Thursday, January 31, 2008

POTW: Serial-preneurs

I have never worked for or in a big company, and have no desire to do so. Building great – hopefully, some day, big – companies makes me tick. In a perhaps sick way, I enjoy the uncertainty of creating and building versus the certainty of a paycheck. Prior to Crescendo’s growth – and my evolution from a founder into paycheck-procuring employee – I had gone 16 years without a job. I recall fondly the chuckle of my CFO at Crescendo when I asked (upon receiving my first paycheck): What’s all this FIFA and SDI crap they’re taking out of my pay? Big companyitis … could be the Peter Pan in me.

The emotional tonic of starting and building something is addicting. Once you’ve done it, it’s hard to get off the sauce; when you stray, it’s a lonely and frightening place. It reminds me of one of the Sacramento Entrepreneurship Academy's founding tenets: Entrepreneurs replicate themselves (and what they do). Security is morbidly scary.

I just unearthed a summer of 2007 article in the Journal, The Secrets of Serial Success: How some entrepreneurs manage to score big again and again and... It’s a navel-gazing story, loaded with meaningful morsels. A random taste:

More than anything, however, the greatest, and more crucial, challenge among repeat entrepreneurs is figuring out how to rekindle for future ventures the innocence, love and hunger that fueled their first enterprise...

So why do some entrepreneurs who strike gold once continue to start over? A general contractor might launch a business because he has certain skills, and then stick with it until retirement. Or a banker will work her way up the corporate ladder, happy with the security of a paycheck and benefits, and retire once she has saved enough. By contrast, serial entrepreneurs' main job is the act of creation -- and thus they keep creating new businesses, often after they no longer need the paycheck...

One of the hardest tasks serial entrepreneurs face is recapturing the drive and direction that fueled their first venture, without letting the first success overshadow or dictate what they do next. Sometimes, it's as simple as learning to let go...

Mr. Bricklin, who now runs Software Garden Inc. in Newton Highlands, Mass., says he feeds on the thrill of starting something new and untested. "It's like that sense of walking across a stream on the rocks -- sort of knowing where you're going, but sort of not." As for risk? "If you actually seen the ups and downs of a business, and your family isn't terrified, that makes it a lot easier to do yourself."
Having slipped on many rocks and stumbled through numerous streams, I love the metaphor. Particularly if you're doing so on your own dime and own time, venturing to a place uncertain.

Wednesday, January 30, 2008

Unternehmergeist

I have read (some) and wrote (little) about Joseph Schumpeter, the economist who first theorized, in the early 1900s, about entrepreneurship and who predicted the attacks its very success might engender. A book review in today's Journal rekindled my interest in Schumpeter. The review recaps Scott Shane's The Illusions of Entrepreneurship. The book sounds interesting, though I'll probably pass. For now here's a Schumpeter-centric excerpt from the review:

For Schumpeter, entrepreneurs were change agents, not just creators of business enterprises. Their chief function in society was to challenge established ways of doing things. Schumpeter believed that such disruptive newness -- though it created wealth and economic dynamism -- would inevitably meet resistance, sometimes strong resistance. Thus the long tradition of vilifying entrepreneurs, still evident today.
Love the "disruptive newness" reference; reminds me of Victor Hugo's opine: Greater than the tread of great armies is an idea who's time has come. "Strong resistance" and "vilifying entrepreneurs" remind me of Eyeores. Intrigued, I dug a bit deeper ...

... in 1939, Schumpeter wrote that "the history of capitalism is studded with violent bursts and catastrophes" that, while ultimately bettering society, seem "like a series of explosions." He proferred this process, "creative destruction," in his 1942 tome, Capitalism, Socialism, and Democracy. A few bites:
[there is a] process of industrial mutation -- if I may use that biological term -- that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in.
Schumpeter posited two theories. In the first one he argued that the innovation and technological change of a nation comes from the entrepreneurs, or wild spirits. He came up with the German word unternehmergeist, meaning entrepreneur-spirit. He believed that these individuals are the ones who make things work in the economy of the country.

Right on. Thanks, Joe, for the unternehmergeist.

Lights. Camera. Action.

Entrepreneurs like to go it alone. Such is the Herculean, conquer all worlds, independent mindset of people who create. As we’ve explored, good entrepreneurs are generalists: They are very good at, and knowledgeable of, doing many things. Great entrepreneurs, though, embrace and employ the value of building a team – employees, advisors, investors, industry experts, contractors, suppliers, distributors, et al – in their quest to create a great company. Think of running a marathon versus a 5K.

Building a company is theatrically, artistically, collaboratively and tactically similar to making a movie. I was reminded of this over sushi yesterday with my friend Scott. One of his clients, Folsom-based Redwood Palms Pictures, employs a unique approach to cost-effectively and collaboratively finance, produce, market and distribute independent films. Redwood Palms leverages a crowd-funding model to raise funds, through Regulation D securities offerings, for its film slates. It’s a hybrid of the “experience investing” approach we championed at Crescendo: Marry an affinity (a desire to be involved in the production of a movie) with a sound financial investment to raise capital and engage investors. Very cool model.

So, you wanna be in pictures? Think of the myriad moving parts and participants: Actors, producers, directors, screen writers, investors, cameramen, location coordinators, stuntmen, set designers, costume makers, casting directors, make-up artists, soundmen … it’s a daunting list. And, the aforementioned players are married to simply (complexly?) create the product; getting it out there (monetizing the art through distribution, DVD sales, merchandising and the like) is the make-or-break imperative. And (II), if you’re like Redwood Palms, you fine-tune and replicate your model.

IBID for starting a company; consider the disparate and necessary elements required to develop a product. Once the sausage making (internal product development) is complete, selling and distributing and serving and enriching and complementing the sausage (product) is paramount; the rest is a necessary – an ante to being a company – navel-gazing exercise. It takes a kick-ass crew of internal and external cast members to make it happen. As CEO (or Producer), your job is to choreograph and optimize the actions.

A final thought: Great entrepreneurs seek to build great companies, or platforms, upon which they can create and deploy multiple products or services; it’s near impossible to run a marathon if you’re a one-product pony. Movie producers like Redwood Palms are analogous: It’s not enough to build a foundation and assemble a cast of characters to create one film. The true value – and returns – come from doing it again and again, better and better, leveraging and monetizing a production platform.

Tuesday, January 29, 2008

Cure

Our Labrador Berkeley turned 13 Friday. We baked a massive, celebratory dog biscuit, a certain-to-bomb-the-gut concoction of flour, water, corn flakes, grape nuts and oats. No fear … Berk inhaled and lived to bark about it. Berkeley is an old man battling myriad ailments, including a recently discovered mass in his chest. He’s soldiering forth.

Prior to baking Berk’s bone, I caught the tail end of Science Friday on NPR, including a piece about Dr. Judah Folkman, who passed away earlier this month. Until his death, he was Director of the Vascular Biology Program at Children's Hospital Boston. A central theme of his research was the idea of angiogenesis, the formation of new blood vessels. More on Dr. Folkman in a second.

Later Friday afternoon Dr. Nordquist from the UC Davis Veterinary Hospital called with test results from an exam of Berkeley’s chest mass. Sobering news: He has cancer (thymoma). Good news: It has yet to metastasize and is operable. He’s going in this morning to have the tumor removed.

Back to Dr. Folkman and the timely NPR piece. In 1971, Folkman published a paper in the New England Journal of Medicine arguing that angiogenesis was a key component in the growth of tumors. If a way could be found to limit the growth of blood vessels servicing a tumor, he reasoned, the tumor would be unable to grow. The idea has been incorporated into many different fields, and has led to the development of drugs such as Avastin (Bevacizumab), an angiogenesis inhibitor developed by Genentech.

Prior to, and during, Dr. Folkman’s research, oncologists were intensely focused on the cancer cell being the problem -- 99.9% of research and the resulting drugs that treat cancer pursued this path. Dr. Folkman’s insight: It’s not just the cell, but its relationship to its environment. Dr. Folkman saw a phenomenon when he finished his assigned job too early, got some cancer cells and tried to grow them in a special apparatus where they were testing blood supplies for the Navy. All cells stopped growing at the same time: They can’t grow beyond a certain size for a reason. He realized that if they can’t get a blood supply, they can’t grow.

Dr. Folkman was a surgeon. Normally surgeons do not don’t venture in to the cellular level. However, he considered himself a surgeon scientist. His idea, in the eyes of cancer specialists, seemed too simplistic and naive.

Dr. Folkman was a physician, which shaped his thinking about science. Bigger theme: Contemporary science is very reductionist … take a complex phenomenon and remove singular components. He started with a phenomenon – and studied it religiously – which is not typical of contemporary science.

A lot of things seem obvious after they’re established. Above all, Dr. Folkman was an observer of connections. He sought out and collected dots from various perspectives and tried to connect them in unique ways. In Dr. Folkman’s case, he looked outside traditional (99.9%!) cancer research and discovered a cure. Like many great innovators, Dr. Folkman did not create something from ether; he flipped conventional wisdom and combined elements of disparate knowledge to solve a problem.

I took Berk for a pre-opp run late yesterday. Along a creekside path, Berkeley met an 18-year-old black lab who was carted in a wagon by his parents. Though Berk's new friend could not walk, he was full of energy and spirit. The canines exchanged a few sniffs and barks (and perhaps a few sage musings about growing old), prior to heading in opposite directions.

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Post-script (29 Jan 08): This is a bit off track, but somewhat relevant ... I'm immersed in Robert Sutton's Weird Ideas That Work. An excerpt:

The process of finding new uses for old things is not always intentional. Accidental discoveries sometimes enable firms to serve unexpected customers. Viagra and Minoxidil are examples of such happy accidents. The discovery that Viagra usage was associated with penile erections in some men was initially given little attention by researchers from Pfizer when this "side effect" was first noted in clinical trials. The drug was originally developed to be a treatment for hypertension, and after that failed, it was tested as a treatment for angina. Once again the drug failed. But this time Pfizer researchers followed up on the side effect from their earlier study. They ran clinical trials of Viagra as a treatment for erectile dysfunction, which led them to discover a new application for this existing drug. Similarly, Minoxidil was originally sold in tablet form as a treatment for high blood pressure. A side effect of the medicine was unwanted hair growth. So researchers from Upjohn started examining if it could be applied to the scalp to increase hair growth in balding men. Significant hair growth was observed in more than half the subjects who used it, and Minoxidil is now marketed in the U.S. by Upjohn as Rogaine. Researchers at both Pfizer and Upjohn didn't anticipate these side effects, but both groups were creative because they were observant and persistent enough to find a new use for an existing medication. In the right hands, nothing succeeds like failure.

Wednesday, January 23, 2008

Itz’s Pawn Shop

I just finished an interesting book, Gang Leader for a Day: A Rogue Sociologist Takes to the Streets. The book relays a University of Chicago graduate student’s five-year immersion into the culture of a south-side housing project and its controlling gang. Life in the projects – and as a member of the gang – is sobering and simple.

The gang (the “Black Kings”) charters all economic activities within the project and neighboring community. It’s a diversified, multi-faceted conglomerate, engaged in illicit and legal businesses; the gang has its eyes and hands on everything that occurs. A few examples of the micro-economy:

  • Neighborhood shops pay a “security” fee to the gang, a monthly tax in consideration of the project’s residents shopping at their shop.
  • Need a room? The gang controls who stays where and for how much, whether you’re a long-term tenant or a one-hour brothel customer. (Prostitutes, of course, pay a fee too.)
  • The gang expertly manages – from supply procurement to manufacturing to distribution and in-field sales training -- the sale of crack, representing a lion's share of their revenue.
  • Tenants who sell candy and other goodies from their apartment revenue-share with the gang.
  • Need a new set of brakes? The gang manages auto repairs in the adjacent park.
Gang Leader for a Day is a telling portrait of inner-city life. What’s most revealing is the organized supply (or value) chain of commerce. No matter how disdainful the gang leaders are, their business skills are admirable, let alone their ability to manage and support a community. Read the book … it’s worthy.

The book reminded me of a recent (legal) eBay purchase of a used set of golf clubs. After winning the auction, I learned the seller would not accept PayPal; personal or certified checks only. Smelled fishy. I snail-mailed a few hundred bucks to the seller and, after a few weeks, the clubs arrived (mangled, BTW, in a bevy of boxes). The seller’s mailing label: Itz’s Pawn Shop, Deerfield, FL.

Two thoughts: First, a combination of guilt and remorse sank in as I gripped my new clubs. They were pawned, perhaps legally (desperately), more than likely illegally (stolen and sold). Bad karma; great economics (thought two). The seller opened my eyes to eBay’s value for pawn shops. There are tens of thousands of pawn shops in the U.S. (think of two Long Tail forces: democratize distribution [get it out there] and connect supply and demand [help me find it].). Pre-eBay, their market was regional, a small demographic and geographic segment of drive-up customers. With eBay, pawn shops can now sell their junk (and golf clubs) to a universe of millions -- distribution and sales are ubiquitous.

(Jaw-dropping anecdote: eBay boasts 220 million users who conduct 2.2 billion transactions per year, making it the world’s largest marketplace with the population of the world’s 5th largest nation. Almost three-quarters of a million Americans are considered professional eBay sellers, using their eBay sales as their primary or secondary source of income. Another 1.5 million Americans use eBay to supplement their income.)

Tuesday, January 22, 2008

POTW: 7 Reasons No One Likes Your Ideas

I've been thinking a lot lately about the value of teaching, not preaching, whether you're evangelizing an idea, a cause, or a lesson. It's somewhat synonymous with the virtue of telling stories, of singing songs, of conversing and communicating (not speaking at or to) customers and markets. Thanks to Andy Hargadon for unearthing this week's post of the week that amplifies my thinking: 7 Reasons No One Likes Your Ideas, courtesy of Casual Fridays.

A few reasons ideas aren’t accepted:

1. You took a leap, but didn’t build a bridge.
2. Your idea had no tether.

3. You told a song.

4. You have no relational equity.

5. You tossed an egg instead of a bird.

6. Too many thorns around the rose.

7. You assumed you knew it all.
Read the entire (quick) post ... it's superb. And, embrace the tenets the next time you tender an idea.

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Post-script (23 Mar 08): Casual Fridays reports back with an amplification of their previous post, this time addressing the obvious: Your ideas are bad. Here are five signs of a bad idea:

1) It puts you in the wrong batter’s box.
In baseball, unless you’re a switch hitter, batting from the other side of the plate greatly reduces your effectiveness. If your idea doesn’t line up with strengths, consider whether there’s a better solution on the right side of the plate. You’ll hit more homeruns by focusing on your strengths.

2) It’s pie in the sky.
Is your idea disconnected from reality? Does it actually solve a problem, or is it just cool? Form follows function. This doesn’t mean your idea can’t be cool. Great design is a must today, but if isn’t purposeful then it’s useless. Be careful. This is very subjective. What you think is ‘pie in the sky’ may be a great idea that simply has to be reconnected to reality.

3) You’re trading flies for frogs.
Is an army of frogs your solution to a plague of flies? Congratulations! You just traded one problem for another (possibly bigger problem). Does your idea create a bigger issue than it solves? Then it’s probably not a solution. It’s just another problem.

4) Imitation is the greatest form of flattening.
I’m not talking about flat hierarchy or “The World Is Flat” thinking. I’m talking about flat as in no peaks or valleys. As in a flatline on an EKG. Flat without anything to grip or hold onto. Want a flat company? Copy your competitor’s ideas. You’ll lose anything that makes you different from the competition. Your products become flat. Your marketing will be flat. And so will your sales.

5) You never wake up from the dream.
I love to dream BIG. But if you never wake up from the dream and make it a reality, what good is the idea? There is a difference between creativity and imagination. Execution. CREATIVITY = IMAGINATION + EXECUTION (C = I + E). In order to be creative, you have to CREATE something. Dreaming big only gets you halfway there. Don’t be afraid to go the rest of the way. Your idea might be great, but no one will know if it’s never created.

Monday, January 21, 2008

Keep it real

I've been thinking a lot lately about authenticity: What makes something or someone authentic, and why is it important (and why do I care)?

First, authenticity is not binary; it's not as simple as being (or not being) authentic. There are degrees. The authenticity of something or someone ebbs and flows with experiences.

To be authentic is to be genuine, credible, real. Probably most importantly, authenticity teeters based on the degree and validity of trust that's created.

Consider your acclimation to a new product or new acquaintance. You begin with a collection of perceptions that morph, through interaction, into impressions. These impressions are altered -- positively or negatively -- through experiences with the thing or person, fostering a variable degree of trust. The more positive, credible, genuine, and real the experiences, the higher level of trust (and thus authenticity). In short, perceptions >> interaction >> impressions >> experiences >> trust >> authenticity. In short (II): You can't fake authenticity.

Three examples to chomp on:

1. Politicians: I attended President Clinton's talk at UCD last week. He's good, and I side with most of his politics (but not his wife's). It was my second in-person experience -- my perceptions have solidified into impressions through somewhat real interactions. A pol's credibility and authenticity are magnified through such personal interactions. However, Clinton's authenticity was diminished through my interaction; he was less genuine, more contrived, a caricature. I guess I trust him less. Barack Obama, conversely, is authentic to me. I have not met him nor seen him in person. But, I trust him ... he's credible, genuine, human. Obama is real.

2. Products: A company's brand is, simply, the collection of perceptions it creates in the minds of constituents. Perceptions are staged and altered through the delivery of (positive and negative) experiences. People call this a "brand promise"; to me, it's the backbone of a company: the efficacy of the trust and rapport it builds with customers. When Apple unveiled the iPhone, it came loaded with a bevy of promises and potential. Early adopters trusted Apple -- probably due more to historically favorable experiences with the company's products (we perceived it was going to be cool and useful and functional) than the fulfillment of an unmet need -- and took a leap. To me the iPhone is authentic; through positive experiences, it has fulfilled my expectations.

3. People: We all have coaches, colleagues, teachers and friends who we trust. They're authentic, and their authenticity (our trust and belief) is earned through a combination of being candid and genuine, perhaps humble and non-defensive, relational and warm. Flip the coin and think of non-genuine, unauthentic counterparts. Initially through instincts and eventually through experience-born judgment, your trust wanes. We associate with and migrate to people we trust.

When you're voting for a candidate, keep it real. When you create a company or launch a product, focus on building trust and rapport (and thus authenticity) with constituents; by fulfilling a promise, loyalty will come. And when you're building a team, trust your judgment.

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Post-script (24 Jan 08): From today's WSJ Opinion page ("The Authenticity Thing"):

Political authenticity isn't easy to define. Some would say the words are mutually exclusive. Others say that authenticity is a matter of whether a politician operates out of something real inside or is making his politics up as he goeas along. Perhaps the easiest test for authenticity in an electorate of more than one million voters is the one Supreme Court Justice Potter Swewart applied to hard-core pornography: "I know it when I see it." ...

If we want a better understanding of the style of authenticity that people who vote are looking for, consider the real meaning of Barack Obama's controversial praise for Ronald Reagan. Sen. Obama was correct that Reagan caught the nation's need for a new direction, which is now the senator's claim. But Reagan's published letters and papers make clear that he believed in his political ideas for a long time. By 1980, they were deep and clear. They were authentic.

It's all about money

My sons are in to Run DMC. Their affection to date is benign and limited: It's Tricky and My Adidas cap their personal jukeboxes. In the near future they'll acclimate to Grand Master Flash (my first and favorite rap band), and we'll reach a father-son moment of societal dissonance: GMF, in The Message, claims It's all about money, ain't a damn thing funny. I can hear it: Dad, you said money's not important!

Until that day, I spend a lot of time thinking about how companies can make money. 'Tis the purpose of the corporation; the fundamental challenge is creating a business model that can consistently and sustainably make money. The variables for most businesses are limited; for contemporary content/media/Web companies, (to quote Run DMC) it's tricky.

Fred Wilson primes the conversation:

If you are building a media oriented business, particularly one that has low marginal costs, meaning you build it once and the cost to serve an additional customer is negligible, then you have the unique opportunity to focus first and foremost on building your customer base or audience.

Most web apps will be monetized with some kind of media model. Don't think banner ads when I say that. Think of all the various ways that an audience that is paying attention to your service can be paid for by companies and people who want some of that attention.

If the marginal cost to service an additional customer is negligible, then you can wait to monetize. If it's not, then you are going to have to focus on your business model earlier in the life of your business. It's really that simple.

Chris Anderson adds fuel to the discussion:
Both media and most online businesses are based on "software economics", where the cost of creating something of value is relatively high but the marginal cost of distributing it to each consumer is very low. So you can look at the web as the ultimate extension of the media business model to a wide range of other industries.
My brother-in-law Curt is working with a company that creates and sells specialized information. Over the weekend in a cursory brainstorm of a person to help build out the company's consumer business, we scratched the surface of vehicles (models) to monetize information. Our list was terse; Anderson and friends proffer more than two-dozen possibilities:
  • CPM ads ("cost per thousand views"; banner ads online and regular ads in print, TV and radio)
  • CPC ads ("cost per click"; think Google ads)
  • CPT ads ("cost per transaction"; you pay only if the customer brought to you from a media sites becomes a paying customer. Here's an example.)
  • Lead generation (you pay for qualified names of potential customers)
  • Subscription revenues
  • Affiliate revenues (think: Amazon Associates)
  • Rental of subscriber lists
  • Sale of information (selling data about users--aggregate/statistical or individual--to third parties)
  • Licensing of brand (people pay to use a media brand as implied endorsement)
  • Licensing of content (syndication)
  • Getting the users to create something of value for free and applying any of the above to monetize it. (Like Digg or our own Reddit)
  • Upgraded service/content (ed: aka "freemium")
  • Alternate output (pdf; print/print-on-demand; customized Shared Book style; etc.)
  • Custom services/feeds
  • Live events
  • "Souvenirs"/"Merchandise"
  • Co-branded spinoff
  • Cost Per Install (popular with top Facebook apps who can help others get installs)
  • E-commerce (selling stuff directly on your website)
  • Sponsorships (ads of some sort that are sold based on time, not on the number of impressions)
  • Listings (paying a time based amount to list something like a job or real estate on your website)
  • Paid Inclusion (a form of CPC advertising where an advertiser pays to be included in a search result)
  • Streaming Audio Advertising (like radio advertising delivered in the audio stream after a certain amount of audio content has been delivered)
  • Streaming Video Advertising (like streaming audio but in video)
  • API Fees (charging third parties to access your API)
Great list. Returning to home, yesterday my wife procured a new pair of sneakers for our oldest. As he bounced the halls in his shiny Adidas, I awaited a Run DMC impersonation and his standard question: Mommy, how much did they cost? The question did not surface; if it had, we probably would have said, "Scott, don't worry, it's not (all about) money." Unless you're building a business, of course.

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Post-script (23 Jan 08): My friend Redwood, a wonderful journalist and proprietor of an invaluable site, chimes in:
First of all however thank you for enumerating the many ways to monetize a website audience. I am familiar with all of them. And here's the deal - other than creating a premium content product that people will pay for, sort of a virtual newsletter where clientele pay oodles for a few pages of brilliant, unique and strategically valuable information to which they get exclusive access - there is no way to make serious money under the methods described unless your traffic is massive. Bottom line - content online requires traffic, somewhere between 10x and 100x the audience size compared to printed content for the same revenue. And print content is dying. And here's the clincher - there is now an INVERSE relationship between the value of the content, and how much someone with an audience has to pay for it. Analysts at investment banks give away extremely valuable content in order to get their name out and find clients. But the local journalist who reports on events on their community for a local newspaper has to be paid.
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Post-script (03 Feb 08): Caught the tail end of Car Talk on NPR this morning. It reminded me of my dad -- he loved the show, but despised cars -- and this post. Here are a few ways Tom and Ray Magliozzi have created a community to monetize their content through their parody of all things auto:
  1. Radio: Carried on 588 stations with, each week, more than 4.4 million listeners. Revenue: Licensing and sponsorship fees.
  2. Cartalk.com: Advertising, particularly their relationship with cars.com and several affinity companies.
  3. Merchandising: Name it, they sell it ("shameless commerce," they say), including CDs, books, calendars, swag, clothing, etc.
  4. Television: A new animated show on PBS, Click and Clack's As the Wrench Turns.
  5. Speaking appearances and events: These guys are good ... imagine they generated a nice bounty of speaking fees.
  6. Other: I would wager they make a few bucks through licensing their brand, affiliate (click-through and other) relationships, subscriptions, lead generation, and the sale of information (user demographics and the like).
What an institution.

Friday, January 18, 2008

Wham-O

Richard Knerr died earlier this week. He was 82. If you've ever hula'd a hoop, flung a Frisbee, slung a shot, sprayed Silly String, or slid on a Slip 'N Slide, you can thank Knerr.

From the LA Times obit:

With his boyhood best friend, Arthur "Spud" Melin, Knerr started the company in 1948 in Pasadena. They named the enterprise Wham-O for the sound that their first product, a slingshot, made when it hit its target.

A treasure chest of dozens of toys followed that often bore playful names: Superball, so bouncy it seemed to defy gravity; Slip 'N Slide and its giggle-inducing cousin the Water Wiggle; and Silly String, which was much harder to get out of hair than advertised.

When a friend told Knerr and Melin about a bamboo ring used for exercise in Australia, they devised their own version without seeing the original.

They ran an early test of the product in 1958 at a Pasadena elementary school and enticed their test subjects by telling them they could keep the hoops if they mastered them.

They seeded the market, giving hoops away in neighborhoods to create a buzz and required Wham-O executives to take hoops with them on planes so people would ask about them.

Wham-O soon was producing 20,000 hoops a day at plants in at least seven countries, while other companies made knockoffs. Within four months, 25 million of the hoops had been sold, according to Wham-O.
Knerr and Merlin did not conceive the hula hoop or flying disc. They remade/refined what existed, and marketed like maestros. Harkens two quotes:
- Aristotle: It is impossible that anything should be produced if there were nothing existing before.
- Edison: Make it a habit to keep on the lookout for novel and interesting ideas that others have used successfully. Your idea needs to be original only in its adaptation to the problem you are working on.
The evolution of the flying disc is fascinating. Wiki's recap:

The Frisbie Pie Company (1871–1958) of Bridgeport, Connecticut, made pies that were sold to many New England colleges. Hungry college students soon discovered that the empty pie tins could be tossed and caught, providing endless hours of sport. Many colleges have claimed to be the home of "he who was first to fling." Yale College has argued that in 1820, an undergraduate named Elihu Frisbie grabbed a passing collection tray from the chapel and flung it out into the campus, thereby becoming the true inventor of the Frisbee.

That tale is dubious, as the "Frisbie's Pies" origin is well-documented. Walter Frederick Morrison claims that it was a popcorn can lid that he tossed with his girlfriend (and later wife) Lu at a 1937 Thanksgiving Day gathering in Los Angeles that inspired his interest in developing a commercially-produced flying disc. In 1946 he sketched out plans for a disc he called the Whirlo-Way, which, co-developed and financed by Warren Franscioni in 1948, became the very first commercially produced plastic flying disc, marketed under the name Pipco Flyin-Saucer.

In 1955, Morrison produced a new plastic flying disc called the Pluto Platter, to cash in on the growing popularity of UFOs with the American public. The Pluto Platter became the design basis for later flying discs. In 1957, Wham-O began production of more discs (then still marketed as Pluto Platters).

Wham-O co-founder, Richard Knerr, in search of a catchy new name to help increase sales, and hearing of the colloquial name "Frisbie", gave the disks the trademarkable brand name "Frisbee" (which is pronounced the same as "Frisbie") on June 17, 1957. Sales soared for the toy, which was marketed as a new sport. In 1964, the first "professional" model went on sale.

And, I think they had fun (lots) while making money (some) and, building on yesterday's post, shuffling little paper. It's hard to conjure a company that has positively touched -- through the sale of products and facilitation of memorable experiences -- so many people.

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Post-script (19 Jan 08): From today's WSJ:
Spud and Rich, as they were universally called, liked to mix it up in the office with toy guns and Super Ball tossing contests.

From hoops to Frisbees to Super Balls -- each of which sold in the hundreds of millions -- Wham-O's biggest hits always were about active, outdoor fun. Its best products transcended trivial toys and verged on the profound. They were simple shapes -- a disk, a ring, a sphere -- that behaved in unexpectedly wonderful ways.

Thursday, January 17, 2008

Shuffling paper

Barack Obama is being railed for his candid admissions that he keeps a messy desk, is not good at shuffling paper, and lacks operational experience. Buttoned-up cynics, seeking any opportunity to derail his candidacy, trumpet his comments in making a case that he's not prepared to be chief executive. As ardently supportive as I am of Obama's quest, I've intentionally shied away from talking politics (or religion) here; that said, the contemporaneous pundit mumblings are hogwash.

Executives and operators keep clean desks. They're good at -- most enjoy? -- shuffling paper and churning wheels, dealing with known knowns. They shy away from chaos, contradiction, and confusion, the opportunistic ingredients of an entrepreneurs existence. A friend of mine who's a VC is similar: He's mechanically meticulous, a refined, robotic operator in a profession that's more art (free-form, creative), less science (methodical).

Entrepreneurs are different: They create, working in a grey, ambiguous, messy environment. Entrepreneurs despise paper (-work and shuffling). In general, they're poor managers and operators; they get shit done, but it's the big stuff (not methodical minutiae) that counts. Perhaps that's why most entrepreneurs fail as managers or operators.

To be creative (to succeed as an entrepreneur?), a task can’t be algorithmic (as operators desire). An algorithmic task is one where the solution is straight-forward and clear; a creative task is one sans a clear and readily identifiable path to solution so that a new algorithm must be developed before the task can be accomplished.

Once the algorithm is created and the path paved, operators take over. Entrepreneurs move on and do it again. And, I would hope a simple application of logic would amplify the need for an entrepreneurial and creative -- not paper-shuffling methodical -- leader of the free world.

Sunday, January 13, 2008

Frontal lobotomy

Took the boys to Arco this afternoon to see the Kings. The price, free, was right; it was an “open practice,” which we enjoyed with 10,000 or so Kings fans. For an ailing franchise that has limped through the season with nary a sellout, it was a smart marketing move (let alone an easy way to sell a few thousand $5 King Dogs, $8 beers and $5 Cokes).

I have been fascinated with professional sports for three-plus decades, and the business of pro franchises for more than half my life. Television contracts drive sports; putting buts in the seats is an important, but less consequential, contributor to a franchise’s bottom line. But – and speaking of buts – pro sports teams have generally been arcane in pricing their product.

Quick TV timeout: Think about variable pricing and its transparency. When demand exceeds supply (or, at a minimum, increases), the cost of a plane ticket, a hotel room, a round of golf, a concert ticket, or a person’s time increases. Basic math, eh? There’s a finite supply (of plane seats, hotel rooms, tee times, venue seats, or hours in a day), and thus the proprietor can – and should – charge more when demand intensifies.

Back to the game: Professional sports are just now grasping the concept. Bundling and packages have heretofore served as their solution: Buy a 10-game pack and you can see the Lakers; otherwise, you’re out of luck (e.g., you can’t buy a single-game ticket).

Until recently, the cost of a ticket to a Tuesday night Giants-Marlins game at AT&T park was the same as a Saturday Giants-Dodgers game. Demand for the said Marlins game was below capacity; demand for the Dodgers game greatly exceeded the 42,000-or-so folks you can pack into the phone booth at Third and King.

I enjoyed an ah-ha moment last summer in my quest to buy tickets to a game at Yankee Stadium. My schedule was fairly fluid – midweek, weekend, whoever was playing … I was ambivalent. But, the Yankees charge substantially more for a weekend game – let alone a Red Sox rivalry – than a mid-week contest. The same seat does not cost the same. (BTW, the Giants, alas, are employing a similar pricing strategy.)

If you are operating an airline, managing a hotel or golf course, promoting a concert, or chartering a professional sports team, your sunk costs are, well, sunk. Your inventory (supply) is capped. And, once the flight takes flight, the day ends, the concert commences, or the game takes place, your revenue opportunity vanishes.

Cynics would argue (check that: would Eyeore) that maintaining price integrity is paramount. Bullocks; such a practice is irresponsible if you bypass revenue opportunities. Two examples: A flight that’s half full costs (sans a few bucks for additional fuel) essentially the same as a three-quarter full flight. IBID for a ball game or concert, but with much larger revenue implications. In addition to the lost revenue from not selling a ticket, the venue loses a chance to park a car, sell memorabilia, or pour a beer, let alone the opportunity to deliver a sterling experience and create a fruitful relationship.

Think of other as-yet-untapped opportunities where supply is perishable and demand fluctuates. Restaurants could, during peak periods, charge more for food and booze. Movie theatres could do the same for gotta-see new releases. Accountants and lawyers could place a premium on their services during high-demand seasons. Bakers, butchers and candlestick makers too. Failure to do so is drunkingly foolish, reminding me of Grouch Marx’s opine: I’d rather have a bottle in front of me than a frontal lobotomy.

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Post-script (14 Jan. 08): From this morning's Bee:

The one thing the organization won't do is cut ticket prices. Gavin Maloof said he isn't keen on offering last-minute slashed rates, a technique the Boston Celtics have used.

NBA teams have access to software that provides live updates on how seats are selling and at what price. Halfway through the 2004-05 season, the Celtics began heavily using that technology, called StratTix, to offer last-minute ticket deals to sell out TD Banknorth Garden hours before tipoff.

Gavin Maloof said he feels such a strategy "devalues" the product.

"We've never been big on discounting," he said. "We feel we have spent the money on players; our payroll is right under the luxury tax. We feel … (discounting) sends the wrong message."

Quick math: The Kings are averaging 13,875 fans in a venue that seats 17,325. On an average night, 3,450 seats perish. At $10/seat (give them away!) and $30 in spending/fan (parking, concessions, memorabilia), the Kings are forgoing -- at no additional/marginal cost -- about $138k in revenue each game, or about $3.4mm for the remainder of the season, on top of the lost opportunity to increase their fan base/deliver a memorable experience.

Thursday, January 10, 2008

POTW II: Crowdf(o)unding an eco clothing brand

Here's a paradox for entrepreneurs: What if you could legally raise millions of dollars from thousands of people without selling a share of stock or debt, but with a trade off whereby such folks get to collectively "run the company"? Tough one, and a SoCal company is testing the model.

Launched in late 2007, nvohk (pronounced 'invoke') has created a crowd-funded, eco-friendly surf clothing company that's directed in large part by consumers. We shared a similar model -- MyFootballClub -- back in November. In less than three months the Club signed up 50,000 people willing to pay a GBP 35 membership fee to buy and manage a soccer team with a crowd of other dedicated fans. Love it (the marriage of an affinity and an investment opportunity), along with most any elaboration of The Wisdom of Crowds concept (which we wrote about here, here, and here).

nvohk is currently recruiting a minimum of 20,000 members (capped at 40,000), each of whom will contribute $50 in exchange for the chance to co-develop the nvohk brand. Members will make major business decisions including logo, web and product design along with advertising; they'll also receive 35 percent of nvohk's net profits in the form of points that can be redeemed to purchase products, as well as 25 percent off all nvohk goods.

Since they're selling a "membership," they skirt SEC regs and can legally raise the dough (let alone build an annuity [renewable memberships; annual fundraising sans dilution] and passionate base of likely-to-refer evangelists). Ditto with the fact that profits are not shared -- they provide "points" to members, redeemable for apparel. Brilliant, if it flies.

Click here to surf the Springwise post, or here to learn more about the company. And, if you're a sucker like me, you may throw your hat (and 50 clams) in the sea to get involved.

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Post-script: Oh-shit, expectation-lowering update (email) from nvohk today ... the ball's moving (remember their target of 20,000 suckers -- like me -- to close their initial round/membership, or a $1mm raise):

Over 1,550 future members and counting!!!

We are proud to announce that with over 1,550 future members to date, the movement continues to build momentum!

These are exciting times and we greatly appreciate your support as we collectively develop something that has never been done before... the first surf-inspired, eco-clothing company managed by the people who wear it.

In addition, because of the enthusiastic and positive response from our initial members, we are accelerating the member activation target to 5,000 future members. In other words, once we sign up 5,000 future members, everyone will be invited back to contribute $50/yr to officially launch, develop and manage nvohk. nvohk will continue to recruit and activate up to 40,000 members.

POTW: Combinatorial gluttony

I have pretty much kicked fast food after a few decades of thrice-weekly visits to Taco Bell. Occasionally I will relapse and visit In-N-Out. Double-doubles (with grilled onions, of course) are tasty treats. What's most impressive, though, is In-N-Out's innovative menu (and its simplicity): Burgers, fries, cokes and shakes. That's it. Consistent in quality, efficient in delivery.

Fast-food companies profit (sometimes) and perish (most times) in their combinatorial cuisine pursuits. Jack in the Box is the cardinal sinner; their chaotic unveiling of new offerings is senseless. Click here -- no joke -- to build your own Jack in the Box meal. Gut bombs should not be that complicated.

Our POTW, A.V. Club Taste Test Special: The Bowl At The Howling Rim Of Famous-Ity, details an adventure in fast food. LA-based comedian Patton Oswalt daringly inhales a Famous Bowl. Quick taste:

Kentucky Fried Chicken had filled a bowl with gravy, mashed potatoes, corn, breaded chicken, and finally, cheese. Shut-ins, people afflicted with Prader-Willi Syndrome, and manic-depressives also do this. If you're trying to make a fortune in the food and beverage industry, those are the three demographics to shoot for—the Famous Bowl is one of the bestselling items on the KFC menu...
Great example of complicating something that's simple. Oswalt's parody continues:

...I drove the Famous Bowl home. It sat on the passenger seat next to me like a sullen runaway I'd picked up on the interstate...

The Famous Bowl hit my mouth like warm soda, slouched down my throat, and splayed itself across my stomach like a sun-stroked wino. It was that precise combination of things, and so many other sensations that did not go together. At all.

The gravy, which I remembered as being tangy and delicious in my youth, tasted like the idea of blandness, but burned and then salted to cover the horrid taste. The mashed potatoes defiantly stood their ground against the gravy, as if they'd read The Artist's Way and said, "I'm going to be boring and forgetful in my own potato-y way!" The corn tasted like it had been dunked in fake-corn-flavored ointment, and the popcorn chicken, breaded to the point of parody, was like chewing a cotton sleeve that someone had used to wipe chicken grease off their chin.

The cheese had congealed. Even in the heat and steam of the covered Famous Bowl, it had congealed. I stabbed it with the tines of my spork and it all came up in one piece. I nibbled an edge, had a vision of a crying Dutch farmer, and put it down.

Enjoy the read and laughs, but bypass the Famous Bowl.

If I ...

One of my favorite books is Dr. Seuss’s If I Ran the Zoo. To refresh, the book features Gerald McGrew, a kid who, when visiting a zoo, finds that the exotic animals are "not good enough". He says that if he ran the zoo, he would let all of the current animals free and find new, more bizarre and exotic ones.

I wrote a sports column in college paraphrasing Seuss and personifying Gerald McGrew, opining the changes I’d make in sports, corny stuff like, “I’d tear out all the artificial turf, to the dump it would go, save a few knees and a couple of stubbed toes.” It was fun.

As I’ve lamented (here, here, and here, for three), too often people pass time in a yeah, but … brain-dead cloud, slogging through staid and unimaginative task after task. What’s more fun is to don your zookeeper-for-a-day cap and dream of (then act on) If I could… possibilities.

The great Mumbo Gumbo provides melodical inspiration in the aptly titled Anything:

If I could be invisible and have the world on a string
I could do, I could be, I could do anything

If I could be a movie star I’d put it all on the screen
I could do, I could be, I could do anything

If I could be a rocket man I’d fly away on a dream
I could do, I could be, I could do anything
If Gumbo’s not your taste, Jimmy Buffett offers an alternative recipe:
Oh, I could be anyone I wanted to be
Maybe suave Errol Flynn or the Sheik of Araby
If I only had a pencil thin mustache
Then I could do some cruisin too
The point? When you’re charting what to do with your life, within your company, or with a new product or service, it’s much more fun and rewarding to imagineer in an open-ended, all possibilities on the table manner. After all, you can be and can create anything you want to, which beats the pulp outta doing something you do not want to do.

Friday, January 4, 2008

The best

My friend Craig and I killed a half-dozen plates of sashimi yesterday, belatedly catching up, ebbing and flowing between yesteryear and yet-to-comes, chortling between bites. After spending time with friends like Craig, I remorsefully kick myself: Where does time go, and why am I such a derelict friend? Great guy.

Craig played golf professionally for a few years. He was good enough to compete in a few mini tours and make a few cuts. Reality: There are 17,000-plus golf courses in the U.S. home to -- conservatively -- a scratch golfer or two each. Of the tens of thousands of domestic golfers who consistently break par (most of whom aspire along the way to turn pro), 100-200 or so make a living playing professionally. Brutal biz.

I asked Craig if he missed competing. Yes and no, he reflected; the get prepared, go out and compete rigor of trying to catapult a golf career was intoxicating, while reality -- quantified above -- was sobering. He's now living a full life, prospering professionally and enjoying as much time as possible with his wife and kids.

Is it worth it? Craig asked. Is what worth what, I replied. Being the absolute best at what you do.

In the hamster-wheel of life, the obvious answer is yes; pop and chill pill and jump off the wheel (i.e., enjoy life with your family and friends outside work), and the answer's even more obvious: No.

We talked about Tiger Woods, company CEOs and analogous top-of-their-field folks, the sacrifices and compromises they make in their ascension to and perpetuation at the top, the prosper or perish necessity to acutely focus and kick ass. Aspirational and admirable? Yes. Worth it and desirable? Nope. Would they (The Best) change it (if they could)? Silence.

I'm slated to chat with the Sacramento Entrepreneurship Academy's current class next weekend. Two "entrepreneur in action" hours of who knows what. If you can't compete, don't (Jack Welch). Work hard, and harder. Failure to commit is committing to fail. Typical helium of a talk with aspiring entrepreneurs.

In reality, being The Best is in the hands and mind of the actor, not the perception of the audience. The prototypical entrepreneur's rodent wheel beckons a diligent climb to the perceived pinnacle, which is not realistic. Being great at what you do, enjoying (loving) what you endeavor, and ensuring you live a full and relationship-rich life counts. You can control your success and fulfillment.

Chances

I've played in one pro-am golf tournament, a few years ago during the local LPGA tour stop. We lucked out: Our partner was Rosie Jones, a great golfer and an even better person. You can learn a lot about golf, and more about life, walking fairways with Rosie.

After yet another unmemorable dead-left duck-hook, I turned to Rosie's caddy and deadpanned: Who's the best out here? Serious question, though I did not give it much thought. The looper incredulously replied: Anika. Of course, I thought, kicking myself like Chris Farley; how can you be so stupid!

Embarrassed, I pressed on. What makes her so good? I asked, expecting a technically athletic -- she's a great putter, a straight hitter, a whatever -- reply. His response: She gives herself more chances -- birdie putts inside 15 feet -- to score than anyone out here. Simplistic, logical and poignant.

It took me three years to analogize Annika's greatness and Rosie's caddy's wisdom with business. What makes a business (or a businessperson) so good? The competencies and assets of an organization or individual are obvious; they're antes for being in the game. Differentiation (and success) comes from maximizing the quantity and quality of chances you or your company have to prosper. Success crescendos when you knock it (your proposition or effort) close to the hole, often. The more short puts you have, the more likely you are to excel. The shorter the puts, ibid times two.

Making a 60-foot put is exhilarating, but it's a tough way to run a business or hack through life. Stroking a continuum of 10-footers -- better yet, tap-ins -- is a much more fruitful existence, and creating such chances is the root of prosperity. Better to be good than lucky.

Thursday, January 3, 2008

Creativity and caucusing

The holidays are a terrific time to do a lot of nothing and a little of something. The world slows, brains park, libations flow, waistlines widen. I'm guilty, particularly blog-wise over the past few weeks. (BTW, I just realized we generated exactly 150 posts in 2007 ... that's a lotta hot air.)

We're caucusing tonight. My eight-year-old just asked, What's a caucus? A few minutes into my confusing explanation, he got bored, shook his head and left the room, reminding me of one of my favorite quotes: Making the simple [a democratic election!] complicated is commonplace; making the complicated simple, awesomely simple, that's creativity.

About a month ago Dave Winer, one of (if not the) pioneers of weblogs, shared a collection of worthy thoughts about the creative process. Here are a few morsels:

I've been focused for the last 1.5 months on creating something new. It's amazing how much work it takes to do this. In the end you strive to make it look so simple and install so easily that it seems obvious and trivial. But after all that, if it worked, people are creating in ways they weren't before. That's the gratification available to creativity. These days it's rarely rewarded with money. Okay, that's the way it goes, and in some sense is the way it's always been. The reward of art is insight. The reward of achievement is the possibility of more achievement. Having done it once, you always want to do it again, the next time on your terms, but it never works out that way. Permalink to this paragraph

Creativity is a process like seduction. The idea has to be teased out, you have to come at it straight on, then from the side, then sneak up from the rear. It isn't until you understand all facets of a problem that the solution is revealed, and then, if it's really a solution, it reveals a whole new class of problems. (The joy of platforms.) Permalink to this paragraph

Smart post. The seduction reference is so true, and it's wonderfully relevant -- tease, tease, tease -- to my previous post about first dates. Speaking of first dates, go Barack.