Rowan Simpson

When I first started to read the business pages in the Dominion the editor was Bernard Hickey.

(As an aside, I’m often surprised by how people who read the business pages assume that everybody else does too. Anecdotally, that just isn’t the case. But, I wonder if there are any hard numbers to prove or disprove this?)

Later I briefly crossed paths with him during my time at Trade Me. He was then Head of Digital at Fairfax Media and was part of our advisory board.

He now works as the Managing Editor at interest.co.nz and seems to be popping up as a commentator all over the place (good PR for the site, I suppose).

He also still runs a blog that I enjoy on stuff.co.nz:

www.stuff.co.nz/blogs/showmethemoney

Lately the business and finance news has thrown up a number of great topics for him to get stuck into. Here are a few that have caught my eye over the last couple of months…

On why a capital gains tax is unlikely:

“Why wasn’t there more of a debate about the issues behind the serious [housing affordability] proposals?

My theory is that the New Zealanders who run the place haven’t really confronted and don’t want to confront the ugly truth. I’m talking about the generations who graduated in the 1970s and 1980s and who now run both central and local goverments, who run the media and who generally set the parameters in a national debate.

These are the generations who graduated without student loans into good jobs when a home loan cost less than 40% of after-tax pay to service. They bought houses before 2003 and are now sitting on massive capital gains. Many have become semi-professional landlords with fancy Loss Attributing Qualifying Companies that allow them to offset operational losses on their rental properties against their salaries to reduce their tax bills. They have become addicted to the tax free capital gains on these properties. They’ve started consuming some of those gains in the form of holidays, electronics, cars and boats financed through their mortgages.”

– Helen’s lucky and selfish generation

On the meltdown on Wall St. and it’s implications for NZ:

“Put simply, panic and fear rule in the world’s financial capitals right now and it will cost us all in one way or another and sooner or later.

In previous periods any panic on financial markets affected us most directly through our stock market. When Wall St fell, that hit the New Zealand stock market. Back in 1986 we had a lot of money invested in stocks, proportionate to our total net worth. Reserve Bank figures showed that 50% of household net wealth was in financial assets in 1986, mostly in shares. The other 50% was in the value of our houses. So when Wall St sneezed we caught a cold fast.

The direct link is much more muted now. The most recent Reserve Bank figures show financial assets, again mostly shares, made up NZ$186 billion or just 31% of household net worth in 2006, whereas housing (minus housing debt) makes up $407 billion or 69% of household net worth. But that housing debt is now much more important than it used to be. Whereas in 1986 we had $65 billion worth of financial assets, we had over $150 billion of housing debt at the end of 2006.

What does that all mean? It means we care more now about interest rates and how they affect house prices than we do about share prices. But this global financial crisis is affecting both of these things too. It’s just not as direct and immediate as in previous crises. This global credit crunch has increased interest rates globally and that’s how this financial crisis is hitting us this time.”

– What panic on Wall St means for us

On Fonterra’s decision to suspect their plans to float part of the company:

“This decision shows that the most important single group of investors in New Zealand (the 11,000 farmers who own Fonterra) don’t have faith in the managers of Fonterra, don’t believe in our capital markets and don’t have the ambition to become a truly global company.

Just like so many investment decisions made by our mostly elderly investing classes, they are so obsessed with property valuations and their own searing experience of the 1987 stockmarket crash that they can’t bring themselves to take any risk associated with the equity markets and the professional managerial classes. Instead they are more than happy to take enormous risks with debt-fund investments in property they can walk on. It shows a lack of imagination and, frankly, intelligence.”

– NZ investors addicted to medioricity

On the prospects for property prices:

“The property-owning generation who do know the famous line from Dad’s Army have been reciting it to each other and their real estate agent friends for a few months now.

“Don’t panic Captain Mainwaring (yes the spelling’s right, although it is pronounced Mannering),” they’ve been saying about the threat of falling house prices. It will never happen here, they say. We have never had big falls in prices before and it won’t happen this time, they say. We’ll have a period of relative stability and then we’ll be back up, up and away on our merry way. Sit tight, they say.

But they are wrong. The latest batch of statistics say they are wrong and any rational examination of housing affordability in this country shows they are wrong. Prices here are currently at least 30 per cent over-valued and it’s now a question of how much and how fast they fall rather than if they will fall.”

– Don’t panic Captain Mainwaring, don’t panic

If you have an idea, here are some question you should ask yourself before getting too excited about it:

• How difficult will it be to launch a worthwhile version 1.0?
• Is it clear why people should use it? (i.e. what’s broken)
• How much value can you ultimately deliver? (i.e. how deep could it go)
• How many people may ultimately use it? (i.e. how wide could it go)
• How will people learn about your product?
• How hard will it be to extract the money?
• Do you really want it to exist in the world? (i.e. is it personally compelling)

I think the last question here is perhaps the most important of all.

All of these come from Evan Willians, who has some credibility in this area as the founder of Blogger (subsequently sold to Google), Odeo and Twitter.

One of the great things about this blog is that it’s easier for people with interesting ideas get in touch with me.

One of the crappy things about having more people contact me about their ideas is that I end up saying ‘no’ most of the time.

So there is now a growing group of people who are in line to buy me this t-shirt when they make it big with their venture:

From: VC Wear

Found via: Josh Koppleman

Today is 2 years since the Trade Me sale (the sale was announced on 6th March 2006 but completion wasn’t until 3rd April).

Given that, I thought this link was appropriate:

“It’s never clear when the perfect time to sell is until it’s passed.”
– Fred Wilson, When to sell?

Here’s an interesting response to the great Marc Andreessen post on Product/Market Fit (which I can’t believe I haven’t linked to from here before now!)

“What’s the right attitude? Humility. It doesn’t matter how smart and successful and qualified you are, you simply don’t know what you’re doing. The good news is that nobody else does either, though some are foolish enough to think that they do (and that’s why you can beat them).

What is the humble approach to product design? Pay attention. Notice which things are working and which aren’t. Experiment and iterate. Question your assumptions. Remember that you are wrong about a lot of things. Watch for the signals. Lose your technical and design snobbery. Whatever works, works.”
– The most important thing to understand about new products

I like the idea of humble product design.

Paul used to work for Google and was the guy who wrote Gmail.

His own story is a goodie:

“I wrote the first version of Gmail in one day. It was not very impressive. All I did was stuff my own email into the Google Groups (Usenet) indexing engine. I sent it out to a few people for feedback, and they said that it was somewhat useful, but it would be better if it searched over their email instead of mine. That was version two. After I released that people started wanting the ability to respond to email as well. That was version three. That process went on for a couple of years inside of Google before we released to the world.”

I’ve had a couple of opportunities to meet Mike Cannon-Brookes from Atlassian in the last 12 months, first at Morgo and more recently at Kiwi Foo Camp.

He is a nice mix of very smart but still approachable. I like that.

Atlassian are an impressive company, and a good role model for a couple of the businesses I’m working with.

He recently blogged about an experiment they are running at the moment where they are allowing staff to spend 20% of their time on their own pet projects. This in itself is obviously not an original idea. What makes this interesting is that, unlike Google, they are going to be open about how it works for them in reality:

Atlassian’s 20% Time Experiment

Lots of companies talk about doing this sort of thing, but hardly any I’m aware of have actually gone as far as trying it out. Doing so in the open is pretty brave. Here is what they say about the potential impact on customers:

“What does it mean for customers?

In the short term, this will mean slower or smaller, but more innovative releases. How much slower, smaller and more innovative? We’re not sure - we’ll find out and be honest in communicating it here.

(From my back of the envelope calculations, for 7 products we’ve made over 50 releases in the last 12 months.)

The long term thinking is that some of the 20% results will filter into the products and outweigh the short term release slow down in terms of customer benefits.”

You have to give them credit for that at least.

I wish them luck, and will watch with interest to see how it goes.

Here’s a short and sweet presentation by Dan Shapiro from a recent Ignite Seattle on the differences between working at a big company vs. working at a small company.

I like #1: “It’s about kicking ass, not covering it”

You’ll have to watch the video to see the others.

Photo credits: Quittin’ time by gtown_eric

Why do small businesses so often pretend to be bigger than they are?

By this I mean the voice they use when talking to customers.

So many manufacture a fake corporate persona.

They assume, I suppose, that they need to do this to be taken seriously.

I remember doing an interview shortly after Flathunt launched and at the end the journalist asked me what my job title was. I thought this was a slightly odd question as I was a company of one. I said something dumb like “CEO” or “Managing Director”. After the article ran I got a phone call from somebody asking to speak to the head of marketing and had to explain that I was that person too. Very embarrassing!

What’s more the assumption that corporate = good doesn’t stand up to much scrutiny.

Consider this -

“We are all conditioned to expect terrible customer service from large companies and great customer service from little companies.”

– Eric Sink in “Absurd Customer Service”

That’s definitely true. But why?

I think it’s because little companies tend to just use their own voice. They talk with us rather than at us. In other words they don’t try and pretend to be something that they’re not.

“People like it when companies have personalities. It makes us feel like there are actual people on the other side of the communication. It’s fun to be the customer of a company with a personality. This seems totally obvious, and yet you too rarely see companies with distinct personalities really grab your attention in the marketplace. Why is this? It’s actually hard to remove personality and character from communications. So, instead of saying that companies don’t take the time to have personalities, it’s probably more accurate to state that companies don’t allow themselves to show their personalities.”

– Dick Costolo in “Have a company voice”

An excellent example of a company not scared to show their personality is Flickr. They seem to enjoy the fact that talking in a real voice brings them closer to their customers.

Here is a simple technique you can use to help with this…

Try looking somebody in the eyes and reading your words out loud.

It doesn’t have to be a real customer, just the person sitting next to you will do.

I defy anybody to keep a straight face while saying “Thank you for submitting a feature suggestion. I have passed this on to our Feature Prioritisation Committee to review at their next monthly meeting.” (or whatever your standard response to somebody who has made a suggestion about your product is).

Do this for everything you write for your customers to read – emails, help, web content, etc.

Whatever you do don’t worry too much about looking small. Especially if you actually are small. Just talk straight and be yourself.

People won’t care as much as you think.

I have to smile at the way the price that Microsoft are offering to pay for Yahoo is often rounded down to a straight $44 billion when it’s reported.

For example, last week on ReadWriteWeb: Plan B for Microsoft

It’s actually $44.6 billion. That “.6″ is $600 million, so not exactly trivial.

In fact it’s more than News Corp paid for MySpace or (at least at current exchange rates) Fairfax paid for Trade Me.

I guess at some point you just get numb to the number of zeros?

What a great way to announce an investment round…

Etsy’s first five years

Watch the video which is part of this announcement - it’s excellent.

“Etsy is a young company: we’re not yet three years old, the majority of our employees are under 35 years of age, and we have an exuberance that knows no age. We have certainly had our fair share of what I call ‘conducting our education in public,’ and this is something I am proud of.

Throughout the myriad challenges since we launched the website, we have worked day and night to see things through. We’re in this for the long haul. We believe that the world cannot keep consuming the way it does now, and that buying handmade is part of the solution.”

They are wise beyond their years I’d say and have an inspiring vision for their company.

And, oh yeah, they just raised $27m to help them get there.

In the early days of any new product it’s really important that you choose your customers carefully.

I realise that sounds slightly unconventional, and it certainly is uncommon. After all most start-up businesses are desperate for whatever customers they can get. Beggars can’t be choosers, etc.

But there is a method to this mad suggestion…

More than anything in the early days you need people who will actually use your product and give you honest opinions about it. Ideally these are people you don’t know so well. People who are close to the product, who understand that it’s early days, will forgive missing features or clunky performance. But, this is not really the time for fanboys or sycophants. Actually, a little bit of “glass half empty” thinking is probably a nice counter balance to your optimism for the idea.

And, as much as you can influence this, you need users who are a good match for your product as it is (not as it might one day be). It’s vital that they love it and will be prepared to tell the world about it.

Last but by no means least, it’s important that they are representative of the broader group of customers that you want to target your product at. Otherwise, the feedback that you get from this influential early group will end up distorting your perception of what the market as a whole is likely to want and value. Make sure there are lots of others like the users you have.

Consider this quote from the NZTE AfterMail case study:

“Lawrence Russell who joined in AfterMail’s very early days likened the impact of building the customer base to ‘dragging a big sack.’ Every new customer you get you put in a big sack, he expiated. And you’re dragging that sack behind you It gets heavier and heavier as the number of customers and support burden grows. The customer relationships become less personal — requiring systems and processes and standards for responding to requests for up-grades and new features, tracking issues and response tries. All slowing your product development down.”

Do you agree?

Let’s say you’re launching a new website.

How good is it going to be when it first goes live?

Probably pretty crap, truth be told.

Here is a screen shot of the Trade Me home page from 1999:

Doesn’t look like a million dollars you’d have to admit … let alone 700!

New website owners are left with a difficult decision between three options:

1. Spend months and months (perhaps longer?) trying to make the site perfect before letting it see the light of day.
2. Throw it out there, and follow quickly with a huge marketing campaign hoping that people won’t notice that the site itself isn’t all that you’re cracking it up to be.
3. Launch quietly, get a few users, watch closely to see how they are using the site and how you can make it better for them, be patient, continuously improve the site, and focus on making sure that those people who discover the site have a good experience and tell their friends.

Truth be told … all three options are flawed.

The problem with option #1 is that no matter how long you spend building the damn thing it’s unlikely to be very good. Just like the best laid military plans, it’s unlikely to survive long in the heat of battle. I’ve linked to this quote before, but it’s worth repeating I reckon:

“If you ship your product and you’re not a little ashamed of it, you shipped too late”
– Reid Hoffman, LinkedIn

The problem with option #2 is that you need very deep pockets. And, even then, all of the people who do visit the site on the back of the marketing push will quickly discover that it’s rubbish, and at that point will either leave (probably never to return again, no matter how much you later improve it) or, worse, they’ll tell their friends how crap it is. Let’s call this the “Ferrit effect”.

The problem with option #3 is that it takes a lot of hard work over a long period of time and it’s not obvious in the beginning whether it’s going to ever pay off. You need to be very patient, and ensure that you can stick it out long enough to enjoy the success when it (hopefully and eventually) comes.

There is, however, some evidence that tips the balance in favour of this last option. Just about every big consumer site has taken this path … Google, Yahoo, Facebook, You Tube, Amazon, eBay, My Space, etc, etc. This is a pattern of success that has been repeated over and over.

Of course this is not to say that everybody who has used this approach has been successful, just that those who have been successful tend to have this in common.

Can you think of any successful sites that buck this trend?

Or, is there a fourth option I’m forgetting?

In case you didn’t already see this, I recommend you check out this “free” presentation by Chris Andersen:

Nokia World 2007 Keynote

For most new online businesses getting momentum is much more important than getting revenue, so free is a strategy that is worth thinking about.

Via: http://dilbert.com/comics/dilbert/archive/dilbert-20071110.html

Here is an excellent guest post from TechCrunch by Glenn Kelman, CEO of Redfin, about second-time entrepreneurs:

Entrepreneur 2.0

“[We] insist on believing in the serial entrepreneur with the Midas Touch. We make celebrities of our entrepreneurs because we’d rather believe in talent than luck. And we tend to overlook reasons why second-time entrepreneurs are actually worse, not better, for their experience.

For example, many second-time entrepreneurs are so intent on replicating their success that they manufacture an inferior idea where the first one grew naturally out of a problem that had been bothering them. Some become so obsessed with how great their first company was that they spend all their time trying to copy it rather than building something different and new. They often hire top-heavy teams from past ventures, or strain to grow fast enough to meet higher expectations. Most strike out on their own without the partners they depended on for candor in their first success.”

Hmmm, interesting!

But, I don’t think it’s quite as simple as that.

As with lots of things, I think it all comes down to motivation. And, I think this is true whether you’ve been successful in the past or not.

Have you found a problem you can solve, or do you just need a reason to get out of the house?

What are you trying to prove?

Who are you trying to impress?

What do you get out of it? Is it all about a big cheque at the end?

How much are you prepared to risk to be successful?

It’s been said before: the next big thing is most likely to come from some hungry young guys in a skanky flat with a laptop and an idea to change the world.

The rest of us are just resigned to working on our golf swings, I suppose?

Here’s a useful reminder of some basic maths from Tim O’Reilly:

It’s not exponential, it’s sigmoidal

His comparison of the growth achieved respectively by Facebook and MySpace is very interesting.

So, what does/will your growth curve look like?

Exponential (for a while at least)? Sigmoidal? Or, sinusoidal?

Here is a good post from Munjal Shah , the CEO and co-founder of like.com, where he talks about trying to get their heads around the metrics of their new site after launch:

“Launching a new site is like becoming the owner of a brand Russian nuclear power plant. You have a ton of dials with labels you can’t read. The only dial you can read is the amount of electricity (in our case revenue) and the temperature of the nuclear core (in our case number of clicks you are sending to merchants). “

– My new nuclear power plant

That’s a nice analogy!

In their case, they used a form of A/B testing to better understand the impact of the changes they were making.

What are you doing?

Whatever it is, make sure you base your decisions on facts not opinions.

This is very good …

Blah, blah, blah

From IdeaLog Nov/Dec ‘07.

FreshBooks does something remarkable and unrelated people tell others:

FreshBooks goes the extra mile (Read/Write Web, Nov 8 2007)

Works a treat, every time.

:-)

Related posts:

• Be remarkable
• Create great websites and people will tell their friends
• Train the trainer

What makes a “hockey stick”?

That sort of viral growth is a result of you not having to chase each sale one at a time. It only happens when your product spreads via word-of-mouth.

In order for this to work you need a product that is remarkable.

That is, containing at least one feature that people feel compelled to tell their friends about.

For Trade Me this is the ability to sell something that you thought was worthless to somebody you’ve never met. When that happens it’s all you can talk about for a week. Hence the exponential growth curves and low cost of sales.

There was another good example of this over the weekend with the latest version of OS X:

• Software with a sense of humor, 37signals
• Leopard easter egg, Rod Drury
• Smug ugly, Anil Dash
• Awesome Leopard Cover Flow, digg

You can argue about whether this icon is funny or smarmy (for what it’s worth I personally tend to agree with Anil - it makes Apple look a bit insecure to me). Either way, while it’s not an especially interesting or impactful feature, it’s the one that everybody is talking about.

So …

What’s remarkable about your product?

What’s going to make people blab about how good it is unprompted?

If you can’t think of anything then probably best you flatten out your projected growth curves.

PS. The photo above is from Flickr. It’s the Crazy Chief of the Podface Tree. There are hundreds of thousands of photos on that site, but this is one that I thought was remarkable, and now I’ve told you about it and the site it’s hosted on too. :-)

These days most people working on the web understand the importance of word-of-mouth.

It’s cheap.

It’s effective, because people still believe things their friends and family tell them!

It’s also easy, provided you follow a few simple rules.

It’s not quick though, so you do need to be patient. To quote Rachel Hunter: “It won’t happen overnight, but it will happen”. So, don’t burn all your cash in the first 6 months.

But, is “viral” growth enough?

Every week there are memes which spread online like a virus, only to disappear just as quickly, normally never to be seen or heard from again.

If you look at the sites which have been most successful with this sort of approach they have another critical ingredient: something which keeps people coming back.

To extend the virus analogy you need to infect people and make sure they stay infected.

Perhaps we need a different (more positive) way of describing the desired effect?

How about “Blackhole Marketing”? The product needs to draw you in and continue to hold your attention.

The feedback system used by sites like eBay and Trade Me is a good example. Once you’ve done a few trades and established that you are a trustworthy member it’s much easier for you to continue to buy and sell via Trade Me than it is to switch to a different site.

Josh from First Round Capital talked about a similar idea recently in relation to social networking sites: “Catch And Release” Business Models

Apart from eBay and Facebook, what are some other examples of sites that have the blackhole effect?