Explorations

Plus ça Change...

It's funny how little business changes.  Before the late 90's Internet Gold Rush, management writers often preached the benefits of staying focused on core competencies.  The theory behind this was that firms that spent resources on non-core functions would be a) wasting resources and b) competing with firms who specialized in those functions.  If you need something done, find the lowest-cost/best-capable vendor and go with it.  If you're trying to fill a Very Important Core Function, make sure an in-house team fits that description. 

The "core competencies" dogma is so trite now that the phrase itself is a staple of office comedy.  But now it seems even stodgy Web 1.0 companies are getting the religion.  Amazon will pitch its new shipping services as totally innovative, pushing into new territory, etc.  Totally wrong.  Amazon has priorities that look something like this:

1. Vast selection of goods ("Earth's biggest store!")
2. Great Web shopping experience
3. Excellent customer support: fullfillment, returns, etc

But break down #2 and you get a list like:

1. Great usability & design.
2. Top programming staff.
3. Excellence in server operations (high availability, efficiency, etc.)

And suddenly, it becomes obvious that becoming world-class in some of their first- or second-tier goals will provide other business opportunities.  If they have a great fulfillment operation, why not sell access to it to others?  If they are able to get their cost for running a server or storing a GB below the retail/wholesale price in the market, it makes sense to resell this service.  Over time, having external customers can provide even more incentive for the in-house teams to stay competitive.  And naturally, the additional revenue could eventually grow to be relevant to the company's financials.

Also fascinating is how even in the limited context of the second-tier breakdown above, the top-level priorities will even trickle down.  Even for a developer-oriented service like S3, customer support is key to the success of the program.  And without a great Web shopping experience (i.e. can developers find docs? is the API easy to use?), it will be a flop.  Serving millions of consumers has helped the company develop an ear to developing high-volume technology products (previously only amazon.com).  As they expand their developer offerings, this focus on high customer volume will ensure that they keep their products simple to use to minimize support costs.

Now, if only Microsoft would stick to developer tools and office tools and let the professionals ship OSes...

Northwest Listens!

Yesterday I posted on the merits of giving your customers choice in how they buy.  Today, I got an email from Northwest announcing their Coach Choice program.  Coach Choice essentially lets passengers opt to pay more to get certain seats (i.e. exit row, aisle).  Some will certainly say this is more about pricing than choice, but I prefer to think of it as a customer-centric move.  After all, differentiated pricing is just one more way to let your customers choose your product regardless of their individual preferences.  But then again, perhaps I'm biased because I prefer window seats.  :-)

And while I'm doing a follow-up to yesterday's post, I should mention the surprise winner in the Take My Money! Sweepstakes: Microsoft.  For quite some time now, we've been running ads on MSN Search through MSN's partnership with Yahoo!/Overture.  It worked pretty well: Yahoo! charged our credit card and we got traffic.  But MSN has decided to build their own pay-per-click ad engine.  And in their wisdom, they have kicked off their existing advertisers, requiring them to request the privelege of membership in their beta program.  If Outlook wasn't a good enough sign that Microsoft doesn't really want my money, now I think the evidence is incontrovertible.  So we'll stick with Google and Yahoo!  Does anyone even use MSN Search?

Take My Money!

I really shouldn't have to write this post.  In light of the fierce competition in the market, it's a wonder how many businesses force their customers into awkward relationships.  Some companies force the customer to buy using the business's preferred channel.  Others force the customer to use the vendor's favorite payment method.

1) We're in the process of hiring a few people, so we enlisted a popular technology recruiting site.  Unfortunately, the company behind the site is based in 1970, so there was lots of faxing involved in getting our account online.  We were displeased, but figured it was only the setup process that was cumbersome.  Little did we realize that the company required a new credit card authorization faxed to them monthly!  Regardless of how many times I tried to explain to them that they could just automatically rebill us a la Netflix, they stuck to their guns and demanded a faxed form.  We switched to another firm that is willing to take our money monthly without making such a fuss.

2) A friend was recently buying a vacation package to an exotic locale.  Ignoring the fact that every major travel site supports online purchases, the vacation travel firm refused to make the sale without a faxed credit card authorization.

Other firms will take a different tact in making it difficult for customers to buy, by forcing the customer to use a limited selection of payment methods.  Some ecommerce vendors won't take checks.  Others won't take purchase orders.  Many restaurants no longer take credit cards.  To these companies, the lifetime value of the customer is not worth the extra (tiny) fee for credit card processing or dealing with a nonstandard channel. 

In all cases, these companies' shortsightedness extends further than they may realize.  You may decide not to eat at Johnny Woo's Italian tonight because they don't take American Express and you are saving American Express points for a plasma TV.  Big deal, they lose maybe $30.  But suppose you're a salesperson and you frequently take clients out to dinner.  Guess where you won't be taking them?  So the actual loss of revenue is much higher than the initial lost sale.  If you're going to willingly throw away business, make sure you take some time to weigh the reasons for doing so against the benefits.  (Hint: I hate my merchant bank is not a good reason.)  Even if there are real costs associated with maintaining multiple sales channels, try to pass the cost along to your customers.  Maybe it costs more to process fax orders.  In that case, add a few extra dollars to faxed orders.  Giving customers more choices at checkout time is generally not a bad idea.

Think of this is as usability for your business.  How usable is your business for your customers? 

ps -- Notable for going in the opposite direction are fast food restaurants.  After realizing that people a) no longer carry as much cash as they used to and b) average ticket prices are higher when people purchase with credit cards, many chains will now accept cards for all transactions.  This responsiveness in spite of the relatively low average purchase price for fast food meals.

A VC Comes Clean

From time to time, people ask us why we don't seek out VC funding.  After all, we have a few connections into the VC world, a profitable and growing business, and a strong model for the future.  And we're in the fortunate position of having a scalable business, so we could expand faster with more cash.  So when the topic comes up, we always do a serious round of debate. 

It seems our read on the fundamental misalignment between VCs and entrepreneurs has been validated in a recent issue of FORTUNE:

"A lot of these companies could get picked up by Yahoo for $30 million, a huge success for the entrepreneur," says Tom Shields of Woodside Fund. Selling a company for only $30 million, says Shields, "would be a huge failure for me."

(See the full article here.)  In a nutshell, here's a VC explaining why a savvy entrepreneur wouldn't jump at the chance to take a VC unless absolutely necessary.  For most entrepreneurs, a $30 million payout, even split a few ways, is a wonderful end state.  Shields openly recognizes that, but at the same time is trying to recruit entrepreneurs too poor to care about the raw deal they're getting. 

Obviously, there are cases where this isn't true, and they tend to not be software plays.  TiVo or Sirius obviously needed tons of capital to get started.  But it does add a little color to the "to fund or not to fund" debate.

Joel on Software has also written a good article on this topic.

Catching Up on VentureVoice

Somehow, I've gotten way behind in listening to Venture Voice, one of the best podcasts out there.  I'm planning on catching up over the next few days, and I'll post standout episodes here. 

I just finished show #21, with Fabrice Grinda of Zingy.  I'd never heard of him or Zingy before the interview, but found it well worth the listen nonetheless.  Grinda is very candid about his personal experiences of starting his businesses -- what it feels like to miss payroll and be months late on your rent.  And he gives hard numbers about how much the company made or lost along the way, which can be an important point of comparison for entrepreneurs.  But most importantly, his story shows that doing something well can be worth a lot of money even if you're not first.

Entrepreneurship Podcasts

If you continue to read this blog in spite of its usual verbosity and generally longish posts, you probably also listen to podcasts.  If you haven't tried it yet, you should definitely check it out.  Why?  First of all, there's a ton of new media coming online -- podcasting is to radio what the Web is to publishing.  Second, it's finally easy now that Apple includes support for podcasting in 4.9.  And third, there are some fantastic podcasts for entrepreneurs out there.

Disclaimer: I haven't been a long-time listener of most of these.  (For that matter, some of them haven't been around all that long.)  But here's my current list of favorites, in no particular order:

• Venture Voice - Outstanding interviews with startup entrepreneurs.
• The InfoTalk podcasts, especially Hot Startups and Venture Capital
• The Wall Street Journal Technology Podcast - Short and timely

I catch a bunch of other podcasts, but these are my current Top 3 for business. 

Bootstrappers Go All-In

CNet has a story about the entrepreneurs at a Bay-area tech company who are bootstrapping their company with online poker winnings.  Now I know a little something about bootstrapping, and a enough about online poker to know that combining the two would make life miserable in many ways (not least of which would be taking all the joy out of poker).  At least they know what's important:

"But in the end, what's really important to me is to work at a small start-up with two guys I really trust." Amen.