The Startup Pyramid Every six months I rethink the optimal startup go to market approach based on new insights gained at recent startups. Lately I’ve been using a pyramid to represent the process I’m using. Startups require a solid foundation of product/market fit before progressing up the pyramid and scaling the business. Achieving Product/Market Fit Product/market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it. Paul Graham: The mantra at Paul’s successful startup incubator YCombinator is “make things people want.”Steve Blank: In Steve’s book Four Steps to the Epiphany he writes: “Customer Validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money.”Marc Andreessen: A couple years ago Marc wrote the following on his blog: “…the life of any startup can be divided into two parts – before product/market fit and after product/market fit.”
How New Ideas Almost Killed Our Startup Odysseus resisting the Sirens Vinicius Vacanti is co-founder and CEO of Yipit. Next posts on how to acquire users for free and how to raise a Series A. On my three year startup journey that lead to Yipit, I had over 30 other completely unrelated ideas. To be clear, the “ideas” I’m referring to are the ones that have nothing to do with your current startup. In our case, Yipit had always been about organizing local information and we had been working on it for a while. Social version of delicious (summer of 2007)Tool to recommend the best version of the online video you were currently watching (spring 2008)140it.com: Bookmarklett that smartly shortens your tweet to less than 140 characters. I now think of these new ideas as the Sirens of the startup journey. The Temptation To understand why these new ideas can be so tempting, I refer you to the incredibly insightful startup transition cycle. The gist is that when you have a new exciting idea, you are in a state of “uninformed optimism”.
Six strategies for overcoming “chicken and egg” problems cdixon. Products with so-called networks effects get more valuable when more people use them. Famous examples are telephones and social networks. “Complementary network effects” refer to situations where a product gets more valuable as more people use the product’s complement(s). Network effects can be your friend or your enemy depending on whether your product has reached critical mass. Here is a high level summary of the 6 strategies we describe with a few updated examples. 1. 2. Virtual machines and Bootcamp gave Apple’s hardware some sideways compatibility with Windows. 3. 4. On the other hand, when Sony and Philips launched the CD, they succeeded because they did a significantly better job influencing complement producers. 5. Providing a stand-alone use is the strategy that VCR producers used to achieve a successful launch and avoid fighting the difficult chicken and egg startup problem. 6. Vertical integration is risky – as witnessed by the Apple computer in the late 80s and early 90s.
Web services should be both federated and extensible cdixon.org – chris dixon's blog One of the most important developments of the web 2.0 era is the proliferation of full featured, bidirectional APIs. APIs provide a way to “federate” web services from a single website to a distributed network of 3rd party sites. Another important web 2.0 development is the proliferation of web Apps (e.g. Facebook Apps). The next step in this evolution is to create web services that are both federated (APIs) and extensible (Apps). In my ideal world, the social graph would not be controlled by a private company. Consider the following scenario. With today’s APIs, if, say, Gowalla wanted to integrate Facebook plus SimpleGeo into their app*, they would basically have 3 choices: 1) Embed Facebook widgets in Gowalla. 2) Pre-import SimpleGeo data. 3) Host an instance of SimpleGeo’s servers internally. In a world of extensible APIs (or “API Apps”), Gowalla could instead send Facebook data back to SimpleGeo. (Note how there are three parties involved – @peretti calls this a “data threesome”).
Key Elements of a Massively Scalable Startup VC backed startups generally aspire to valuations in the hundreds of millions or even billions of dollars, but very few really consider all of the elements they’ll need to make it happen. After analyzing several startups I’ve worked with that have reached or are approaching these valuations I’ve boiled it down to four interdependent commonalities that always seem to exist. While they are easy to describe, they are of course very difficult to achieve. Still your best chance of achieving them is to know what they are. Element 1: Gratification engine Your gratification engine is the repeatable process of turning cold prospects into highly gratified customers. Element 2: Economic engine Once you have figured out how to gratify prospects, your next challenge is creating a viable economic engine. Element 3: Growth engine Your growth engine is very dependent on your economic engine. Element 4: Huge addressable market The best opportunities generally have the hardest markets to accurately size.
Steve Jobs single-handedly restructured the mobile industry cdix With the introduction of the iPhone, Steve Jobs achieved something that might be unique in the history of business: he single-handedly upended the power structure of a major industry. In the US, before the iPhone, the carriers (Verizon, AT&T, Sprint, T-Mobile) had an ironclad grip on the rest of the value chain – particularly, handset makers and app makers. Ask anyone who ran or invested in a mobile app startup pre-iPhone (I invested in one myself). The carriers had so much power because consumers made their purchasing decisions by choosing a carrier first and a handset second. I’ve talked to a number of mobile app startups lately who say their former contacts at the carriers are shell shocked: no one is knocking on their doors anymore. Yes, Apple has rejected some apps for seemingly arbtrary or selfish reasons and imposed aggressive controls on developers.
While Google fights on the edges, Amazon is attacking their core Google is fighting battles on almost every front: social networking, mobile operating systems, web browsers, office apps, and so on. Much of this makes sense, inasmuch as it is strategic for them to dominate or commoditize each layer that stands between human beings and online ads. But while they are doing this, they are leaving their core business vulnerable, particularly to Amazon. When legendary VC John Doerr quit Amazon’s board a few months ago, savvy industry observers like TechCrunch speculated that Google might begin directly competing with Amazon: [Google] competes with Amazon in a number of areas, particularly web services and big data. In fact, Google and Amazon’s are already direct competitors in their core businesses. The key risk for Google is that they are heavily dependent on online purchasing being a two-stage process: the user does a search on Google, and then clicks on an ad to buy something on another site.
Consultants Don’t Pivot, Founders Do Consultants can help startups leverage their limited resources. But startups can shoot themselves in the foot when founders use consultants at the wrong time or in the wrong way. Here’s why. Your Process Doesn’t WorkA friend of mine asked me to chat with a startup he’d invested in. “They’re deep into Customer Development,” he said. I waited for the shoe to drop – and it did, as he continued carefully, “But they don’t seem to be making much progress. So I met the entrepreneur and asked him how his search for a business model was going. “We’re in Customer Validation but we can’t seem to close a deal.” The rest of his story was mostly a blur. You Can’t Outsource Personal ExperienceHere’s what I told him: A startup exists to search for a scalable and repeatable business model. Customer Development is the process of how you get out of the building and search for the model. It can’t be delegated. Let me say it again: Getting customer feedback can not be delegated. Why? When Do I Use a Consultant?
Does Rest Of World Matter More Than The US? I spent some time on Comscore this morning looking at US vs Rest Of World traffic for some of the largest web properties. Here are the stats for Feb 2010: Google: 890mm worldwide visitors, 745mm non US – 84% non US Facebook: 471mm worldwide visitors, 370mm non US – 78% non US Twitter: 74mm worldwide users, 53mm non US – 72% non US I suspect Facebook and Twitter will both end up north of 80% once their internationalization efforts are fully realized. The conventional wisdom is that international usage cannot be monetized as well as US traffic and that is certainly true. Even if international traffic could only be monetized 25% as well as US traffic, when your international traffic is 80% of your total traffic, you would make as much money internationally as domestically. And of course, not every international market is equal when it comes to monetization. There's a lot of money "rest of world" and I suspect that will only be more and more true over time.
Pincus: In Five Years, Connections Will Be To Each Other, Not The Web; We’ll Be Dial Tones Today at Facebook’s headquarters in Palo Alto, CA, venture capital firm Kleiner Perkins unveiled a new $250 million fund for investing in social applications, called “sFund”. Joining Kleiner Perkins in this venture are some Internet heavyweights: Facebook, Zynga, and Amazon. And CEOs Mark Zuckerberg, Mark Pincus, and Jeff Bezos took the stage today to talk a bit about the future of social. Of them, it was Pincus who probably had the most interesting thing to say. “In five years, everybody will always be connected to each other, instead of the web,” he noted. He noted that Facebook is the big overall dial tone for this social experience. He expressed excitement in the fact that while right now, many of these companies are still working on building out the infrastructure for this social experience, in five years, all this plumbing, as it were, will be in place. Obviously, this $250 million sFund speaks to the laying of a foundation for something greater.