Not for a second do I buy into the doom-and-gloom spread by early stage investors citing the state of the economy as the reason for cutbacks. While the economic situation is worrisome, much of it is generated by supposed financial and business experts that are not. To say the least.

Sounds familiar? We have a few of those in Silicon Valley too. When money is involved, some people just can’t help themselves (or rather the opposite).

Investors still have plenty of overhang to invest with and their portfolio companies are on a 5-7 year trajectory to exit, meaning the viability of their choices is determined by the value at the end, not the value in the middle or the trajectory. The macro-economic value of a startup should remain intact in an economic downturn. So, the behavior of your investor will tell you whether you “married” well.

Very few startups should be materially impacted by the state of the economy, because:

1/ Their early stage market penetration is immaterial to the overall addressable “market”, leaving enough room for growth in any economy.

2/ The majority of (consumer focused) startups generate income through indirect monetization such as click-thru advertising, which is somewhat resilient to economic aberrations (even though purchasing may not).

3/ In early stage development, monetization is secondary to land-grab, and smart operating plans have very conservative and immaterial income projections built-in.

So, the fact that investors strike fear in the minds of entrepreneurs is the same as a president of a country at war expressing similar fear; not productive. Sure you need to be cautious and count your chickens, but great investors see this as a fantastic opportunity to double-down on their investments and amplify the market differentiation rather than restrict it.

Access to capital is a serious barrier to entry that can keep competitors out. So, if you are being restricted by your investor at this point it means he’s just not that into you and is doing you more harm than good.

Tags: VC, Markets, Investment, Economy, Consumer

We spend a lot of time with consumer technology companies and developed the following rules for success:

1/ Undeniable benefit.
The majority of companies accept the path of evolution developed by the first entrant in that segment and use manufacturing optimization to drive down cost and price as the basis for greater customer adoption. While that is a viable business strategy for some, real disruptive innovation is less price sensitive as it triggers new behavior. New behavior in turn, taps into new allocation of disposable income.

So, rather than looking at the competition, technology companies need to have a sound strategy as to how they will reach 30% adoption rates of the total-addressable-market that the current vendors have not. Macro-economics, the buying decisions and experience beyond just the scope of technology are important to assess.

2/ Impeccable product quality and user experience.
Consumers are both demanding and often uninformed about the technology language that many vendors impose on the use of their products. The combination is a battleground from which only well developed products emerge. Simplicity is key (and too many usability options are NOT good).

Many technology companies develop products with an engineering centric view of the world, insufficiently realizing that no consumer wants to learn a new language to understand how to use a technology product. Consumer centric interfaces and methods are just as important as product intelligence.

3/ Great support experience.
Support is no longer just a painful cost center to a business, great support can be an asset that recovers the mounting cost of product returns and prevent market adoption issues from spiraling out of control. So, great support helps perfect product quality, but only if it provides a direct closed-loop back into development. Great consumer companies engage with their customers directly and get better at defining what a market-ready product really means.

Technology companies with thousands of entries in their support and third-party forums are ignoring free research that will make their product better. Support cost should be captured in the product P&L and managed by a single manager, responsible for R&D and support. Runaway support cost is often the result of a product that simply isn’t ready for prime-time.

So, macro-economics, product quality and product experience are the main ingredients to create success for consumer technology companies and in turn will provide incredible loyalty for the next version.

Tags: Consumer, Disruption

Apparently Digital Railroad, another storage provider of the digital photography market is in trouble. No surprise again, because the company never supported a free-market model for photographers and buyers. We blogged about that topic many times, and recently Dan Heller adds to that fundamental thinking (even though I remain in disagreement with the artificial classification of stock photography).

Since its founding, Digital Railroad primarily supported supply-side photographic capabilities, which if not seamlessly connected to the buy-side provides really nothing more than storage space and website make-up for photographers. A nice service, but similar services from Smugmug or Photobucket already exist to do just that. All these technologies fail to solve the most pressing issue for every commercial photographer: sell, sell, sell.

Photographers are not empowered by a storage service or nice looking web pages, they are empowered when they sell. Photography is an expensive job and if it does not yield $70,000 in yearly revenues (based on 2006 PDA numbers), you will not be able to make a living from it. We have yet to find a true marketplace that connects any seller with any buyer, using free-market principles that truly empowers photographers.

Free-markets are more than a fashion statement or a label you suddenly slap on the website. The implications of free-market principles (as listed in this blog) change a company, its execution and its funding strategy to the core. The devil is in the detail.

Digital Railroad’s and Photoshelter’s demise are examples of why investing in technology, without macro-economic impact - no longer works. The 150-year old photography marketplace, with the introduction of digital photography and the internet, has moved from a premium market model (with many walled gardens) to a free-market model.

Akin to Ratatouille (the movie), where a five-star chef, Anton Gusteau, declares that “Anyone Can Cook”, the photography market and its technology providers need to get used to the fact that in this new age, “rats” will take and purchase great photographs ($22B of them).

The irate response to my recent blog about Photoshelter from a Vice President of the American Society of Media Photographers reminded me of the angry cook in Ratatouille that hires Linguini, a clumsy youth hired as a garbage boy, who can still not accept that great taste in food is like the beauty of photography - in the eye of the buyer.

We should embrace all photography that move people to buy, regardless of who shot it and build a real marketplace to facilitate that exchange.

Tags: Photography, Consumer, Content, Marketplace

I received a lot of feedback and questions on my previous blog posting named Building efficiencies in tough times and the embedded presentation posted there. The danger of attaching a presentation is, that as a reader you may miss the rational that built the words.

Because of that I want to explain my sometimes condensed thinking a little further.



It may have appeared that I only care about the product, but nothing is farther from the truth. The diagram on the left of the chart is what I see a lot in technology companies, early and late stage - across the board. The diagram on the right is what I tried to convey with the words in my presentation. Let me clarify:

Many companies develop incremental innovation (to leapfrog their competitors) without a diligent (re-)assessment of the opportunity to change the battle field. Not surprisingly. Real disruptive innovation requires a certain amount of vision, faith and a compass combined with larger commitments and investments, all seemingly based on untested values.

The path of least resistance therefor is to start with an incremental product and throw inordinate amounts of marketing & sales at it, in order to push it beyond its competitors into the marketplace. That is a highly inefficient model (in any economy). But it is a model to which many companies are forced to comply because of risk adverse management and the stale investment criteria deployed by many Venture Capitalists (VCs).

So, it is somewhat ironic that the VCs are now telling their startups to be more efficient, right after they were pushed through the VC wringer of startup-commoditization.

I believe the market for cheap (bootstrap-to-market) technology companies, that yield a large early exit is gone. That model only worked in a bull market of technology (from the 90s that has not dissipated) and the investors that still cling to that model will get punished for it. The new opportunities are for companies that build real macro-economic value.

The starting point of the next wave of innovation, in my view, is to feed a macro-economic need, as depicted in the diagram on the right. That macro-economic need is directly attached to the way we behave as humans (which is relatively predictable). It is our need to express ourselves, live the life we want and be in control (rather than technology controlling us). Think free-market principles, think social, think benefits, think fundamentals.

The fundamental shift in thinking that needs to occur in Silicon Valley, is to develop technology with a fresh mind, looking from the outside in, and serve a larger, less specialized, constituent.

Apple comes to mind as a company that often completely ignores the current state of the technology industry and connects better to basic human needs than any other technology company. But Apple can improve/be beat at the macro level, but I digress.

We simply need to support human behavior with technology.

With “free” distribution of information through the Internet, psychographics - not demographics - matter. Four-hundred year old free-market principles, The Long Tail, and marketplaces like eBay prove that the traditional rules of marketing do no longer apply. In my thirty years in technology I have never met anyone who truly understands markets. And market definitions have changed, they comprise no longer of buyers that fit an artificial model (I cringe when I hear people debate for hours how many users delineates the SMB segment), but because they subscribe to the pain or gain from which subsequently, marketers can extrapolate a larger pool. Bottom-up.

We do not all need to be economists to create the next successful technology company, the material is all around us. All it takes is a healthy interest in the actual behavior of human beings, compare their offline and online behavior and fill in the gaps. So, stop supporting companies that just build nifty technologies, but focus on companies that create larger macro-economic differentiation. More impact to everyday people.

No company will be more efficient by simply cutting cost (as suggested by the recent doom-and-gloom VC messages), it will just take longer to die. The real efficiency comes from a more disruptive value that attaches more people to better technology. On top of that, macro-economic value is very resistant to economic downturns.

Tags: Performance, Commodity, Consumer, Marketing, Markets, Marketplace, VC, Macro-economics, Psychographics, Apple, Distribution

With the Venture Capital high society dropping doom and gloom economic messages onto the CEOs of their portfolio companies, I wanted to help out and at least do my part to deliver some more operational substance.

Great companies and their resilience is defined by the quality of their products.

Great products make up for an endless amount of sales and marketing deficiencies, but in most cases sales and marketing spend too much time making up for lost product opportunity and becomes an endless money drain. Product definition (from a buyer’s perspective) and quality are the most important drivers for consistent business success, as Larry Ellison and Steve Jobs (both product gurus) have proven time and time again.

But when money is plentiful, yet guarded by aggressive milestones we tend to throw products over the fence early and have sales, marketing and support compensate tirelessly for its in-market deficiencies. Both startups and established companies (trust me, I’ve seen a few) make those same fundamental mistakes. The results are slow sales traction, excessive marketing expenses and runaway support costs. Not things any company can afford these days.

This morning I put together a presentation (in pdf, named TVC_building_efficiencies) that identifies some of the deficiency symptoms, emphasizes the benefits of great products to the cost model, and pulls together new ways to build amazing new products. Thus creating a more resilient company, no matter what the economic conditions.

So, to directly affect company efficiency, keep a close eye on the definition and implementation of the product, its macro-economic impact and how it grows and where it bleeds. Or simply contact us if you need some help.

Update: more on building efficiencies.

Tags: Performance, Consumer, Disruption, Free-market, Growth, Marketing, Markets, Quality, Resilience, Software, VC, Macro-economics

Facebook, one of the fastest growing social network sites has really screwed up User Interface (UI) design with its new look. Take a look at the screen capture above. Now you tell me in 5 seconds the intuitive difference between clicking on: [Facebook] and [home], [home] and [profile], [profile] and [Georges van Hoegaerden], [settings] and [profile], and [settings] and [Georges van Hoegaerden].

But more importantly, Facebook has clearly not read my blog on removing the technology language to appeal to consumers, an issue that prevents many consumer technology companies from maximizing their growth potential. But who’s counting at Facebook these days?

Facebook is a technology company that exposes social networking capabilities in a very technological fashion. The examples are plenty: the workings of the UI described above, the categorization of data optimized to suit their internal data-models and the very complicated way to add applications to the platform, and we can keep going on. But for now, they’ll get away with it. Other consumer technology companies won’t be that lucky.

A great user interface can never be an objective by itself as that just presents a pretty face, try living with a person that only has that. The ultimate user experience (and this is where I politically depart from the previous analogy), is defined by an ecosystem of capabilities, cost and ease-of-use that creates the real and sustainable appeal.

BMW figured out early on that the Ultimate Driving Experience™ is what sells cars albeit their engine capabilities and timing was their initial core strengths. Today they sell the sum of all parts, The Ultimate Driving experience: great engine capabilities, spiffy performance, practical design and excellent comfort - a thrilling way to drive from A to B.

Facebook currently has a horrible “Ultimate Social Experience”: good (but no longer unique) social networking, so-so performance, impractical design and pretty bad comfort. Those are probably the reasons why 90% of my Facebook friends never use any Facebook features but simply create an account.

Many of Facebook’s recent poor decisions (including ad network issues etc) are evidence that user growth is outpacing their ability to grow up. And that could be catastrophic. Facebook is a great social networking platform with a lot of potential that many people rely on.

Facebook better watch out and prevent that too many people will start hating it. Those same users may use Facebooks own social networking capability to turn it off as fast as they initially turned it on.

Tags: BMW, FaceBook, Performance, Platform, Consumer

Let’s look at photography (my hobby), arguably the most important purchasing-driver of computers (after the ability to access the internet) by consumers. Media management (yes, on the desktop) remains more than a Billion dollar market opportunity.

Case in point: new announcements of Adobe Lightroom and Apple Aperture tout enhanced interoperability with third party plugins to manage and edit your photographs. Don’t you feel good about that warm open-source-like karma of interoperability?

I don’t. Both vendors have deployed their next trick to customer imprisonment. And plenty of uninformed customers will fall for it. Here is why you shouldn’t:

1/ There is no need for an additional platform for photo management.
Photo editing capabilites of both applications are mediocre (no layer based editing, no advanced local editing etc.) and their asset management capabilities are little more than a replica of file system capabilities (even photographic attributes such as exposure, aperture and other attributes are maintained by the file-system metadata today). So, except for making nice photo albums and calendars, why else would you slug thousands of photographs in a proprietary asset management format that is less reliable than the underlying file-system and requires seperate backup and archiving strategies to maintain.

2/ Plugins have worked for years on file-system based photographs.
The announcement of the interoperability with plugins is really old news as those third party applications have been working with file-system based photographs for years. This is a platform on top of a platform, designed to milk more money out of customers and locks them into a proprietary technology stack. A prison with the windows open is still a prison.

3/ The operating system needs-to and will evolve faster.
The pace of meaningful innovation of the Personal Computer OS is deplorable. Microsoft has not made the PC operating system significantly smarter over the last ten years and that has opened the window of opportunity for Apple to surpass Microsoft in usability (rather than functionality). The ability to easily create and manage user-generated content such as, Photography and Video, has now become important adoption drivers to the platform, OS-vendors have yet to respond to. Photographic capabilities should be built-in (not priced-on). These days the unique media experience of the platform is the differentiation that sells the computer (since they all do internet quite well).

As a consumer, buying into seperate photography management siloes will cost you significant time and money (as the former CEO of a photo software company, researching the alternatives, I tried). My advice is to wait until an agile vendor steps up and turns media management into a core competency of the computing experience.

In the words of Ray Lane (partner at KPCB and former COO of Oracle) who once said customers are better off skipping some steps of innovation (in his case to skip client-server for three-tier internet architecture), I have just presented you with my reasoning to skip-over Adobe Lightroom and Apple Aperture. Not because I don’t like some of its functionality, but because it is strategically a dead-end street.

The next evolution of media management will soon eradicate the old one and deliver lasting differentiation to the vendor that owns it and provides a much, much better media experience to the consumer.

I am planning on having something to do with that.

Tags: Platform, Photography, Consumer, OS X, Operating System, Innovation, Integrity, Adobe, Microsoft, Apple

The key to understanding customers is to observe them, rather than to listen to them. As in most life scenarios, what people do and what they say are quite different. And your product strategy better be focused on real purchasing behavior rather than yet another opinion - stated as a fact.

For that reason, the way large technology companies implement usability studies is useless, as these studies attempt to formulate an opinion from people who should be buying - but have not - and use the wrong method to derive their intent, verbal rather than behavioral. Unbridled wishes, promises and demands from prospects are worthless. Yet priceless is the behavior and satisfaction of buyers.

So, without the customer telling you what to do, how do you improve your chances of success:

1/ Focus on greenfield adoption
Many so-called markets have no real market leaders owning more than 30% market share. Technology adoption is still in its infancy and plenty of room exists to tap into greenfield markets. Even in a fast growing market like the mobile phone industry where Apple is resetting the rules of engagement, a large demographic still does not use a mobile phone. So, the trick is to come up with a new strategy for the ever changing greenfield, rather than stealing market share by building a better mouse trap.

2/ Define the macro-economic impact of your technology
Consumer technology should yield immediate personal benefit and become an indisposable asset to the daily tasks we perform. It should save considerable more time than it takes to learn. The iPhone is a portable lifestyle device, rather than just a better version of the old category mobile phone. Redefine the rules from the top.

3/ Build a unique customer experience
Style, performance and capability are important consumer product characteristics and so is the purchasing and support experience. Satisfactory life-cycle support of the product is crucial to secure brand loyalty. Ever noticed how almost half of the Apple Store is dedicated to improving customer experience?

4/ Remove the technology language from the equation
Adoption by a greenfield market demands the development of a user-experience, marketing messages, and support experience that is void of technology language and solely talks about usage benefit - rather than how it is achieved technologically. Notice how the marketing of the iPhone is fundamentally different from the Nokia N95 (same price range), full of references to technology protocols (like UPnP) a greenfield market should not have to know about.

The success of technology innovation is increasingly related to how well companies serve steady customer behavior. That behavior has extensively been studied by so many non-technology companies ahead of us.

That’s why I spend so much time listening to the wisdom of CEOs like A.G. Lafley (CEO of Procter & Gamble), Mickey Drexler (CEO of J. Crew, former CEO of GAP, Apple BoD), Jack Welch (former CEO GE) and many other consumer CEOs who put themselves constantly in the shoes of the customer and define what they would like the purchasing experience to be.

It is not hard to detect the patterns of success, but as a CEO you would need to be committed to keep looking at your company from the outside in (rather than from the inside out), and experience the company from a customer perspective.

Get ahead of change and tune in to Charlie Rose on NPR (KQED in the Bay Area) for some great lessons from the masters.

Tags: Entrepreneurs, Innovation, Consumer, Markets, Apple, IPhone, Nokia, Experience

To quote Walt Mossberg of the Wall Street Journal at Consumer Technology Ventures last week, quality is an important pillar of success for consumer products and I couldn't agree more. Many times products are hyped with incredible promise (marketing) but the product either doesn't work as advertised, requires other services to be activated or simply is not ready (does Zune ring a bell).

From that perspective I am less happy that Apple (the only PC platform I have ever bought), is gaining popularity. Price pressure and popularity does not always do wonders to quality.

I currently use a 2-year old Powerbook G4 1.5Ghz of which the fan (right after the one year warranty expired) makes a noise like a sawing machine, and I had to reduce the speed of the processor to keep the fans from cooling. For work I purchased a $999 23-inch Apple flat-panel that produces stunning image quality and brightness, yet the ghosting of images on this expensive piece of equipment allows me to see which window was there 5 minutes ago. I expect the best from Apple and I am willing to pay a premium, but I am not willing to pay a premium for under-par quality.

Now, I am not picking on Apple because it is the worst performer in the consumer space, quite the opposite. Apple undoubtedly is the best performer in the business, but given that, Walt's comments make even more sense to me. Switching off of Apple is not an option for me, but griping is.

Update:
After unscrewing at least 20 screws on my out-of-warranty Powerbook G4 (directions courtesy of iFixit), I discovered that the reason why I had reduced the processor speed on my laptop for over one year and avoid the fan from coming on was created by, get this: a quality control sticker in the fan compartment that had come loose and was spinning along with the fan. A simple removal of the sticker solved the issue.

Tags: Wall-Street, Mossberg, Apple, Premium, Quality, Consumer, Images