Posts from April 2010

A Look Back At Summize

In July 2008, Twitter acquired a company called Summize. The stated reason was to bring search into Twitter. And that was the main reason that Twitter did the deal.

But Twitter also got a very strong engineering team in that acquisition. I remember asking Ev and Jack at the time "how are we going to integrate the engineering team?" and Jack replying "we aren't going to integrate them, they are going to integrate us".

At that time Twitter was experiencing very difficult scaling problems. The service was down a lot and was slow when it was up. The "fail whale" was the symbol of Twitter and it was a huge problem.

While Twitter hasn't slayed that beast entirely, it has come a very long way in less than two years. In the crudest measure of its traffic (monthly UVs to, Twitter has grown 50x in that time and has increased its reliability and scalability dramatically.

And the Summize engineering team had a lot to do with that. Greg Pass who was Summize's co-founder and VP Engineering became Twitter's engineering leader in the summer of 2008 and has built the team from roughly a dozen to somewhere around ten times that number. In my view, Greg is one of the unsung heros of the Twitter success story. He brought a calm, steady hand to a ship that was caught in a storm. He got it going in the right direction and headed for calmer waters. 

I remember asking Greg during the Summize due diligence what his plan was for stabilizing Twitter. He answered that there was no magic bullet. He said they weren't going to do one big thing, they were going to do lots of small things. The first thing they did was instrument the hell out of the system, they started measuring everything and finding the bottlenecks, and then they started knocking them down one by one.

Twitter has an entirely new architecture now. But they did not rebuild Twitter, they just replaced one thing at at time and evolved it. They went from a monolithic beast where everything was connected to a distributed set of services that work together but are separate from each other. And that is Greg's legacy.

I'm telling this story today because Twitter has announced that Mike Abbott will be joining the Company as VP Engineering. And Greg Pass will become Twitter's first CTO. As Greg passes the engineering baton to Mike, I want to make sure that we recognize the extraordinary contribution that Greg and the entire Summize team has made to Twitter. 

There is a saying that success has a thousand fathers. That is true. But only a few of those fathers are well known in most successes and many of the big contributors are unsung heros. That's how it is with Greg and the Summize team and so I am singing their praises today. Well done.

#VC & Technology

Price: Why Lower Isn't Always Better

I want to tackle the issue of forecasting and projections next in the MBA Mondays series but I don't yet have an outline in my head of how I am going to approach this critical subject. So I am taking a breather this week and instead will tell a story I heard from a marketing professor in business school.

This professor did a lot of consulting on the side. He was known as a highly analytic marketing expert. He was asked to take on a french producer of champagne as a client. This champagne producer was trying to enter the US market but was not selling very much of their product in the US.

The professor did an analysis of the "five Ps"; product, price, people, promotion, and place. He determined that the champagne was of very high quality, it was being distributed in the right places, and that the marketing investment behind it was substantial. And yet it wasn't selling very well. 

He did an analysis of comparable quality champagnes and determined that this particular producer was pricing his product at the very low end of the range of comparable product.

So the professor's recommendation was to increase the wholesale price such that the retail price would double. The client was very nervous about the professor's recommendation but in the end did it. And the champagne started selling like crazy. They couldn't keep it in stock.

The morale of this story is that price is often used as a proxy for quality by customers, particularly when the product is a luxury item. By pricing the champagne at the very low end of the range of comparable product, the producer was signaling that its product was of lower quality than the competition. And by raising the price, they signaled it was of higher quality.

So when you are selling something, be it advertising, software, or something else, think carefully about how you are signaling the market with your pricing. Having the lowest price among your competition might be the right strategy but it might also be the wrong one.

#MBA Mondays

Narratives Over Numbers

When I'm not sure what I want to write about, I start reading blogs until I come across something that interests me or strikes me. Today the blog that did that to me was Chris Dixon's. A few weeks ago he wrote a post about sizing markets with narratives, not numbers.

I love that advice and want to reinforce it. I see pitches every day, sometimes several in a day. And I can tell you that a picture/vision will light up my imagination in a way that numbers never will.

Chris says:

Some popular current narratives include: people are spending more and more time online and somehow brand advertisers will find a way to effectively influence them; social link sharing is becoming an increasingly significant source of website traffic and somehow will be monetized; mobile devices are becoming powerful enough to replace laptops for most tasks and will unleash a flood of new applications and business models.

Let's take that social link sharing "narrative." Last year at this time, Jeff Pulver asked me to talk to the 140 conference. I wanted to explain to everyone why I thought Twitter was going to unleash a potent new economic model on the web. I could have gone and found some analyst's projections and thrown some big numbers on the screen. 

Instead I talked about search versus social. Here is Jonny Goldstein's sketch of my talk (link to a video of it):

Jonny goldstein

I love that sketch Jonny did. I wonder if you could turn his sketches into a textbook.

Anyway, by comparing social to search, I created a narrative that suggested something very big. Paid search is a $30bn market and is still growing. I didn't even have to show any numbers to make that point.

Another reason narratives are better than numbers is that it is easy to challenge numbers. You'll get "Where did you get those numbers?" or "They didn't do that math right." A narrative is just a story and you are the storyteller. It's harder to poke holes in a story, particularly if it is told well.

So I would encourage all entrepreneurs and everyone who is selling something to someone to focus on narratives over numbers, particularly when you are in the initial meeting. If the person you are pitching bites, there will be an opportunity to go over the numbers later. But you have to get yourself that opportunity and story telling is the best way to get there.

#VC & Technology

Stay Packages

There's an article on Gizmodo today about Palm's effort to retain key execs during its sale process. The headline says:

Palm Bribes Key Employees to Stick Around as SVP of Software Jumps Ship

I think that's an unfortunate choice of words. These are not "bribes", these are stay packages. And they are very common, including in the startup/venture capital world.

When the board of a company makes a decision to sell a business, it is best that they share that decision with the senior team, not just the CEO. The senior team is an important part of the business value a buyer will get for most transactions. And the buyer will want to meet with the senior team in due diligence. The stronger the team, the more value the company will fetch in the sale process.

But once you tell your senior team that the business is for sale, some of them, maybe all of them will start getting antsy. They will worry that the buyer will not want them. Or they will worry that the sale process will not succeed and then what will happen. Or they will worry that they'll end up working for a buyer that they don't want to work for. And so once you tell your senior team you are putting the company up for sale, you risk seeing all their resumes on the street.

Enter the "stay package." These are compensation packages that are specifically designed to keep the senior team and all valuable employees in the company through the sale process. They usually include a cash "sale bonus" which is paid when the sale transaction closes and additional stock options that should increase in value upon a sale transaction with vesting provisions that incent the recipient to stay at the buyer for some period of time.

This appears to be exactly what Palm did. The company is required to disclose such packages for its most senior managers because it is a public company. It does that through a filing called an 8K. AllThingsD has the Palm 8K filings posted on their blog if you want to read them.

Not only are stay packages common, they are best practices in sale processes where there is a risk of a talent drain. A Board should seriously consider them whenever a sale process is discussed. They are a critical part of maintaining and ideally enhancing shareholder value which is the Board's fiduciary responsibility. Calling them bribes misrepresents what they are for and why they are important for all stakeholders in the company.

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Talent Overload

On Monday, our firm, Union Square Ventures, announced that we are hiring two people to join our firm for two years. Since Monday, we've received over 400 applications for the two jobs and they continue to come in like a firehose.

We are incredibly fortunate to have such an overload of talent to choose from and the people we are seeing are amazing. It is our goal to look at each and every applicant and carefully consider them for the position they are applying for. That has been hard and it is not getting easier.

So we are reluctantly taking the step of closing off applications for the two positions on Monday. If you want to apply for either of the positions, please do it today or over the weekend. Instructions on how to do that are in our initial blog post.

#VC & Technology

Software Is Media

I've made this point in several talks I've given recently so for those of you who attended or watched the talks on video aren't new to this meme. But I thought I'd share it with the AVC community.

As software has moved from running on local machines to running in the browser a number of important things have happened. One of the most important changes is software has become media.

Here's a definition of media I pulled from TechTerms

"media" refers to various means of communication. For example,
television, radio, and the newspaper are different types of media. The
term can also be used as a collective noun for the press or news
reporting agencies.

Media are the tools that are used to communicate. And software that runs on the web is part of the media landscape. That has certainly been true for things like online publications and online video and they are accepted as part of the media landscape. But I think all software should be characterized and thought of as media.

Like other forms of media, software produces an emotional reaction when we use it. Software needs to have a "voice." It needs to be more than a simple utility. We need to feel something when we use software. The best software does this incredibly well.

Like media, the interfaces that present software to us need to be stylized, designed, and elegant. Software can be beautiful and the best software is beautiful.

And like media, the most important measurement for software today is the number of engaged users. The more engaged users a piece of software has, the more impactful it can be.

Many will read this and say "well that might be true for consumer software but not for enterprise software." I don't think so. This week we started using a web-based applicant tracking system for our hiring process. We have close to 400 applicants for the two jobs we posted and we need something to track all the applicants and help us run the process. We looked at a number of options and selected one of them. This is enterprise software, but I want the same experience with this software that I want with the best consumer software I use. I want it to be attractive, elegant, I want it to have a voice, I want it to be more than a simple utility.

Once we've begun to treat some of the software in our lives as media, we are going to treat all the software in our lives as media. And the software that is ugly, void of emotion and voice will not work as well for us. So I believe all software is media and will be seen as such by its users.

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#VC & Technology#Web/Tech

Some Thoughts On Comments

Tereza asked me to comment on the NY Times piece that ran this weekend on news sites' decision to move away from anonymous commenters. I think anonymous commenting leads to a lot of bad behavior and it should be discouraged. But I think anonymous commenting should be allowed and I allow it here. There are enough examples out there of why someone would want to comment anonymously that I think it has a place in the online conversation.

In the world of user generated content, you are always going to get posts that you don't want. Fortunately, there are a number of techniques that can be used to downgrade or even largely hide that behavior from the vast majority of users without taking it down. I think anonymous comments should be subjected to some of those techniques.

For blogs and online publications that get a lot of comments, and this blog is on the cusp of that place, I think we need a way to highlight top comments for each post. Disqus does allow the comment reader to "sort by" most popular or "best rated" but that requires user action. I think Disqus should offer blogs with a lot of comments the ability to run a window above the comment thread with the half dozen or dozen best comments that would be automatically calculated with the possibility of override by the blog author. Some blogs are already doing this like Business Insider, Gawker, and Huffington Post.

We need to introduce game mechanics into commenting systems and I think Disqus can and will be at the forefront of this effort. Game mechanics will reward the kind of behavior the community wants and will punish the kind of behavior the community does not want. The anonymous commenter who has valuable information but can't publish in their own name will be rewarded. The anonymous commenter who leaves a hostile name calling piece of crap will be punished. And the comment thread and community will be better off for it.

The other benefit of this approach is the community can police the comment thread. I do a fair amount of that today helped out by our community bouncer Kid Mercury. Turning that job over to the community in its entirety is the obvious next step.

The comment threads on this blog are now well over 100 comments on most days and get up to 300 or more comments on the most popular posts. I continue to read every comment because it is important to me to see them all. I also want to make sure they aren't spam or hate filled crap. But you may notice that I've cut back on the number of replies. It used to be that out of a 100 comment thread, my replies might be 30 or more. Now its probably 10 or less. I make up for some of that by liking comments a lot more.

But this community is following a pattern that all online communities follow. In the beginning, I was a huge part of the threads. Now I've cut back and let the community do more of the talking. And I think that's a good thing. Hopefully Disqus will give us more features like the ones I talked about earlier in this post to take the community powered moderation and rating and presentation to the next level. I'm looking forward to it.

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Social Networking vs Email

I saw this chart in Morgan Stanley's latest Internet trends report.

Ms social vs email

Even though I've been saying for years that social networking will one day usurp email, it's a bit shocking to see that it has. 

There are some caveats. My kids use Facebook as their primary inbox (they also use gmail). So some of what they do on Facebook is actually email.

But even so, it looks like email's reign as the king of communication is ending and social networking is now supreme.

When we landed back in the states recently after a long flight and got in a car to drive into the city, The Gotham Gal looked at me and said "why are you checking twitter and not email?" (as she was doing). I told her that email required a reply and twitter did not. And that I preferred twitter to email and always checked it first.

Whether it's Twitter, Facebook, or some other social networking service, I believe the lighter weight communication paradigm (say less, reach more) is superior to email for many things and I'm certainly moving more of my communications away from email.

Ideally, that would leave the more important heavier weight communications in email. If it were only so. Email's biggest problem is the inability to control other's power to email you. That is also its greatest strength.

If email can solve the inbound overload problem, it can become a sustainable compliment to social networking and remain a powerful mode of communication for a long time to come. It's a truly private channel and is more suitable for long-form serious private conversations.

And email's usage is still growing (125bn minutes per month in the chart above). So don't take this post as anti-email. We've got one email related investment that is doing great, Return Path, and we are certainly open to doing more there.

But social networking is the king of communications now. Long live the king.

#VC & Technology#Web/Tech

We Are Hiring At Union Square Ventures

We've got a post up on the Union Square Ventures blog explaining our hiring plans. We are looking for two people who want to spend the next two years at our firm. One will be an analyst position and requires no previous work experience but very strong quantitative skills. The other will be the General Manager of the Union Square Ventures Network. This requires a person with strong interpersonal and operating skills and some work experience where they have been demonstrated.

If you are interested in either position, please go read the blog post and follow the instructions at the end.

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Key Business Metrics

The past five MBA Mondays posts have been about accounting concepts, financial statements, and related issues. I don't know about all of you, but I'm a bit tired of that stuff. So I'm moving on to something a bit different.

Every business should have a set of metrics that it tracks on a regular basis. These metrics could include some of the accounting stuff we've been talking about like cash, revenues, profits, etc but it should not be limited to those kinds of metrics.

Early on when the company is developing its first product or service, those metrics might be related to product development like development resources, features completed, known bugs, etc. Once the product or service is launched, the metrics might shift to include customers, daily active users, churn, conversions from free trial to paid customer, etc.

As the business grows and develops, the amount of data you can collect and publish to your team grows. If you aren't careful, you can overwhelm your team with data.

It becomes very important to distill the business down to a handful of key business metrics. There are usually four to six metrics that will be sufficient to determine the overall health and growth trajectory of the business and it is best to focus the team on them.

Our portfolio company Meetup has learned to focus on successful Meetup groups. Those are Meetup groups that are active, meeting regularly, have growing memberships, and are paying fees to Meetup. Meetup could focus on other data sets like monthly unique visitors, new Meetup groups, total registered users, revenues, profits, cash. They collect that data and share it with the team. But the number one thing they look at it successful Meetup groups and that has worked well for them. It is their key business metric.

Sometimes the most important data on your business is the hardest to collect. Twitter knows that the total number of times all tweets have been viewed each day, month, or year is a critical measure of the overall reach of the network. But because so many of those tweets are viewed on third party services, web pages, apps, etc, it is very hard to collect that data. The Company is only now starting to measure them.

Most key business metrics will be drivers of revenues and growth but not all of them. Etsy is focusing a lot of effort on its customer service metrics, which are a cost center not a revenue driver. But the Company knows that customer service is critical to the health of the marketplace, so customer service metrics are key business metrics for them.

The management team should spend time talking about and selecting the key business metrics to focus on. They should collect the data on a regular basis, the more real-time the better in my opinion, and they should publish the key business metrics to the entire team.

I do not believe it makes any sense to segment who gets to see what business metrics in a company. Sales metrics should be shared with development. Customer service metrics should be shared with finance. And so on and so forth.

Some companies buy big screens and mount them on the walls around the office and publish the key business metrics on them so everyone can see them. I like that approach. But I also like sending out a regular email to the entire company with the key business metrics and how they are trending. And of course, I think these metrics should be shared with the Board and key investors.

When you publish financial projections (a topic for the coming weeks), you should include your projections or assumptions for key business metrics in the periods for which you are projection financial performance. Many of these metrics will be drivers of your projections but they are also helpful to establish the overall progress of the business over time.

It is a good idea to evaluate what your company's key business metrics should be from time to time. I like to suggest at least once a year, probably around the annual budgeting exercise (another topic for the coming week). It is expected that you will change some of these metrics every year as the business grows and develops. Don't just keep adding new ones, you should also subtract old ones that don't seem as useful anymore. Keep the total number of key business metrics you are tracking to a small enough number that most people on the team could recite them from memory. Less is more when it comes to key business metrics.

Tracking key business metrics is important for a bunch of reasons, but probably the most important reason is cultural. It helps to keep everyone on the same page, aligns people across the different parts of the business, and leads to a culture of success when you see the key business metrics moving in the right direction. It's critical to celebrate when a key business metrics reaches a new and important milestone. These kinds of things seem silly to some but are incredibly important to building a strong company culture that can work together and grow rapidly.

#MBA Mondays