Always New Mistakes

June 16, 2008

Sick of brands

Filed under: Business — Tags: , , , , — Alex Barrera @ 12:29 pm

Some days ago I was looking for a place to have lunch and I ended up eating at a wok restaurant. While I was eating I realized I’m getting sick of branded restaurants, shops, etc. Small restaurants are disappearing, giving place to branded chains that popup all over the place, alas Starbucks. It’s not that I have something against a particular brand, it’s more I’m sick of having my choices reduced to a minimum.

The same applies to many other industries. In the fashion industry I’m seeing the same. Big branded chains with shops all over the place. The good thing is that some of them do understand the problem. The biggest fashion retailer of the world is Inditex, a Spanish company, who’s flag ship brand is Zara

. You have them all over the world. The bad thing about Zara is that they’ve crushed most of their competitors. The good thing, to an extend, is that not two single shops have the same type of clothes. They geo-analyze their shops and pump different types of clothes according to the local neighborhood market. Of course, this is just to a certain extent and not all clothes are different.

The solution? As Zara is doing, keep the brand, create different shops. And I’m not talking about creating different brands under the same company (Inditex has Zara, Massimo Dutti, Oysho, etc.), but about different shops within the same brand. Of course, this is VERY expensive, but it would at least give us more choices. You wouldn’t talk about Zara anymore, but about the Zara in main street, Zara in Union Square, etc.

What do you think? Is the global brand also getting on your nerves? What would you suggest?

Image credits: semaforoverde.com

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June 12, 2008

Knowing your audience

Filed under: entrepreneur — Tags: , , , , , , , , , , , , , — Alex Barrera @ 5:53 pm

Yesterday I went, as usual, to the monthly local entrepreneur meeting in Madrid called Iniciador. Rodolfo Carpintier, Spanish business angel and CEO of the only Spanish tech incubator named Digital Asset Deployment (DAD). His keynote was brilliant, some old school tips and some real pearls of wisdom.

First tip: Are you sure you need the money? I’ve personally heard this advice many times during my latest trip to Silicon Valley and I have to say I share it 100%. Sometime entrepreneurs think that it’s all about rising VC, but not all ideas need VC. Most of them don’t. Mine neither, or so I think (yet).

Second tip: Know who your audience is. This is an old one, but still worth remembering. Don’t go and pitch a VC when what you really need is seed capital. Vice versa, don’t go to ask for seed capital if what you need is $5M to start running. This is also true for entrepreneurs looking for developers, directors, etc. I had one guy come to me yesterday asking me if I wanted to be his marketing director. I respectfully decline and the incident got me thinking. Don’t go to an entrepreneur meeting looking for that profile, it’s a waste of time. Most of the people going to those meetings are looking for the same and already have their own ideas, startups, etc.

Third tip: Have a risk plan in place before going shopping. For me this was one of the best tips. It’s most often forgotten in most business plans. You need to show that even if you fail, if all hell breaks loose, you’ll still be able to return some money to investors.

There are many more tips, but I just wanted to highlight some. And excellent book for these type of tips is The Art of Start from Guy Kawasaki (still haven’t finished it yet, but I’m enjoying it very much).

Care to share some more tips?

April 8, 2008

Free as in Virus

Filed under: Business — Tags: , , , , — Alex Barrera @ 11:08 pm

I am writing this post as I’m flying over Tulsa on my way to San Francisco. This is my 10th hour of flight and I just realized something that many might think is stupid. During my transoceanic flight from Madrid to Atlanta I had free movies on board. The same goes for free earphones, free peanuts, free drinks or free cookies during the flight. While waiting for my connection at Atlanta I tried to use the airport’s wifi but, as I expected, you had to pay $7.50 for a 24h connection. On my current flight you have to pay to watch any movie ($6), you have to pay $2 to get some earphones and you have to pay if you want to eat some miserable cookies (you guessed, I didn’t pay for anything). Suddenly something has stricken me pretty hard and I know I’ve discussed this issue with some people (Say hi to Mark Evans!).
I’m so used to free services that I expect everything to be free. And mind me, that’s just wrong, very wrong. I just realized how wrong I am. $7.50 for a 24h Internet connection is very cheap for International Standards (specially if you have Euros as I do).

The problem here isn’t that some products are free of charge, the problem arises when you expect “everything” to be free. There are always exceptions to this, like the case of wifi at hotels. I still don’t get why after spending $150 per night in a hotel I don’t have free wifi. I truly believe wifi is accounted in the high price I pay for the room, but surprise, every single time I ask for wifi I have to pay some really expensive pluses.

Anyhow, many other things really deserve to be paid for. I do have a problem, I’ve never paid for a software product (ok, ok, Microsoft licenses maybe). As a programmer, anytime I needed something I tried to find a free alternative and/or code the extra functionality I needed. Although this is a cool way to save money, it does takes you much more time an effort. Not only that, most probably you won’t code a better software in just a couple of hours.

And so back to my point, I realized that I have to start learning to pay for services I use and like. My question is this: Is this the general evolution of market perception? Am I the only one realizing that an exclusive freemium world mentality is unsustainable? Will more people start realizing this and start shifting to pay per use models?

Now, more interestingly, what are the conditions a pay-per-use model needs to have to be used by a fairly large segment of a market? In my opinion, it needs to deliver two things:

  1. Create more value than their competitor’s free services (no surprise here)
  2. Get the users to understand why they should pay you for your service.

We need to really start stressing the importance of paid services as we do a horrible job at it. First of all, the value – price relation MUST be fair. Too expensive and users wont pay it, even if they like your product. Too few value and users won’t understand why they should pay you either. These concepts seem rather trivial but I have the feeling we should go back to basics with this issue.

Now that I think about it, I truly wonder if this business model is even valid anymore. Either we go back to basics with a new breed of paid models or we find a way to indirectly cash in thousands of users. Either way, I predict that true free services will die (except those that are under the umbrella of a company that can accept the looses). If that ever happens, I wonder if people will go back to paid services. You know, history is cyclic, maybe it’s time to get back to the “old” revenue model but with a nice 3.0 twist.

Now some questions for all the readers, under what circumstances would you pay for an online service? Would you consider a monthly fee, anual fee or a per usage fee? Any ideas and comments are greatly appreciated!

January 30, 2008

Because every word counts: Twitter experiences

Filed under: Business, Technology — Tags: , , , — Alex Barrera @ 3:47 pm

Recently I started using Twitter. I must confess I wasn’t very fond of it. I just didn’t understand what use I couldtwitter.png get out of it. Even though I’m still not a great fan of the service, I have to admit that it gives me some value. Many people try to describe Twitter, and most of them end up saying that it’s like a chat (irc, icq, etc.). My own definition would be that “Twitter is a slow motion chat where you get to decide who talks in it“. The key and really interesting part is the decision of who talks in the chat. For me that’s a huge difference between irc and Twitter.

From a business perspective I use Facebook to see what key people in my industry are doing. I can monitor which events they are going to, with whom they are talking, what posted items they are sharing. Again, the good thing about Facebook is that I choose who I want to be friends with. Nevertheless, one of the differences between Facebook and Twitter is that, for Facebook I always need the friendship to be approved, while on Twitter (except for protected accounts which are rare) I can follow whoever I want.

As for the quality of the information I must say that it’s just different. If you want to write about something and it’s long enough (be it more than 2 phrases) you’ll probably write it down in your blog. But if it’s just a link you want to share or an idea about something, you don’t have a tool to share it to a wide audience. Granted that you could write it as a blog post, but you risk burning your readers with a high frequency of posts with very few content. So, that’s where Twitter gets into action. It allows you to post your short musings to a different kind of audience. Getting back to the quality of the information, the good part of it is that you get to choose high profile twitters that you think might say or share interesting things. For example, Martin Varsarsky, Jeremiha Owyang or Mike Butcher are good examples of that. Again, if you don’t like someones content you can always “unfollow” them with no repercussion.

Finally, while reading a book from Ricardo Semler (Angel, thank you so much for the recommendation), I read a very good quote from Mark Twain: “I’m sorry I wrote a long letter, I didn’t have time to write a shorter one“. It holds an awful big truth, it’s harder to write small but meaningful texts than big cluttered ones. So that got me thinking about Twitter and its repercussions on heavy users. How will a 140 character restriction will transform there way of writing and even thinking? I suppose this is something we won’t see at first, but in the long row. I know that I’ve changed the way I listen to people. I’m so used to crawl hundreds of blog posts a day that I look for the essence of things and only if I like the essence, then I’ll read the whole post. This way of working is transcending into my offline life. Now I always find myself telling people to cut the crap and to get to the bottom line (I must say that people in general and in Spain specifically talk, way too much and say way too little).

I also think that, in the same way bloggers evolve and the way they write posts change with time (for better I hope), the same principle applies for Twitter. At first users just write about there life, and then they start to shift away from that and into a more information rich environment (this doesn’t applies to everybody though).

In conclusion, Twitter covers a different niche than blogs or Facebook dies and it targets a different audience. That being said, I recommend people that consider themselves information junkies to give it a try if you haven’t. You can follow me on my Twitter account and hopefully I’ll start changing what I write there. Twitter should read: “What are you thinking?” instead of “What are you doing?”.

January 28, 2008

Synergies do matter

Filed under: Business — Tags: , , , , , , — Alex Barrera @ 10:55 am

imag0274.jpgDuring Christmas I took a trip to Venice with my family. One of the days we decided to go to a classical music concert in one of Venice’s churches. Being a big music fan, as I am, it was pretty exciting. The concert was the 4 seasons from Antonio Vivaldi (If you haven’t listened to it I highly recommend it) and it was gorgeous. On our way home I thought about the concert and I was amazed at the musical complexity of the composition (the last time I listened to it was a long time ago). I thought about how music now our days isn’t half as complex, in musical terms, as it used to be. Not that I don’t like current music, I do very much, it’s just that it’s not as technically brilliant. And what has this to do with synergies? A lot actually, composers like Vivaldi, Wagner or Mozart came to Venice during a period where the arts and music were flourishing there. If you were a composer or a painter you had to be there, at least for some months. Venice, and Italy in general, became the center of the Renaissance and the most important place to be if you wanted to be someone. Many famous painters and composers had their studies in Venice and students traveled all they way around the globe, just to study with them.

Now, taking about the present, we are experiencing something similar in Silicon Valley. Some people argue that if you have a tech startup you need to be in Silicon Valley. Some others argue that it’s not necessary, that you can find similar tech hubs in Europe. There has been a lot of buzz about this, specially between Paul Graham and Ryan Carson (organizer of the FOWA conferences). Some argue that you need to be there because it’s where the VC money is, because it’s where all the big tech companies are, because it’s a place where you can find good engineers.

The reasoning behind these affirmations is, somehow flawed. In my opinion there is only one reason why it’s desirable to be there: synergies. It’s not about the money, there is plenty of money a startup can use (business angels, banks, loans, corporations, etc.). It’s not about the big companies (kind of. I’ll explain this later), you won’t succeed with a bad idea even if your office is across Google’s campus. It’s not about good engineers, you can find them elsewhere. Granted it’s harder, not because they don’t exist, but because they are scattered. So, if it’s not about all the reasons I underlined before, then what is it?

The single reason for being at the Valley are synergies. Due to its importance, Silicon Valley attracts very smart people. It works as a huge talent magnet. And it’s not only Silicon Valley, it’s Stanford and UC Berkeley as well. What I’ve seen while I was over there (yes, I’ve there for some months), is that people aren’t geniuses (some are synergy_ball.jpgindeed, but there are very few), it’s all about the environment. Having dinner over there typically involves at least 3 or 4 top persons of a given field, be it computer science, biology, literature, chemistry, mathematics, etc. Your ideas are evaluated by top notch scientists every single day and at every single conversation. That means that if you idea is bad, you’ll know about it pretty soon. On the other side, you’ll get incredible feedback and ideas from around you. That’s something you don’t find easily. I mean, you might get ideas from your buddies in your local town, but you won’t get feedback from the guy that invented Internet. Trust me when I tell you that there is a great difference in the quality of the conversations. And that’s what happens, you eventually start getting “smarter” by being around smart people. You adjust your line of thought to theirs and you boost your personal limits. That’s a synergy. It’s not about the sum of the ideas, it’s about boosting the collective ideas to levels well beyond the sum of each individual one. Obviously, Silicon Valley won’t transform you into a smart guy if you don’t have the brains.

sk-c-1367z.jpegAs I said before, it’s not about working next to Google, it’s about talking with the guys at Google and an infinite exchange of knowledge. Another good thing about synergies is that they generates feedback. Once you taste it, you get more and more and more. The more you get, the more you want. That means that you try to contact more and more people and your social network grows and grows. People at the Valley are always open to new ideas and newcomers and they try to foster healthy discussions. I talk about this because in many countries, specially in Europe, people don’t discuss, they don’t ask questions or worst, they can’t find people to discuss ideas with. And even though you might find a small group of persons you like to chat and argue with, it’s just at such a small scale.

If you read the first paragraph again, you’ll hopefully see the parallelism between the Renaissance and Silicon Valley. Why were there a huge number of awesome Italian painters during those centuries? It wasn’t a local dna anomaly. It’s because the brain is incredible plastic and can work at different rates depending on the outside stimulus. If these are smart stimulus, your brain can set into its higher gear, if the frequency of the stimulus is sparse, it won’t adapt to such high processing levels.

There is a problem with this environment though. It’s well described with this phrase: “can’t see the forest for the trees“. When you are surrounded by the same people and work on the same things, you can’t see the big picture and that can be very dangerous. That’s probably one of the worst characteristics of Silicon Valley. You always need to stay in touch with people from different places to avoid loosing the “big picture eye”.

I don’t want to make this post about how Silicon Valley is the greatest place in the world because it’s not. I just wanted to analyze the power of synergies and how the moment something gets democratized it diminishes the power of synergies. And that’s another problem with synergies. They withhold an incredible power, but at the same time they are very hard to obtain. You need just the right environment and that’s not always possible. For example, some centuries ago, University was something exclusive. It gather the best of the best. It was the center of all enlightenment and so it promoted synergies. Everyone that went to University (generally speaking) was there because they wanted to learn (and because they where wealthy also).

At some point, University was democratized (in Europe) and many people that couldn’t afford it where suddenly able media_20543_en.jpgto study and obtain a higher education. This was something incredible, as it promoted literacy in many places, but strikingly it had some secondary effects. This democratization rendered the high intellects apart, diminishing the power of previous synergies. The more mainstream something becomes, the more difficult is to build synergies. This is because in a big group of people, the norm is that most of them don’t care about learning. I say this last phrase with great grief as I would wish it could be the other way round. Nevertheless, when most of your environment thinks like that, it’s much harder to find brilliant people as they are scattered all over the place. Again, don’t get me wrong about this issue, I’m not defending the elite schools or Universities either.

In conclusion, getting the right balance between elitism and mainstream and being able to maintain a reasonable number of synergies can be a very tough quest. So, have you ever been part of a synergy with someone? What are your experiences?

Image credits: pburch.net, rijksmuseum.nl, gla.ac.uk

January 7, 2008

Valuation snowball

Filed under: Business — Tags: , , , , , , , , — Alex Barrera @ 7:17 pm

Even though investors, entrepreneurs and industry leaders say the current technological bubble is different from the one in 1999, things are starting to get out of hand:

  • SugarCRM: Raises $14.5 Million
  • Ice.com: Raises $47 Milliondollars.jpg
  • Pudding Media: Raises $8 Million
  • Meraki Networks: Raises $20 Million
  • Affinity Labs: Acquired for $61 Million
  • Moniker: Acquired for $65 Million
  • Onaro: Acquired for $120 Million
  • Apertio: Acquired for $206.5 Million
  • XIV: Acquired for $350 Million

All those deals come from last week’s Techcrunch posts. I just did a quick search at TechCrunch’s archive from 2006 and I found some interesting statistics. Lets compare the ratio of deadpooled startups in 2006 versus deadpooled startups in 2007:

Deadepooled companies in 2006:

http://www.techcrunch.com/2006/01/10/searchfox-to-shut-down/ http://www.techcrunch.com/2006/05/04/want-to-buy-a-search-engine-2/ http://www.techcrunch.com/2006/06/15/myspace-nukes-singlestatus/
http://www.techcrunch.com/2006/06/20/myspace-feeds-the-deadpool-nukes-another-startup/ http://www.techcrunch.com/2006/06/29/couchsurfing-deletes-itself-shuts-down/ http://www.techcrunch.com/2006/08/16/ajax-calendar-kikocom-goes-on-ebay-offers-to-delete-accounts/
http://www.talkcrunch.com/2006/09/06/episode-11-elliot-noss-talks-about-kiko-acquisition/ http://www.techcrunch.com/2006/09/21/exclusive-zookoda-auction/ http://www.techcrunch.com/2006/10/04/audioblogger-joins-deadpool/
http://www.techcrunch.com/2006/10/16/livelocker-calls-it-quits-enters-deadpool/ http://www.techcrunch.com/2006/12/30/rawsugar-in-deadpool/

Total: 11

Deadepooled companies in 2007: See TechCrunch post.

Total:55

Granted that counting TechCrunch posts isn’t rocket science and that might not be the most accurate data source. Nevertheless, it’s quite interesting to see that the number of companies that went out of business this year is 4 times higher than in 2006. I haven’t counted the number of launches in 2006, but I guess the number is quite smaller than in 2007 (34 of them reported by TechCrunch).

The number of millions invested in tech companies also suffered an acute increment. In 2006 the investment ranged from $3 to $15 Millions with an average investment of $12.94 Million (all data taken from TechCrunch’s archive of 2006, and don’t reflect exact numbers at all but just a quick, probably biased, approximation).

A comparison with the investments I showed at the top (an average of $22.37 Million) makes my mind blow. In 2007 the number of investments, and the total amount of money per investment grew considerably (these approximated values don’t account for Facebook’s recent investments which would only rise the average).

What is the problem with this you might think? Well, not much at first. It’s great that so many companies are getting investments. It’s a good indicator of strong economical growth in the tech industry. The problem arises when companies start getting valued higher than they really are. It’s true that it’s very hard to valuate a company, specially a dot com company with millions of users but no revenues, but some of the acquisitions and investments are just crazy.

social-bubble.png

On one side it’s great news for all entrepreneurs like myself. It’s getting easier to get investment and it’s also easy to reach a good exit deal thanks to all the acquisitions we are seeing. On the other side, it’s a dangerous situation. I reckon we won’t experience a bubble burst as big as the one in 1999, but when this trend stops we’ll have to face hundreds of deadpooled companies and many VCs will lost big amounts of cash. As a side effect, hundreds or even thousands of engineers will be laid off. I don’t like apocalyptic visions, but I’m afraid there is way too much expectation and we will suffer this. As many economist know, the market will self regulate itself. Just watch and see!

Image credit: bigmouthmedia.com

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