Economic downturns are good for innovators and bad for pretty much everyone else
The best time for new technology trends to take off is during economic downturns.
There has been a lot of talk about the current and coming future economic situation. The housing price collapse, liquidity crisis, inflation woes, and many other factors have led a lot of people much smarter than me to think a recession is coming.
My response: bring it on!
When the economy is booming, little pressure is put on expenses. In good economic times, large organizations often penalized innovators. Instead of looking for radical changes, companies are ok with spending more money on the same software, the same hardware, and the same advertising mix.
But that changes quickly in hard times. Economic downturns force companies to reevaluate how they spend money. Companies need to cut expenditures dramatically yet are expected to have the same level of service as when times were good. This forces firms to look for alternatives to what they are doing.
The last downturn in 2001-2003 was instructive. 2001 was the breakout year for Google. Companies had to look for a more effective way to advertise and they found that buying leads on search engines was measurable, easy, and highly profitable (especially back then when the cost per click was lower).
Linux also took off in 2001. Companies couldn’t afford to buy powerful Sun servers anymore yet they couldn’t afford not to do anything. So companies experimented with Linux on used Intel boxes and found that it performed quite well. And then the unexpected happened … other companies, like IBM, observed this trend and started investing in Linux to promote their own solutions.
MySQL was the same story. The free database solution was more appealing then MS SQL Server for the low-end market and Oracle for the mid-range market.
We’ll see something similar happen in the next downturn … innovations that are having trouble getting wide adoption today will take off.
This is why I’m still bullish on Internet advertising. Over the last few years, while Internet advertising has exploded, it has not even come close with keeping pace with its percentage share of media usage. If dollars were allocated as a percentage of time each form of media takes, web advertising would be much bigger than it is today. In 2006, annual U.S. online ad revenues were about $17 billion (according to IAB) which was compared to about $25 billion for publications (magazines and newspapers) and $91 billion for television. This disparity exists because it is really hard to change inertia. Media buyers like to buy TV (and there are a lot of incentives for them to continue to buy TV). And while Internet ad revenue climbed 25% to $21.1 billion for 2007 (according to IAB), the Internet still represents less than 10% of ad spending yet is far more than 10% market share of our media consumption.
In the event of an economic downturn, there will be a lot of pressure on large companies to find more cost effective (or at least more measurable) ways to advertise. So while overall ad dollars might decrease, we should expect advertising in traditional media (like magazines and TV) to drop much faster than ads in new media – and that new ratio then will become the norm when the economy rebounds.
At Rapleaf, we’re also betting that a downturn will force companies to look to their current customers for new revenue (rather than focusing on building their revenues just by getting new customers). Acquiring new customers is expensive. Get new dollars from existing customers (whether through selling them additional services or just making them happier so they stay customers longer) is much more capital efficient. Companies will switch their expenditure ratio to focus on learning more about their current customers.
Economic downturns help innovators, but they don’t necessarily help “technology” companies. The last downturn negative effected companies like Sun, Microsoft, and Cisco. While these companies do innovate, they benefit much more from the status quo. Essentially, most large “technology” companies benefit when things DON’T change. By contrast, real innovation (either from start-ups or some rare large companies like Apple) benefits from change.
i’m a lover of player turn-based chess.
see the CNET TV video on chess (and watch me geek out on chess strategy):
Video: Social networking through online chess
jessica guynn wrote a good article in the Los Angeles Times:
Brainstorming over bagels: Silicon Valley entrepreneurs seek camaraderie and capital at brunch
special thanks to Tod Sacerdoti, Saar Gur, Peter Thiel, Mark Pincus, and Matt Cohler who, with me, hosted the very first Founders Brunch at my place in 2005.
I’m dubious of this since InsiderPages has not been updated in a long while and has been actually down today (when i tried to check out the site).
Compete.com tells a different story w/ Yelp about triple the traffic of InsiderPages:
But Compete also shows InsiderPages.com up over 100% in the last year (whereas Quantcast shows it down from last year). Just shows that web statistics, even of high trafficked sites, is very hard to judge. and even their relative position is very hard to measure. Companies like ComScore, Quantcast, Alexa, and Compete are part science, part art. i’m still a big fan of what they are doing (it is quite hard … but very important), but it is a note of caution when trying to judge a site’s popularity.
The Power of Great People (why “good enough” won’t cut it)
Don’t outsource your hiring to a bureaucrat
Great people are five times as valuable as good people. This especially applies to engineers. You cannot just throw bodies at a problem (see the classic Mythical Man Month for more info). Sometimes less people can actually accomplish more.
Great engineers are head and shoulders better than good engineers. Good engineers are everywhere. At Rapleaf, we’ve received thousands of resumes from good engineers from MIT, Stanford, Berkeley, and IIT, where they received their masters and PhDs. They’ve worked at places like Netscape, Sun, Microsoft, Yahoo!, and Oracle. The only problem: they’re only just good, not great.
In fact, it’s pretty much impossible to tell from a resume if someone is great. It’s easy to look at a resume and say “this person is at least good” or “they’re not bad.” But great people are rare and very hard to spot on paper and it takes a long time to find them.
But great people are worth it. In markets characterized by winner takes-all – increasingly true in a globalized world – you need the very best; “good enough” will no longer cut it when against intense competition. These are the people that build great and lasting companies. Companies that are lucky are built on the backs of good people.
In a start-up, a great software engineer should have the following:
– ability to take a complex concept and write code that can be understood and adapted by other engineers
– ability to product manage oneself
– pleasant personality that is fun to be around and likes working with others
– creative mindset to think out of the box
– not valuing one’s own ideas more just because they were the one that generated the idea
– carpe diem attitude: they seize the opportunity to grow
In a nutshell, this is the person that everyone in an organization asks for advice. In college, this is the person that every other computer science student wanted on THEIR team.
Of course, determining if someone is great is not easy. It’s probably why so many people hire friends and former coworkers – because you know they are great. The best predictor of future employee success is past performance.
But determining a great software developer is not impossible either. To me it is amazing how some start-ups choose who they hire – many seem to hire anyone that went to MIT. That means they are outsourcing their hiring to the $40k/year admissions officer at the college who evaluated the person when they were 17! Do you really want to entrust your hiring to a bureaucrat? This is an extremely bad strategy. Of course, many people who went to MIT are real rock-stars and people who went to MIT might be more likely to be rock-stars than people who went to a lesser-known school, but most are only good … you need to work to find the great people.
By asking pointed questions and giving tough exercises, you can determine with high accuracy if someone is really amazing. In fact, I make it a point not to ask questions like “what do you like to do outside of work?” It’s better to ask them to solve tough problems and get to understand their thought-process. Great people have interests that often converge with what they do at work. At Rapleaf we do at least four rounds of interviews and we take our time. This means we occasionally lose some great people, but we err on not having false positives.
Note: I’ve found that determining a great software engineer is much easier than determining a great salesperson, marketer, etc. At the end of a series of interviews with a software engineer, I can tell you with great confidence if they are a rock-star or not. But with a BD person for instance, I have a much harder time being confident in my assessment.
Two things to note about great people:
1. They only want to work with other great people. Once you recruit a few great people, you’re in a bit of a quandary. You’ll need to, from then on, only recruit other great people or the great people you do have will leave. And if you hire any good people by mistake, the great people will (directly or indirectly) want you to let the perceived mediocrity (i.e. good people) go. And letting go of someone that is good is really hard to do. So you’re stuck and that’s the rub.
2. Great people feed off of each other in person. Like real estate, engineers in start-ups is all about location. You read about all these companies outsourcing offshore and doing development from virtual offices. (as a side note, even the idea that you can outsource a person drives me bonkers – no two people are alike and you cannot just throw bodies at a problem). But a distributed workforce is really hard to manage and real innovation rarely happens in distributed environments. Not to contradict myself, but I’ll acknowledge that sometimes it works, especially with open source projects like Linux and hadoop and Firefox which were developed by teams of people working out of various locations (many of whom never met in the early stages of development). And while there are some distributed workforce examples in the start-up for-profit world, it is very hard to find a highly innovative team based strictly on outsourcing and telecommuting.
Google’s early core engineers all worked in its early Palo Alto office. Facebook’s engineers all work together now in Palo Alto – in fact, Facebook provides a stipend to employees to LIVE in Palo Alto. At Rapleaf, we’re a small company and our 13 employees all work in our San Francisco office. In fact, all of them actually LIVE in San Francisco right now and over half live within walking distance of the office. Big innovation often comes from massive collaboration and rapid iteration, and that can much more easily happen when people work in close quarters and can see each other (no opaque walls or cubicles in the development center is key too).
Great people need other great people to feed off of. Being able to trust and rely on another person’s talents affords you the opportunity push your own boundaries (because great people are always looking to be better). You won’t have to worry about picking up the other person’s slack. You’ll be free to think and experiment with what’s new. You’ll be free to innovate.
If you are Google or Microsoft today, you can afford to hire good people. Great people are of course preferred, but 90% of their hires today are just good people. You have lots of processes, product requirement documents (PRDs), and you need people to just code to spec and follow instructions. In fact, you might even want to outsource, because creativity isn’t always required. It isn’t always needed … and with respect to a big company, creativity sometimes gets in the way.
But if you are Google or Microsoft, back when the company was under 50 people, you couldn’t afford to hire anyone but someone that was great. Anyone good would just have to wait a few years until the processes were developed enough to support those types of people. If you’re a start-up who’s goal it is to be the next Google, then you’ll have to attract, hire, and retain great people. And so if you’re looking to go from good to great, throw out your Jim Collin’s book and just focus on hiring great people.
(special thanks to the following people who helped me with this:
Ben Casnocha, Joel Hornstein. Lucy Jacobs, Manish Shah, Vivek Sodera, Hunter Walk, Chris Yeh)
And speaking of great people, we’re currently looking for great software engineers and a great BD/sales person (we offer at $10,007 referral award):
Today it was announced that MySpace made a deal with 49 state attorneys general to put measures in place to curb sexual predators. These are good and sensible measures (and are long overdue).
One of my co-founders remarked today that “I think one real issue here is identity verification. This might be the time where a 3rd-party identity verification service is of extreme use to social networks.”
The question is, how much friction will social networks add to the sign-up process to aid child protection?
My guess is not much — and probably none.
As long as social networks just only require an email (and some don’t even verify that email) to sign-up, there is going to be little movement here and children will only be protected through education and not through technology.
Of course, community sites and social networks could use email look-up systems like Rapleaf to verify each user (and that is something we’ve been pushing) but I’m not convinced that most of these sites (with a few exceptions) really care about child safety as opposed to giving it lip service.
Time will tell how much of a widespread problem this or if it is just a few isolated incidents.
From looking at the data provided by Rapleaf, women are much bigger users of social networks then men. Much bigger.
The fastest growing demographic on social networks are moms between 35 and 45 years old. These women are putting up pictures of their kids (Johnny at baseball practice, Susie at soccer, the family in Disneyworld) and using these social networks (especially MySpace) to essentially make family home pages and share them with friends and relatives. They are decorating their pages, making RockYou slide shows, and using lots of widgets.
Men over 35 are just not that into social networks (yet) except on some rare examples like LinkedIn.
While both younger women and younger men have both joined social networks in drives, the younger women are much more active than the younger men. My hypothesis is that a lot of the younger men are spending their spare computer time playing video games. Women tend to enjoy casual games more and most social networks are essentially a huge casual games network.
i’m thinking about ditching my treo and getting a blackberry. i tried out the iphone and it is not right for me (it misses some core business needs) …. but i still wasn’t sure of making the switch … or of the right model.
so i posted my question on LinkedIn Answers:
thinking about Blackberry 8820 or 8830. thoughts?
i got some really good answers … and thought i’d post some of the most thoughtful ones here:
I had the 8820 for six months and liked it a lot. I just got the 8320 (T-Mobile Curve w/wifi) a few weeks ago and love it. Both phones get great reception and good battery life (I typically charge every few days). I like think the keypad is a lot better on the Curve, but they’re both great. The Curve weighs less than the 8820, and has a smaller form factor. I really do think the 8320 is the best BB I’ve had to date, and this is my fifth BB.
I’m occasionally tempted to get an iPhone, but I don’t think the iPhone is a realistic phone for business use. Definitely ditch your phone and get a Curve – you’ll be really happy. I just converted my wife, her brother and her father.
Sadly, neither phone will work in Japan (or Korea, probably). Even though 8830 has CDMA and is advertised as a World Phone, I’m not sure how much additional coverage that will get you outside of the U.S. since the rest of the world is GSM (or 3G UMTS, in the case of Japan), so I’d go with the 8820 since it’s quad-band GSM (8830 is dual-band only) or the 8320 (Curve), which I believe has the same coverage, but is lighter and thinner. I’ve heard good things about the Curve.
If you want a truly global phone that will work on UMTS networks as well, your only BB option is the 8707, which is clunky and doesn’t have the trackball feature. It’s rumored that BB will be launching 9xxx models with 3G, but probably not until sometime in early 2008.
I’ve currently got the 8830, which I’m quite pleased with. My only gripe is that the keys on the keyboard are more awkwardly configured than on any other Blackberry model I’ve owned (i.e. too close together), but still functional. If not for my Verizon contract, I’d prefer the Curve – it’s got a slightly smaller/lighter and more comfortable form factor, as well as better keypad configuration. It also has a 2 megapixel camera. All things being equal, I’d go with the Curve.
I have an 8830, a very positive experience. I plan on upgrading to a curve, however I’m slightly worried it won’t be as sturdy if it falls out of my purse. The 8830 has all the basics and above everything is reliable.
8820 vs 8830 is really a question of whether you prefer Verizon or AT&T. For most people in the Bay Area – Verizon is better. Clearly they are new to this whole ‘world phone’ but so far the anecdotal problems have been limited. I have been using the Curve (8300) as it is the smallest of the full QWERTY keyboards. Works well, although I blame most of the voice quality issues on the AT&T network and lament having to give up Verizon. Voice and data worked great in Croatia and Italy, but if your going overseas, spend the extra $10/month on ‘global’ unlimited data or they will try to charge you by MB.
I have the Motorola Q9h – AT&T just started offering it. Its internet is 3G, blazingly fast, and compatible pretty much anywhere around the world. I highly recommend it, especially if you have an Exchange Server for all your contacts/calendar.
You can find it at any AT&T store now. I love it b/c I do gmail on the browser (this one now also has opera and it’s lightning fast)
I would get the 8310 (GPS) or the 8320 (wifi). It has a much better keyboard than the 88XX series and is much smaller. 8310 also has a camera with flash. I just switched from the Plam Treo 755p. Overall the 8310 is a step up, but to really take advantage of it, you need an enterprise account, which lets you sync email, calendar, contacts and notes wirelessly. There are somethings that the Treo does better, like SMS messages. Also, after using Spring for 5 years, At&t’s network is a disappointment.
I have been using the 8830 with VZW since early August and am quite pleased so far. As a BB (e-mail sync), it is great (you get used to the keyboard being small), and the phone is great. I have used it in Europe and it worked seemlessly (have them pre-install and activate the SIM card when you buy it). The fact that it opens all manner of attachments is a huge plus. You can’t go wrong with the 8830.
The BlackBerry Curve 8320 has been, by far, the best BlackBerry i’ve ever used. The WIFI Calling feature is great for business people. I have unlimited calling at my home and my office.
My warning on Blackberry no matter what the model: get it unlocked so that when you travel you don’t have to pay the roaming charges. When I took my T-mobile to Morocco, my daughter ran up a $700 phone bill when she simply called and hung up because she got my voice mail. Then I got it unlocked and put a local sim card in and suddenly, voila, no outrageous charges. My BB was an international one, and the reception was terrific on the top of a mountain in Fez or on the beach in Greece but I could never get the phone to work inside my NY house! I’ve now got an iPhone which I love and will carry an international phone with a local sim card when I travel.
I have the 8830 and my wife has the Curve, so I’ve played with both. The form factor of the Curve is better, it’s lighter, fits in the hand easier and it has a good keyboard. The 8830 has a better data browsing experience with the Sprint 1xEV network, and you can use the USB cable to connect to your PC for data access on the go (you can’t receive calls and data simultaneously, however). In theory the international coverage is comparable according to the coverage maps (using Sprint), although GSM is more of a known quantity. I’d say if form factor and international coverage are most important, the Curve is the way to go. But if data performance is paramount, then the 8830 has better performance.
I recently moved to Blackberry 8830 (Sprint) from Treo 650, and have these complaints:
1) SMS interface is poor, intermingled with email, no threaded SMS conversation display, and hard to start an SMS. Treo was better, iPhone is better still
2) the voice command feature keeps saying “Say a command” when I pick up the phone or put it in my pocket…perhaps I am too lazy to find the way to turn this feature off or make it useful…
3) the screen is so soft that after a month it is totally scratched up, this did not happen with my Treo
However, the phone radio is good, I prefer the “push” email of BBerry, it worked for email in Canada when my partners iPhone did not, and I have found the GPS nav useful a number of times thus far
I have owned a Blackberry for several years and I would have to say that the 8830 is a less sexy version of the Curve. The Curve is lighter, fits better in the palm, and has a better keyboard. However, the 8830 gets great coverage in the Bay Area anywhere from San Jose to Sausalito. The international data rates are reasonable but not a bargain.
The only grip I have with the 8830 is that I find it crashes more often than my old Curve did. I have to do a hard reboot about once to twice per day due to hardware hangs.
… now I’m still not sure what i’ll do (some conflicting advice) … but definitely is food for thought.
Jeremy Lizt, one of my colleagues at Rapleaf, recently pointed out that spam usually arrives at night or over the weekend. We believe that might be because bandwidth costs are lower then.
i tried to find some more information on when spam is more likely to arrive and i couldn’t find anything. if anyone has some stats like this, please email me. thanks!
Tod Sacerdoti reveals that video impressions will pass search in three months. Video on the web is one of those things that everyone knew was coming one day but nobody knew when. then, about two years ago, it came.
portable identity and social graphs (what Rapleaf is working on) is the same thing. it will be here … eventually (probably in 2008).
as an early-stage investor, it is easy to invest in obvious trends rather than focus on the non-obvious ones. when deciding whether to invest, one can make a simple calculation:
– will this market (like video) be big?
– and are the founders an A+ team?
I’m a shareholder in three video-related sites (though none are competitive): BrightRoll (Tod’s company). Blip.tv, and MesmoTV
… the common denominator is (a) they are all video; and (b) they all have great founders.
Over the weekend I had a great opportunity to go flying with Seth Sternberg, CEO of Meebo. Seth is an accomplished pilot who has been flying ever since high school. He’s now the proud owner of a great 4-seater plane that he flies almost every weekend (and often does practice flights at 6a before work.
To get a pilot’s license, Seth and every other pilot need to practice failure. They practice the engine blowing out by cutting out the engine and landing the plane. They practice all sorts of potential mishaps including intentionally diving the plane, spinning, toward the ground and then seeing how they recover (all of these with a trained instructor). Essentially, they try to simulate anything that can go wrong so that they are practiced on how to deal with it when it does.
Practicing for failure saves lives when you are a pilot.
But outside of a few vocations, people rarely practice for failure. That type of thing is rarely practiced in the business world. Occasionally big businesses will have a disaster recovery plan, but it is rarely drilled. And start-ups rarely have time to practice anything … we’re so busy doing. Something like crisis management or planning what will happen if a key member of the team leaves is rare in the world of entrepreneurs.
Or imagine planning for failure in your personal life … like role playing what you would do if your spouse cheated on you. Of course, that’s absolutely absurd, but most people are too busy to even do a fire drill.
In flying, planning for failure is essential for success. Flying with Seth – who is meticulous, calm, collected, studious, and very practiced – is reassuring. And I have no doubt that being a licensed pilot makes Seth a better CEO and allows him to react better in a crisis.