Four essential characteristics of entrepreneurs

Despite the fact that my New York Giants failed to make a repeat trip to the Super Bowl, being the diehard football fan that I am, I wasn’t going to miss the Big Game. Whether or not it was the greatest Super Bowl of all time (it wasn’t), one thing that stood out to me was the way in which both teams rallied when they were down and how it took the effort of every player on each team to deliver success. It was clear that no individual player wanted to let down his team by not doing his individual job well.

It strikes me that we’re seeing the same thing play out in the world of startups right now. The companies that are continuing to make progress notwithstanding the challenges in the funding environment and the broader market are the ones with teams that are committed both to the mission of the company and to each other. I would argue that a quality team is the most important factor in the success of a startup, but never is the quality of a team more important than in a down market. After all, there are no unique ideas, only unique execution and execution is the difference between success and failure given the current economic situation.

So what are the characteristics of a successful entrepreneur or team?  I don’t know that I have the right answer to that question, but here are the things that I look for when making investments. First is passion. Is the team genuinely excited about the business and the problem that it is addressing? Is it committed to solving the problem and building a sustainable business? Passion is a requirement given that there are so many ups and downs in the life of a startup. Second is flexibility. Rarely is the initial approach to solving a problem or attacking a market the right approach. Entrepreneurs and teams that can’t react to messages from and changes in the market are likely to continue marching down a path that leads to a dead end. Third is expertise. It’s important to note that expertise isn’t defined as years of prior experience building a company or product. I deem expertise to be the possession of unique insight that sheds light on an acute pain and the salve for that pain. In other words, what is it that makes the team uniquely qualified to solve the problem that they have identified? Finally comes integrity. The relationship between an investor and a team of entrepreneurs is often compared to a marriage, and the comparison is only a slight exaggeration. Trust, honesty and candor are the foundations of the entrepreneur-investor relationship. Without those building blocks, the inevitable ups and downs of the corporate marriage are impossible to withstand.

While this isn’t a comprehensive list of what I believe makes an entrepreneur or team successful, these are some of the absolutely critical characteristics. And I would expect that any startup team should be looking for the same qualities in its investors. I’m blessed to work with a group of entrepreneurs whom I am proud to call both great partners and friends. I have absolute confidence that these teams will be able to execute well during the current economic downturn and emerge much stronger and better positioned than the competition. Watching the Super Bowl, it was clear that each player had the same faith in his teammates, even when it looked like the game was over. I hope that the same can be said about the Giants a year from now!

P.S. Many thanks to those of you who sent your thoughts and prayers my way upon hearing about the passing of my father-in-law. Supporting him and my family through his battle with cancer was a major reason that I’ve been remiss in blogging for so long.

If you build it, they might not come

A while back I wrote a piece for The Battery Charger, my firm’s quarterly newsletter, about our investment focus within the Internet and Digital Media sectors. As I noted in that article, we invest in both consumer-facing media properties and enabling technologies. In my meetings of late, I’ve noticed a disturbing trend amongst companies that belong to the first category. While almost all of the presenting media companies have slick demos and whiz-bang product features, very few of them have gone to the trouble of outlining their strategy for possibly the most important and difficult piece of building any successful media business: acquiring consumers.

 

As a VC, one of the fundamental questions I ask when meeting entrepreneurs is about the unit economics of their business. How much does it cost to acquire a consumer and what is the lifetime value of that consumer once you acquire him or her? Most thoughtful entrepreneurs have considered this issue and can offer an answer. However, when I ask what strategies they are using to acquire users at the cited costs, I’m surprised by how often the response I get is a simple statement about some combination of SEO, SEM and viral marketing. Without fail, the entrepreneurs cite examples of other products that have been built on largely word-of-mouth alone.

 

I would argue that the next level of detail is critical to a well-thought out strategy for user acquisition. What are the specific tools and techniques that will be used to improve and optimize your SEO and SEM results (e.g., avoid dynamic URLs, use descriptive page titles, etc.)? What other steps will you take to create awareness for your product or service (e.g., blogging, content syndication, email marketing, etc.)? Which aspects of your product encourage sharing and linking or generate network effects? Good investors or advisors will not only ask these questions but offer some tips and tactics or relevant contacts of their own. They’ll also look to understand the overall quality of the traffic that is being generated, seeking that coveted shift in traffic from paid sources and organic search to direct navigation. My rule of thumb is that 30% direct navigation indicates the beginnings of brand loyalty and that 50% is evidence of strong traffic quality.

 

Admittedly, tackling the problem of user acquisition is extremely challenging and complex. But that doesn’t mean that it should be ignored or given short shrift. There are many resources that can help identify best practices for various consumer acquisition strategies and tactics. For example, Google itself publishes some good SEO guidelines and other helpful hints can be found on SEOmoz.org and SEObook.com. However you identify the strategies or whatever the approaches you choose, the crucial thing to remember is that a good product typically isn’t good enough, especially if you’re competing against incumbent players. Investors are certainly aware of that fact and entrepreneurs should demonstrate that they are as well.

Scaling startups is more than technology

In the “Web 2.0” startups of today, innumerable technology choices are the topics of the day when talking about scaling the business. Countless hours and meetings are spent debating the virtues of Ruby on Rails, Amazon Web Services and server virtualization. A fortunate few companies find themselves in the enviable position of having to devote even more time and attention to even more critical, non-technical scaling challenges. When a startup delivers a product to market that fulfills a clear customer need, sometimes the biggest challenge can be addressing that demand with operational scale. In a market with so many startups and established companies competing for dollars, customers and talent, outstanding people and defined processes are vital to any business that is hoping to scale successfully. I encourage the teams that I work with that are lucky enough to be in this situation to answer two key questions to determine whether they are set up to scale effectively.

First, are there any single points of failure amongst your people and processes? A challenge with so many startups is that there a small handful of the oldest employees who have the majority of the business, technical and product knowledge contained within themselves. Pitching the product clearly, implementing customers or addressing bugs can all be bottlenecks to success if only a single expert can manage those tasks. Systematizing the dissemination of knowledge through various media, and importantly, through person-to-person guidance, is as important to scaling a business as documenting code is to scaling an engineering team. Further, even if several people have the ability to execute as needed, without clearly defined processes, those people may be ineffective, inefficient and demoralized. That is not to say that bureaucracy and rigid rules are needed to scale a business. On the contrary, a process that is both flexible and regularly modified based on business needs can aid in delivering consistently good performance.

Second, are you hiring and transferring knowledge to make yourself obsolete? The first step is being disciplined about hiring only the best people for your organization. That doesn’t mean that you are hiring the smartest, the most educated or the most accomplished people. Instead, the goal is to hire people who have the skills and the values needed to be successful within your organization. I hesitate to use a term as soft as “values”, but the importance of a shared culture, commitment and vision can’t be overemphasized during the development of a young company. If you are successful in making yourself obsolete, not only have you hired great people, you’ve supplied them with the tools, knowledge and processes needed to do their job (previously yours) consistently well. 

So is your organization built to scale? If you’re lucky, you’ll get to find out, because the opposite of scaling isn’t nearly as fun or rewarding!

The short form vs. long form video holy war

As a board member of a company in the online video advertising market (FreeWheel), I regularly get to chat with many video content producers, owners and distributors. Without fail, the fervent “holy war” between short form and long form video zealots arises as a top of conversation. Without getting into the nuances of the debate, the short formists argue that the web audience wants its video in bite-sized chunks, unlike a traditional television viewing experience. They inevitably point to the popularity of YouTube as evidence for their perspective. The long formists maintain that short form video only dominates online video viewing because long form content has been slow to come online. Of late, long formists have cited recent data from Nielsen that shows the growth in the online video streaming of Hulu. Neither side seems willing to open their minds to the possibility that there might be a little grey in their black and white worlds.

 

I’ve found religion and my faith lies with the availability of high quality online video of any length. The only thing that matters online, like across all media channels, is the value that someone gets from the content. There are vast audiences for both books and magazines, arguably the long form and short form, respectively, of the print world. On television, I can get my comedy fix from 23 minutes of Seinfeld or from short sketches on Saturday Night Live. Why can’t the same coexistence of content be true for online video? After all, I’m just as happy to watch two minutes of low production value Riegel & Blatt as I am 43 minutes of Lost in high definition because each video provides me with (very different!) entertainment value. Content producers should not be occupying themselves with discussions about the appropriate duration of online video. Instead, the path to salvation is will be found by focusing on creating quality content and on working to get that content distributed, discovered and monetized.    

 

 

 

Under the Radar Conference

My friends at Dealmaker Media are hosting their Under the Radar Conference on Social Media and Entertainment this Tuesday, June 3rd. They’ve been kind enough to offer readers of my blog a $100 discount. Be sure to attend as there is a stellar group of companies presenting. And please stop by and say hello if you’re there as I’ll be roaming the halls.

Dude, that’s so meta

In recent weeks, everyone that I have spoken with claims to suffer from some form of information overload related to digital media. As content creation has become cheap and simple for the masses, and the cost of building online businesses has dropped, the volume of online content, activity and communication has grown enormously. According to a recent Deloitte & Touche study, nearly half of all U.S. media consumers are now creating content for others to see. People are not only explicitly creating content for consumption, but they are also increasingly broadcasting their online and offline activity via services like Facebook and Twitter. All of this information has led to the development of “meta layer” applications and services to help consumers filter and organize information so that they can find and consume what is most relevant and timely for them.

Examples of these meta layers can be found in many areas. Digg and Google News are meta layers for news. Friendfeed and Socialthing are meta layers for social networks. Bloglines and Google Reader are meta layers for blogs. Mint and Wesabe are meta layers for personal finance. (Even ad networks have meta layers, such as Rubicon Project and Pubmatic.) Unfortunately, the challenge for online consumers remains. Seemingly, the number of meta layers will soon present the same problem as individual sources of information do currently. Further, these meta layers take varying approaches to filtering and organizing information for the consumer. Fine-tuned algorithms, wisdom of the crowds, trusted networks, expert curation, explicit consumer actions and implicitly derived interests are all techniques utilized by meta layers.

Ultimately, consumers only care about the value that they get from using a meta layer and not the approach taken to providing that value. Consumers will want many different filters for content but will want to control when and how content is filtered and presented. Networks effects will be the true differentiator that separates the winners in the meta layer wars from the losers. If a person extracts greater value whenever another person uses the same meta layer, both the value proposition and the adoption of the layer will grow exponentially. Depending on the meta layer application, scale in the user base can provide consumers with higher quality benchmark data, greater market liquidity, more relevant results or unexpected personal connections. I haven’t come across a meta layer that really provides differentiated value via network effects. Until I do, and despite the need for them, I’m skeptical that any single meta layer application or service will reach the critical mass needed to provide outsized venture returns.

Right message, right person, right time. Wrong answer.

I met with an entrepreneur late last week and he mentioned that he had read my blog (I didn’t believe him either) and that he was curious as to why I think online advertising will continue to be effective when all of the data shows that consumers are increasingly ignoring online ads. I realized that as much as I write about online advertising on this blog, I haven’t really defined what form I think it will take over the coming years to be effective. It turns out that The Cluetrain Manifesto had it at least partially right years ago. To paraphrase and to put in the simplest terms, marketing is about conversations.


The right message. The problem with online advertising to date has been that it has taken the form of delivering a one-way message and talking to a consumer, much like in traditional media. In today’s web world, consumers realize that they aren’t a captive audience. They are free to continue doing whatever it is that they came to a website to do, either by ignoring or skipping ads. That is why the “right message” doesn’t work any more. Online advertising in the coming years will be a dialogue between brands and consumers and amongst consumers themselves within the context of a brand. Widgets and dynamic rich media in various forms, such as games, review panels, and personal utilities, will take the place of banners and text ads (although probably not for search). Interactivity, community and engagement will be top of mind when developing campaign creatives.

The right person. The targetability and measurability of internet advertising will continue to improve. With so much anonymous and user-provided data available on the web to be used for targeting, finding the right person with whom to engage in a conversation will be easier than ever. Contextual targeting and the current approaches to behavioral targeting have not proven to work well in many contexts. Certainly, new targeting models will emerge and prove effective for discrete online environments.

The right time. The traditional purchase funnel (roughly defined as awareness, consideration, intent and purchase) isn’t such a straight and narrow path any longer. The idea of finding online consumers at exactly the “right time” in the funnel (again, with the exception of search) isn’t just difficult, it’s also outdated. The focus of agencies and brands will be in building relationships with consumers at all points in time, because on the Internet, information and influence is coming constantly and from all directions. The only way to rise above the noise will be to engage consumers in a sustained conversation using the new, rich tools available to marketers.

 

So what’s the right answer? Hopefully, the right conversation with the right person whenever possible.

Online media planners and buyers lost at sea

It’s tough to be an online media planner or buyer right now. Nearly every planner or buyer that I talk to is swimming in an ever-deepening pool of data and demands. Over the past few years, the number of publishers and ad networks vying for their attention has increased dramatically. Engaging audiences through advertising has become more difficult as consumers increasingly ignore traditional display ads. Reaching those audiences at scale is more challenging because consumer attention is fragmenting across a growing number of online properties. Finally, advertisers have become more demanding about efficient allocation of their ad budgets given the assumed measurability of online media and all of the various forms that online advertising can take (display, search, contextual, behavioral, CPM, CPC, CPA and on and on). All of this is happening while agencies come to the realization that it’s impractical to separate planning and buying from creative development for online advertising.

Despite all of this rapid change, the tools that agencies use to determine how and where to spend money are still largely the same as the ones that they used early this decade. comScore, AdRelevance and @Plan (the latter two from Nielsen//NetRatings) remain the standard tools that most agencies rely on for online planning purposes. Buying is still largely a manual, time-consuming process, despite efforts to streamline the process with products such as MediaVisor. And forget about trying to optimize creative or spend on the basis of actual business results or ROI. Without the emergence of more useful tools and services to aid agencies in planning, buying, measuring and optimizing, the share of ad budgets allocated to online media (7.5% today according to Yankee Group) will continue to lag consumption of online media as a percentage of total media consumption (20% today). Innovative products and services are critical to the many businesses that are counting on ad revenue to survive. New ad-supported businesses will have a hard time seeing ad dollars flow their way without help for agencies that are dealing with a flood of opportunities and data. Today, agencies use the approach of clinging to the sites and formats that they already know. The entire industry needs to help agencies (and advertisers) navigate increasingly turbulent waters so that they in turn can find and justify throwing lifelines (in the form of ad dollars) to fledgling online properties.

Fortunately for agencies and advertisers, entrepreneurs who have lived and breathed online advertising during its early years are now recognizing the opportunity to help address these problems.  VisualIQ, Quantcast, Balihoo and Covario are examples of companies that are attempting to provide more data to agencies and to increase the efficiency and effectiveness of their processes. I’m eager to see additional tools and services and the widespread adoption of them by agencies and brands. Only then will agencies, advertisers and ad-supported businesses be able to collectively withstand the waves of change that they are facing. Please let me know if you have come across any interesting products or services that help agencies or advertisers plan, purchase and optimize online media. All of us in the online media industry will sink or swim together!

Quick hits: Target, ad networks and the Super Bowl

I’ve been remiss in posting on some fascinating things that have taken place in the digital media industry over the past month. Fortunately, the two major reasons there has been a delay are because of closing an investment that we announced early this week and because of my total engrossment in the transformation of my New York Giants from playoff afterthoughts to Super Bowl Champions (which I’ll comment on below). I’ll do better going forward (I hope). Without further ado…..

Target and customer dialogue: Last month, Amy Jussel of ShapingYouth.org published a blog post in which she shared an opinion about a recent Target billboard advertisement. She also called Target several times, to which Target responded in an email by saying that “Target does not participate with non-traditional media outlets.” Now whether you agree with Amy’s perspective or not, I think we can agree that corporations are doomed if their response to feedback from customers, in any form, is to dismiss it outright. If Amy had written a letter or sent an email, would Target have responded similarly? My guess is only if the customer service representative wanted to lose his or her job. The impact of customer service on word-of-mouth, brand perception and profits can’t be overestimated, particularly in a digital world where switching costs are negligible and customer acquisition costs can be sky high. Emerging companies like Satisfaction and Bazaarvoice (a Battery portfolio company) are focusing on the dialogue between and amongst brands and their customers to create new commerce and service opportunities. Leveraging consumers’ increasingly visible and explicit perception of brands and products in this way is just beginning. In addition, we’ve already seen that the empowering of consumers via digital media can save television shows and change company policy. Undoubtedly, we will eventually see an online consumer uprising that results in a tumbling stock price and executive job losses. The companies that fail to take advantage of the availability of consumer data and to engage in an open dialogue with customers do so at their own peril.

OnMediaNYC and ad networks: I had the pleasure of speaking at the OnMediaNYC conference at the end of January. One of the major things that struck me coming out of the conference is the incredible challenge that advertisers and agencies face in sifting through all of the various media outlets and ad networks now vying for their ad dollars. And that is exactly why scale matters so much. With multi-million dollar budgets to deploy and limited human and research resources, advertisers and agencies can only purchase media in so many places. And the simple rule of thumb is to pay attention to the outlets that can provide them with the most reach. Until there are better research, buying and analytical tools (if you know of any, send them my way!) for them, advertisers and agencies will only spend time with the largest publishers and networks. The challenge then for the publishers and networks is to achieve the scale necessary to rise above the noise and get the attention of potential buyers. Too many of the ad networks that I saw at OnMediaNYC focused on nifty targeting technologies and whiz bang ad formats. Very few talked about how they intend to achieve the scale necessary to have advertisers and agencies even spend time learning about their approaches. There are well over 300 ad networks in the market today, but I expect that there will be far fewer that achieve the scale needed to survive over the long term.

New York Giants, Super Bowl Champions, and teams: As a life-long Giants fan, I was fortunate to attend not only one of the great games in Super Bowl history, but also a game that ended in an unbelievable victory by my favorite team. There are lessons for business to be drawn from many parts of life, but as I left the stadium that night I was struck by a particular message. It sounds flowery and obvious, but it’s worth reminding ourselves that a team of individuals committed to each other and to a common goal always have a fighting chance, even in the face of naysayers and accepted theory. As venture capitalists, we tend to place a great deal of emphasis on the teams with which we partner. The Giants’ Super Bowl victory reminded me that there is a reason that we seek traits like focus, persistence and commitment in our entrepreneurs and that we strive to give them the same in return. In our business, often times market opportunities are not obvious to outsiders or simple to address. But a determined team that believes in its abilities can sometimes achieve outstanding results, even while those on the outside criticize its ideas and approaches. Just ask the Giants.

 

Super Bowl XLII

Making a (belated) resolution to monetize social media

Looking back on 2007, I think that there is no debating that social media and user generated content were important components of the overall online media market and that they will only be increasing in significance over the coming years. After all, it has been fairly widely published that social media properties account for somewhere between 20% and 30% of all page views online and nearly 45% of all time spent online. However, advertising spend on social media is less than 2% of total online advertising expenditures. The poor performance of the monetization models that have been attempted to date is well documented. But I believe that there are a few models that are emerging that have the potential for success because they may do a better job of engaging and targeting the right audience. Of course, more compelling advertising creatives, specifically designed for the social media environment, are as important for engaging consumers as is the monetization approach.  

Here are a few models that I hope to see being tested by startups over the next few months. The models have potential for all types of social media sites, including social networks, media-sharing sites, virtual worlds, etc. 

         Leveraging the various types of data available from a social media site to target audiences, rather than context or page views, on the site. Clearly, the content alone from social media sites hasn’t been valuable enough information on which to base ad targeting.  But combining context with other data, including user activity, demographics and geography, and potentially even sharing that across social media sites, could yield strong results for delivery of advertising, commerce and content.

         Consumer endorsement of brands, products or content that begins by providing them with value from and control over the messaging initiated by them and their activities. Widgets and RSS are powerful tools to be used within this word-of-mouth-marketing model, which helps advocates and influencers spread the word about the things with which they associate themselves.

         Mining social media to better target audiences on non-social media properties. The participatory nature of social media makes it an incredibly rich platform from which to extract targeting data that is unavailable elsewhere on the web. This provides a unique opportunity for social media sites to share that data (in a privacy-friendly way) with other web publishers so that value can be generated for both groups. 

I expect 2008 to be the year in which clear monetization models emerge for the social media properties that experienced fantastic growth in 2007 (eMarketer has one or two forecasts of its own). My somewhat belated resolution is to support those companies that are taking innovative approaches to generating sustainability for a thriving, important and exciting medium.