As my friend Andres would say, the future is in the mind.
We’ve come a long way.
The value of Real time search is the subject of much debate*. Here are my thoughts:
“Google is for things that have happened.
Twitter is for things that are happening.”
From my past two hours of research, this is the most fundamental distinction I’ve seen. Here is why it exists:
It takes time for Google’s algorithm to index content and additional time for it to recognize that good content is actually good. During that time, new and potentially more content may come into being but Google wouldn’t be able to tell you about it.
To use my friend Jordan’s example, if you Google search “best digital camera under $200” you will get a camera that has had several popular blog reviews over the course of the past couple of months. The problem is over weeks that it took for that camera to be released and favorably reviewed by multiple sites, there may already be a better camera on the market.
This is where real time search comes in. Search “digital camera under 200” on twitter search to see what people are saying about that subject right now. You can get links to blog posts about cameras written hours ago, way before they become popular enough to show up in your Google search results (one of the main ways Google determines the importance of a web page is by how many other pages link to it).
I have a bunch more thoughts on this but they need to be organized. For next post… In the meantime, I would love to hear if anyone reading this has ideas for other good applications of real time search. Thoughts?
*Pundits such as on one side say that “Twitter is a Google-killer” and that we will soon be querying tweetscoop and the like for all of our information needs. Extremists on On the other side say that Twitter is just a bunch of people talking about what their cat ate for lunch- a completely useless jumble of information.
I have to admit, when I sat down to write this post an hour two hours ago, I thought it was going to be much easier. I had the intention of shedding some light on why real time search will be valuable by providing specific examples. Not just for getting the celebrity gossip before Jenny does or learning about the car chase an hour earlier than you would have otherwise, but for practical, “going to male your life better reasons such as …..
Entrepreneurship is more about failure than success, both statistically and emotionally. Most start-ups fail. You can only succeed if you are prepared to fail along the way and the world’s besthave failed over and over en route to changing the world.
And yet, despite the thousands of intense start-up experiences that never came to fruition, there is dearth of stories about what didn’t work. Millions of hours of learning from which the rest of the world will never benefit.
What follows is my good friend Jordan Cooper‘s post-mortem of his latest entrepreneurial venture, Untitled Partners. Jordan is one of the smartest, most thoughtful people I know; his words below illustrate that better than anything I can say. I sincerely hope that Jordan’s bravery inspires the rest of us. Thanks for sharing buddy.
For readers who are not familiar with Untitled Partners, the Company was created to enable fractional ownership of fine art. Our hope was to aggregate demand around works of art being sold through the existing channels in the $70B art market, and then to enable our customers to cooperatively purchase and own the art they loved. On March 9th, we made the difficult decision to shutdown the Company and return almost 50% of the capital we raised to our investors. Over the course of this post mortem, I will try to identify and expose the causes and decisions that led to the demise of Untitled Partners.
1) The writing on the wall
I can’t say that we didn’t see an economic downturn coming. When the cover the of the Economist in July of 2007 depicted a well dressed banker standing atop a mountain, with one foot hanging over a steep ledge, the notion that the Dow was going to hit 15,000 seemed a stretch. Fast forward to March, 2008. For a few months, my co-founder and I had been discussing the merits of fractional art ownership as one of a few ideas we were considering. We analyzed the likelihood of success in a slowing economy, and developed a product that we believed could thrive in boom times with an aspirational customer, and in slow times with a conservative consumer. After all, Marquis Jet (a fractional aviation company), had grown from $0 to $1 Billion in revenue on the back of September 11 and the early 2000’s recession. Our analysis was supported by articles in the Wall Street Journal and the NYT, as well as the Mei Moses art index, which suggested the art market was countercyclical and had a low correlation to the S&P. What we didn’t account for was the magnitude of the current correction and the effect that it would have on discretionary luxury spending even within a population that financially could still afford our product. We were obviously wrong about Untitled Partners’ ability to grow through the subsequent downturn.
What we could have done differently: We met with a lot of industry experts during the vetting of our idea (people with luxury, art, fractional, and consumer expertise). More questions focused on how our consumers have behaved in previous down cycles would have been helpful. There is a tendency when speaking with sources of information to focus on the largest unknowns and to fill in the knowledge gaps that are preventing forward momentum as efficiently as possible. We could have benefitted from the experiences these guys had in the early 1980’s, early 1990’s, and early 2000’s, those questions just weren’t top of mind at the onset of our venture.
2) The timing
The day we closed the Seed Round with our investors, the Dow closed at 12,063. Five months later, on the day we launched our Company, the Dow closed at 7,552 (having dropped about 4000 points in the 3 weeks leading up to launch). On our launch day, the Wall Street Journal ran a 1400 word article entitled “How to Survive the Art Market Crash”. Three and a half months later, the day we decided to wind down our Company, the Dow closed at 6,500. So what were our choices? We had already delayed our launch once, hoping that the New York Times would stop running “End of the World” headlines, but things were worsening, not stabilizing. The realty was we had built all of the necessary infrastructure to support our offering, we had completed 4 of the 5 milestones we promised our seed investors in our investment deck, and all there was left to do was sell. In a different fundraising environment, I think we might have been able to capitalize the Company on hype vs. revenue, but there was no question that in order to close a new round of funding, we were going to need revenue. So on November 20, we tried to sell. Our offering was met with a barrage of responses to the effect of “I’m not spending money on anything right now, let alone art.” The result: we spent a lot more time than I would have expected on “messaging.” How do you say “you just lost half your net worth, want to buy some expensive fine art?” in a way that is appropriate, appealing, and in good faith? Ultimately, we did not find an answer to this question. In that search, however, we stumbled upon one of the decisions I wish we could have taken back (see “Hiring”).
What we could have done differently: We could have made a hard push on fundraising ahead of launch, and tried to lock in an additional 12-18 months of runway ahead of performance. I think we would have come up short, as the fundraising environment had already started to deflate by the time we were thinking about this move, but had we capitalized the Company in October, we would have been able to wait things out for a while and see if the picture got any better. Our angels actually had varying advice on this question. Ultimately, I think it was a better outcome for our shareholders to have failed fast with half of the capital we raised, vs. what the next 12 months would have looked like even with a full tank of gas, but again, I am not an economist.
In the face of our inability to find the proper messaging for our offering, we hypothesized that it was due to a lack of marketing DNA within our core team of Andy and I. What we needed was someone to fill this gap, and figure out what we should be communicating to our customer base and how. After interviewing 20 people, we hired a Director of Marketing. Despite caution from two of our angels, who didn’t think it was the right move, we brought on a 3rd core team member three weeks after our launch. She was not capable of solving our problem, due to a combination of a lack of aptitude and a potentially insurmountable task. We laid her off 60 days after she joined our team. This mistake cost us $15k in compensation, another $7K in wasted marketing spend, and an unquantifiable amount of management bandwidth both bringing her up to speed and compensating for her performance.
What we could have done differently: Hiring is hard, and without proper experience, we should have leaned more heavily on our investors to help us with this decision. Hiring was a challenge we found difficult throughout the life of our Company. We made as many bad decisions as we did good ones with regard to hiring full time, part time, and independent contractors/consultants. Biggest takeaway: As soon as the data starts to suggest someone might be the wrong hire, don’t wait, immediately start recruiting a replacement, and upgrade as soon as possible.
4) Frugality is a double edged sword
I think we did a great job of being cheap and maximizing the dollars that we spent. In 9 months we spent about half of the $560K we raised. Especially when trying to build a luxury brand, it would have been easy to burn twice as much capital as we did in this timeframe. 90% of the time, we were probably right to be this cheap, and 10% of the time, we may have missed opportunities, or not gotten the minimum quality that we needed because we were so focused on capital preservation. While the VC community (Ron Conway, Sequoia RIP, etc…) was quite adamant about the need to cut burn and preserve capital in these times, I think that advice was probably more relevant to companies (at least in the consumer space) that had established a real footprint in their market. As a very young Company, it is pretty hard to wait out a downturn when you don’t have a real market presence to preserve.
What we could have done differently: We developed a pretty solid barometer for spending, but it took a good 3-4 months before spending decisions became second nature. If I look at where the dollars went, an outsized sum was spent on professional services (legal, branding, design, etc…). We could have been more selective about who we engaged in these capacities had we not been running so hard to fill every gap that was holding up our launch. Next time around, greater rigor around reference checks and cost/value analysis will be helpful in managing the costs.
5) Failure to adapt to changing landscape
There are decisions we could have made, directions we could have gone, to generate short term revenue and extend the runway of our Company, but the reality is those decisions would have moved the Company from an interesting venture/breakout story onto a trajectory of small dollar linear growth. I mashed the data around in my head for months, thinking about lowering our price point, moving toward a lead gen for advisory services, building a liquidation platform, and the truth is nothing made more sense than what we were running at (given team, capital on hand, etc.). Would a different CEO with 20 years of experience in our market have seen an angle that I missed and been able to reposition the Company in time? Maybe. I guess I will never know the answer to that question.
What we could have done differently: We could have been more patient and tried to stick around in the art market in any form it would have us. But that is the difference between taking VC money and shooting for the stars, verse maxing out your credit cards and building a lifestyle business. Not much room for singles and doubles in the venture world. We signed up to disrupt a market and create a category. Every direction I considered going was tempered by an awareness of the opportunity cost of our time and our investors’ money. I don’t think there are 50 venture ideas in the art market, and especially not in this art market.
6) The Nature of our Mission
While the feedback we got from the business and academic community on the elegance of our model was inspiring, I underestimated the importance of a relationship between our corporate and personal identities. I had heard many times people opine on the importance of a founder being from within the demo he is serving, but didn’t really understand why until now. In some ways, we checked that box, but the solution we created was somewhat disconnected from our daily lives or any broader value or mission. Had we been “democratizing the art market,” that would have been one thing, but we weren’t. We were not able to live and breathe our product in the way I would have liked to, and ultimately that had a negative impact on our ability to evangelize the Company. We overcame this hurdle, and supplemented our team with DNA that was closer to that of our customers, but we could have done more here with a mission more closely tied to our interests and experiences. I think people like Rob Kalin at Etsy and Vikram Akula at SKS Microfinance have done a great job of building a personal mission into their businesses.
What we could have done differently: Next time around, I’d like to pay more attention to aligning personal and professional missions. As a founder, there is little to no separation between your work and your person, so to the extent your company’s mission can fulfill both of those realms, there are synergies to be had. In short, there are lots of ways to make a buck, but few opportunities to achieve something that is truly burning in your mind.
7) So would people have bought art in shares had we launched this business two years ago?
I think so. Doesn’t mean we could have scaled it. There were plenty or roadblocks, hurdles, and unexpected irrationalities in the art market that have changed my perspective on the opportunity. I don’t think you’ll see me rekindle this mission in the next bull market, but I can pretty much guarantee someone will.
8) The people around us
I am extremely fortunate to have gone through this experience with my cofounder, Andy Lawrence. By far the best and most important decision I made through this venture was to recruit him as my partner. His unwavering integrity, amazing discipline, and supernatural persistence were the backbone of our culture. Particularly when you are trying to disrupt a market, you have to run through a lot of walls. Andy was a bull.
We were both fortunate to have a group of extremely supportive and thoughtful investors behind us. I cannot say enough about the importance of having advisors who are willing to pick up the phone and help an entrepreneur think through the challenges and questions that come up everyday. It has been extremely difficult to get over the fact that I lost money for the people who gave us the opportunity to chase down our vision. We are indebted to everyone who took the risk on us.
I realized something cool the other day: I can control the movements of random strangers on the street without their knowing. Don’t believe me? Read on.
You know the phenomenon when you are trying to walk past someone walking the opposite direction and you both try to switch directions to get out of each others way but end up getting more in the way? Both parties stand still for a split second before one person charts an affirmative course and the other responds by taking the opposite tack. It’s a mildly awkward experience that has happened to everyone.
What’s weird is how infrequently this actually occurs, particularly in places as crowded as new york city. With 10 million people plowing through their busy lives, thinking about jobs, kids, girls, boys and basically everything but what they are doing at the moment, it surprised me that these collisions aren’t much more frequent. Much of our navigation, even the dynamic parts like avoiding novel and moving obstacles, is unconscious. What’s really amazing is just how sensitive our autonav is.
Next time you are walking down a long, sparely populated block, try this:
1) Subtly put yourself on a collision course with an unsuspecting target. I say subtly because people notice if there is someone staring at them and uncommon traffic patterns (ie you run in front of someone). It’s best on side walks where you are walking straight toward each other. Even from half a block away you will be able to tell if you are lined up to pass to their left or right.
2) Adjust your course slightly to pass on the opposite side. Watch carefully. Either they will turn harder to maintain the status quo or they will switch tacks. If the former, then you didn’t turn hard enough.
3) Repeat. I’ve been able to get people to switch courses at least four times before noticing that the obstacle in their path required some special attention. I’ve also nearly run people into walls without them knowing why (not in a dangerous way!).
This works literally from hundreds of feet away. Crazy, eh?
To diffuse potential objections upfront: While I do think it’s amusing how zoned out most people walking down the street are, I’ve never done this in any sort of malevolent way.
As the company outgrows your ability to be everywhere, ensure that your team is prepared and accountable for the tasks you have delegated.
Remember, removing one bottleneck is likely to create another. Think two or three steps ahead when removing yourself from the equation. Growth is frequently constrained by the entrepreneur’s ability to source or train new talent. To avoid this, entrepreneurs must morph themselves from “doers” to “teachers.”
One CEO and COO of a rapidly growing restaurant chain learned this lesson when they excommunicated themselves from two important weekly meetings. They bid farewell to their employees but failed to appoint any one person responsible for the meeting. No ownership equals no leadership equals no results. Within weeks, the executives had to take back control of the meeting.
Performance Management Self-Assessment:
Are you the only person capable certain tasks?
Does your team have the skills they need to run autonomously?
Is someone personally accountable for delivering the results you expect?
Don’t let money or panic tempt you to lose the opportunity to do things more efficiently.
With new tasks surfacing every day, entrepreneurs may be tempted to just add bodies. However, more bodies means more managing. Someone has to train and manage each new recruit. Do you have time for that? Less time spent training new employees means more time ensuring that the current employees are able to execute the business model successfully. Many founders make this mistake by prematurely building out their sales force rather than ensuring that a small sales force can successfully turn leads into profitable sales. Instead of adding significant burn and an entire branch to your org chart, look for ways to use your current staff to train and utilize people outside of your organization. Like the Gordian Knot, the most complex problems often demand the simplest of solutions.
Rather than add headcount, try to do more with less like Andrew Smith, CEO of Advanced Transit Dynamics. When looking into adjacent markets, Andrew asked his engineers how long it would take them to customize their current product for a new customer with unique needs. They responded, “At least six man months.” Andrew was faced with a dilemma. Should he hire a new engineering resource to customize the product or pull an engineer away from his current work for six months to serve this customer? Backed up against the wall, Andrew asked a simple but clever question: Could the current design be simplified to make it more universal? The initial tests came back positive and shortly thereafter the problem was solved. With the current product streamlined for new customers, the firms existing engineers could focus on adding new products to the pipeline.
Performance Management Self-Assessment:
Can you leverage resources outside of your organization?
Can you solve a complex problem by making things simpler?
Where are your labor costs rising fastest? Is that sustainable?
Plura processing is a startup that uses excess capacity on gamer’s computers to do grid computing. Their business model involves buying capacity from the game developers and selling it to those in need of computing power at prices comparable to amazon web services.
There are privacy concerns both for the company whose problems are being sliced and diced and sent out to thousands of people’s computers and the players whose computers are being used to compute. Also, any associated slow down in computer performance is sure to piss off people that just wanted to play solitaire. That said, i love bmodels that add a completely new and uncompeting revenue streams.
This got me thinking, what kind of service could use excess capacity/functionality of mobile gamers? when i look down the cab on the NYC subway, I see at least 5-6 people playing solitare or Iphone finger-snake. Do any technologists have any idea what a huge grid of mobile phones running a background service could accomplish?
Games make great trojan horses, I am just trying to think of what to put inside of them…
More on trojan horses later.
This piece is the first in a series of posts aimed at bringing the light of the market to my ongoing Fulbright research with Thanos Papadimitriou on entrepreneurial decision making.
One of the four core processes that every startup undertakes, we think of organization as the process of sourcing, securing, allocating, assembling, managing, and scaling human and material Resources into business capabilities.
Smart entrepreneur’s are like accountants, they match the duration of their assets and liabilities, both financial and human.
No one can do it alone. Sooner or later entrepreneurs have to enlist additional team members to execute existing tasks so that they can focus on new, higher value initiatives. Four things to think about when you are building your team are as follows:
1. Fill in the gaps. A complementary partner is the most important asset available to an entrepreneur. A partner is an additional set of eyes, a sounding board, a reality check-the person whom you trust to tell you when you are wrong. Finding the right candidates begins with honest self-examination. Compare your capabilities to those needed to succeed to find the gaps. Entrepreneurs would be wise to apply the same analysis to every addition they make to the team.
2. Get started with what you have, but upgrade relentlessly. Most entrepreneurs lack the resources or track record needed to attract qualified candidates, and thus rarely have the pick of the litter when hiring. That’s ok. Part of being an entrepreneur is learning to make it work with what you have. That said, remember that difference between “A” and “B” players is not one notch, it’s 100x fold. Covering an empty position for a few weeks sounds horrendous but keeping an inept person in a critical position is crippling. The ambiguity and lag time makes it all the more important to act decisively. Immediately saddling new team members with actionable and measurable tasks can help to uncover subpar hires sooner.
3. Plan for roles to change. This means making it clear to early hires they are filling temporary needs. Make short (six month) commitments, which include flexibility for role changes as needed.
4. Hire for the job at hand. Many startups mistakenly hire a professional VP of Sales before finishing the product, much less validating demand for it. Not only is it expensive to have a VP of Sales sitting around before there are customers to sell to (you, the founder, are in charge of evangelical sales, remember?), anyone worth their salt wouldn’t come to work in your basement anyway. It’s just not worth their time yet.