopolies of the 20th century, once they have covered an area, will it be in anyone else’s best interest to recreate that database?

Very ambitious plan, but an obvious part of the future.  This is a $100 million bet on a multi-billion future.  Google is smart to take advantage of it.

Mark Suster’s article on giving great great group presentations was an interesting read for me, but not too much new stuff.  As most people who know me can testify, things like “show energy, make it unique, keep it simple, learn how to structure, make it visual” all come second-hand.  I am such a good speaker, that I rarely even need to practice!  I don’t mean to brag, but that is simply a fact.  If you average it out, I have probably done a presentation or two per week for more than 20 years now.

But even I can learn a new trick or two from time to time.  And the point I want you to take away from all that bragging in the first paragraph is not I am special – in fact, 50% of all people find my unique presentation style incredibly annoying and off-putting.  It is simply that if I say something is, “Wow”, then it is BIG.  And I want to share with you the single best trick I have learned when it comes to doing a big presentation of your company/product for a large audience.

Who did I learn this from?  Josh Kopelman – marketing uber-demi-god.

This is another example of the tremendous value that a great, active, early stage investor can add.

Anyway, here is the story:

At the inauguaral TechCrunch 50 conference in San Francisco, there were a number of FRC investments launching.  Every company had 5 minutes to get up and do their thing and it had to include a product demo.  The FRC companies were easy to spot.  They had way more polished pitches than everyone else.  And here was the key thing that they did that really stood out:  Their demo’s were videotaped.  The walk-through was incredibly smooth because they were not relying on slow conference internet, there were no typos, there was no confusion over what they were doing, and the speaker and the guy working the keyboard didn’t have to stay in sync.  While a videotaped demo might not seem credible for a demo for 5 people, for a demo for 500 people, it simply minimized the odds that the demo goes off the tracks and because it was just an unedited screencast of the perfect walk-through, you didn’t feel like there was a lot of smoke and mirrors.  It still looked like a real demo.

The result was that no FRC company had problems with time or with their demo gone awry – a statement that could be said about precious few at that conference.  They were on message and consistent with their points.  Every FRC company presentation was outstanding.

Do you think I love First Round too much?  OK, here is some criticism: I have heard that the other members of FRC are not as good as Josh.  And I have heard that Josh is super busy, so you don’t get that much of his time.  And I believe that, although I am good friends with Chris Fralic and have had pleasant exchanges with other FRC people.  If you go read TheFunded.com, you will see a lot of comments about how Josh and Howard are godlike and the rest of the partners are OK.  There you go.  Also, what is with the image map links on Josh’s page to blogs and twitter?  That is not how it is done!  Weak developer work!

http://www.flickr.com/photos/somewhatfrank/2340687800/

Techstars, Y-Combinator, and to a lesser extent, programs such as Digital Launchbox are popular incubator programs scattered in large cities throughout the country.  The keys to their success, IMHO, are:

• “Program schedules” – they run on a cycle.  After ~13 weeks, it ends and people are off and running.  This time-boxing exercise makes sure that everyone is focused and it allows a company to sign up with a relatively small commitment.  “It is just a few weeks!”
• “Demo days” – There is a tangible product at the end of the incubation.  The companies participating have to show and tell and they know if they show and tell well, there are people that can help their business in the audience.
• Great mentors – People that participate in the incubator get to meet and have varying degrees of access to people that it would be hard for them to get access to otherwise.

These incubator’s take a small slice of equity in exchange for their services.  Incubator costs are relatively low and certainly the theory is they are more than exceeded by the value of the equity in the companies that participate.

I believe these incubator’s are a powerful force for innovation in a city.   If a program runs 13 companies through the program every cycle and runs two cycles per year, that is 26 fairly viable start-ups created every year.    The Demo Days create a focused opportunity to try and fund them and the mentoring ensures that they are better positioned for success than your average boot-strapped start-up.

Further, unlike something like an “Angel Organization”, they need to meet their quota.  There will be 26 companies per year.  They feel incented to get deal flow.

This feels to me like something that every city government should be wanting to do.  Why haven’t they started to do them?

As always, Alley Insider continues to obsessively cover the soap opera that is AOL.  And why not?  It is crazy there. Far crazier than any 10 other Internet companies in NYC, so the result is that it is simply more gossip-ey, more filled with arcane insider-ey news, and more interesting than most of the rest of the industry – despite the fact that AOL probably can’t win.

The most recent story I read was that every engineer for Third Screen Media took the package.  And there was a comment that AOL would never give up hope for its mobile monetization: it was simply too important.

I would say that all of this is true.  Consider:

1. Obviously, it was not AOLs intent to lose the mobile wars.  They were the first people to snap up a company in the mobile ad network space and they had their pick of the litter.  They took the best company in the market.  Third Screen was better than the other guys.
2. Once they acquired it, they had to consider how to help it win.  Many, many, many big companies think: We should have our giant sales force sell this new shiny product and then we will win.
3. So the sales forces get integrated and you are off to the races, right?  Nope.  This was an early market and it was hard to sell.  I have no direct knowledge of this, but I can imagine: Quickly, the sales force flipped over to selling things they were more comfortable selling.  Those things were also bigger ticket!  With quarter to quarter pressure and constant sales force reorganizations, the focus on selling a less mature, smaller dollar product goes away.  In the face of headcount reductions, there is never a moment of thought given to having a dedicated sales force to nurse this product along.  Sales decline, are flat, or do not grow as fast as competitors.
4. Networks are a natural monopoly.  The ad sales winner gets the most inventory.  The person with the most inventory gets the most advertisers.  Quickly, a network business can fall into a death spiral without great sales.  Employees cannot fail to notice.

Also, Third Screen employees were in Boston.  Was the organization focused on helping Boston employees feel love?  Nope.  Down-sizing means consolidation.  Also, all of the senior third screen people had left with the acquisition.  That probably meant there were new start-ups to go join if you were a third screen engineer.  And AOL had taught you that start-ups make you richer than working for AOL!

So with the best of intentions, big companies frequently kill small acquistions due to inability to sell the small products in a market appropriate way.  You see this all the time.  Without the laser focus the start-up had, the sales model never matures enough.  Unless the product is right at the tip of the tornado, handing the product over to the old-school sales force will not cause it to scale like gangbusters.

So I filed for unemployment the other day.  Unemployment is great because it is like free money the government has been garnishing from your wages for just this moment.  If you are never unemployed, you never get the chance to go get that money you deserve.

You can apply online and everything!  It was great….. or so I thought.

I get a notice a few days later saying I have to do a call with them because I received a severance package and am not unemployed.

I do the call and the first thing out of my mouth is, “I got a package, but I am pretty unemployed!”  Her response: Oh yeah, that is just what the form says.  This is merely a formality where we have to enter that you received a severance, per the notice the government received from AOL, into our system.  Oh, no problem, I think.  Although it is a bummer I could not have somehow entered that online.

Then at the end of the call, she drops the bombshell.  “Oh, you know you never actually completed the process, right?”  Nope.  “Oh, yeah, everyone who signs up online doesn’t click on the right things.  After it says you are done, you have to go back in and open a claim and then follow those instruction.  This happens to everyone.  Don’t worry about it.”

Wow, their online system works great if everyone who tries to sign up online fails.  Woowoo.

So the way to correct it, apparently, was to call this number.  I called the number ten times and it was busy every time.  But it did have a helpful message: “All lines are busy right now, press 3 if you would like to be called back when lines are available.  There may be an extra fee for this service.”  What am I supposed to do with that?

Anyway, after calling ten more times, I figure, “what the hell” and press 3 for my mystery fee.  Then I get the message, “This feature will not work because you are outside the calling area.”  Click.

Gotta love the government.

So I gave Seed.com a try tonight.  Interesting model, poor web site.

They allow you to select articles you want to write or pictures you want to submit and have a price associated with each of them.  Then you submit your stuff, and then they explain “the deal”.  They will do one of three things with the article you have now written (or picture submitted):

• Buy it outright for the price you offered
• Put it on their web site and rev share an unspecified percentage with you
• Tell you they don’t want it

It was interesting that they didn’t really explain that until after I wrote my article.  I wonder how that works out for them.

I wanted to go on the record with my love of Tim’s decisions to go for big, big cuts.  As a start-up, bootstrappy guy, I am a believer that people need to run profitable businesses and the only areas where things shouldn’t be profitable are where the business is growing so fast that investing ahead of demand is critical or where a company is entering a new business.

I think the objective of a decision to make cuts is to cut the business to profitability.  Excluding AOL Access’ profits, there are clearly lots of areas losing money, so making these cuts is a great decision.

Despite this, I thought it was really eye-opening when Clickety Clack noted that bringing costs in line with revenue does not drive top-line growth.  Without a growth strategy, they are simply IAC.  Great point by one of my favorite blogs.  I actually think they have ideas for how to invest the access profits.  Will it work?  Don’t know.

(P.S. None of this is based on insider knowledge or is intended to disparage my former employer, it is simply an observation.  I no longer have any insider knowledge and frankly, I don’t think I have had any insider knowledge since Jeff took over!)

Love the fish, incidentally.  Everyone has heard my “naming and branding is over-rated”, but why not, I say.

Security breaches are an act of terrorism in many ways.  And much like terrorism, security never gets credit for breaches prevented, but people lose their jobs ever time someone gets away with one.  The result is that there is little incentive other than sheer cost to limit security efforts in a corporate context.

And better security works!  I found this chart of password lengths that told me that allowing a special character could force a hacker to take 8x longer to break a password.  Making a password 7 characters instead of 6 makes it 12x harder to break.  This is very good.  Passwords should be hard to break.  So what security organizations take away from this is that users should be required to put in a special character.  Required to mix case.  Required to use numbers.  Let’s make the password 8 characters minimum!

Does this sound preposterous?  This was an employer’s corporate password philosophy.  According to our handy-dandy chart, it will take a hacker 1.45 centuries to break my password.

But you never know, a hacker could have started on my password already!  Fortunately, my employer made me change my password every 45 days.  Also, they would need my RSA Securid, a 6-digit passcode that changes every 60 seconds and is more or less random.

But if you are on the security side of our organization, I can’t figure out why they haven’t made passwords 12 characters, or 45 characters?  If it was 12 characters it would take 4 millenia to hack.  Maybe they could relax other rules, like letting me change my password every 60 days.  I am sure they would encourage me to voluntarily make my password that long.  But here is the rub:

When you have to change your password every 45 days, and the password is that preposterously complex, you have a system.  Everyone I work with has a system.  Incrementing numbers in the same password.  Date-based password schemes.  When you have to come up with 9 passwords a year and you are not allowed to reuse a password you have used in the last 24 tries (true!), you have to have a system to remember.  Does this mean changing passwords is less secure than not changing passwords?

So changing passwords is a bad idea.

These same requirements are true if you wanted to read my email via my phone, where every corporate phone is locked with an 8 digit password combining letters, numbers, and special characters.

Do you have any idea how much of a pain in the butt it is for me to put in an 8 digit password with letters, numbers, and special characters every time I want to make a phone call?

How much business value is lost by making people enter passwords every time they use their phone?  I just calculated that it takes 12 seconds for me to type in my password on my phone.  So let’s say that I do that 10x/day: 2 minutes.  That means 14 minutes/week (still typing on weekends).  12 hours/year typing your password (52 weeks because you still have to type the password on vacation.  That is .5% of my work week.  Let’s say that an employee makes $104,000/year (to keep the math simple).  That means $2k/week.  So that password lock on the phone is essentially paying $11.66/week to keep things secure.  But none of that cost gets passed back to the IT department, so it is a slam dunk decision.

Is anyone trying to brute force hack my password on my phone?  Really?  That would be foolish because if they fail six straight times, my phone deletes its entire contents.  So why the password complexity?

Let’s not even get into what it is like when I am trying to type my password into my phone while driving.  If my wife knew…

Password-protecting phones with complex passwords is a bad idea.

Let’s talk about RSA Securid.  RSA touts it as the best protection in the world because the Securid’s are mobile: They go where your workers go.  But let me tell you, they don’t really.  I put mine on my keychain.  Now my keychain is huge.  Sometimes it bothers me so I leave it lying around the house or office.  I don’t take it on vacation.  I don’t have it lots of times.  In fact, I don’t have it right now.

(Let’s be clear, this is not a ding on any one company, this is a ding on complex security at companies.  Many companies have them, all of them are FAIL.  I don’t like them.  Of course, I don’t work on the IT side of companies any more because I am the kind of guy that annoys the rest of the organization.)

Talk about your problems with your company’s security policies.

I thought I would be the first to blog on this, but Google already has 796 results for this term.  Le’sigh.

I have Morton’s Toe – the name for a foot where the second toe is longer than the first.  One could say I suffer, but apparently it was an idealized form in Greek sculpture and my mom (fellow sufferer) always told me that it was a sign of perfection.  Not much suffering there.  Apparently this is a condition common to 10% to 30% of the population, depending on who you believe.

Anyway, Vibram Five Fingers don’t have long second toe’s!  The result is a sub-optimal fit.

Apparently, Vibram’s CEO also suffers from Morton’s Toe, yet his advice to fellow perfect people is to simply buy a bigger size.  Allow me to offer my beta-testing services should they make the wise decision to roll out perfect shoes for their perfect customers.

Everyone I know is tweeting about Dave Troy’s new post: What your “Good Job” is costing you. (That link love is indicative of how much I love Dave)

Now I am a classic example of a guy hiding out in corporate America, and while I generally agree with his themes, I thought the assessment was not appropriately risk-adjusted.

Here are the tricks:

1) He pushes aside risk of failure with a few comments:

• #1: “…failure cannot be counted strictly as downside. There is recoverable value in failure.”
• #2: “Too often people cite general statistics about entrepreneurial failure that include all entrepreneurs everywhere and in every sector; these metrics are all but anecdotal in nature.”
• #3: “Not being stupid helps (we already established you’re smart), and your position in social networks likely has more to do with success or failure than any other factor…”
• #4: “And please don’t counter that I’ve inaccurately accounted for the capital required to create a startup, how “impossible” it is to get funding, and how doomed you might be for whatever reason before you start: startup capital requirements are lower than ever before – you can get started for as little as $10-$50K with a seed of an idea and the right partner.”

Let’s break that down:

1. What is “failure” of a 5 year business worth?  I say, $100k, because, like him, I think it is worth a lot.
2. Is 90% failure rate anecdotal?  VCs seem to swear by it and they have money riding on their bets.  I bet this is less anecdotal than one might think.  Further, they use these numbers even with respect to their investments.  I assume the deals they pass on have a higher failure rate.  I don’t think that we should write off the fact that most new businesses fail.  Of course, I apply an exit curve:  10% shot at $3m, 40% shot at $300k, 50% odds of $100k ($0 + $100k failure value).
3. Does being smart reduce failure?  Sure.  Although I think that is taken into account in the failure rate.  Everyone that quits their job to do their own thing thinks they are smart.  Much of an exit is luck, in my experience.  Loose correlation.
4. “THE RIGHT PARTNER” – now there is an interesting rub.  You just cut your equity in half.  And I think a good partner is important to getting to your exit.  If you can’t convince your best friend or someone else smart to do it, it may not be a great idea.

So the failure rate model needs to be taken down by half, except for the failure value.

So if we wanted to risk adjust the $3m exit your company could achieve, it might look like this:

$260k value of exit (NPV of 90% failure rate model with a partner and no investors).

Now, there are a lot of problems with this model.  The 10% could be a $30m exit!  What is a reasonable exit?  Dave implies $3m, but that is simply a number pulled out of the air.  I think there are a range of options.  Maybe $3m is actually the risk adjusted number:  10% of $30m?

Is there a salary along the way?  What if it looked like this:

1Y: $0

2Y: $35k – struggling

3Y: $35k – struggling

4Y: $90k – taking off

5Y: $125k – nice business and exit

Now the value of the start-up is $535k.

All this illustrates the range of unknowns we are talking about here.

If there was a 1% chance of a $30m exit, it completely blows the model apart.  The biggest mover of numbers in this story is the possible exit range.  This is why VCs like people going after big markets: Big markets mean there is room for a big company.  If you only have a few million in revenue, you can only exit for so much.  Big exits require big upside potential for the company.

THINK BIG.