Quote of the Day: Timeless Theodore Roosevelt

“Citizenship in a Republic is the title of a speech given by the former President of the United States, Theodore Roosevelt at the Sorbonne in Paris, France on April 23, 1910.”

Words that ring as true today as they did over one hundred years ago:

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly; who errs and comes short again and again; because there is not effort without error and shortcomings; but who does actually strive to do the deed; who knows the great enthusiasm, the great devotion, who spends himself in a worthy cause, who at the best knows in the end the triumph of high achievement and who at the worst, if he fails, at least he fails while daring greatly. So that his place shall never be with those cold and timid souls who know neither victory nor defeat.”

Competing for Minutes

Gabriel Weinberg has an interesting post up called “I keep forgetting to use your app.” And yesterday, someone pitched me on a new project. And it reminded me how much competition there is for minutes. Day in and day out.

If you are building a consumer facing experience (i.e. game or app or site), you are implicitly assuming that your users will shift their minutes away from some previous activity and instead allocate those minutes to you. Your competition is not just the other sites which offer your value proposition. Your competition is Facebook, the TV, their girlfriend or boyfriend, the news, YouTube videos, etc. You are competing for minutes.

If you are building a B2B company, you usually need to compete for pitch minutes. Decision makers (and non-decision makers) at various levels of the enterprise get pitched to all the time. New suppliers. New software. New coffee machines. New this. New that. These inbound pitches come by way of different channels. Some pitches come in by way of cold calls or e-mails, while others come in via warm introductions, etc. You are competing across all of the channels for minutes.

Opportunity is not on the Sidelines

Almost two years ago, a mega successful entrepreneur shared with me some wisdom that I have grown to appreciate more with time. He told me:

“From the outside looking in, you never see opportunities. But jump into the ring and get into the fight. That’s when you find opportunities.”

Notice how he didn’t say “Find opportunities then jump into the ring.” In order to identify and understand the real possibilities/risks/challenges/rewards of any opportunity, you need information and actionable insights. Typically, this is not information you can find in a research report, outlined in a 10-K or 10-Q, discussed in a news article, or highlighted at an industry conference. Although you may find some of the information you are looking for there, you will also often find information which is misleading, inaccurate, false, lacking context, lacking sufficient detail, and or incomplete — useless for identifying real opportunities and executing against them.

Opportunities and real insights/information only come to those who put their money and or time on the line. This means constantly engaging in actions like pitching to potential clients, getting pricing from suppliers, making painful mistakes, shipping out products, losing money on some deals or projects, making money on some deals or projects, etc. The longer you stay in the market, the more information you will gather about the market and the more opportunities you will discover. You have to be in the market to know the market.

What is Value Creation?

Spend enough time in the business world and you will hear the words “value added” or “value creation” thrown around. Everyone tells you they can “add value” or that they want to “create value.” But what is value? How is value created?

At Penn, my derivatives professor taught us that any and all financial products, from the simplest bond or stock to the most complex CDO or CMBS you can imagine, could be broken down into simple blocks/units consisting of some combination of a long position, short position, put, or a call. Let us take this simplification approach and apply it across any business operating in any industry. Real estate. Technology. Manufacturing. Advertising. Medical practices. You name it. They all break down the same way:

1. Company A makes product X or provides service X.
2. Product X or service X has a total cost of Y.
3. Client B wishes to procure product X or service X from Company A.
4. Client B provides to Company A goods/capital/services of value Z in exchange for product X or service X.
5. If Z > Y, Company A earns a profit. If Z < Y, Company A loses money.
6. That’s it.

When is value created? When Z > Y. When is value destroyed? When Z < Y. A company that only loses money and destroys value will eventually run out of money.

But why then do some companies focus only on growth and not profits?

For a high growth company, profits are traded off for growth and market share. But this trade off still occurs with an eye towards the future when at some point value creation will kick in. As Mark Suster says, “This is the trade-off between profits & growth. You can drive profits up by not investing today’s dollars in tomorrow’s growth.”

And why then are there companies that get acquired for their teams or their technology or other “strategic” purposes and not for their profits? In these cases, the acquiring company expects to acquire resources which will add value to their own organization (some companies are better than others at acquiring other companies.)

Real value creation is not easy. The world is overall fairly efficient at pricing goods and services. Competition in most places/industries is high. In the end, you must take input resources (i.e. labor, capital, goods, services) and produce an output with a total cost that is lower than the price which you receive in exchange for providing the output to others. That said, there are always opportunities, inefficiencies, and ways to create value.

Nextpeer is AWESOME

One startup I recently met is Nextpeer. Nextpeer has a system that allows any developer to simply and quickly turn any single player mobile game into a live multi-player experience. The product is FANTASTIC. For game developers all over the world, this solves an enormous pain point. For small and medium sized companies, building scalable multi-player systems is not easy. Nextpeer does all of that for the developer in a well designed, slick experience. More importantly, multi-player enabled games keep players coming back for more, resulting in high engagement numbers. For game users, this is sweet as well — they can instantly play their favorite single player games against their friends and other users around the world. Nextpeer has the opportunity to become THE multi-player system that powers the mobile gaming world.

Keep an eye on this company. They are early and certainly have a long road ahead of them, but they have tremendous potential. If you’re an iOS developer, they are now out of beta and you can sign up at http://nextpeer.com/

Quote of the Day: The Edge

In response to my post, “Zynga, Pincus, And Embracing The Edge,” a friend sent me the following words from Kurt Vonnegut’s first published novel “Player Piano”:

I want to stay as close on the edge as I can without going over. Out on the edge you see all kinds of things you can’t see from the center. Big, undreamed-of things — the people on the edge see them first.

Zynga, Pincus, And Embracing The Edge

VentureBeat just published a lengthy piece about the history of the soon-to-IPO Zynga, and Mark Pincus, the entrepreneur behind the company. The VentureBeat article reports a lot of information and history (of course it is impossible to truly know all the details.) And yes, Zynga has drawn a lot of attention and criticism from all different angles. I’m not going to discuss any of that.

The article brought back memories of my earliest days of building apps on the F8 Facebook platform. I remember Craig Ulliot posting about hitting 250k downloads on his app and not knowing how to handle all of the traffic. Keep in mind this was 2007 — Facebook with about 35-40 million users was the #2 social network behind the heavyweight MySpace.

It was glaringly obvious to Mark Pincus (and some other early players) that social games were an enormous opportunity — while it seemed glaringly obvious to many others that the silly games and applications on Facebook were just a fad filled with notification spam. I remember many people in 2007/2008 who told me there was no future in Facebook applications/games — no money to be made. Some older people told me that Facebook was just a fad for college kids. And people who were excited about the potential of the Facebook platform kept asking when we would see “real” apps instead of just games.  Fast forward to today — entire venture-backed companies try to enter the market by launching apps on the Facebook platform (and or on the iPhone platform.) According to the Wall Street Journal, venture capitalists invested $1.33 billion into gaming in the first three quarters of 2011, after investing $589 million in all of 2010. Things change quickly.

The VentureBeat article reminded me how Zynga consistently raised big money ahead of everyone else time and time again. Zynga also focused heavily on the #2 Facebook rather than the spam-cluttered/creepy MySpace (seems so obvious in hind sight right?). Zynga did so while the media/pundits preached doubt about the viability of the social gaming business, while competitors failed to grasp the size of the market opportunity, and way before gaming incumbents even knew what was going on. Zynga raised a war-chest to go after what they could see was/is an enormous opportunity, while incumbent gaming companies did not view Zynga as a real threat or competitor. By the time the rest of the world fully realized the opportunity, Zynga was already miles ahead.

The takeaway is about being at the edge — by no means an easy place to be. This applies across areas like technology, entrepreneurship, and investing. The edge is the land of uncertainty — where everyone tells you what you are doing makes no sense, will not work, is too small, is not interesting, will not make money, etc. And often they are right. Many ideas, products, investments, and companies on the edge fall off into nothingness. Yet the edge is where you have to be to spot the obvious-in-hindsight big time changes before everyone else does. The edge is where you catch the big wave. [Or the edge is where you step out of the way for an impending storm.] The edge is where you can react to what is coming before everyone else. If you wait for the time when things are clear and obvious and everyone around you nods in agreement that there is a tremendous opportunity approaching, you are no longer on the edge. You are too late.