I have seen the future of VOIP and it is not about making calls from a headset on my computer or buying a new VOIP phone to carry around with me – it is seamless integration of VOIP with your existing cell phone, it is one device which gives you the flexibility to make calls on either network depending on coverage,reception, and cost, it is the new Nokia N80 dual mode phone. I just got a demo phone last week from my portfolio company, Sipphone (developers of Gizmo Project), who happens to be the VOIP service provider for these devices. Sure, there are some kinks to work out, but what is great is that the Internet calling is seamlessly integrated into the user experience. Take a look – when I dial a number I have the opportunity to either make a regular cell call or internet call. I don’t have to go to a separate application on my phone, I just make a call – it is that simple. Even better is the integration of the service with my existing Gizmo Project desktop client. When a contact makes a Gizmo-Gizmo call and if I am logged into the existing wifi network on my Nokia N80, my phone rings. I can choose to take the call on my device instead of being locked at my desk. I have my regular cell number and my online identity all on one device. This is truly disruptive technology and is just the beginning of what I believe is going to be a myriad of devices offered by manufacturers which will integrate cellular and wifi. While TMobile’s annoucement last week is a great step in this direction, it is still based on only using TMobile’s special router and their existing hotspots and cellular service. In other words, it is closed and not an open opportunity for customers to use whatever VOIP service or wifi network. As we all know our handsets are minicomputers so why not be able to make regular cellular calls but also take our music, pictures, video, and even our online identity with us all the time? As wifi networks proliferate and as more features get built into the N80 and other new devices like presence and VOIP over wifi people will truly have no boundaries to reach their friends and colleagues anytime and anywhere at minimal cost. By the way, notice the VIdeo Call icon on the screen shot above – that is going to happen sooner than you think, especially for wifi-to-wifi but also depending on the 3G bandwidth of your current cellular carrier.
I had 2 board meetings last week, and it seemed that we spent a fair amount of time digging into each company’s sales process, understanding and mapping out each phase of the sales cycle from sales lead to to actual installed customer. Many times one can focus too narrowly and only look at a sales pipeline or customer conversion rate and spend too much time talking about the numbers – did we make or miss our quarter and did we grow our sales pipeline and by how much. While those are always imperative to look at, it is also important to dig beneath the surface and understand how you got from Point A to Point B and deconstruct each step of the sales process, figuring out the time and resources it takes to move each prospect through the sales cycle and get them to become a customer. As one of our marketing consultants, RIchard Currier, once said, one must look for the Big Boulders in the sales cycle, the point in the funnel where things seem to take too long or cost too much, and put programs in place to move them. Once you map and understand what it takes to convert a lead to a go/no go decision, it will become quite apparent where you and your company will need to focus its efforts to maximize sales and marketing efficiency, move the boulders, and minimize sales friction.
For example, in one portfolio company, as we dug deeper into the sales funnel, we clearly saw that there were two distinct types of customers – one with a very short sales cycle with more do it yourself implementation and another set with a longer sales cycle. The natural question you have to ask yourself is how do I put programs in place to reach the first group of sales prospects to increase my efficiency. One other huge boulder we found was that sales pilots were taking too long to get started. As we dissected the problem, we discovered that a large portion of this time sink was because it took too long for a customer to get the required hardware to run a pilot. In order to reduce the friction, we brought in our own appliances to minimize the time to pilot and also mapped out a plan to run sales pilots in an on-demand fashion with no installation onsite at all.
In another company, the boulders that we discussed were less a sales targeting issue but more of an implementation issue. While we had a great distribution deal with a partner, the conversion rates were not as high as we liked. To move this boulder, we spent plenty of time discussing how we could get our customers to use our service with as little friction as possible – in other words, how to get a customer using our service with 1-2 clicks instead of 5 – 6. This may sound trivial but trust me it is not. Reducing the barrier to usage can make the diifference between a huge win or a mediocre effort. This applies in both the enterprise and consumer world. Once again, it is quite important to deconstruct your sales cycle and look for those huge boulders and put programs in place to move them to create a more streamlined process.
On the heels of my earlier post on questions "entrepreneurs should ask themselves," I got a flurry of emails from readers about other points that I did not address. Anyway, I strongly believe that we can sometimes get too enamored with our own technology and not do enough market assessment in the real world. Later this week, we are actually going to have a strategy review at one of my portfolio companies and these are the questions we are asking ourselves:
- What is our unique value proposition to customers? Is it truly unique and differentiated (come on-we need to be brutally honest with ourselves here)? If not, how do we leverage our strengths to create a compelling value prop to customers?
- Who do we want to be when we grow up? In this world, I strongly believe that one must put a stake in the ground and either go big, go niche, or go home. Which one are we and why?
- Where is the market headed? What are the opportunities – are we a leader or follower? If we are a follower, how do we become a leader?
- Given all of the above, what are we uniquely positioned to deliver given our strengths and weaknesses? What are the biggest threats that keep our company from delivering?
- How are we going to reach that customer at the highest point of pain and in the most capital efficient manner?
As one of the entrepreneurs in the portfolio pointed out, some of these questions can be theoretical and murky and until you get a product out into the hands of customers or consumers, it may be hard to answer them. My perspective is that yes this is true, but you need to have few of these basic questions covered before going into the market and then with the data take a step back and refresh, rethink, and reload. In other words, you need to take market feedback to validate or invalidate some of your initial thinking and adapt. I know these are all basic questions but you would be surprised at how many people come in and have not put their mind to some of these questions.
Mike Masnick of Techdirt has launched a new service called the "Techdirt Insight Community." Mike is an active blogger but also has run a corporate intelligence service for awhile mining the web for customized news and insight tailored for your company (think competitive analysis, updates, reviews on your products, etc. – check out Jeff Nolan’s guest post on Venturebeat for more). As I have always thought, there is a ton of information on the web and interesting models can revolve around not only information arbitrage but also labor arbitrage. On the information arbitrage side, one company that has always intrigued me is Monitor 110, founded by long-time New York entrepreneur Jeff Stewart and run by Wall Street veteran Roger Ehrenberg. Their thesis is that there is a ton of information on the web and if properly screened for credibitlity and delivered in real time in a way that investment professionals can use (think bloomberg like screens), then you could help investors generate better returns. What Techdirt Insight Community reminds me of is Gerson Lehrman for the information age. For those of you not in New York or familiar with the hedge fund industry, Gehrson Lehrman has come out of nowhere over the last 5 years to build a huge business and becoming a "must-have" for all hedge funds. As you know, looking at leading indicators can be quite important to help make profitable investment decisions. What Gerson Lehrman did was assemble a community of experts that hedge fund professionals could call to discuss industry outlooks, etc. Gerson would get paid by the hedge fund and pay the professional, keeping a nice profit for itself. It has built quite a network – 600 clients asking 11k questions per month with 150k experts on tap. It seems like Mike is taking a page out of the Gerson book and applying it to the web, leveraging the experts out there (bloggers) and matching them up with companies that want specific insight on products, etc. I think it is a brilliant move and another great way that bloggers can monetize their passion.
Andy Sacks, CEO, of Judy’s Book has an excellent post of what simple questions management can ask themselves to assess their current state of play. If you are an entrepreneur, I encourage reading his post and some of his follow up commentary (Andy’s questions below).
- What are the hardest problems in our current business approach – the market issues that we keep struggling with over and over?
- What’s (surprisingly) easy about our business – the things that are working better than expected?
- Where’s the parade? What major trends are we trying to get in front of with our business?
What would our business look like If we:
- Stopped trying to do what’s hard,
- Did more of the things that are easy, and
- Made sure we were in front of the biggest parade we can find?
I think all too often management can get bogged down into day to day details and it is extremely important to take a step back every once in awhile and think a little more strategically about what you are trying to accomplish, where you are going, and how you are going to do it. It is hard to build a great company without answering these questions. The beauty of Andy’s questions are that they are simple yet powerful. This reminds me of the good old SWOT analysis where management looks critically at their company and themselves to assess their strengths, weaknesses, opportunities, and threats. This is also a great discussion to have at the board level since having input from others who know your business quite well but are not involved in the daily hand-to-hand combat can be quite valuable.
It is always great to see hard work rewarded. Congratulations to Steve Klein, Pierre Berkaloff, and the rest of the Colloquis team (my partner Ned Carlson is on the board) for building the company over the last few years and making this happen. For any startup there are always a few missteps along the way but being flexible and adapting to the market to find the right opportunity is key. Colloquis did that in spades taking its bot and agent technology from an IM only platform to the web and creating a killer SAAS platform that enables any company to engage customers in typed natural language conversations, delivering answers to customers in real time. Take a look at AskComcast (see comcast.net and top right corner is AskComcast) to see the technology live – customers who need help engage in an online chat with one of our automated agents giving the customer the feel of a live, real-time dialogue with a human while being powered by our natural language processing technology. As Microsoft says in the press release today:
Xbox will be the first group within Microsoft to use Windows Live Service Agents. Colloquis technology will be a strong contributor in enabling Xbox® customers to rapidly find helpful information related to their support needs. The conversational tone and ease of use of the product will offer customers another approach with which to address commonly asked questions, providing quick resolution to customer issues. The product’s technical flexibility makes it an excellent fit with other self-service options that Xbox plans to release in the fall.
In addition, Microsoft plans to take advantage of Colloquis Internet bot technology in an application called Windows Live Agents, a conversational application that users can interact with via Windows Live Messenger. These “agents” are used to entertain, encourage engagement with products or services, provide a new advertising opportunity for brand advertisers, and drive search and information retrieval.
On the Windows Live Agents side, take a look at what can be done using Colloquis technology delivered over the Messenger platform. According to the Microsoft site, think of a bot as an automated contact that can be added to your contact list and that you can converse with using text to deliver information, complete tasks, or be entertained. I look forward to seeing how developers using this bot technology will tie together various web services and applications all through a simple buddy contact on your IM list. On the current Windows Live Gallery page, you can see an Encarta bot, a map searcher bot which interacts with the Virtual Earth Map through an IM chat, and an InsideMessenger bot that "interacts with Amazon, finds flights in realtime, integrates with RSS feeds and soon will integrate with YouTube/MySpace video feeds." I look forward to seeing Microsoft bring bots and automated agents into the mainstream. I can’t think of a simpler way to interact with web services or initiate commands than through a simple text chat.
In a recent Barron’s article on Cisco titled "Getting the World WIred (sorry, sub required)" is an interesting comment from CEO John Chambers:
While these new technologies are giving Cisco’s current customers reason to upgrade, Cisco also is seeing growth of nearly 50% a year in its sale of networking systems in emerging markets like Saudi Arabia. That growth results from sales investments Cisco made in the past couple of years, just as it had done previously in India and China. A large sales force of Cisco representatives is now making the case for oil-rich nations to invest in networks as a way to improve health care in those countries and create high-value jobs. Today such countries represent 10% of Cisco’s sales, but Chambers thinks they will contribute 30% to 50% of future growth.
Given the amount of money the Middle East is printing from oil, the fact that the oil reserves will not last forever, and that the Middle East is investing heavily in infrastructure (I believe most of the world’s cranes are in China and the Middle East), I would not be surprised to see this area become a strong player in technology. Give it time, and Cisco is spot on for making the investment and bringing these countries state of the art infrastructure. It is not a coincidence that a couple of the fund’s portfolio companies have found fertile ground and great sales opportunities in the EMEA region.
By now, everyone knows about the Google – YouTube deal, $1.65 billion for a leading online destination video site. There is not much I can add, but I did find this comment interesting from Andrew Ross Sorkin’s NY Times article:
The idea of a deal had been broached a few days earlier. The setting was classic Silicon Valley start-up: a booth at Denny’s near YouTube’s headquarters in San Bruno, Calif. The Google executives threw out an offer of $1.6 billion and autonomy to continue running the business.
As I have written before, alot can happen when your competitors get acquired. In most cases, your competition ends up spending too much time inwardly focused on integration and synergies and not enough time building their business. While this problem is more prevalent in the enteprise software world given the nature of what it takes to make an acquisition succesful, (think Oracle-enterprise product integration is much harder and personnel and sales force training can take lots of time) it should not be the case in a lower friction web world. As we can see, one of the smart things that Rupert Murdoch did was give MySpace autonomy to grow their business instead of stifling them with corporate culture. I am not exactly sure how EBay has approached the Skype acquisition but I did hear that there is some imposition of EBay culture on Skype. We all know that history repeats itself and one of the classes I remember from college was one on Literature and the British Empire. One of the central theses of that class was that one of the reasons the British Empire failed is because they tried to impose their will or culture on others rather than have them slowly buy into it over time. You can think of the cookie cutter approach – Britain conquers country, Britain installs own government system, Britain installs its own President, and eventually the conquered country revolts. This is what happens many times in acquisitions. What is briliant about Google’s play besides the attractive price is that it is not messing with YouTube’s success, it is giving the YouTube team the autonomy to keep building its business.
UPDATE: What I also forgot to mention is that one of the most important aspects of maintaining autonomy means maintaining product autonomy. The last thing you want to do is piss off customers and destroy value. Even small changes in the UI can make a huge difference when it comes to customer satisfaction.
I must admit that I have seen way too many social networking related plays that want to be the next MySpace of some niche market. When asked about monetization the standard answer is they have a much more focused audience than MySpace with highly targeted CPMs. Guess what, if MySpace is only monetizing a fraction of their visits, how can a tiny, little niche site scale to enough volume to make a meaningful business? In addition, who wants to sign up for multiple social networking platforms like MySpace, Facebook, and niche sites for politics, sports, etc. While there will always be a few dominant social networking sites, I firmly believe that we will see more and more social networking functionality get built and weaved into commerce sites and other ventures. One of the reasons why eBay and Amazon have done so well is because of their respective communities and the ratings that are created by their customers. Netflix does a great job as well by allowing you to sign up friends and track their recent movies and get recommendations based on your location.
The next step in this evolution of commerce will be social shopping or companies leveraging Citizen’s Media (blogs, podcasts, videocasts, tagging) to drive commerce. According to Answers.com, "Social Shopping is based on the principles outlined in the wisdom of crowds where a large group of users can recommend products to each other and between them work out what to buy and which ones have the most buzz." I believe this is an interesting area that has not been fully tapped yet. At the root of it, people want to connect. Most people I know tend to check the Internet first to research a purchase and also ask friends for recommendations or reviews about products. The more inefficient a market is, the more opportunity there is to educate consumers and peers leveraging the web.
A great example is the wine market. I am certainly no wine connoisseur, but I have been trying to learn more about it over the last two years. Over time, I moved from an Excel spreadsheet to using the web to track some of my purchases and to learn more about each bottle. One of my favorite sites is Cellartracker. It leverages almost a wiki like concept so when I add a bottle of wine, it first searches its database to see if anyone else in the community has already input the data. If it does, I can easily add a bottle to my virtual cellar and if not, I can add the data myself. It already has over 3 million bottles of wines in its database so I did not have to do alot of work to get started. It also has community reviews built into each input of wine so you can get recommendations for other bottles and figure out what others that have the same bottle as you have in their wine cellar. The downside is that the UI is not the prettiest and the site may be too flexible for the average user. Cork’d is another example of social shopping – it allows you to catalog your wine, review and rate it, maintain a wish list, and subcribe to your friend’s wine lists.
One of my favorite examples of leveraging citizen’s media is Wine Library, which has one of the largest selection of wines and some of the best prices on the web. Gary Vaynerchuk, Director of Operations, really gets the web and has leveraged podcasts and videocasts to launch Wine Library TV, a wine video blog with daily updates. If you haven’t checked it out, I suggest subscribing to his videocast and buying wine from his store. I just had dinner with Gary tonight and it really blows my mind to hear how he helped take a small, family owned wine retailer based in New Jersey and leveraged the Internet to create a powerful wine retailer. It is great to see Gary bring next generation web concepts to the under the radar world of wine retailing. He especially understands how content can and does drive commerce for his company. Every videocast drives sales and as you can see from his site, he has built a pretty loyal following in a short period of time. He has a pretty sizable subrscriber base and uses RSS, tagging, and comments effectively to build a community around his videocasts. Since Gary understands how powerful the web can be, I would not be surprised to see him becoming the Robert Parker for the web generation as he delivers his reviews and thoughts in a way that we get and can consume on the go on any device. The big difference will be that Gary can and will leverage the web and his community to rate the best wines versus relying solely on the fine taste of one person. When speaking with Gary, it is also quite interesting to hear him talk about Wine Library as a content and social networking site as much as an ecommerce player. In the future, Gary plans on delivering alot more functionality on his site allowing his users to instantly add any purchase to their own virtual wine cellar, take notes on the wine, and share recommendations with their friends or the public. In my mind, this is a great example of how powerful social networking and blogging concepts can be for ecommerce plays. It has allowed Gary to build a stronger brand, acquire new customers virally, improve his conversion rates from web marketing, sell more wine, and ultimately boost his profitability per new customer (lower acquisition costs + increased sales). Given some of these benefits, I truly believe that social shopping will become a big thing in the next few years.
I was riding on the train this morning and was talking to a friend about one of my fund’s portfolio companies. She mentioned that the management team had done a great job during a recent sales presentation because instead of going for the "rip and replace" strategy, they went with the "co-exist" philosophy. Too often, entrepreneurs can get too enamored with their own technology and forget that the customer may not need every feature that you are offering today. In fact, while revolutionary technology and vision is great, what the customer may want is an evolutionary approach to implementation. What I am talking about here is reducing the friction in your sales process (See an earlier post on frictionless sales). Convincing a customer that your technology or product can coexist with an existing investment is a much lower barrier to sales than convincing them to "rip and replace" or "forklift upgrade" a significant prior investment. The sales prospect will have a hard enough time buying a product/service from an unproven startup, let alone ripping out an existing investment from a safe choice, a much larger public vendor. Once you land the customer, you will always have the chance to expand your footprint. That is why I continue to be enamored with SAAS and downloadable software because I believe that it is inherently a more efficient and cost effective way of selling and delivering a product or service. Granted, most of the initial target market opportunities will be the small/medium business market but I still firmly believe that this market is untapped and offers great upside.