Archive for July, 2007

Ning, What We Can Learn (or, Commercialization Done Right)

Jul 11 2007 Published by under Startup Strategy

Ning, Marc Andreessen’s new start-up, raised a (whopping) $44M on a (whopping) pre-money valuation of $170M.

Ning, launched two years ago, yields some excellent lessons. Let’s recap:

After building unfulfillable expectations as stealth start-up 24 Hour Laundry, Ning finally launches as a site that allows users to “roll their own social applications.” Umair from Bubblegen accurately writes:

Ninged, “it’s shorthand for a chasm in usability. Though you’ve created new market space, the share of that market that’s valuable in the real world is tiny; though many might want to use this set of services, only geeks can use them – you’ve built a better mousetrap, but only guys like this can figure out how to use it.”

Listing four usability chasms, TechCrunch questioned: Ning, RIP?

And then there’s silence…

Until February 26th of this year when Ning launched v2 “designed to give everyone the freedom to create their own social networks.”

And guess what? Ning was simple. It was simple to create a profile and simple to join a network.

Ning had successfully down-geeked, transitioning from geek to consumer, and had appeared to have found a focus and validated assumptions.

Consider Ning in the context of the three phases of a start-ups development:

Stage 1: Innovation. Ning is innovative technology. Initial press stressed the stellar team that had been assembled and the complexity of the work they were doing. Even in the geeked out v1, Ning was innovative (just not usable).

Stage 2: Commercialization. As I wrote in a comment:

Commercialization is “about validating assumptions made in stage 1 and taking the ‘geek’ out as much as possible in exchange for ‘consumer’. It’s about finding an initial foothold in the larger market (other than the larger web 2.0 crowd). It’s about finding the right product benefits to focus on for the launch and lowering focus on features that don’t add much benefit to a consumer.”

With Ning v2, they provided a blueprint for other web companies to follow with respect to the commercialization phase. Laying low, they iterated both product and business plan, validating assumptions and transitioning towards ‘consumer’ away from ‘geek’. Marc commented that with Ning v2 they’ve “achieved product/market fit and the service has been scaling very rapidly.”

Stage 3: Scale. With the commercialization phase done it’s time to hit the gas. “There is an excess of cash just waiting to be invested” (from the same comment as above). It’s time to hit the accelerator and grow.

Innovation, done well. Commercialization, done well. Comment on the scaling phase can be broken down into two areas: (i) funding strategy leading into the scaling phase; and, (ii) execution of scaling phase. Obviously we can’t comment on the later but it’s worth exploring the former.

To understand what should be done let’s explore what shouldn’t be done by looking at our old friend Riya.

Out of the gate Riya raised a boat-load of cash ($19M) – when the business plan and success of the start-up had the most risk. It sounds like they had a technology (Innovation: done), but they hadn’t found the right product/market fit and their business plan didn’t hold up (Commercialization: incomplete). After testing assumptions for an extended period they believe they’ve found a winning business plan and are now executing on it.

Riya unfortunately traded equity for a considerable amount of cash when the equity was the most expensive. Had they taken smaller amounts of dough along the way as they validated their business plan and worked through the commercialization phase towards scaling, they would have been left with a larger share of ownership and a much cheaper exchange rate on the equity for cash transaction.

So we know what not to do, but what’s a better strategy? And what about Ning?

The two answers may be the same.

Ideally the start-up should raise the minimum amount of money necessary to complete the first two phases – as risk is mitigated the company increasingly enjoys better deal terms. Once the company is ready to scale, access cheap money in large quantities and hold on tight.

The $44M raised was a Series C. The earlier rounds? They came from Marc and “close friends” – probably minimal amounts of money, as necessary, and at attractive valuations. So minimal amounts of money while the risk was the highest for Ning and while they worked their way through the Commercialization phase.

And then when they were ready to scale? When money for equity was cheap? Woah. $44M.

Why?

As Fred said last December “some things don’t change about starting a company.

As Marc said in his post, the money will be used for “scaling [Ning's] operations to accommodate traffic and growth; in [Ning's] product design and development efforts; and in o[Ning's] platform evangelism and support program.

I have no idea if $44M is needed to scale Ning, but let’s give Marc the benefit of the doubt due to his experience and past success. If that’s the case then it appears that he’s done a stellar job of navigating Ning to this point through the three phases. Let’s see if he can scale as well as he has started.

[It's worth pointing out that the recent discussion about raising a lot of $ vs. raising only a bit of $ - between Josh, Jason, and others unfortunately didn't touch on how critical the time variable is to the debate and the start-ups decision.]

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Ning / Facebook

Jul 10 2007 Published by under Startup Strategy

I’ve been thinking about Marc Pincus’ question re. Ning: “i do wonder, however, what marc’s strategy is given that he is one of the biggest believers in facebook becoming the new platform for social media innovation. anyone have any thoughts or insights?”

My response:

Could they be attempting to take an alternative route to becoming a “platform for social media innovation”?

Similar goal to Facebook, but approaching it differently… rather than providing a contained community for social media innovation on top of a platform, could they be creating a platform for social media innovation that spans an unconstrained community?

And then I saw Ethan Kaplan shared a similar thought: “I think maybe the dark-horse in the Facebook wars brewing is indeed Ning. Think: it was Platform before Platform was Platform.”

Ning definitely was a platform before their was Platform. However, Ning’s strategy of producing a platform that then spans an unconstrained community (think: the web) will take a significantly longer time to realize than Facebook’s, which is to build a platform that spans their contained community. If that’s the way it’s going, Ning may have made the right move by raising so much money… it will be a long battle for them to realize their strategy.

It’s interesting to note that in this post Umair chastises Ning’s round, calling it dumb money dumped into a sideways strategy.

And yet, in this post he questions the amount of long-run value created by Facebook:

1) The platform strategy is kind of yesterday. It fails to maximize the potential complementarity between Facebook and apps, by keeping things semi-closed. The new platform strategy, as we all know, is to get inside-out, widgetized, blah, blah, blah…

It’s hard to reconcile the two points when you consider that Ning’s strategy can realize the “new platform strategy” (imagine the Escher painting-like situation of a Ning social network-in-a-widget embedded into a Ning social network-in-a-widget…)

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Constraints vs. Limits

Jul 10 2007 Published by under Startup Strategy

I’ve come to appreciate just how important it is to accurately frame the problem when working through complex issues. For years I’ve spent too much time paying too little attention to this critical problem solving step.

Identifying all issues that could touch the problem and impact the solution is important. No real biggie there.

But what I’ve come to understand from readings and personal observations is that the crucial step for breaking through problems with innovative ideas/solutions is to properly segment the issues into two groups: constraints and limits.

Far too often these two different issues are given equal weight.

A limit, in my opinion, is an issue that has to be taken into account, as is, when solving the problem. Think of limits as the physics of the world that the problem exists within.

A constraint is an invitation to innovate. Where others see a limit, if you recognize a constraint, properly framing and identifying it, then you have a wonderful bound to innovate against.

Often times a constraint appears as a limit and is thus treated similarly by the problem solver. Yet, when viewed from another perspective the ‘limit’ may actually be a constraint that can yield a number of guiding points that lead to an innovative solution.

Take a moment next time you’re faced with a problem – whether it be product development, business strategy, … whatever – and try to identify what issues are constraints and what are limits. Work the list of constraints to identify the traditionally imposed bounds on the problem. The list of traditional bounds offers a well defined list of areas to innovate on, more often than not leading to a unique solution to a complex problem.

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Music of the Moment: Jamie T

Jul 10 2007 Published by under Media

When it comes to music I abide by the rule of three: if three trusted sources recommend it, I’ll go out of my way to track it down and check it out.

An artist named Jamie T, and his album Panic Prevention, met the requirements when Fred posted on him earlier this summer (after the excellent Very Short List covered him earlier this year and one of the music blogs that I read featured him shortly thereafter).

He’s British, which shouldn’t surprise anyone who has been following my music tastes in the past year+, and Amazon notes that “his musical style incorporates a wide mix of genres from rock, pop, drum and bass to hip hop.” A big part of what’s appealing about Jamie is his diverse and rich sound.

I grabbed the album Saturday and have listened to it non-stop this past weekend while I did chores and errands around the house. First listen? I thought it was good. Now? I think it’s excellent. And it only continues to grow on me.

Here’s two songs that I love:

Jamie T – Operation
Jamie T – Pacemaker

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Engaged ______

Jul 09 2007 Published by under General

From an article on engaged philanthropy: “with engagement comes ownership, with ownership comes commitment”.

But, really, fill in the blank with anything and it still holds up.

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