I help startups around the world
I love helping young companies figure out their strategy and grow. Having started up many companies, I understand a lot of the issues and stress involved in the pre-seed stage. I was in Budapest recently helping out some entrepreneurs, and the #1 newspaper in Hungary interviewed me about my work there. I'm told it's quite flattering, although I don't read Hungarian which is a beautiful but complicated language!
Your website is unviral
Your website is probably unviral.
Everybody wants his or her website to go viral. As web designers and entrepreneurs it is our goal to create buzz; an unstoppable avalanche of traffic; a self-feeding hurricane.
For many entrepreneurs PayPal, YouTube and Facebook are the alpha and omega of marketing and strategic growth. The goal is to emulate the distinguishing characteristics of these products in an attempt to achieve similar heights.
Some websites succeed and grow on the same trajectory or faster. They usually exist in fundamentally social businesses like email, payment services or social networking in places without such networks.
However, there is also a special cadre of websites which lies in a no-man's land untouched by virality. Not only is it difficult for these sites to become viral, but the nature of the business actively fights its own online growth, behaving much like a tumor suppressor gene. These businesses never experience exponential growth and all of their growth paths, even if strong, are linear. Some examples quickly come to mind: male enhancement pills, adult diapers, schizophrenia medicine.
The online world is in the habit of thinking itself as viral by nature. Virality, some think, is built into the very fabric of the Internet. It is not. In fact, one of the most profitable online businesses is unviral: online dating.
Dating websites carry such a stigma that some couples successfully matched online invent a fictionalized romantic encounter to conceal the fact that they were mouse-selected by a filtering process and a geographic search. Although dating websites provide immense value, arguably more than almost any other online service, users will often strive to hide their enrollment from even their closest friends. Maybe especially their closest friends.
Dating websites are unviral. They do not spread by word of mouth. As a matter of fact, they actively suppress this form of growth due to the nature of their service. Many an experienced entrepreneur has made the mistake of underestimating the unvirality of online dating.
Your website may be unviral too, although it may be less than obvious. Perhaps it only demonstrates certain elements of unvirality; for instance, would your users tell all of their friends about your service, or only some? Would they actively deny using or even knowing about your website to certain friends, acquaintances, or co-workers if asked? Is it embarrassing? That would be pretty bad for your virality.
If this is the case you must face the facts: your website is unviral.
Look at examples of of purely viral websites: PayPal, the old Hotmail, YouTube and the current Facebook (not the old version that limited itself to college students) all display or once displayed growth without any symptoms of unvirality. I told everyone about Hotmail when it was launched: cousins, teachers, pen-pals. Users of contagious sites like this may not actively evangelize to literally everyone (as they do with, say, YouTube) but they certainly wouldn't avoid a discussion or hold back praise once the topic was broached. In contrast, there are many sites that quickly provoke responses of "yea that's weird," when mentioned. In these instances unvirality dominates and kills growth.
Though unvirality is not a death sentence, it does limit a potential for greater growth. In some instances, unvirality is inherent to the service or structure of the business. But if this is the case, why should an entrepreneur involve himself with it and how can he manage to save it from the depths of unvirality?
Two Answers: Anonymity and Covert Transformation
- The Internet supports anonymity which allows users to praise a product they love to others--thousands or even millions of other strangers--while avoiding the embarrassment and reluctance to share a product or website that often results in unvirality. Anonymous forums and reviews abound for even the most unviral of products.
- Secondly: The web entrepreneur can covertly transform an unviral business into a viral one by euphemizing or disguising its true purpose. For example: Create a website with dating tools but market it as a social network. Facebook at Harvard worked this way with its subtle but pivotal "relationship status." Give users a guise under which to refer their friends and thus avoid the focus on unviral traits, such as the embarrassment endorsing a dating site, that would otherwise prevent the expansion of your user base.
Utility vs. Virality
Many people confuse utility with virality, but these are actually very independent qualities. Entrepreneurs may believe that if they have developed a good product it will naturally become viral. This could not be further from the truth.
Often, people will want to tell their friends about a product they find useful but this is not a necessarily so. Some of the most useful online services actually discourage such talk. Something can be useful and viral (such as Facebook), useful and not viral (dating websites; most products ever created), not useful and viral (lolcatz; chia pets; almost all 4chan memes) and something can most definitely be neither useful nor viral (almost everything). Utility and virality are therefore orthogonal. They represent two different dimensions which can intersect but do not necessarily do so.
In fact, something extremely useful--something that you and many others may pay thousands of dollars for to bring yourselves joy for a lifetime--may be strictly unviral. As I mentioned earlier, people will actively go out of their way to not talk about some very useful products. Many medical products fall into this category. Utility is one dimension of a service and it is clearly distinct from virality, though by no means mutually exclusive. The realm of influence between utility and virality is vast and depends mostly on the nature of the business.
The lesson: just because your website is useful, does not mean it will be viral. Just because it is viral, it may not be useful and thus will die once the virus finishes spreading. First, solve the utility problem: build something useful. Then, you have to solve the distribution problem, and I gave 2 techniques for doing so: anonymity and covert transformations. Do you have other ideas?
How to hack Silicon Valley, meet CEO's, make your own adventure
It was my sophomore year. Everyone was making plans for fall break. What are you going to do? You don't know? There are only 4 days left before break.
Before this particular fall break, I was busy with classes and had thus neglected to make plans. Some students were going skiing, others on class trips, others to homes nearby. Where are you going? I had no idea.
However, around this time, I was reading a lot about California. I read work by entrepreneur and essayist, Paul Graham, in which he says that the San Francisco Bay Area is the best place to start a company. He described the energy, but I couldn't palpate it. If I were to take his word, it's an ethereal, magical place.
That day, James Currier, internet entrepreneur, stood before me and a packed class full of eager students. His eyes were shot open, a purple glaze lit them afire. His wavy hair burst out atop his skinny head. Gaunt and fearless, he embraced the air as he swung his arms widely to make his point.
“Silicon Valley is absolutely the place to be,” he said. “It’s where all technology happens. It’s where Google started, it’s where Apple, Yahoo, Intel, Oracle, and so many other technology companies started. Some of the smartest people in the world lived there at Stanford, Berkeley, and Xerox PARC. It is a magical forever-sunny wonderland where dreams come true and it rains investments and acquisitions.”
He went on to make even more grandiose claims. Startups? Risky? Not at all when you do things right. Moreover, they are nothing compared to the risks of a financial job.
Everyone laughed. This room in Princeton was filled with students who had already accepted offers at investment banks or who would be applying soon. In 2006, finance was booming with big bonuses and strong growth prospects. Derivatives opened up whole new worlds for trading and speculation. Operations research quants donned their glasses in pride. They were respected.
So everyone laughed. He said, "No, really. They can fire you any time. They don't care about you. The market can turn the other way in a heartbeat. You have no job security. Your firm can go bankrupt."
To the students at the time, this all seemed ludicrous. They all envied these corporate finance jobs, nevermind that many would lose their finance jobs less than 2 years later.
He inspired. He didn't have charm so much as hurricane-force energy. He was insightful and learned. He talked about his great times. He talked about his learning moments.
And so he inspired me to see it. I had to see it. What is so special about the Silicon Valley, the San Francisco Bay Area? How can it actually be that great? What exactly gives the air such power to breath life into world-changing tech empires?
I knew what I had to do, but Fall Break was just two days away. How would I fly there without paying outrageous fees? Where would I stay? What would I do there? How would I meet the minds behind these great startups? I was a sophomore from Florida. I had no network in California.
I searched online for cheap tickets, no luck--that is until I noticed an ad for Hotwire. If you have yet to try this site, Hotwire buys leftover seats in bulk, and then sells them to users blind such that they don't know exactly which flight on which airline at what time until they buy. I snagged a very cheap ticket for 3 days later.
Now, where would I stay? I knew exactly three people from my high school in the bay area, 2 at Berkeley, and 1 at Stanford. I sent them all an email and hoped they would get back to me in time. I could always get a hotel somewhere.
Finally, how could I reach the top startups in Silicon Valley and find entrepreneurs who could meet with me on such short notice? I didn’t know any CEO's. How do I hack Silicon Valley itself?
TechCrunch always covers the hottest new funded startups. Every day, they publish dozens of new articles on the latest technology. I should just pick a few of the best and email them. But how do I choose the best? What if they don't get back to me? Will I waste a trip?
I noticed half of all of the articles listed the location of each company. Some in California, some not. So I enumerated every neighborhood in the bay area: Redwood City, Palo Alto, Berkeley, San Francisco, Menlo Park, etc. I wrote a program to crawl all of the Techcrunch archives to find all of the articles about companies in one of these cities. I then parse out the name and URL automatically as well.
I looked through the list of companies and I picked the most interesting. Some invented a new technology, and others just came out of a new incubator called YCombinator.
These days, you can do this easily yourself with Crunchbase, a useful database of every startup in existence.
I wrote another script to send an email to every single one: email@example.com, firstname.lastname@example.org, and so on. In each email, I wrote: I am a student who will be graduating soon, and I would be very interested in learning more about your startup since I saw it in Techcrunch and I think your Company is very innovative. I'm from Princeton and I'd be interested in potentially working for your company. I am visiting California next week, can we please meet?
I sent out dozens of emails, and then I waited. Not everyone replied, but many did. I flew in, finished my homework on the plane, and crashed with my friends (all three through through the week).
I met with many CEOs. In startup land the companies are all very small. Everyone in the company has to wear many different hats. Therefore, when you send an email to email@example.com, the CEO reads it. Few people realize that you can easily get direct access to startup CEOs.
One company I reached out to was YouOS. YouOS was in the first class of YCombinator. They are incredibly good hackers. We just talked over pizza and they joked about how they've written and rewritten servers from scratch so many times that they can do it in 5 minutes while sleeping. YouOS did not work out, but the founders continued innovating. A couple of them made and then sold Project Wedding. Another went on to create thesixtyone.com and Aweditorium, two of the most innovative music apps in the world.
Walking around Palo Alto, I saw several startups on each block. If you can imagine another planet where the Internet is turned into physical locations with storefronts, with Facebook next to Dropbox next to Shopkick, then you have a pretty good idea of what Silicon Valley looks like.
You see zetok, jlingo, and any conceivable combination of letters plastered everywhere. I noticed a small blue frog in one corner, it looked familiar. I tried the door and walked upstairs. The offices were in fact the offices of Azureus, the Bittorrent app that made torrents popular. I went up to the exhausted man walking hurriedly by the front desk, and I began with: hi. I'm Joseph Perla. I am a student looking for a job. I am visiting just for a week, can I talk to you for just a few minutes?
He was taken aback at first, a little flustered. He said, yes, sure, but not today, I'm a little stressed because I'm signing papers. We’re raising 4 million dollars right now. Can you come tomorrow?
The next day, I spent 3 hours talking to the CEO one-on-one about Azureus, raising money, silicon valley, bittorrent, technology, France (he's French), and the french technology industry.
I ended up meeting with half a dozen other startup founders. I toured the golden gate bridge and many parts of the bay area, Berkeley, and Stanford.
The Valley is very friendly, and everyone does everything they can to help you because, at some point, someone definitely went out of their way to help them succeed. I started building a network from nothing. I directly used the connections I made on my spontaneous trip to start my next company, Labmeeting.
David Tisch, of Techstars NYC, made a great point recently. Startups are very difficult. The odds are against you. Your competitors are twofold. On the one hand you compete with the biggest companies in the world. Even more difficult, you compete with inertia and ignorance and apathy. Everyone in the startup industry knows how hard it is, so we all do what we can to help each other to beat the odds. That's the only way it works at all. That's how we succeed against all odds. Silicon Valley is one big mega-commune of startup capitalists.
Make the most of what you have (friends in new places), trust in people, and find out what the ethos of Silicon Valley is really like. I know scores of startups who would love to have smart students, especially students looking for jobs, visit their offices and see what they have built. I can point you in the right direction. CEO's love to tell their stories more than you like to listen to them! Let me know if you plan to make your own adventure, and please tell me about your trip when you get back.
Peter Thiel: Lessons on Innovation and Entrepreneurship
Peter Thiel gave a talk at Princeton where he touched on technology, the future, and education. Here are some notes paraphrasing his comments at the talk today.
Startups need to have a big vision. You have to have a big vision to hire the 20th person for your startup. Hiring the first few people is easy because they are basically founders, and hiring the 1000th engineer is easy with a salary. You can't motivate the 20th employee with money.
Was it fun to work at PayPal? The mood went from scary to fun several times a day at PayPal.
Peter took out a hundred dollar bill. He took one out at PayPal presentations all the time. He held it up. Money is worthless but powerful, clearly. It shuts people up in the room, gets attention. But it is poorly understood: network effects? Influence?
There has been significant deceleration in rate of innovation outside of IT/Telecom in last 4 decades. Food/transportation/energy have clearly not improved since 1980.
Biomedicine has modest progress: pharmaceuticals has not had a breakthrough in the last 20 years. Pharma is firing scientists.
Big companies stay innovative as long as founder is CEO, many examples. Google will be more innovative now that Larry Page is back.
Peter is concerned about having the most talented people push harder. They can coast on the many-year game that is school. Go to the next level of school. The best and smartest coast by unchallenged.
Big companies are either a commodity or a monopoly. You're not supposed to say "monopoly", you're supposed to say "positive network effects" or something else. Buffet says "moat". But they're really more similar than different: look at Google.
We need to make it so that entrepreneurs are not glorified episodically and generally derided. It should be a valid path to take at any time and respected.
How to launch in a month, scale to a million users
These are case studies.
I will talk about my last two startups where I used a lot of techniques to build them quickly and scale them up. Here I explore different techniques I used to architect them to scale which are quite simple, but someone who is not familiar with building systems may be interested in learning how to build his or her own scalable site.
This is based on the outline of a paper by Lampson with more modern web-based examples:
Labmeeting was a search engine for biomedical literature and a social network for scientists. http://www.crunchbase.com/company/labmeeting.
The same principles in Lampson can be applied to any large system such as Google or http://www.turntable.fm.
Keep it simple.
We built API's before making the website at Labmeeting. That means that the design of data access, security, and data flow happens long before the first interfaces are created. Simplicity in a small interface is key, with well-defined and single-purpose functions coming from each module and submodule of the API. The whole front-end interface uses exclusively less than 30 methods in 5 modules available in the API.
Get it right.
From day one, we built automated tests into Labmeeting to catch any conceivable and subtle bugs that we may introduce during development. In advance, we knew that it would be a complex, dynamic site with hard to reproduce state. This made it all the more important that each simple method in the API performed exactly as it needed to both in the edge cases and in the normal case. We had individual function tests, module level tests, and full integration tests that automatically started a full chatserver and tested real requests. The tests were run on every commit and no bugs were allowed to persist before writing new code.
Don't hide power
You can see the docs and use this library yourself at the Pebbles introduction.
Use procedure arguments to provide flexibility in an interface
We created a system for filtering through news articles. The system has many basic parameters that can be passed that are very simple, but the parameters are simply procedures. Therefore, if someone had a special complicated need, they could write their own function that returned a boolean value of whether to filter the news and pass that through the interface.
Leave it to the client
The interface at Labmeeting was very simple, and we expect the client to perform complicated manipulations of the many elements of the interface and keep track of all those states. This allowed the backend to be developed very quickly, although it meant that frontends, like an iPad or Android app, take a little longer to develop.
Keep basic interfaces stable. Keep a place to stand if you do have to change interfaces.
The API of Labmeeting and Stickybits is versioned. They can thus offer full compatibility with previous functionality, but enhancements and changes can be made in newer versions.
Making implementations work
Plan to throw one away.
Many of the routines in the initial prototypes were written very quickly and with an eye to throwing them out once in full production mode. For example, the first version of the PDF search feature pulled in the whole user's collection and did a search in memory. A fully optimized version would be a little more complicated, but many routines were designed that way with an eye to throwing the inner part of the function out and rewriting once the bottlenecks are identified.
Keep secrets of the implementation
We built Labmeeting up from separate silo'd modules that, while decreasing performance a bit, allowed them to operate independently and with maximum flexibility to respond to changes in requirements in the interface. For example, the PDF manager knew nothing about how users were stored or queried. The User api could store users in memory, on disk, in Postgres, or halfway across the world. Lab groups only knew that it could call the same API external methods used to look up a user or set of users.
Use a good idea again instead of generalizing it
At Labmeeting, we had to extract author names from PDFs. We realized that we could do decently well at extracting the names using machine learning techniques, but never perfectly. However, by indexing a gazette, a complete database of every possible PDF, then we could simply make some guesses (possibly using machine learning) and then just look up those guesses in the gazette to see if there is a match. It becomes a problem of efficient enumeration. We didn't generalize it, and used the idea again in a slightly different context. Each PDF has a scientific abstract with various complicated terms from biology and physics. We wanted to identify those important terms to allow further exploration. Again, some indicators could point us in the right direction, but we did not get everything. So, we crawled Wikipedia to compile a gazette of biological terms, then merely used those terms in the abstracts that appear in the gazette modulo very frequent words like DNA. This was highly accurate again. We linked these extracted entities to Wikipedia to provide further information for the curious.
Handle all the cases
Handle normal and worst cases separately as a rule
At Labmeeting, we analyzed PDFs to extract the title, publication date, and other information. The special case of a PDF which is encrypted and unparseable and no text can be extracted went straight to a separate method. The special case could possibly be handled by a more general-purpose algorithm for text extraction that happens to special case to a right answer, but it is more straightforwardly handled separately. Anyone reading the code could see it plainly, rather than having to think through the special case in more complicated parsing code.
Split resources in a fixed way if in doubt
At Labmeeting, we put the database index on a separate machine from the Solr search index. We had millions of search queries coming into the search system, and we didn't want those queries to slow down the db, and thus normal operation of the site. Writes take much longer than reads, and are more important for logged in users. External users of the site using the search engine just hit the index, performing exclusively reads on the index. This allowed us to scale up the search index independently from the database.
Use static analysis if you can
At Labmeeting, before every commit, I had a version of PyFlakes run on all of my new code. PyFlakes is a static analysis tool for Python that finds common errors that can be detected before run-time. For example, PyFlakes can find improper number of arguments to a function call and references to variable names that are not in scope (like typos). Static analysis finds a lot of bugs that might appear in production only rarely in edge cases. It is most useful in a language like Python that is dynamic and thus doesn't have a lot of the normal safety features available to a statically typed language.
Cache answers to expensive computations
Obvious we did this all of the time at Labmeeting. For example, we performed a document similarity search to find "Related Papers" when we showed one individual paper to recommend other papers a scientist may want to read. The vector computation and search for this is quite expensive so we cache the results for a month. Another example: we had to open up a PDF file which has a research publication, perform text extraction, and then do an information extraction step from the text to analyze the title, authors, publication date and other information. This is a difficult problem to do and involves searching a gazette of 30 million documents and querying the PubMed database at least once. Once this process was completed for one step we saved it to the paper metadata so that we would not have to calculate it again for that PDF each time. The flip-side of caching is that for quickly changing data then one needs to be careful about cache invalidation.
When in doubt, use brute force
We wanted to get the first version of Labmeeting finished very quickly. There are many ways to optimize a system to improve performance, but they come at the cost of decreasing modularity, making more assumptions, and, most directly costly, developer time. The first implementations of the pdf search algorithm used brute force linear search by pulling the name of every scientific paper and then searching each one for the substring. This takes a few minutes to write and does not require a complicated separate hosted index. Moreover, for the small number of papers used during testing, it ends up being much faster than doing a network query to a search index!
Compute in background when possible
After a user uploads a PDF to Labmeeting, a process must go through the PDF, analyze it and normalize it, perhaps convert it to a standard format, extract the metadata, and deduplicate it. This process can take a while, so we avoid this process from blocking the web server by pushing it to a queue. When the queue completes, it sends a message back to the user, which adds the PDF to the person's collection.
How to drop out of college and start a funded Social Network
I will tell you how drop out and start a social network that grows into, ironically, the leader in the college admissions space. I will tell you how to start a social network for scientists whose lead investor is Peter Thiel (who also funded Facebook and started PayPal). Finally, I will tell you about how to help launch the hottest new rival to Facebook, also funded by Peter Thiel and SoftBank, the Google of Japan, and move on to work on Stickybits, to revolutionize how people interact with everyday consumer products.
Step 1: Read Paul Graham's essays.
The story starts my freshman year at Princeton. I had read all of Paul Graham's essays, which are not only thoughtful and information-rich, but also inspiring. Paul's essays described his own experience starting ViaWeb, which he eventually sold to Yahoo! for tens of millions. It is now called Yahoo! Store, one of the few examples of successful '90's bubble companies. He talks about every step of the process, a process which seems very unique and peculiar, and yet surprisingly all startups experience basically the same sets of problems, setbacks, successes, disagreements, and emotions.
In fact, in general, read good books. Blog posts are useful and timely, but books have much denser concentrations of information and they are more insightful. The best blog posts on the web are often just slivers of individual chapters of an existing good book. Blogs give you tiny tidbits of information, one interesting aspect of a complicated story, but a good book gives you that plus the other side and the whole picture, the future and the past, all at a deeper level. A well-written book will not waste words. Those hundreds of pages are worthwhile. Read Founders at Work, by Jessica Livingston, also at YCombinator and also a brilliant entrepreneur and interviewer. The book's stories are inspiring: James Hong's amazing viral growth of HotOrNot will make you want to do the same and become an overnight millionaire.
These writings are inspiring. They inspired me. I started to itch to start something, anything. I started to build things and talk to more people about these interests.
Step 2: Be friendly.
Through a friend and my work, I met Mick Hagen and Jeremy Johnson in the spring semester. If you are lucky enough to meet them, Jeremy and Mick are two of the nicest, most thoughtful, and most ambitious people you will be lucky to meet. We shared a common interest in technology startups. We started talking about what we could do together, drawing on all of our skills.
Some of the best friends you make will be in college: life-long friends. These tight bonds are forged from living very close to each other, possibly in the same room, every day for years. In the real world of apartments and houses, a friendly visit can easily take a half hour commute each way and is centered around a big event. In college, you walk down the hall and just hang out. Moreover, in your classes, you learn both the quality of your friend's effort and how well you work together. A mutual trust is formed over these months and years that are hard to form in the real world. In college, you will find your cofounder, whether they be friends or friends of friends.
Jeremy was interested, as he still is, in the college markets. What can we do to help improve college admissions, the student bodies at the colleges, and the college experience? His plan was more ambitious, but I proposed a simpler one: let students form a social network with ties to college admissions officers. Let students display their scores, interests, and activities online, and let admissions officers at Princeton and Harvard search for them. Charge per student found. Would this work? I reasoned that the College Board already does the same thing with PSAT scores, so I called them (abbreviated transcript):
Step 3: Test your assumptions.
Me: Hello, is this the PSAT office? My name is... um... Mark Westerner at the Marbur College.
CB: Which college?
Me: Um... (*will they look it up?*) Marbur College, a small liberal arts college in New Jersey.
CB: Marbur, can I help you Mr. Westerner?
Me: We are interested in purchasing some student PSAT scores and mailing address information.
CB: Yes, we do that here.
Me: How much would that cost?
CB: Let me see, you can buy 1000 names and addresses for $280.
Me: Thank you. Goodb—<I quickly hang up>
Gold mine. We would sell student information to colleges, completely willingly and enthusiastically on the student's part. Colleges already pay lots of money for very similar but incomplete, noisy data. We could sell the same information over and over again. Colleges get to target and recruit in a way that they have never been able to before. Everyone wins. This would be our primary business model, and in fact still is used today at Zinch.
Step 4: Use university resources to get feedback and advice.
With a business model in place, we went to all of the professors we knew who might be able to help. We talked to Ed Zschau who helped us write a business plan. We talked to the dean of admissions. She said she would love something like this. She told us a story where the school musical director told her that we needed an oboe player, since all of the oboe players were graduating seniors. This endangered the diversity of the school, and the annual Mozart concert. She looked and recruited and found nobody. On the last day, Princeton happened to receive 3 applications from oboe players with excellent academic records, and they all got in. She got lucky, but she would have much preferred an electronic way to target individual students to recruit and encourage to apply.
Armed with a business model, a plan, and this story, we entered an undergraduate business plan competition. We won 2nd place, and, more importantly, we received valuable feedback from the experienced venture capitalist judges. We tweaked the presentation, and then entered the Princeton alumni business plan competition. You have to understand that the alumni business plan competition is open to all Princeton alumni. This includes seasoned financial professionals and Harvard MBAs. We won first place to a raucous applause.
Step 5: Ask for forgiveness, not permission.
Now, we needed to reach out to more admissions officers to learn more about what, exactly, they wanted, and how to sell it to them. How could we do this? There just happened to be a conference on college admissions in June at Harvard with all of the top admissions officers at Harvard, Yale, Stanford, Duke, and others attending. This would be a perfect place to make connections.
Jeremy: Hello, we are students interested in learning more about college admissions.
Jeremy: Is it possible for us to attend this conference with a free or reduced price?
Jeremy: We want to make a product to make admissions better. We won't take up anybody's time.
Jeremy: But, really, please we have no intention of...
Jeremy: (to us) Let's go anyway and crash it.
So we drove up together to the conference. We figured that we would probably not be allowed in, but we might get a little information and trade business cards. When we got there, we saw that the conference was just in a hotel lobby. We walked up, put on name tags, and started mingling. Note that most of us were freshmen, so we barely looked post-pubescent much less like admissions officers.
Step 6: Do your research.
We sat at the back of a panel discussion with the admissions officers at Harvard and UPenn. They would literally say to everyone, to us, "It is just really hard to find good students which are the right fit for our colleges. We would love to able to find a student with these exact interests and academic record, pick them out of this area of the country, and just recruit her." Everyone we talked to loved us. Mind you, if asked, we would always tell them the truth that we are Princeton students passionate about and interested in learning more about college admissions. We never ate any of their food or interrupted any classes. We merely observed and met our exact target clients who basically begged us to make Zinch for them.
One piece of research we did not do was where to stay that night. We figured we would be kicked out, so we hadn't planned on anything. We tried calling people who we knew in the area, but nobody answered their phones. We asked friends, friends of friends, people our friends met on the Subway. We were a poor startup with barely the money for the gas. We sat in Qdoba waiting for a call. Looking out the window, we saw a Sports Authority. "That's it! We'll buy a tent, set up camp at some park somewhere overnight, and then return it tomorrow." We were desperate. So we went in, started figuring out the measurements. We went over to the register, credit card in hand. Then, an aunt's friend called us back: we could stay at her house. Too bad, would have made for a good story.
The next day at the conference, we met even more people, and they loved us. Suddenly, this woman walked up to me with a very stern face. She organized the conference, and had told us not to come in the first place. She kicked us out, but not before we already had the contacts and market research we needed. We drove home happy. There are a lot more unbelievable stories from the formation of this company, but they will have to wait for the memoirs.
Step 6: Don't drop out of school.
For most students, this advice is correct: you should not drop out. It only makes sense to give you this advice, all responsible adults will. There are a special few students, though, who, at exactly the right point in their lives, will understand that this advice does not apply to them. There will be no shadow of a doubt that school would just be too boring and unmotivating. When the time comes, those students know who they are.
I had shadows of doubts. Jeremy, Mick, and I disagreed a bit about direction. I decided to stay in school and stop working on the company, which was the right decision for me at the time. Mick and Jeremy continued on a different path from me. As an epilogue, Mick is now in California with a terrifically growing company, Zinch, which is so big that it is now expanding to students in China. Jeremy co-founded and now runs 2tor, which is leading the online college education space. Many people come to me with ideas for allowing students to take classes online. They ignore what has come before, and they do not aim high enough. Jeremy and John Katzman (founder of Princeton Review) put real, leading universities online, like USC, so that top students around the world can take classes entirely online and receive a full diploma equivalent to someone who spent time on campus. You will be lucky to get to know these guys.
Step 7: Integrate into your local community of entrepreneurs, or, lacking that, build it.
Back from my startup adventure, I wanted to evangelize the gospel of Paul Graham. Unfortunately, the Entrepreneurship Club was defunct. Instead, financial firms were hiring in full force, and almost no students knew anything about starting a business. I decided to resurrect it, and start it anew. I grew it from 0 members to hundreds, and made sure that the new leaders in every year learned how to run the club and teach the following year's posterity. It continues itself now in a virtuous cycle. It has grown every year, and in fact, now, the Entrepreneurship Club transfers more tens of thousands of dollars through its account than any other organization on campus. The first year that we bought back the TigerLaunch business plan competition, we ignited the career of another successful drop-out Princeton entrepreneur: Seth Priebatsch of SCVNGR. The network of people at Princeton now involved in startups is growing, and we have helped each other succeed in innumerable ways.
Step 8: Talk to other students from your school who have taken time off.
The club, one day, invited someone to give a talk, James Currier, who started Tickle.com which sold to Monster.com for an incredible amount of money. James stood before me. His eyes were shot open. They had a purple glaze that lit them afire, still bleeding from the red-eye flight he took from California. James had taken time off of Princeton to start his first company, which failed, but he doesn't regret it at all and learned so much. His hair burst out atop his skinny head. Gaunt and fearless, he embraced the air as he swung his arms widely to make his point: "Silicon Valley is absolutely the place to start a company", he said. "That is where all technology happens. That's where Google started, that's where Yahoo, Intel, Oracle, and so many other technology companies started. Some of the smartest people in the world lived there at Stanford, Berkeley, and PARC. It is a magical forever-sunny wonderland where dreams come true and it rains investments and acquisitions." (not exactly what he said...)
He was inspiring. He didn't have a smarmy kind of charm so much as sheer hurricane-force energy. He was insightful and learned. He talked about his great times. He talked about his toughest times. And so he inspired me to do it. I had to see it. What is so special about the Bay Area? How can it actually be that great? What exactly gives the air such power to breath life into world-changing tech empires?
Step 9: Pick a startup hub like Silicon Valley.
It was a school break the following week, so I bought a ticket for that weekend. I bought an incredibly cheap ticket on Hotwire and asked my high school friends in California schools if I could crash on their couches. I also emailed every single company on TechCrunch which stated that its company is in any city in Silicon Valley, San Francisco, or Berkeley to ask for an interview. It was tight scheduling.
If you haven't been to the Bay Area, then you don't understand how it is possible that literally almost everyone is involved in startups. I go to the basketball courts to play some pickup. After a sweaty game, each one in turn introduces their crazy new web2, hardware, or biotech startup to you, each one the founder or CEO. Multiple lunches and talks happen every day, with free food and drinks, you cannot possibly go to all of them or even meet everyone. And everyone wants to help you. I walked down University Ave and saw Facebook, I talked with the CEO of Azureus for 2 hours one-on-one, to the CEO of StyleHive and so many others.
The fact is, these hubs do not crowd you out. They have an overwhelming amount of resources to help you both in early stages and in later stages. Be friendly, learn what you need to know, and everyone there will do everything they can to help you be successful. If you stay in your hometown, as Jeremy, Mick and I almost did in New Jersey, we would have certainly failed. Now, Mick is in San Fransicso, and Jeremy is in New York, enmeshing themselves in the startup scenes and reaping the benefits. If you stay in your home town, understand that you do so not to maximize the success of your startup, but for some other reason, like comfort. Startups are risky, not comfortable. Get a job at Microsoft for comfort. I was done with comfort, I wanted to start a startup.
Step 10: Ask a dean about how to take a leave of absence, and how long you can take one.
Just grab or email your nearest dean, who will point you in the right direction. Princeton has a very lenient leave policy. You can take 3 years off without a problem. You do so by filling out a 1-page form, and you can do this all in a day. You can leave as late as the day before classes, or even after classes start (although you have to pay some tuition). To get back in a year or 3 later, you send an email. Financial aid is unaffected. Every dean you talk to will be very supportive of your decision; they will not question you. This is an excellent policy that encourages students to figure out what they want to do without pressure. Certainly, they would prefer a student to learn in a different way for a year rather than drown in school or do something worse.
Other schools have less lenient policies. Yale only allows a 1-semester leave, which limits the potential for student startups at that school. Their entrepreneurship club would do well to lobby the administration to relax the policy.
Step 11: Reach out to your friends and brainstorm.
I contacted some friends I had met on my trip to California, asking them if they knew of any other people interested in a new startup. I talked to Mark Kaganovich and Jeremy England, and we talked about making a social network and practical tools for managing research for scientists. Mark and Jeremy went to Harvard and are hard-core scientists. Mark is friends with Mark Zuckerberg, and was the 6th person on Facebook. If you get a chance to meet them, you will be blown away by their brilliance. They think analytically and carefully. I only met them from a friend of a friend, but we quickly got along well and we are very good friends and trust each other about everything.
So we started Labmeeting, led by an investment from Peter Thiel, who met the Labmeeting team randomly at one of the many events at Stanford. He saw the quality and depth of thinking of the team, and made his trademark quick decision. These kinds of lucky coincidences happen all of the time in the Bay Area. Now, thousands of scientists love and use Labmeeting to manage their labs and do research. We were the first, and we have the largest number of users from Stanford and Harvard than any other imitation network.
Step 12: Help other entrepreneurs.
In the mean time with Labmeeting, I was helping another young entrepreneur start up his own company, Josh Weinstein. He refused to drop out, but I did help him get GoodCrush off the ground and launched. Since that launch, GoodCrush has renamed and has now been funded by several notable people and venture firms (including Thiel of Facebook). It will rival Facebook at its own game: the college market with CollegeOnly.
One key to Josh's success is public relations. When launching GoodCrush, we were given the contact information of someone at the Huffington Post who could write about GoodCrush. We called them the day before Valentine's day, the big launch, but we mis-dialed:
Josh : Hello, is this the Huffington Post?
Chris: No, you must have the wrong number.
Josh : Oh, I apologize... <almost hangs up>
By the way, who is this?
Chris: Chris, I write at MediaBistro.
Josh : <excited> I'm Josh, we are launching GoodCrush.
It's a new dating wesite for college students
Chris: Is this a new startup? Tell me more...
An hour later, Chris Ariens posted a story on MediaBistro, all from mis-dialing and taking advantage of opportunity. Serendipity is the essence of startup success.
Through the Entrepreneurship Club, I've advised and helped set up half a dozen different companies. They may or may not do well, but the students will certainly learn a huge amount of work. In just a few years, we have seen a tremendous amount of new interesting startups coming out of Princeton, far more than I thought could happen in such a short time. For example, art.sy will transform the way that high-end art is sold. I encourage you to research more and help them out if you can.
Step 13: Let others help you.
Josh introduced me to Billy Chasen at Stickybits. Stickybits is an iPhone app that lets you scan barcodes, and then attach images, video, or text to the barcodes. It's like a virtual bulletin board, so that people can have conversations around products. We have exciting new ideas for how to transform the way you interact with consumer brands, but I can't talk about those yet. We are funded by none other than Mitch Kapor, Chris Sacca, First Round, and Polaris Ventures. My limited experience and skills and the people along the way have helped me do well here. The amount I'm learning from other team members is tremendous. We are the leaders in the social barcode scanning space.
Peter Thiel just launched a new program that will give you money to drop out and start a startup. Startup business is on the rise, the economy is improving. Facebook and other companies are enabling newer business models. More people are on the Internet than ever. This is really the perfect time to start a company, consider doing it now, but don't drop out of school. Meet people, make friends, brainstorm, build a community, help others. You will know when to leave and do startups.
The Face that Launched a Thousand Startups
The Facebook Movie will launch a thousand new websites. The Facebook Movie will be beyond epic. It is written by Aaron Sorkin, an incredible screenwriter who also wrote the West Wing, Zuckerberg's favorite TV show. It is directed by David Fincher who directed Se7en, Zodiac, and Fight Club. Trent Reznor of Nine Inch Nails writes the music. Early reviews love the acting brilliance. It is a story that everyone knows, down to the ending. Yet, early critics praise it for its brilliant cuts and editing. The dialogue is fantastic, as can be expected from someone who wrote the careful prose that defined the West Wing.
This movie will blow out the box office. It will blow out the box office not because Facebook has 500 million users, but because it is actually good. Only 1/3 of US adult population uses Facebook, so a big proportion of people who could watch it will not be Facebook users. It has to be good, and given the people involved, it clearly is. The trailers are dark and moody. If the website and trailers are any indication, the movie will bleed drama while simultaneously aspire to the grandest visions. The movie trailer inspires a dream of creating an empire from a dorm room. Ironically, the movie will be the Wall Street of our times, but for startups instead of finance.
And therein lies its power. Millions of young people will be inspired: college age, out of college, and kids. They will see what is possible from a kid in a small room. They will want to learn how to do the same thing, to learn to hack, to build a website. Thy will create companies emboldened by inspiration and luck. The movie presents a gleaming vision of success and power. The movie, in a brilliantly dramatic way, will inspire thousands to follow the same path to achieve just a fraction of the wealth. Being a computer genius will be cool again.
Measure the numbers of applications to incubator like YCombinator and TechStars. Measure over time the hits to startup-related forums like Hacker News. I guarantee a large influx over the coming months.
How to drop out of college and start a venture-backed Social Network
A quick google search reveals that there are no good guides online that tell you how to drop out of college. So, this will be a first. There are many opinions about whether you should or should not, but none which really tell you how.
For example, Jason Baptiste just wrote an excellent blog post about why you should stay in college. He is right in many ways, but you should also look at the other side in detail and how well that can turn out.
I will tell you how drop out and start a social network that grows into, ironically, the leader in the college admissions space. I will tell you how to start a social network for scientists whose lead investor is Peter Thiel (who also funded Facebook and started PayPal). Finally, I will tell you about how to help launch the hottest new rival to Facebook, also funded by Peter Thiel and SoftBank, the Google of Japan, and move on to work on Stickybits, to revolutionize how people interact with everyday consumer products.
You can read about these stories on the new article page.
Many people do not understand the difference between a Pyramid Scheme and a Ponzi Scheme. They are very different. I believe the confusion lies mainly in that they are both Schemes and they both begin with P.
A pyramid scheme depends on the idea that you buy into something, but only get paid out when you convince other people to buy in under you or from you. Thus, you have a pyramidal structure. You sell to 10 people, they each sell to 10 people (100 total), and they each sell to 10 people (1000 total), and so on. Usually, the item sold is nothing substantial. This quickly becomes unsustainable, so the last suckers to join cannot sell to anyone else, so their money loses out and trickles up the pyramid.
A ponzi scheme is an investment vehicle that promises large returns. For example, I could tell you that I have a brilliant currency arbitrage. Instead of actually earning real returns, though, I convince new investors to invest new money. I use that money to pretend I have returns to the older investors. But now, I have to start earning returns for the new investors. However, that's easy to do because I can advertise huge returns and the old investors can vouch for me that I'm legitimate. Therefore, it's easy to convince new investors to come in with more money so I can keep pretending to have high returns. Usually, ponzi schemes are broken up by the government when they get too big, according to wikipedia.
I guess they are also similar in that they involve money and are not infinitely sustainable in that eventually you run out of suckers. But that's the definition of a scheme. Otherwise, it would be a legitimate investment since it would provide returns forever.
I want to tell you a little about Labmeeting. I work at Labmeeting. Actually, thinking about it, I have too much to say about Labmeeting. I cannot tell you everything in one post. I will tell you a little bit at a time as I think of cool things to talk about. Let me tell you about our goals.
First, understand that science is broken. Not in the traditional sense. Science has not been speeding along the freeway and then suddenly tore a gasket and broke down. No. Science is puttering along reliably as it has for decades, centuries. Exactly as it has been. No faster.
Yes, scientists do an incredible job of being on the cutting edge of technology while simultaneously pushing that edge further and further. Nevertheless, it takes between months and years to publish interesting results. Labmates email cumbersome PDF’s back and forth. Literature search tools frustrate even the most patient of users. Conferences help disseminate knowledge quickly, but not when abstracts lose themselves amidst a shuffle of papers and when fellow scientists’ contact information evaporates. Publishers almost seem to try to restrict access to fulltext research articles, so much so that the government must force them to share knowledge. Graduate students find professors and professors find grad students by pure luck, not by targeted searches. Professors spend little time at the lab bench due to the skyscraper of paperwork required for modern research grants.
At Labmeeting, we are well on our way to solving all of these problems and many more. Science operates best when people can develop good ideas securely and communicate good ideas rapidly. We created a platform to do both like nobody has ever seen before.
Thousands of biomedical scientists, both at top US Universities and smaller ones around the world, already use and love Labmeeting. We want to help all researchers communicate and work more efficiently so that they can focus on what they do best: science.
Y Combinator Application Guide
Y Combinator, a kind of mini-venture capital firm, invests tens of thousands of dollars ($$$) into very early seed stage start-up companies run by smart technology hackers. They wanted to fund me in Summer 2008.
I applied to Y Combinator two times. The first time, when I applied with my friend Mason for the Summer 2007 round, I arrogantly presumed that Paul would lavish on us praise and beg us to fly to California to work with him. I spent no more than an hour on the application. We had no passion in the idea we presented. Our projects list hinted at nothing particularly remarkable or unique. Our analysis of the idea and our competitors delved only into the shallowest parts of a deep lagoon.
The second time, when I applied alone in Summer 2008, in an inspired moment I sat down in Starbucks for a solid few hours to work on the application. I strived for excellence, not perfection. A few months prior, I had briefly glimpsed the semi-successful application of Liz Jobson and Danielle Fong. I recalled their deep detail and thoughtful writing, so I imitated that kind of deep analysis which shows off one’s mastery of logic and breadth of experience.
I wish I had known how to write a good application the first time. So, taking my cue from Brian Lash’s recent question on Hacker News, I helped him out. I write here a slightly expanded version to help out anybody else who wants Paul Graham & co. to fund his or her startup.
If I were to advise myself in 2007, I would recommend that I write briefly but write a lot. This advice seems contradictory, but I mean it in a very specific way. My first application, I kept brief. I did not want to swamp YC with a tome of text. I saved many of my accomplishments for the interview. Do not do this. Write, write, and write some more. Write everything interesting and unique about yourself. If you have doubts about a statement you made about a competitor, qualify it. Don’t vacillate, but at the same time don’t seem shallow, ignorant, and inexperienced.
Of course, once you’ve written all that, you have a very long application. Now, take out filler words. Compress ideas that take up two sentences when you can use just one. If you waste two words in a sentence, delete the whole sentence and write it again from scratch. If you see a phrase that you think an investment banker might use on his resume, nuke it. Achieve a high density. In my experience, the YC crew truly pores over these applications to understand all of the meat of it. They do not skim your application when it has rich content. Cut, cut, and cut some more.
Now, step back and look at your application. If you have very little writing left, real content, then you may not be the best fit for Y Combinator this year. That’s okay. It’s good you know now. Take this year off and work on some interesting, hard projects that nobody has done before. Bounce your idea off of the smartest person you know. Hell, micro-test the idea. Then, repeat this process.
Step back, look at your tight list of accomplishments. If it’s long, that’s great, since reading something long but rich in content everyone loves to do. The length indicates strength. In my limited experience, I think this is how I made my application successful.
What is your company going to make?
I’m open to anything. Here’s one idea:
Have you ever scanned a document before? How was that experience?
It was terrible for me, too. Everyone I have ever asked has agreed that it is physically painful. But, there is a solution, one based on understanding actual human needs. What is wrong with the scanners of today?:
* slow (takes time to heat up)
* slow (scanning at a high dpi takes a long time)
* complicated (please select the dpi, now select bla, now bal[sic]…)
* cumbersome (files generated at high dpi are huge, slow down system)
* cumbersome (OCR’ing a document is a whole other rigamarole)
What do people really need? Simply a decent, readable scan of the document. This should be as easy as holding the paper up to face the monitor.
I propose that I sell a device which is basically just a decent-resolution CCD chip with a special lens which connects to a computer (wired at first, but v2 wireless). Scanning a document is as simple as holding the camera up to a document and clicking. In my tests, scanning a whole text books takes 5-10 minutes. This is a game-changer. I’ve worked with an ip lawyer to file the provisional patent on this and a few other aspects of the designs.
[BY THE WAY, IF ONE OF YOU WANTS TO HELP ME BUILD THIS, I'M ALL EARS. I'M AN AI HACKER NOT A HARDWARE HACKER. OH, BY THE WAY, I USED A DIFFERENT IDEA IN THE INTERVIEW ROUND, NOT THIS ONE SINCE I'M SKEPTICAL OF THE MARKET FOR THIS PRODUCT AT THIS POINT. NEVERTHELESS, IT'S VERY COOL. I WANT TO BUILD THIS FOR MYSELF!]
For each founder, please list: name, age, YC username, email address, personal url (if any), and current employer and title or school and major. List the main contact first. Separate founders with blank lines. Put an asterisk before the name of anyone not able to move to Boston June through August.
….. [Be sure to put your blog here. Don't have a blog? Make one. Blog about whatever is on your mind. Blog about your hacking.
To be honest, an Ivy League pedigree probably helped. Also, my computer science degree (as opposed to Economics or Business one) probably encouraged YC's faith in me.]
Please tell us in one or two sentences about something impressive that each founder has built or achieved.
Looking at some things in ~/projects folder: ……..
[Here I mention a few of my projects, with links to open source code, web pages, anything I can publicly show. I didn't spend more than one or two sentences describing any one project, but I listed many of my most interesting projects and why I worked on them. YC likes to see you working on real problems, so I talked about problems I solved for myself and for others directly
They want to see that you think creatively and that you actually finish things.
It goes without saying that you should list projects which uniquely describe you. Building a toy language in Programming Languages class many people probably do. Yes, it may have taken you a long time, and you may have learned a lot, but you do not necessarily stand out. Writing a CAPTCHA solver to hack Digg few people do or can do.]
Please tell us about the time you, ljlolel, most successfully hacked some (non-computer) system to your advantage.
…… [I talked about my shotgun email to dozens of startups here in Silicon Valley which gave me the opportunity to meet a lot of cool entrepreneurs. I'll probably blog about this at some point in the future.]
Please tell us about an interesting project, preferably outside of class or work, that two or more of you created together. Include urls if possible.
(see above) [I applied alone, so group projects inapplicable.]
How long have the founders known one another and how did you meet? Have any of the founders not met in person?
n/a [Again, I was a sole founder.]
What’s new about what you’re doing? What are people forced to do now because what you plan to make doesn’t exist yet?
(see above) Basically, nobody ever scans anything because it takes forever, doesn’t really do what you want (you just want a readable, small image and for the document to be searchable),
What do you understand about your business that other companies in it just don’t get?
Scanner manufacturers try to pack in the highest dpi they possibly can. They focus on resolution, when they should be focusing on the user experience. Speed is what they should optimize, but I see no scanner manufacturer doing that.
Who are your competitors, and who might become competitors? Who do you fear most?
HP, Xerox, etc, also ScanR, Qipit, Evernote …… [I go on to be brutally honest about the difficulty and vulnerability of my position as a hardware startup in a crowded field. Remember, you are writing for some very, very smart people. They want to see your analytical thinking skills here. They want to see you be realistic, not delusional.]
……. more questions, answer analytically deeply, answer honestly to the best of your ability ……
If you had any other ideas you considered applying with, feel free to list them. One may be something we’ve been waiting for.
…….. [I always think of new ideas and discuss them with friends. I chose 4 and listed them here. I crisply described each in no more than 2 brief sentences.]
TipJoy ingeniously simplifies and enables micro-payments
I have already written about my distaste for advertising.
Sometimes, however, these newspapers and blogs manage to make something of value. A particularly hard-hitting expose in a newspaper, or a particularly helpful guide in a blog, offers to people real value. Nobody can create this kind of content every day, or probably even every week or month. A subscription subsidizing the page-filling fodder misallocates wealth. I want to pay for the value more directly, not indirectly through ads.
Or, more commonly, a blog post provides for me a little bit of value. Not $50/month in value, but perhaps 50 cents/month. No payment system can pass around payments like that easily for the user, especially without ridiculously large credit card fees. How can I tell Michael Arrington of TechCrunch that his site I find useful sometimes? Combined with the millions of others who find his site just a little bit useful, he can make some money directly from us.
Fortunately, I think TipJoy solves many of these problems. The site only launched a few months ago, so it has to grow quite a bit before it reaches a tipping point. Nevertheless, TipJoy designed their product beautifully.
First, for new users, creating an account takes a few seconds. Just click on the TipJoy button, write in your email, quickly create a password, and finish up. No credit cards required. A new user signs up by tipping, integrating the first-use with registration. Ingenious.
They follow a model that bar’s use where you can set up a tab and pay later. Readers get drunk tipping blogs here and there all around, running up a huge tab. Users only pay once the tab gets large enough to justify the credit card fees. Their model differs from the bar, of course: just like the tips themselves, paying the tab is optional. Nevertheless, through this system, TipJoy encourages people to sign up easily, and only over time pay off their tabs.
Second, once signed in, tipping takes just one click. No annoying confirmation steps required. No complicated questions about how much you tip. You get one choice: 10 cents. Of course, you can tip more if you want. This encourages readers to tip generously around many sites across the web. The tab builds up invisibly behind the scenes.
When I first read about TipJoy, I knew that it, or a model very similar to it, would take over the web. I think it will take time. However, I will support this service by putting it up on my blog. Maybe, one day, I will write a post that many people find just a little bit useful, and I can finally monetize this blog .
Ads annoy me. Ads annoy everyone.
More importantly, I cannot envision building a serious business which depends on these kinds of banner ads, or even text-link ads. But many websites do: TechCrunch, Project Wedding, Reddit, MightyQuiz, Justin.TV, Scribd, Loopt, and so on.
I use many websites online every week. Many provide a lot of value to me, they help me do my job more quickly or help me live my life more easily. They offer me so much value, I would even pay to use them. Some of these services include Google, Amazon, GitHub, Bank of America, Kayak, Craigslist, and a number of blogs like Slashdot, XKCD, and so on.
Except for Google services and the content creators (the blogs), I pay directly for the value these websites give me, given how little the services cost. The smartest ones all do. Kayak, for example, makes money off of the airline and hotel referral fees, not ads.
Unfortunately, many startups think that Google’s AdWords will be their sole source of revenue for their website.
But, advertisements as a business model suffer from a fundamental weakness: advertisements indirectly monetize a website. Sometimes, the indirect monetization means that you make more money. Often, it means you make less.
Imagine you make a technically amazing product on your site. Nothing else exists like it. I sign up, and I notice that you provide an incredible amount of value to me. I would be willing to pay a large monthly fee for that. Instead, though, you monetize the website through advertisements. I never click on the ads. I visit to your site to use your product, not to buy chainsaws. You make no money off of my use. Even if I clicked on a few ads, you still make less money than if I paid a monthly fee.
That doesn’t work. You get none of the pay off from the value you provide me, while simultaneously actively annoying me. Project Wedding offers a good example. I would use Project Wedding to review, for example, photographers and find the perfect photographer for my wedding. The Google Ads at the top for random photographers who happen to pay for the ads do not help me; they only confuse me. A referral fee model makes more sense, or preferably an even more creative never-before-seen model.
The Quintessential Advertising model
Now, for a few kinds of websites, advertising makes sense. When I’m looking for a chainsaw to buy, I google “chainsaw” to find results, but I also see “chainsaw” sponsored ads on the right. That makes perfect sense; it directly provides me value. Google search exemplifies a great use of advertising. As Google’s customer, you watch Google continually provide us a better, more targeted service. It is the Yellow Pages model.
The Common Advertising Model
Advertising does not make sense in most other models. It does not provide value any other way, but it does annoy me. Nevertheless, I would use advertising if I started a company that built one class of product: products that provide little to no value. Examples include most television programs (think “reality” TV) and online games. People spend time watching random television shows to waste time and not think. These provide little (negative?) value. You have absolutely no opportunity to get people to spend money on your silly time-wasting flash game. You can, however, put ads along the side. With this kind of advertising, you transform your customers from the people playing the games into the advertisers. The advertisers pay you to reach out to these game-players, at the expense of the already-void user experience. Advertisers pay more.
Most magazines, newspapers, and blogs also fall into this category. Reddit and Digg as well. Little to no (to negative) real value offered. Newspapers and magazines offer nominal subscription fees, not because they cover the cost of the reporting–it probably does not even cover the cost of the ink– but because advertisers demand that they know real circulation numbers. Advertisers assume that if you pay at least a little, you probably read it and look at the ads. Because content creators cannot extract enough money from you directly into paying for all of the reporting and server overhead, they resort to becoming the servants of advertisers. Digg now displays (or at least recently used to) very annoying flashing ads.
Make something useful
But if I want to create something that depends on this kind of advertising, why do I want to create it in the first place? Why do I want to make something that nobody values, that nobody finds useful? For me, I cannot do that. I want to make something great, not a time-waster.
Stanford’s Entrepreneurial Thought Leaders Series (now on your iPhone!)
The Stanford Technology Ventures Program runs a well-developed incubator for tech businesses at Stanford University.
STVP offers some very cool resources free to the world. For example, I have been listening to their Entrepreneurial Thought Leaders audio podcast. The program brings in some of the greatest entrepreneurial forces in Silicon Valley today. Some of the speakers include
and so on.
While I was listening to Mike Maples and Ron Conway give their talks about angel investing, I had trouble following along and knowing who was saying what. I had subscribed to the talks through iTunes. When I visited the site, I noticed that they published videos as well, but in a Flash format, and not available as a podcast. I followed the videos much more easily.
So, in accordance with their fair use license, I decided to scrape the video metadata, download the video files, transcode them into an iPod-acceptable format, and republish them in a simple video podcast format. I now have scores of these talks in my iPhone and on my Mac Mini to view at my leisure.
Now, you can download them to your iPod, too. Just subscribe through iTunes or any other podcatcher.
P.S. I’ve open-sourced the code (AGPLv3), in case you ever want to make a podcast yourself.
When someone searches for your name on Google, you don’t know what they might find. They might find an article or two in which you were featured, or they might find a random post you made to an open source project. Or, they might find someone else and not know he is not you. The scattered information evaporates and confounds your online persona. You have a blog, but it might not point to your LinkedIn account, or your home-made balancing robot video.
What I need to be able to do is manage my online identity easily. Moreover, I don’t want my data to be hostage to a single company. But, that’s exactly the opposite goal of a company like Facebook or Microsoft. Ideally, companies want to trap your data entirely on their platforms so that you must use their services, even as they become inferior due to lack of competition.
Now, a knowledgeable guy like me could set up, for example, his own identity server and RDF Friend-Of-A-Friend (FOAF) page. However, most people cannot, of course. Moreover, such an technical, intellectual exercise would seem to serve no purpose. FOAF has not the following of Facebook.
I propose a service which I would value today, even if I were the only person using it. It may even improve as more people use it. Am I proposing another social network? No. Please, no. Facebook wouldn’t want you to link to your MySpace or LinkedIn accounts. No, Mark Zuckerberg want to be MySpace and LinkedIn. He even wants to be Windows.
I propose an elegant identity aggregator. You constantly create yourself and reveal yourself online. You want to make sure that people can see all that you created and all that you are. Additionally, you want to authoratatively say which sites are about you, so the imposters can stay hidden. You want this to be easy. You want this to be elegant. You want it to be open. You don’t want to sign up for another social network.
I envision a beautiful, simple way to aggregate all of your online personas onto a single page which summarizes and links to all of the others. Onto a single page, a single tile. Your tile shows small thumbnails and links to your Flickr photos, knows who you are on Facebook, MySpace, and LinkedIn, points out and highlights the best articles about your accomplishments.
It happens simply, you go to OneTile, tell it about your blog. Then, it intelligently searches for more about you. It guesses that you might be this user on Digg, and that user on Yahoo Answers. Eventually, it picks up enough information to create a personalized, flashy tile for you. The best content about you stands out, but it’s all reachable. Now, when someone searches your name, your tile comes up. It’s impressive, concise, and accurate. Plus, all the data you have collated is easily downloaded through RDF, not locked into OneTile.
As more and more people start using the service, it gains notoriety. I imagine a sea of tiles for everyone online. This is what I imagine the OneTile homepage could be:
It highlights the most fascinating tiles with the most interesting content. You can zoom in to have a closer look:
Slick animation zooms through the sea of tiles as you browse through people’s public online lives. Finally, you can choose one tile to examine closely.
When choosing a specific tile, one person’s tile, you can see their name and all the tiles that are theirs: their flickr pictures, their photo albums, their rss reader on the right, maybe some friends, links to social networks on the left, some research tiles in the middle.
Some people link to blogs when they mention their friends. I think OneTile would be more complete.
My friend Dan O’Shea sparked the idea for me. He described to me a similar vision, and I had this one. We might start building this soon. As I said, if I can make this nice, it would be useful for me myself. If I can help others, that’s just extra pasta.
Returns year 2
I bought and held QID for a few weeks until the NASDAQ dropped. QID is a twice leveraged short of the NASDAQ. The NASDAQ was overpriced, I made an easy eleven percent.
But I want to ensure that I’m actually doing well, and that ostensible success is not due just to availability bias. I want to calculate my annualized rate of return. This is not trivial, though, because I added money to my Scottrade account three different times. I didn’t find anything which can help me solve my problem immediately, so I put together an Excel spreadsheet.
I learned a number of interesting things. First, my returns are very good. 24.7% annualized returns (including commissions and trading costs but sans taxes). I trade Apple, Google, Amazon, and some market ETF’s: QID, SPY, IWO. Here is a graph of my returns since I started investing in January 2006:
The bump there isn’t due to market swings or anything like that. My return stream is uncorrelated with the market. (Most of the time I am out of the market, and I have been short the market about as much as I have been long it.) I did so well at first, I got very cocky and started investing in Ford and AT&T, companies about which I know very little. Subtract out those two months of overzealousness, and my trades become both much higher and all positive (0 bad trades).
The Barclay Hedge Fund Index, http://barclayhedge.com/, notes that hedge funds have gained, year to date, 12.1% while I have gained, year to date, 29.2%.
I earned 50.4% since I started investing in January 2006. As a comparison, your bank probably gave you 1%. A money market could have tossed you 10%. A mutual fund might have left you 16%. The normal benchmark, the S&P 500, earned just 15%. In the same period, the NASDAQ earned just 17%. XLK, a tech sector index fund, earned only 25%. I note the tech sector because I’m more likely to invest in tech stocks since I know more about them. A blanket strategy of buying and holding technology stocks would not have created the returns that I have. My excess returns are alpha.
Not only are my excess returns alpha, I’m pretty sure that most or all of my returns (and moreso if you include making up for stupidity in buying Ford) are alpha. Each data point on the graph above is a trade. I’ve made fewer than a couple dozen trades in 22 months. Less than one a month. I held each one for a maximum of a couple of weeks, usually for a period of just 3 business days (enough time for my funds to settle.) That means that I am almost never exposed to the market, so I can’t have any beta. To factor out much of the beta I scooped up as I dip into trades, I have also been short the market, twice leveraged, for a few weeks. For the most part, these returns are pure alpha.
Now, I could have gotten much better returns by, for example, buying and holding Google, Amazon, and Apple. Google doubled, Amazon doubled, and Apple tripled in value. But, first, I am not that patient, and, second, holding the stocks would have left me open to lots of market beta (like the recent tech correction), and also the up and down swings of everyday rumblings. I prefer more consistent, less negative jumps. I don’t know when the next bubble is, or when the next bubble burst is, I just know when a stock will jump by 10% tomorrow.
Half of my trades have been fantastic moves (7%+). Almost the rest of the other half didn’t do much (+/- 2%). The only two non-trivial bad trades were during my cocky period and were disastrous. See a scatter plot of my trade returns below, the trades are plotted over time from left to right.
As you can see, there are clearly three clusters. The clusters are unbelievably well-defined and well-separated. It gives me the impression that I might be able to figure out, before I trade, if the trade will turn out to be a fantastic 7%+ trade, or a ho-hum +/- 2% trade. I continue to maintain that the bottom group is a fluke and that they will never happen again. What’s nice to see here is that I have consistently achieved fantastic trades at all times throughout the past two years. There is no lucky streak. Moreover, the only very bad trades are clustered around a time period when I specifically know I started investing unwisely. I’m surprised by the very, very low noise.
Another interesting note about the graph directly above is that I seem to be trending toward riskier investments, although this might just be my mind searching for patterns in random noise. If you look at the profitable cluster, it is trending up over time. I make higher returns for my good trades. This would be a good thing, except that my ho-hum cluster seems to trend down over time. This divergence implies I might be moving towards riskier trades and not just increasing skill at choosing better trades. Right now, when I am wrong about a trade, it usually just does nothing around 0, but I wouldn’t want to take a slight negative penalty every time. I’ll have to watch out for that and study my trades more.
I would calculate a Sharpe ratio or information ratio for my returns, but that would be inappropriate. To do so would be a rape of statistics. My returns are definitely not normally distributed. The distribution of returns for my trades are two-humped and highly left-skewed. You can clearly tell from the histogram below:
Frankly, it would make no sense to measure my returns over risk, since my risk is nearly entirely on the upside. Moreover, return over risk when risk is all upside would penalize me for having even more positive returns.
Now that I see how my trades stack up, I’m convinced that my returns are real and due to skill. The results are so clear that I don’t even have to run any statistical tests. I can improve, however. Warren Buffet thinks he can earn 50% annually if he had less than a million dollars. I think that’s right. I was sliding 50% annually for the first 10 months until I screwed up. I violated Warren Buffet’s first rule: don’t lose money. I also violated his second rule: don’t lose money. There are a few ways for me to make more money:
First, I can see how to identify the better trades in the ways I described above by analyzing the best ones. Second, I can open a margin account to double my returns or just so that I don’t have to wait until funds settle so I can take my money in and out faster. Finally, I will open a Roth-IRA to take care of those pesky taxes.
I am reading Joseph Heller’s Catch-22 again. It’s hilarious. As I read through Yossarian’s attention-deficit narrative, I can hear his dry, serious voice, “They’re trying to kill me.” I can see the insane soldiers scurrying through abrupt transitions. I can imagine hilarious shorts made from each chapter of the book.
Traditional media companies like CBS are confounded by online video. They don’t know how to make money with it, or at least they didn’t a year ago. They seem to be on the right track now, posting their television shows online. But that is just a start.
As television loses its prominence, IPTV, internet television, all on demand, will be the prominent medium. With every new format comes a new art. Movies require people to go out to the theatre (or wait on a DVD from Netflix) and sit down in front of a large screen for a couple of hours. The kinds of stories you can tell in a movie are different. The Godfather would not have played out the same on television. The Simpson’s doesn’t necessarily lend itself to being a good movie. Movies compact their character development into key scenes building up to a single climax. Television shows extend character development over months and years, with regular climaxes in each episode.
Internet video is very different. People online want information fast. YouTube videos are often just a few minutes in length. The only videos longer which are seen at all are clips which were shown on television: South Park, Colbert Report, presidential debates. I think the videos can be longer on television because of social effects. I can watch House knowing that I can relate to many others who watch House on FOX. If I watch a random video on YouTube, I don’t want to invest half an hour into something not entertaining that nobody else will watch. I might be willing to spend a couple of minutes for a quick entertainment snack.
Which gets me back to my idea. Movie producers constantly try to make quick money by adapting books to the silver screen (see Lord of the Rings, Harry Potter, The Chronicles of Narnia, and so on). But creating a screenplay usually demands that the screenwriter emasculate the book of much of its meaning. The movie format is far too compact. That’s why many recent book adaptions often exceed 120 even 150 minutes in length filled with action and dialogue, while pure movies are often just 90 minutes long.
I think books can easily be adapted not for the silver screen but for the computer screen. They would play out well. Each chapter can be an episode, just 5-10 minutes long. Or shorter. The Internet does not have the limitation of television in forcing the writers to extend or contract episode plots to a specific 23 minute time slot. Each chapter can naturally fill its vessel. Moreover, book chapters are inherently self-contained stories. Many books often end chapters with cliff-hangers. Cliff-hangers like those in The Giver would make me want to wait eagerly for next week’s show. Most TV shows don’t do that for me. IPTV book adaptation can be straightforward, cheap, simple, and much more faithful to the original than movies.
Catch-22 and Harry Potter each have about 40 chapters. A producer can release one chapter-episode each week for nearly a year. At 10 minutes each, that’s 400 minutes of content for the book. One year of a half-hour television show might yield a little more than that if you subtract out advertising. Typical movies are between 90-120 minutes, longer ones might be 150 minutes. An IPTV book show would be able to delve much deeper into the book than the movie with all that extra time. Why not put books on TV? It’s far too difficult to adapt the book to make an interesting show precisely every 30 or 60 minutes. Books aren’t so periodic: there are short chapters and there are long chapters. Only on-demand Internet episodes can handle this new format requirement.
I would love to watch Catch-22. Many other books, like all of Michael Crichton books, similarly would require little editing of the source material to make an entertaining show. The artform is new, and needs to be perfected, but I think it can be done. Robert Rodriguez faithfully kept to the source material for Sin City, and made a good movie. That fit well into a movie because comic books have less depth. Books need a different video adaptation medium.
I would love to make this video version of Catch-22. I would need some people to help me. I would love to learn how to direct and edit video. I imagine it’s incredibly difficult to turn ideas into good-quality video. I have no misconceptions that it would be easy. I do think it would be fun.
What would you do if you were fabulously wealthy
From a NextJump survey:
12. Visualize a rosy scenario where the company you are working for goes through a wildly profitable public offering, and you personally make enough money from your equity share to enjoy lifetime financial independence. Freed from the need to hold down a job just to meet the financial obligations of your chosen lifestyle, what would you do with your time and money?
That’s kind of a frightening question. For a lot of people I know, their sole goal is to become fantastically wealthy. That dream is so far away, they don’t even think of considering what they would do with the money once they have it. They don’t even realize that they desire money as merely a means to an end.
I like Tim Ferriss’s example. He asked his friend, what will you do after years of toil at your investment bank, after making millions as a vice president working eighty-hour weeks? His friend answered, I’ll finally get to take a long vacation riding a motorcycle through Thailand. Tim just chuckled, telling him, he can do that right now and for a lot less than a million dollars.
I’ve always wanted to get money to achieve my ends. Now, I’m just looking for my ends. As I do what I like, as I do good work, I’ll just get paid enough (or much more than enough) for it. I know that money, more money than I’ll ever need, will simply follow.
Orders of Magnitude
Never go for the 1% or 2% or even 10% improvements. Although these improvements require time and effort to achieve and maintain, these small gains are tiny, often imperceptible, to a person.
No, I say waste no effort even considering any kind of cost-benefit exchange. Ignore these small fruit within your grasp. You will be picking berries all your life because it is easy, because you can see the nearby goal. Instead, spend a little more effort looking for and finding the watermelons. The larger goal might take more creativity to achieve and the end may not easily be in sight, but in the end you spend orders of magnitude less time and effort. Much more importantly, you employ your natural human faculties to create. You enjoy imagining and innovating much more than the tedious and repetitive.
Unfortunately, the world focuses on picking berries. Although we naturally love to reason and think and be creative, for some reason, we also love to accumulate the small improvements. I think the quick satisfaction and low chance of failure cause us to avoid a much more fruitful but less clear end. Established companies depend on squeezing out small improvements in efficiency, at the cost of quality and employee morale. These big companies grew large due to a several order of magnitude innovation, but, now large, the executives do not want to risk innovation. They prefer to squeeze out whatever profit they can from their established product until the company smothers itself under its own morass of details.
Even in your day to day tasks, you focus on small details which seem significant. They, however, pale in comparison to real efforts you can contribute to create orders of magnitudes of improvement. Environmentalism is a great example. Some people go through great pains to recycle what is left after consuming something. But what if they don’t consume it in the first place? Would their life be materially more unhappy? Not at all by any scientific survey. Not at all by any experiment I have done. In fact, if you really sit down to think about it, the next thing you buy you almost definitely do not need and you probably don’t actually want. It just takes effort to go out and buy, to store, to maintain, to consume, and to dispose of. Sometimes it makes you feel guilty (e.g. many snack foods). What actually affects you most is who you are with and how you think about life, others, and yourself. Changing your thinking brings orders of magnitude of change. Buying more baubles does nothing.
People often hate their jobs because they pick berries. At a career fair the other day, I overheard many students asking the recruiters what kind of work they would be doing, will I be “creating new models” or something else? No matter what job you have, in whatever industry, in a large company you will be making small improvements to the existing process. Thats why they hire you and others. The guys at the top found the berries, and they are hiring you to pick them. It doesn’t matter if you are in the research department or if you are the manager of trading. If you are lucky, your job is minimally creative.
But that does not have to be the case. I think it’s possible to move away from this model. The company just needs to make a solid commitment to not make small improvements. All changes, all work, should not only be quantifiable, but easily qualitatively perceptible in value to the outside world. Demand that no efficiency improve things by less than an order of magnitude. Let’s define an order of magnitude as doubling, twice the original. So, ten times better would be a little more than 3 orders magnitude (2^3). A thousand-fold improvement is 10 OM’s. There are few 10 OM in reach but many 3 OM changes.
So, don’t figure out how to improve department communication by 10%. Figure out how to eliminate the 90% of the communications, documentation, and emails which are not only useless but also suffocating. A strong 10 OM improvement.
Usually, these major improvements are so large and fundamentally revolutionary, the improvements are barely measurable:
Don’t increase staff by 50% so you can have more people indexing the Internet by hand. Instead, build an automated search engine that intelligently uses links already online to figure out which web pages are the best. Immeasurable improvement that actually scales.
Don’t stick a slightly faster computer chip and more RAM into your video game system. Instead, design a completely different game controller which couples motion and your whole body tightly with the game. Qualitatively improve the way people experience and invest themselves in your games.
The orders of magnitude improvements are always there. You can always find them, as long as you do not occupy any of your time with the small ones.
I want to work
I want to do some work for someone else. Even if I work on just one project in a month, just a few hours, I would love to make just a little bit of money to pay for my food.
While I would be able to do any job very well, I think I can uniquely offer my programming skills. I want to think about, implement, and perfect complicated solutions for people.
PHP web programmers are a dime a dozen, especially outside the US. They can crank out generic, dumb solutions. I want to create programs that others cannot make with traditional programming techniques. I want to leverage my knowledge of Artificial Intelligence algorithms to save people tens of thousands of dollars, to do things that would take far too long and be far too expensive to hire people to do.
I made a website, Ivycall, to describe what I want to do, and how I will do it. Now, I need to talk to people with whom I have worked in the past. I can help them. They can help me. I just need to work up the courage to actually call people. I should have called on Monday. I will make talking to people my only task for tomorrow. I hope that I can muster the strength to do it. Of what am I afraid?
I should stop writing I as much as I have.
Investment Banks Fake Sincerity
I think Investment Banks do some good things for the world. I disagree with how they sometimes view the world and interact with people. They can become dishonest and empty.
I received the e-mail below from JP Morgan today. It’s a standard invitation to apply to one of their leadership programs. I’m probably on some big list of theirs. This is all fine, except that this recruitment manager claimed she “wanted to personally tell” me about the program. This is a lie to feign sincerity. There is nothing personal about this message.
There are several telling clues. First and very obviously, I’m not in the To: line. In fact, there is no To: line. That’s because this manager probably BCC’ed a huge list of students. The point of BCC is to not let the recipients know to whom else the message was sent. She wants to hide the massive number of people she personally invited. In a personal e-mail, you would never BCC the recipient.
Second, it doesn’t say Hi Joseph, Hi Mr. Perla, Hi Joseph, or any variant thereof. It’s the generic “Hi” you use when addressing a large group. Adding my name would have been pretty easy, but it seems she didn’t even take the trouble of this modicum of effort.
Finally (fixing this would be really putting forth extra care), the body of the message says nothing specific to me. Nothing about my major, nothing about my interests. I’m glad she looks forward to seeing me on campus, but I’ve never met her. In fact, she wrongly assumes that I could be having a good semester (I’m taking the year off).
Now, maybe I-Bankers have a different definition of “personally”. Maybe, I-Bankers define personally inviting someone as mass-mailing an indefinitely large group a short generic message plus an attachment from their own Outlook. “I used Outlook myself on my computer. I didn’t have my secretary do it: it’s personalized.”
Personally, I have a problem with that definition.
date: Sep 24, 2007 11:06 AM
subject: JPMorgan Launching Leaders Scholarship. Apply by November 15th
I wanted to personally tell you about JPMorgan’s Launching Leaders scholarship. The details are in the flyer attached below. Please feel free to share this with your friends. For more information and to apply go to jpmorgan.com/launchingleaders. Hope you are having a good semester. Looking forward to seeing you on campus soon.
If You Approach Your Startup Like Building a Ferrari You Will FAIL
I disagree that if you try to perfect your product, you will necessarily succeed. In fact, I contend that you will necessarily fail.
Perfection is impossible. You will never achieve it. Your startup can get 90% of the way there with just a little effort. To get that last 10%, to be close enough to caress perfection, would take orders of magnitude more work. You never launch.
Take the example of designing your homepage. It is incredibly complex and dynamic, with dozens if not hundreds of individual components. Of course, it is also the most important page of your entire site. Now, consider just one tiny aspect of designing this page: where to align the text. You end up spending hours deciding how many pixels from the left side of the screen your text should start. Yes, there is a perfect distance. You can make focus groups and do scientifically-rigorous experiments, then ask a consultant to run all the data you collected through a quadratic optimizer. Or, you can ask the guy next to you if it’s ugly or not. Saves you money, save you time, and you can actually get the valuable part to the end-user.
Better yet, at regular intervals, just run through a quick usability test with someone, anybody. Sit next to them, and ask them to find some information. If she hesitates, then you found an important problem. If she finds it quickly, then congratulations! Your site is ten times better than nine out of ten sites online. If she says that the orange on your hompage should be just a little more red, then you need a different tester. Color, spacing, width, etc are not important. They are means to an end. Don’t spend time measuring and testing and perfecting the means. Spend your time excelling at the ends.
Ferrari is a great brand. But it also doesn’t make the kind of money that Google makes. They only make any amount of money because they are an old company, and because they advertise to people that they spend a lot of time “perfecting” their engines. I’d still bet Toyota engines last longer. Sure, Ferraris can accelerate faster and have a higher top speed, but a lot Ferrari owners don’t race and instead just buy the cars for their cachet.
So, I can probably create a car company overnight which would have as much or more cachet, but without the wasted effort in trying to “perfect” design. All I have to do is take a Toyota, put a slightly different frame on it (Lotus?), and perhaps stud it with diamonds and layer solid gold on everything. Instantaneous excellence. On top of everything, I’d probably also make more money than Ferrari.
When Apple started to sell the iPod a few years ago, they faced a large uphill battle. Apple’s device held less music than other mp3 players, had fewer features, was large and bulky (cf. current iPods), priced itself too high, and came late to the game. Other companies had already established themselves in the industry. Creative was a leader in mp3 players and Sony still had brand strength from the Walkman.
I think a key feature in the initial branding, growth, and success of the iPod was its distinctive white headphones. Before Apple, most music headphones were black, presumably to blend in. Ask any magician, she will tell you that black is invisible to the human eye. Therein lies the iPod’s brilliance.
Usually, a music enthusiast hides his small music player in his pockets while walking around. The only visible signs that he is listening to an mp3 player or other device are the headphones. By making iPod headphones distinctively white, Apple made sure that everyone around the music enthusiast knew that he had spent big bucks on a premium device from Apple. The white head phones immediately stand out, unlike the black headphones which people overlook. Even if an onlooker were to notice the black headphones, the headphones could have been plugged in to any mp3 player, cd player, or even Sony Walkman tape player.
The white headphones stood as symbols of buying a premium device. They also served to indicate the growing popularity of the device. At first, one would only notice a few headphones and one may ask about the iPod in passing. Later, as one saw that an ever growing number of people peacocked white headphones, one wanted to buy this apparently very popular device even more. Now, Apple owns the color.
We could all learn a lesson from this brilliance, whether Apple did this purposefully or accidentally. Try to make something distinctive. You don’t have to ask your customers to shout your company’s name and product at all of their friends. You don’t have to ask them to put your company’s logo in loud letters on their shirts and pants. You can brand with just a simple, barely perceptible icon and a unique association.
I will be posting informative articles about how to start a business over the next few weeks. They will be tagged “Entrepreneurship”.