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Snakes on a Business Plan

We saw a bit of a shakeup in the web startup space last week as Kiko, FeedLounge, PubSub, and other often mentioned startups either teetered on the edge of existence or fell off the map completely. In an age of rapid technology expansion fueling new Internet startups, what are some of the essential qualities that will help a new company hang on? Should companies cower in fear of the day Internet giants Google, Yahoo!, or Microsoft might cast a shadow on a small startup and trounce them with distribution? Should we all just quit now?

Om and I discuss these questions and more in this week's PodSession, Snakes on a Business Plan. The podcast is 25 minutes in length, a 11 MB download.

A full transcript is available in the extended entry.

Transcript

Niall Kennedy:

Hi, I'm Niall Kennedy.

Om Malik:

I'm Om Malik, and you're listening to Om and Niall PodSessions. Hello, Niall.

Niall:

Hello, Om.

Om:

You know I can't do your thing, which is like, "Goooood Morning!"

Niall:

Yeah.

Om:

I tried. I failed. I moved on.

Niall:

I just did it once for the heck of it, if anyone ever watched "Good Morning, Vietnam" and knows the Robin Williams intro. Some people get it.

Om:

That's right. The old school people are totally going to get it. Some of the newer kids who are out there, they won't get it at all. Oooh.

Niall:

Kind of like Web 1.0 and Web 2.0.

Om:

That's right baby.

Niall:

[laughs]

Om:

That's right. We're the old OGs man, OG. You know I'm trying to stay relevant in your context.

Niall:

Right, right. Back when we were poking our heads out of a Gopher hole.

Om:

Yeah, that kind of shit. What's going on?

Niall:

Well, this week we're going to talk about Web 2.0 flameouts. Feeling a little bit of a shakeup in the web world in the last week and...

Om:

Oh, not really. I think a whole bunch of things are going on out there. Is it a flameout? I don't know. I think "shakeout" might actually be a good word.

Niall:

OK.

Om:

"Flameout" is kind of extreme. And you and I are not extreme people.

Niall:

It does drive traffic, and you like the traffic.

Om:

What, the flameout?

Niall:

Extremes. Extreme things drive traffic.

Om:

Oh yeah, that is true.

But talking more about what's been going on. This week we had the news of Kiko shutting down and PubSub details came out. And there have been rumors of a couple of other things too.

Niall:

FeedLounge.

Om:

FeedLounge having a bit of an issue. And there are a bunch of others which are having issues.

So, I think it's too soon to call this a flameout. But it's clearly a shakeout because... My explanation of this is, there are a lot of people out there saying, "bubble this," and "bubble that." I don't know. I'm not expert on the bubble theories, but I do know this, that the cost of doing a startup has been lowered so much that a lot of new people have jumped into the space and they're trying out new things. And what we have is a lot of features masquerading as companies. And in an environment like that, it's only bound to happen. The big guys can dole out those features pretty quickly and they have the market traction and they can just stick around.

Niall:

I think about whether it's the big guys or it's your own startup. It's a question of the people within and who's actually building the products. What I saw happen in these different startups falling apart were co-founder issues.

There are just issues with the employees that were there. They had different takes on the business. They wanted to focus on different things. That was definitely the case in FeedLounge. It was the case with PubSub, supposedly (I don't think the full story's been told there). There's one side, [Bob] Wyman's side, that's been out there. But I haven't heard much from [Salim] Ismail.

So I think it's a question of, "Make sure you know the people you are working with, that you hire the right people." And that hire might be at the founder level when you looking to do a new startup or it might be for a small team. That's something that will hold true and could just pull apart your product if you don't have the right people in place.

One of the things that I really disliked about some of the talk at Microsoft -- and it might be true for other big companies -- executives sometimes refer to employees as "warm bodies." That's just wrong.

Om:

Right. Well, that is just incumbent thinking. But beyond that, I think a lot of people misread. The Kiko example is all about, "OK they tried." It didn't seem like they burned through their entire money. It wasn't even that. I guess there were other issues. Personal interests got in the way.

Startups are not easy. I'm learning it first-hand. The accumulated knowledge of the past 38 years and the past 38 days stack up pretty nicely against each other. But I think you are going to more and more of these companies go away, because it's hard to find traction when you're just a feature.

There's also one thing which I've noticed, which is the desire to do everything in your product: "if others are doing it, let's do this." I kind of compare this with folks with Six Apart. There is a very solid focus there. They're doing a blogging platform, but for different market segments. Or for example at 30 Boxes, which is just like a four-person team. They just want to make the best calendar experience. If they get 100,000 to 200,000 users, they're happy with it. They're not looking to bring down Google [Calendar] with their product.

Niall:

That's one take. I think you also need to realize where your product may head. I think specifically of Pyra Labs which created Blogger. That wasn't the first product they set out to achieve. Blogger was an offshoot of project management. They just said "Oh, as part of project management you might like to keep status updates. And we'll create this product that we'll call Blogger for status updates."

Or in the case of Flickr, you wanted to capture elements from your gaming experience and share those with others. And that became more popular. So you have to recognize what's happening with your users. What do they want? What are the market opportunities? And maybe you don't become too attached to your original idea.

I think in the case of online calendars, in Kiko's space or in 30 Boxes' as well, there are different ways to slice the online calendar market. You don't have to look at it exactly the same way, where you would stack up directly Kiko, Google Calendar and 30 Boxes and say, "They're the same but on different domains." I don't think that's the case.

30 Boxes, for example, has a heavy people integration. And you can look into these different people that you might meet. Say you're going to go have dinner with someone tonight, you could see there recent blog post before you go to dinner with them, built into the calendar. And there are some extensions there. You can build plug-ins into the system: different ways to leverage it.

Or it might just be the way that you integrate with everything that's on the web. That's one of the things that, when I talk to the guys at Box.net, they just integrate well with everything else that's out there. So even if they don't have the most free storage available -- they only offer a free gigabyte I think and some other people offer 25 free gigabytes -- they're still popular because they are everywhere you want to be.

Om:

Right. I think the other issue that a lot of us are forgetting is that in the shareware community you have similar products which are also similar to the product offerings from big companies. Yet those tiny companies and tiny developers continue to thrive. Case in point being our good friend David Watanabe, right?

He's done well with his RSS reader [NewsFire], which is, in my opinion, pretty solid. It's focused. It's really elegant. And it does one thing well. You can get the same functionality in Safari and Firefox and NewsFire and so on and so forth. So, I think the independent developer software model should now embrace the independent web developer model.

So, a lot of these companies which are coming out with features and all should not be confused with companies, but they should be looked upon as products. Some of them will be for 200,000 people and some of them will be for 50,000 people or 100,000 people.

I think a lot of these newer web-based companies have to kind of step back and get comfortable in their own skin and figure out what market they're addressing, who they're going after and basically be happy about it. Not every startup needs to be a gigantic success. Success is very internal and the metrics are very internal.

Niall:

OK, so you mentioned a couple of times feature versus companies. What are some of the things you see that differentiate? Because the examples that I gave of Pyra and Ludicorp, those were features that became companies. Those were independent features.

So how do you determine -- other than just trying to lay it out there for everyone -- that there may be a difference? What are the distinguishing factors between something that may be a feature and obviously not going to make it, versus something that has been thought out as a definite company?

Om:

Well, Blogger was a subset of the big product, right? And similarly, Flickr. But people were willing to pay for those subsets. So it was not really just a feature. It was addressing a market need, which was an easy way to update the website and an easy way to collaborate and communicate around certain visual experiences, whether it was photographs or something else.

I think that was what the market was telling them they should be selling, whereas they were trying to sell something else. So they listened to the market and kind of came to the conclusion, right?

So, you can't call Flickr a feature. It's a complete product. It's a complete product for a complete company which basically realized very quickly that the rest of the stuff they were doing is irrelevant to the mass market. This was the only thing that people were willing to pay for and use.

Well, makes sense. That's what you do. It's the same as with Blogger. Everything else just went away. Blogger became the thing, caused a revolution... Yadda, yadda, ya.

So, right now let's look at some of the newer players. You have all these online shopping services popping up. I'm not sure if I want to even use them.

Niall:

Shopping bookmark services.

Om:

Yeah.

Niall:

Not shopping comparison.

Om:

Yeah. It's an extension for Firefox.

Niall:

Yep.

Om:

It's an interesting way to share that information. Do I need to go to a website and figure out those things and keep bookmarking this stuff?

Niall:

So, the problem I have with those companies and those markets -- the business plan that I tend to hear from people -- is "The market is size X. If I can get 0.2% of that market I'll be a good company." That doesn't really seem like the right kind of reasoning if you're starting a new company. It's a little shaky.

Om:

Yeah. I mean, there are a lot of people who disagree with me. I talk to the boys at 37signals. People have different opinions on them, I have mine. When I talk to them they say, "If you define that 250,000 users will be your market and you can get 90% of it, that's great." You find an addressable market, the market is X billion dollars, that is just like a PowerPoint presentation for raising money.

Niall:

Right.

Om:

If you know exactly what you're audience is, that's pretty nice. And you work on that audience and you basically make them happy. You make them happy, they ultimately make you successful. Happy customers make companies a lot of money.

Niall:

And do you think everyone should be scared of the big giants of the world, like Paul Graham says? Is it a question of never go into a space that Google could possible cast a shadow? Or Yahoo!, or Microsoft? Should all startups stay away? It's basically the same in the desktop market, because Microsoft or Apple might bundle your feature in a future OS.

Om:

Right. But people still do it, right? Desktop applications still continue to thrive. You had NetNewsWire, which was a wonderful product, survive even when the RSS features were integrated into Safari. It's like, look, you have to better than them, as simple as that. That is key.

And the second thing is, something as generic as a calendar, and Google is doing it, it just isn't very difficult to figure out that you shouldn't be in that space. You shouldn't be in that space considering there are 50 other people doing exactly the same thing with very few distinguishing features.

I think the fear of Google is good because that keeps you on your toes. But that doesn't necessarily mean that you just give up. You have to be better than them. If that was the case then Orkut would be MySpace but it's not.

Niall:

Right.

Om:

Orkut could be Facebook but it's not. The execution of Google is kind of... Let's just say, leaves a lot to be desired.

Niall:

Right. So, my personal experience with PriceGrabber and Technorati, we are kicking Google's butt in both those verticals. So you can definitely out-execute. You can think about their market differently. Wonder who is on the other side and how do they understand the market. How can you deliver unique assets?

So, for example, a company might not want to give Google certain data because it would be competitive. But they might give a smaller company that data.

Om:

There's also the other thing. I hate to disagree with somebody as illustrious as Paul Graham, but look at Google. Who are they fighting? Microsoft, Yahoo! and eBay, those are their primary competitors, right?

Niall:

Yeah.

Om:

I mean, come on. If you have a product which is not a feature, which you think you can do well with, I'm sorry, you can beat them, easily. They still haven't been able to create a Flickr-like experience.

Niall:

Do you think some of those smaller startups that are developing something that is more of a feature than a company are just aiming to flip and have an integrated feature with some of the big companies?

Om:

Dude, it's a buyer's market, unfortunately. There are just too many similar companies.

Niall:

Uh-huh.

Om:

Uniqueness is the important thing. We had the whole Neven... I forgot the name.

Niall:

Yeah, Neven Vision was acquired by Google.

Om:

Neven Vision versus Riya. Riya could have been acquired by Google. But they weren't acquired, and then Neven Vision got acquired. These are both pure tech companies, right? There's a lot of technology involved in that. And even in that space, it's still a buyer's market. One needs to be very careful as to what you do. Coming up with ideas and getting into business is so easy. But how far do you go with it?

A lot people ask me, "What do you do?" And I say, "I'm an online publishing business." That's the simplest way I can describe what I do. If I start thinking of it any other way, I'm in trouble.

Niall:

Right, there's always many different ways you can go. People want to do deals with you to get after your audience in some way. And you have to realize what it is that you want to dedicate your resources to.

Om:

Exactly. When you're so small, you really need to know. We have a small team at GigaOm, Katie, me, and Liz and that's it. We're going to do what we know best and we're going to focus on that.

Niall:

Right.

Om:

It's not that complicated to figure out. And I think a lot of startups actually know their answer, except sometimes they get swayed by what other people are doing or what the market reports are saying or what the media is saying. Conviction is very important. People, even if you're building better features than Google, you still need to out conviction them. You are building the right features and you need have that follow through.

Niall:

Right.

Om:

You and I have had this conversation privately a lot of times.

Niall:

Another thing I've mentioned privately but not on the podcasts: years ago, back at PriceGrabber, we were making the decision between two hot technologies. We were either going to dedicate about six months of engineering to WAP or VRML. Both were really hot in the marketplace. Both were going to change how you do business, especially for a shopping site. We took an afternoon to talk about it. At the end we chose WAP and it was a good decision but the ability to go browse through a mall and take a look around and see the electronics store on your left and see the movie store on you right is just so cool.

But, yeah, you have to look past the technology and say, "How are our users going to use it? How are our users going to interact with this? What is the under-served market?" And on that level, "What are the different markets that you might not see or your competitors don't see?"

Meebo's IM, for example, may be really popular in Eastern Europe, but people here [in the United States] might not get it.

You mentioned Orkut earlier. Orkut can be popular in Brazil and that can make it a business, based on all the Brazilian users, possibly. Or people don't get MSN Spaces, but they're huge in China.

I think in our geek community no one gets MySpace still. They're obviously a success, in terms of the amount of users they have, the amount of time people spend on that site. But in the geek community we're like, "Oh, MySpace is ugly." So it depends, you have to create your own measures of success.

Om:

Exactly.

Niall:

And go for it. And it could come from unexpected places. When they were building Orkut, who could have thought that it was going to be huge in Brazil? You don't really know what's going to pop up.

Om:

There are two companies that I look at out there and which kind of impress me the most. 37signals, obviously, because they have very high focus on what they're doing. And of course they've managed to build a big cult around them, which is also good for business. Apple has found that very profitable. I think 37signals are smart to figure that out.

And similarly, Salesforce, right? Salesforce.com, who would have thought? Salesforce management tool on the web, how big a business was that going to be? But it clearly is a huge business, because they focused on what they really wanted to do. The experience still is very highly focused on the customer relationship management and making it simpler and easier for the community. I think they beat a lot of people. And they succeeded, despite being on the web and having a new usage pattern. I think those are the two good examples.

Niall:

In both cases, those companies embraced and actually sought out the market leader position. They said, "We are different and we will tell you how we are different."

In the case of Salesforce, they are the ones known for having a no software button around, saying, "Installing software is dead. Let it all live online. Don't maintain it." They really pushed that vision ahead. And now we're getting to that with some of the new hosted services.

In the case of 37signals, "Small is the new big," is their mantra. Keep it small. Keep it real. The reason the whole cult developed is because there are a bunch of other people who believe in that mantra with them.

Om:

Right.

Niall:

They believe that a small company is the way to go and therefore their small company will use this type of software.

Om:

Right.

Niall:

So, they know their marketing plan. They know their audience. And they're able to build that cult around the type of audience that needs to be there. And I think they're definitely saying, and Salesforce is saying, "Aren't you tired on installing that software and then Microsoft or someone else will come along a few years later and say 'hey it's time to upgrade and the price went up?' Well, just have it all live online. And it integrates with all this other great stuff you may or may not already use, easy transition, go ahead. It can be flipped on today."

Om:

Right, and I think that is the key thing, building the right product, like 37ignals or Salesforce.com. Both those companies basically knew the marketing plan, knew the audience. They knew exactly what they were doing. But it was all based around a product people actually wanted to use. It all starts with building a compelling user experience with your product.

That's why I think 30 Boxes is going to be around for a while. They may not set the world on fire. They may not have a billion users, or a million users, for that matter. But they will still be around for one simple reason: they've created a compelling experience. It's different. It's not business as usual. It's not just another fucking calendar. I'm sorry. It's a different kind of an experience.

So, that is the thing. I think people need to say, "How are we going to create a better compelling experience, value added?" You have to treat the end user, customer -- whatever you want to call him or her. Basically, that defines your future, not Google or Microsoft getting into your business.

Niall:

And my customer doesn't come in one shape or size.

Om:

Right.

Niall:

You look at the blogging world, the reason there are so many different blogging services and they do well, is because different people want different things from their blogging software. Someone might really want their blog to have integrated forums, and they can go to pMachine and do that. Or they really want to be able to have an integrated friends experience. LiveJournal is good at that.

Or they just want to be known, have a blogs.com or TyePad.com address. People say, "Oh I want this," kind of like a business address. Just like people want that Fifth Avenue address. It's the same thing. So someone might buy in just for that to a certain service. Or someone might like a certain plug-in and want to use WordPress. There are all these different types of users out there.

Om:

Right.

Niall:

Let them have the choices. Identify that there are these types of users out there and embrace it. I think that will lead to success.

Om:

Exactly. I think that is what we're missing, the "flameout," "bubble," blah, blah, blah. All those issues aside, at the end of the day, if you have a great product, you know your community, and you know how to sell it, you're going to do okay. Sometimes, we forget the basics. Those are the basics of the business.

Niall:

It has to be a profitable idea. It can't be something that just is out there. I think of Eazel and the Nautilus file management system, which is a good idea with solid people behind the company in the late 90s. But they didn't really have a way to monetize the company, even though it was awesome. It ended up getting rolled into GNOME.

Om:

I think that's another... Again, if you know the audience and you know you have the right product, you know it's going to make money. It's not like it's not going to make money. I keep saying this again and again, this is all about making money. Guys, when you say you're incorporated, that kind of says it's about making a profit, not just doing a fancy experiment.

So, regardless of that, I think there's going to be a lot of this talk on and off over the next few months. I think you're going to see these "whoopsy daisy" situations. Companies will come and go, but they'll be some which will survive, some which will do really well. But I applaud the whole spirit of trying. It's just...

Niall:

Yeah, I think some things, for example craigslist, they make money. But they give the site away for free and they make money off of job listings. There may be other sites in the world that do a similar thing.

Om:

Yeah, I know. 37signals does that, and I have just launched the job board on GigaOm.com. So if you have any job listings, please go to jobs.gigaom.com. End of commercial message.

Niall:

All right, that's the end of the podcast as well. I had to work that in there. [laughs]

Om:

Thank you.

Niall:

Bye.

Comments

I think Startups should not be surprised to see big guys entering into their market/product arena. Shouldn't it be part of their threat analysis in the business plan? I agree with you guys that Startups should know what they are doing, and where they are going. They should know who their users are in greater clarity.

And it does not make sense to me to quit what you are doing when they enter? And narrowing your focus/market does not either. Why would anybody limit their subscriber base to 250000 and cap their income? Fire all cylinders with the same passion you got when you start it up, and fight it out. You can not settle in to a small market, because when that small becomes big, big guys will definitely enter.

http://blogs.inspions.net/2006/08/31/should-startups-fear-google-yahoo-microsoft/