A blog on using the power of Disruptive Business Models to build successful businesses...and other stuff. by Joe Agliozzo

Tuesday, October 12, 2004

Guy Kawasaki - "Art of the Start" and Bootstrappable Business Models

I am starting to get into Guy's new book - The Art of the Start. Chapter 5 is called The Art of Bootstrapping (I like to skip around in most business books and use them more as reference guides).

There is a lot of great stuff in this chapter, but today I want to focus on Guy's thoughts on a bootstrappable business (meaning one that you can start and grow on your own steam). I think this is a really important topic because let's face it, 99.9% of all entrepreneurs and startups have to bootstrap. Also, as I have written before (as has Guy) most startups that are not bootstrapped, but instead receive venture or corporate funding don't succeed. Why? Because they don't have the laser focus you are forced to have when you count every penny. This includes not only how you spend your money, but even more importantly, how you spend your time. There is nothing like the concept of limited funds to focus everyone on speed to market!

On to Guy's characteristics for a bootstrappable business:

  • Low upfront capital
  • Short sales cycle (less than 1 month)
  • Short (under a month) payment terms
  • Recurring revenue
  • Word of mouth advertising

I would also add some additional characteristics of my own:

  • No inventory
  • Don’t need proportionally more people to handle more sales (scalability)
  • Can be marketed and sold effectively online (means don’t need partners distributors, etc. when you start out – no shelf space issue)
  • Free trial/Guaranty can be offered at little or no actual cost
  • High margins
  • Only solution available for target customers (means lower customer acquisition costs and also can get out there with limited functionality)
By the way, our new startup has all of these characteristics!

Guy's book has a lot more great stuff for startup entrepreneurs. The Art of the Start, combined with The Innovator's Solution by Clayton Christensen are really a "cookbook" for creating a great startup company.

Wednesday, October 06, 2004

Local Search - The Pie Gets Bigger

Couple of interesting announcements yesterday from Yahoo! and Bill Gross of Idealab (Idealab was the spawning ground for Overture as GoTo.net, Yahoo! purchased Overture).

Gross announced Snap and Insider Pages in conjunction with John Batelle's Web2.0 conference. More about Snap in a future post (in short, the transparency and ability to pay on the basis of sales generated, etc. is pretty revolutionary).

For now, Insider Pages and also the announcement that Yahoo! Local Search is out of beta means that the local search market is really starting to get a lot of resources and energy.

Yahoo! Local Search includes the ability to search by location and look for local businesses, complete with mapping (Google offers a similar product). Insider Pages is a little more creative. Supposedly, Insider Pages combines local search type listings (like Craig's List) with social networking (like Friendster) to allow people to make recommendations, etc. I am sure this is exciting for the social networking folks because it may create the most realistic business model for this segment.

We are excited about anything that expands the supply of inventory for advertising while at the same time creating a new pool of advertisers that will take advantage of this type of advertising. From previous posts, you know that we feel that the local advertiser will one day buy paid search advertising as readily as they buy Yellow Pages advertising right now.

These initatives are one more step in that direction. When these advertisers come online, the key to getting their business will be having an extremely easy way to create very effective ads - which is what we are all about.

Tuesday, October 05, 2004

New Battle Brewing in Search Engine Optimization?

Great post by Jim Hedger at Search Engine News Journal on the possibility of a new battle in the search engine optimization wars. Apparently, Jim feels that the PhD's at Google are fed up with what they see as the "gaming" of their search engine results by SEO firms. Jim speculates that Google may be rebuilding their ENTIRE 4.5 BILLION index of webpages, using a new spider to categorize (and characterize) the pages. If so, this will surely be more disruptive to many website operators than even the infamous "Florida" update that wreaked havoc on many web businesses. After Florida, many sites found that they had basically disappeared from Google search results and as a result they had zero traffic, customers and sales.

While we think SEO is an important overall part of running a successful ecommerce business, it is an "us against them" game (us being Search Engines and them being SEO firms). This adversarial relationship will often leave the SEO customer in the middle. The website owner finds herself with fluctuating numbers of visitors, customers and sales. Hard to run a business that way.

We came to the conclusion in operating our own online businesses that the only way to have a dependable revenue stream was to increasingly rely on paid search advertising, where we could control our exposure, budget and flow of customers. Our experience in managing our PPC campaigns and optimizing our ads to increase response and decrease average costs per click led us to our new product, which we will be launching shortly.

Paid search is an important part of any websites search engine marketing campaign, and as the battles over natural search listings continue, will become even more crucial.

Paid Search is Expanding

Bambi Francisco's article (sorry, the article is behind a subscription wall at CBS MarketWatch) this morning is about law firms using paid search advertising to troll for Vioxx clients. The really interesting tidbits in the article are that pay per click advertising accounts for 40% of online advertising expenditures and is growing at 63% per year. Admittedly, these are some of the rosier forecasts we have seen, but everyone agrees that paid search is soon going to account for the majority of online advertising spending. It makes sense because paid search is tied to performance, and pay for performance always wins. She also makes the point that as news search becomes a more prominent feature for search users, more keywords will become valuable (for the duration of the news cycle) and then drop again. So the keyword universe that many advertisers complain has become limited looks like it will be a little more flexible. Companies will also have to be able to rapidly take advantage of newly popular keywords by being able to quickly create and place effective campaigns containing effective ad copy with the major paid search providers (Google and Overture) - something we are addressing with our new product.
Stay tuned.

Friday, October 01, 2004

As Guy Kawasaki Says "Don't Worry, Be Crappy"

No posts from me since May because I have been working fairly non stop on my new company. We are in stealth mode, but getting ready to launch (soon!).

Guy Kawasaki is one of my favorite business writers and I was fortunate enough to partner with Garage Technology Ventures (when it was garage.com) when I raised venture capital for my first startup in 1999.

Guy has a new book out called "The Art of the Start". I am waiting for my copy right now, in the meantime, I have been thinking all summer about one of Guy's earlier books - Rules for Revolutionaries. One of my favorite rules is "Don't Worry, Be Crappy". What Guy means by that is that the best way to develop a product (and a company) is to get your product out the door, in the hands of real customers, as quickly as possible, even if it sucks (but not too much).

What you lose in "polish" and "presentation" along with some functionality is more than made up for in finding out (1) whether the customers are interested in buying what you are selling and (2) what you forgot about that customers actually need. No matter how much thinking the team does on product features, customers will always come up with different or additional stuff that they have to have and they will let you know about it.

Of course, you always have to reach out to your customer base and communicate that your product is under development and needs more work, you want to partner with the customer in making the best product possible, etc. Don't claim your product is perfect when you know it is not, be humble.

I have used "Don't Worry, be Crappy" twice now. When we launched Coreflix, we had a basic product and bam, customers were on it from day one. We did have to add features but the development process was much more focused with real customers giving us real feedback as opposed to focus groups, etc.

We are using it again now on our new company. We started out this summer with a really crappy beta that had only the bare minimum functions. This time we had to test not only whether beta customers were interested and would pay for the product, but also whether the algorithms the service is based on would work. The answer on both counts was an unqualified yes, but we also found we had to go back to the workshop and create a much more "automatic" product that was easier to use - around a 90 day process of very long days (and nights).

Once again though, "Don't Worry, Be Crappy" pointed us in the right direction.

I wish Guy's book had been around in 1999. We didn't use "Don't Worry, Be Crappy" at Netfreight.com and we spent over a million dollars developing our beta product before we got input from customers. Of course, we would need that money later, and when we didn't have it, we didn't have many choices.

"Don't Worry, Be Crappy" is probably one of my most valuable lessons learned.