Tuesday, February 22, 2011

The next day

Over the years, I've participated in many theoretical academic debates over which is more important; the CEO or market. It's similar to the 'nature vs nurture' parable which modern genetics has resoundingly answered (both).

It's true that rising tides lift all ships, but it takes a captain to determine when to sail, as well as choosing the proper port to leave from and to enter. I've come to greatly appreciate CEO's and the myriad challenges they have in the day to day implementation of company plans and strategy development. Coming off a few board and new prospect meetings only highlighted this appreciation. Let me share a few of 'the next day', after the board meeting issues these CEO's are dealing with:

1. The pivot- Six months ago this company introduced its product to the market. A beautiful looking social application which has garnered a fair amount of traffic, but basically zero uptick to a paid version which fuels their 'freemium' business model. Angel cash is getting tight and a new module, enhancing the value of the base solution will race against the clock. Build momentum to attract new capital or shut out the lights.

2. The approach- After working 4 hard years and creating value, this company has been approached to be acquired. The CEO is moderating disparate shareholder interests where some want to defer a sale till greater value is earned, some want to sell now, and a few shareholders are agitating for a large financing round.

3. The team- The CEO hired what seemed like a wonderful senior officer, introduced him to investors and integrated him into the organization. It's six months later and he thinks it's a bad hire; the fit's just not there.

4. The acceleration; or 'what's next'- Business is great, metrics are up, team is happy. But (and there's always a but) all agree we will see slowing growth in the next 18-24 months. Got to find another market or add more value to existing customers. If no solution is found, we should exit soon.

These may seem like distinct issues, but a CEO faces these, and many more, multiple times in a year. If there's a blind spot in her vision, it will surely be exposed and may very well likely maim the company. The best CEO's address the issues rapidly and move on to 'next'.

Thursday, February 10, 2011

Lowering the 'Why not 'barrier

I had lunch with John Frankel the other day. John is a prolific investor in early stage internet companies through ff Asset Management and a person with well formed opinions about where to invest. Next to his office is a magnificent building. I was checking out its history and architecture via Wikihood on my iPhone when John spied me in the middle of my research and it sparked a discussion on how it was possible, but so difficult to do this same research only 4 years ago. Though possible, it would not have been real-time, would have taken multiple applications to perform, and by the time I realized what was necessary to pull together the project (and a project it would have been), I would have run out of patience and been onto my next task.

John calls this the Why barrier. He goes on to explain that the layering of API's, proffered free of charge, has created the opportunity for so many applications to offer so much to so many for such a 'cheap' price that the reasons to not gather information, or use an application are falling every day. Apple has passed 10 billion downloads in its App Store, with 7 million downloads in the last 12 months. Moreover, it's only getting easier to find and download applications, a trend he sees only exploding as inter connectivity, and the vast data exposed and collected, married with GPS data, only increases application utility.

Why not?

Monday, February 7, 2011


I met with a young pre-revenue company last week and asked the founding CEO what his post-funding plans were to augment his team. He replied that the key hire required was a COO to free him from the day to day details so he can concentrate on strategy and business development. It was a fair resonse, moreover, COO is an ambiguous title, a role that shifts from company to company. I think of it often as being employed as a VP who is first amongst CEO report equals.

The meeting got me thinking about the role of a COO in such a young company. I probably have a faulty memory, but outside of co-founders dividing up titles (e.g. you take Chairman and President, I'll take CEO and Director), I can't recall any successful early stage company employing this structure. I think there are a few important reasons for this:

1. Young companies need flat organizations. Too many reporting layers slow response time in an era of agile development and fast market shifts.

2. Companies need a singularity of leadership associated with vision and execution. This can be achieved with co-founders, but it's really hard, post founding, to bring on board a 'co-leader'.

3. The CEO must dive into all the details, filters hinder her ability to get a visceral feel for what needs to be done. If the CEO is not detail oriented, or has a blind spot for a key company function, odds are that is the area where the company will suffer.

Tuesday, February 1, 2011

Tension in the shift from application to platform

Facebook announced that all Facebook games must use Facebook Credits starting July. This is mandatory, and I am sure there are great reasons for the standardization of its proprietary currency on its proprietary platform. To somewhat ameliorate the pain, and as a carrot to match its stick, Facebook will offer prominent placement on the games dashboard as an incentive to make the switch.

From an economic perspective, and similar to the tax paid to other proprietary platforms (e.g. App Store), Facebook takes a 30% share of all purchases. Some key games are not yet using the credits system as Zynga’s CityVille (100MM users), has its own in-game currency. Time will tell if this will become an exception, or a war.

Few software companies, led by MSFT, have navigated the tricky waters around the shift from offering mostly solitary applications to offering a platform integral for other vendors to build upon. Facebook made this transition in record time with the introduction and rapid adoption of the Open Social graph. It has been a stunning success as within nine months thousands of companies have written their applications to tap into Facebook's data flow and add value to tens of millions of users. This transition firmly established FB as the defacto standard for social computing; its Operating System...it's 'dial tone' is now unique and unchallenged.

With this success comes a fundamental cultural issue for FB and its ecosystem. Now, instead of concentrating its efforts solely upon the satisfaction of its users (and customers), FB has a litany of 3rd party developers, serving as a proxy for millions of their users, to satisfy. As the shifting sands of 'interests' between FB and its ecosystem change, tension will arise. For example, it's not at all unlikely, in fact highly probable, that FB will emerge as the most acquisitive software/internet company of this decade. With so many broad and mostly untapped markets (e.g. social commerce to name one) available, it is natural that the company's growth focus will shift from garnering more users, to monetizing them. This shift, or flashback from application to platform to hybrid model, will place FB in direct competition with its ecosystem.

FB Credits comes on the heels of Facebook Messages, a unified application which links texts, chat and email together. Perhaps, of great utility for its users; certainly a great threat to independent vendors. For those of us who watched the MSFT 'movie' and are witnessing Apple's ascent, all should expect FB's platform to expand wider, eclipsing many adjunct segments.

Back to Credits, Zynga may have sufficient critical mass to withstand the assault today, perhaps, it should be the foundation of an application arm within FB in the not too distant future? In any event, I expect prudent CEO's to build applications, and investors to concentrate diligence, on whether there is expected to be sufficient value for members, whereas an independent company can they build its own social graph; yes, connected to FB, but wary of its intent.