Browsing articles from "August, 2011"

Why Apple Worked The Second Time

Why did Apple 1.0 fail but Apple 2.0 succeed? That, of course, is the $350B question.

1. Economics. Although Apple is now known for introducing premium priced products, at the time the iMac was introduced, it delivered incredible value for the price point. The iPad has put web surfing, applications, and media consumption in the hands of millions for well under $1,000. Apple 1.0 had to foot all the manufacturing costs, costs which nearly bankrupted the company. Apple 2.0 focused on the design, but created an incredible cash machine by outsourcing the manufacturing.

2. Founder. Soon after Apple got its founder back, Microsoft lost its founder at the helm. As investors have learned time and again, there is simply no substitute for a founder’s product vision. While Apple, the company, faced intense competition, there were few founder visionaries at the helm who could compete with Steve Jobs.

3. Accessibility/design. In the early to mid 80’s, personal computers were a completely new market. The Mac, with its graphical interface, beautiful fonts, and then high resolution display, was way ahead of its time.  Users were looking for function over form.

The second time around, the personal computing market was established. The mass market shifted and was looking for form over function. Over the past decade, design and style moved to the forefront. With consumer machines relatively equal in underlying hardware performance, it was more important to have the best user experience than the one with the most features.

4. Channel. Although Apple did ground-breaking and incredibly disruptive marketing with its 1984 commercial, IBM (and Compaq) owned the channel. They owned the path to businesses and consumers.  It was still very much an era of “you can’t get fired for buying IBM.” With the iPhone, Apple truly changed the game of reaching the consumer. No longer are carriers in control; now they compete for Apple’s latest products.

5. Integration/disruption. In periods of massive disruption, integrated solutions win. In non-disruptive markets, horizontal solutions win. In the last 15 years we have witnessed widespread adoption of broadband; digital media going mainstream; and, of course, the mobile revolution.

Although there were MP3 players well before the iPhone, no other company successfully negotiated the media deals and delivered the end to end experience necessary to make paid media consumption not only the realistic alternative – but the preferred one. In mobile, Apple delivered a smartphone form factor others had failed to achieve. The iPad enabled consumers to consume, quickly, and easily.

6. Lack of a focused competitor. Apple 2.0 lacked a competitor that was purely focused on the consumer. True, there was incredible competition. But there was no other best of breed, integrated product in the market.

The Wintel based product offerings competed on price and performance. The companies who built those products were not focused purely on building great consumer products. The hardware vendors, like Microsoft, were selling to enterprises and consumers, and trying to do so across multiple product lines, from desktop and mobile computing to storage and services.

7. Market share. Windows not only got to take share from the DOS market, but benefited from new market opportunity as well. Apple 1.0 never got to take market share. In contrast, Apple 2.0 took the existing MP3 market, then took share from the existing desktop market, through iPads and iPhones. That in turn has had the added bonus of driving adoption of Macs on the desktop.

8. Applications. Apple 1.0 could not compete with the third party ecosystem created by Microsoft around Windows, not to mention Office itself. With the iPhone and iPad, Apple 2.0 re-energized the application ecosystem. Apple 2.0 won the hearts and minds of developers.

Conclusion
There are numerous lessons from the success of Apple 2.0: how to create new markets while stealing share from existing ones; the virtues of integrated offerings during periods of disruption; the importance of distribution to every business, large or small; and the broad appeal of great design.

No one knows for sure what the future holds for Apple 3.0. But one thing is certain: Steve Jobs and Apple 2.0 will be missed.

Aug 26, 2011

Is COO the new CEO?

There are a lot of articles on startup Founder/CEO’s, but very few on startup COO’s. Ben Horowitz had an interesting post last week on the challenges of founders who pitch his firm, “one as the CEO and the other as President.” Later in a company’s life, however, such a model may work well, when the President or COO is an experienced operating executive.

The Classic Wisdom
The classic wisdom, espoused by some legendary venture capitalists was, “I never fired a CEO too soon.” But more recently the industry has adopted a new mantra, which is to keep the founder in the company – quite often as CEO – and bring in experienced management underneath him or her in the form of a COO or President.

Some of today’s highest profile companies, including Facebook, Groupon, and Zynga have all adopted the CEO/COO model. Consider Tim Cook at Apple, Sheryl Sandberg at Facebook, Margo Georgiadis at Groupon, and most recently, John Schappert at Zynga.

The benefits of the hybrid model are clear: companies maintain the leadership and product vision of their founding entrepreneurs, while gaining the operating experience of seasoned executives. The latter helps companies in terms of organizational scaling, sales, and, of course, perception on Wall Street.

What’s Changed
Three things have changed in the industry to cause investors and companies to pursue the CEO/COO model more aggressively.

First, the market once again recognizes that product is core to a company’s success. Nowhere is this more obvious than at once-beleaguered Apple, now the world’s most valuable company. Great products come from entrepreneurs who search out huge markets and then match them with product vision and execution.

What’s more, with viral so critical to today’s customer acquisition efforts, product vision is even more paramount. Experienced finance, sales, and even marketing executives may simply not bring the viral product knowledge necessary to virally infuse a company’s customer acquisition efforts.

Second, founders are more educated on venture capital and startups than they ever have been before. Detailed information is available on blogs like Venture Hacks and in books such as Venture Deals, not to mention from experienced angel investors.

Third, there are former and current founders/entrepreneurs in the institutional investor landscape. From Mike Maples to Reid Hoffman, from Ben Horowitz and Marc Andreesen to Mark Suster, having former startup founders as institutional investors is having an impact on the venture backed company landscape.

Today’s Startup CEO
Of course, all the companies I cited above have two things in common: they are consumer facing and successful. Does the same model work for companies that are struggling? What about for SaaS/enterprise companies? The examples are harder to find, that’s for sure.

Many of today’s successful startup CEO’s are product/market visionaries and great early organization builders. They can leave the later scaled-up operating challenges to those who enjoy the job, all while holding onto the CEO title and role.

Whether the hybrid model works for companies that are struggling or for SaaS/enterprise companies is less obvious. Being a startup CEO is no easier than in the past. But what it means to be a successful startup CEO has clearly evolved.

Aug 15, 2011

How Groupon and LivingSocial Can Become Profitable

Daily Deal

What’s great about daily deals is that everyone has an opinion on them. The Groupon S-1 certainly has something to do with that. So too does friends and colleagues using deal vouchers when out eating or doing activities around the city. Not to mention those emails in the inbox every morning!

From Groupon to LivingSocial, from Facebook Deals to Google Offers, here are five things that could change the game in daily deals and drive profitable growth.

1. Make merchants successful. Use data to make them successful. We’ve all read the stories about how bad daily deals are for merchants. But Daily Deal companies are bringing local merchants online in an unprecedented way. As a result, they have the opportunity not just to bring in customers, but to help these merchants manage their businesses by leveraging data, the Internet, and payments. Every business struggles with engagement and retention; local businesses are no different. Instead of becoming known for bringing in cheap or existing customers, become the merchants’ trusted business partner.

2. Reward loyal users. Drive engagement. Implement a loyalty/rewards program. To borrow a phrase from American Express, Membership Has It Rewards. Deals companies can deliver on that promise by providing non-deal related benefits to their members. More frequent buyer? Get sneak previews of hot deals and longer expiration dates. Become the user’s trusted home. Introduce features that will drive engagement and loyalty, like a DealBox, so that no matter where you buy your deals, they’re always available in your DealBox.

3. In mobile, combine virtual and real-world check-ins and rewards. I love the new FourSquare + Deals offerings! One deal company could lead the pack in mobile by introducing its own badges and rewards, tied in with a real world loyalty program. And make offers on mobile truly immediate. Don’t just throw hundreds of instant offers at a user – provide a deal stream or make the mobile app more fun and aspirational, not just a proxy for the existing consumer sites.

4. Make key acquisitions and hires. Many great tech are in San Francisco. One company could corner the market on SF talent by acquiring a handful of startups in the city. Lots of talented engineers and product people in SF are interested in deals, ecommerce, local, and payments.A number of small startups in the city that have worked in and around the deals space – from deals themselves to deal related analytics. These companies would provide a great basis for an SF office. Ditch the 101 vanity board and acquire a handful of companies instead. Long term, these companies will need product diversity to drive revenue diversity. Talented engineers and product people will come up with the best ideas.

5. Diversify the revenue base to deliver EPS. All kidding in the S-1 aside, Groupon’s filing provides some sobering reading.  The company will get out, get liquid, and make lots of people lots of money. The challenge is how to build a sustainable, profitable business in the space long term. Now is the time to prove that deals can be profitable. Making merchants successful, rewarding loyal users, and having talented engineers creating new products in support of revenue diversity are the keys to EPS.

Daily deals have come from nowhere to become a multi-billion dollar market in just a few years. Social, mobile, and the need for local merchants to get online have been huge waves to help make this happen.

Tech companies are incredibly smart when it comes to analytics about their own businesses – they use data to optimize at every turn. Now Daily Deals companies have the opportunity to put that data to work for their users and merchants. Daily Deals may provide one of the richest “big data” problems of all. Couple that with greater user engagement, loyalty rewards, and becoming merchants’ trusted business partner, and EPS will follow.

Aug 1, 2011