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March 27, 2006
Invisible and Disruptive Entrepreneurs
While the popular mentality has shifted over the past couple of decades to recognise if not admire entrepreneurs, economic theory has largely ignored them according to The Economist's article Searching for the invisible man. And who would know better than The Economist?
Many people bicker over the definition of entrepreneurship, but the literal translation The Economist cites is quite satisfying.
Translated literally, entrepreneur means one who undertakes—one of life's doers. To start a firm you need gumption, and to succeed you need an eye for a gap in the market. That in turn demands alertness, as Israel Kirzner, of New York University (NYU), has pointed out. But it does not always demand much originality or power of invention. The fresh-born firm may be a mere clone of another one in a neighbouring town.
Replace the word town with country, and that last sentence is pretty close to Fabrice Grinda's international idea arbitrage concept.
The article focuses on the distinction in innovation between incremental improvements (making a slightly better version of what's already out there) and "discontinuous breakthroughs" (they cite the incandescent lamp, alternating electric current or the jet engine as examples). Through seemingly only large corporations would have resources and R&D budgets to make breakthrough innovations, the article points out that most come from entrepreneurs.
Why? The article gives two reasons:
The first explanation seems paradoxical. Breakthroughs are, by definition, more difficult than routine innovations. Surely, they should be beyond the meagre means of the independent entrepreneur? But as Mr Baumol points out, building the Kitty Hawk was much cheaper, and less complicated, than upgrading the Boeing 737 to the 747. Genuinely new ideas are often breathtakingly simple. They grow more elaborate as improvements and modifications are laid on top of them. If you are the first to discover a tree, you get to pick the lowest-hanging fruit.The second explanation is more intuitive. Revolution is a risky endeavour. Of 1,091 Canadian inventions surveyed in 2003 by Thomas Astebro, of the University of Toronto, only 75 reached the market. Six of these earned returns above 1,400%, but 45 lost money. A rational manager will balk at such odds. But the entrepreneur answers to his own dreams and demons. Mr Baumol thinks a “touch of madness” is probably one of the chief qualifications for the job.
The first reason, that simplicity defies established companies, would surely be appreciated by Jason Fried. The second reason, that entrepreneurs are irrational, seems like a fine explanation too as evidenced by the many guests we've had on this show who've shunned high-paying and stable career options in favor of startups (of course, their irrationality is up for debate after they succeed).
I think the article missed one reason: That many breakthrough innovations are disruptive. A disruptive business can grow by making one dollar for every five it takes from its antiquated competitors. Craigslist only makes tiny amount of money (if any) on users who would otherwise spend a lot of money with a newspaper. The same relationship exists between TerraCycle and Miracle-Gro, and John Bogle's index funds and traditional high-expense ratio mutual funds. Disruptive innovations are on the side of the angels, better for consumers and will ultimately defeat their fat targets.
Why would a profitable corporation want to make a disruptive breakthrough? And if they did make such a discovery, fear would likely keep them from bringing it to market. In fact, Xerox PARC made many breakthroughs such as the mouse and advanced graphical user interfaces. It didn't have an incentive to cannibalize its dominant paper copy business, so it didn't put much effort into spreading those innovations. Steve Jobs had nothing to lose from building products on those innovations (except for the long-term health of one of his investors, Xerox, but that didn't matter to him), and ultimately computers progressed to the point that fewer paper copies were needed.
Similarly, I imagine that newspapers would not have developed Craigslist had they thought of it first (even if such a site was inevitable), Miracle-Gro would not brew TerraCycle had they thought of it and high-expense ratio mutual funds would not have organized the first index fund.
Entrepreneurs don't only have an edge because they're crazier and can come up with simpler solutions. Established players are made great because of large profit margins and don't want even their own disruptive breakthroughs to eliminate those margins. That's the entrepreneur's job.
Posted by greg at 9:52 PM | Comments (0) | TrackBack
March 26, 2006
Venture Voice to Newsweek in Under Two Months
While many of the entrepreneurs we've interviewed on this show have already made it big, we go to conferences like DEMO to scout out the up-and-comers. At the last DEMO conference, we followed Sharpcast through the process of unveiling their technology to the world. Now, not even two months later, Sharpcast has been featured as part of a Newsweek cover story on the "Next Web". That was fast.
Posted by greg at 8:37 PM | Comments (0) | TrackBack
March 25, 2006
Having Too Much Fun in the Valley?
David Heinemeier Hansson of 37signals, whose co-founder Jason Fried has been a guest on our show, counters a post by Caterina Fake, who started Flickr with her husband and sold it to Yahoo!, titled It's a bad time to start a company. (Disclaimer: I'm a happy paid user of both of their products.)
Caterina's central focus is that while entrepreneurship is in vogue as it is now, competition increases for talent, space and venture capital. This both drives up costs to start a business and increases the likelihood of competition. Ironically, while times are good, battle-hardened entrepreneurs noticed some advantages of the good old days of a bad economy. Some of our past guests including Fabrice Grinda, Joel Spolsky, Philip Kaplan and Shoba Purushothaman had a blast building businesses in what is normally referred to as an awful environment for entrepreneurs. Venture capitalist Deborah Farrington did quite well by making investments during the dot com bust, including an investment in soon-to-IPO NetSuite. Don't get me wrong, these entrepreneurs did have to bang their heads against the wall and shed a lot of blood, sweat and tears to survive, but the bad economy separated the real entrepreneurs from the faint of heart.
While it's fun to argue over timing, it's the factor that us entrepreneurs have the least control over. What we do have control over is geography, which underlies Caterina's sixth and final point in her thesis:
There's too much going on. Every night there's a Mashup get together, or a TechCrunch party, or it's Tag Tuesday, or SuperHappyDevHouse or SXSW or this conference or that conference. And this stuff is fun. It's a real community. But all of these things are great by themselves, but terrible in combination. I see some entrepreneurs in photos from *every single event*. Who's talking to the users, writing the code, tweaking and retweaking the UI? It ain't the Chief Party Officer.
Of course, these parties aren't going on in Vancouver, where Caterina started her company. It's mostly happening in Silicon Valley, where for better or worse a geek can party like it's 1999 every night. Tech entrepreneurs from other parts of the country can only enjoy the parties vicariously through Flickr photos and blogs. Here in New York we're starting to have some fun as documented in a recent article in the Fashion & Style section of The New York Times. But even so, when I meet people at most parties and tell them I'm in the podcast business, I usually have to follow up with an explanation of what podcasting is and often resort to just telling people I run a radio show they can get through the Internet. And I'd never even think of saying tagging is cool at the average New York media event for fear of people thinking I still pay the children's game of tag.
For all its advantages, is Silicon Valley too distracting from the serious business of building a business? Does it cloud an entrepreneur's judgement about what consumers need?
David argues against the Silicon Valley area that Caterina is now based in:
You don't need to live in San Francisco to make it big. Or rather, if you want to make it big, don't live in San Francisco...
Is the San Francisco Web 2.0 party too much fun? This reminds me of something Scott Rafer said on the show:
Silicon Valley and San Francisco, I hesitate to call those of us out here running companies entrepreneurs, [it's too easy to get the infrastructure].
The Valley offers entrepreneurs unparalleled resources, infrastructure and support but threatens to distract from focusing on customers and sales. The rest of the world offers focus and the school of hard knocks precisely by offering few resources meant specifically for tech entrepreneurs.
Where is the best place to open a business? Let's find out by watching what businesses thrive in the long run.
Posted by greg at 3:34 PM | Comments (2) | TrackBack
Tracking Venture Voice Alumni
Soon after stating this blog, I realized I had no consistent and reliable way to track the latest news about our past guests. What have I gotten myself into? Only a few of them have PR people who send me press releases regularly -- and press releases are usually pretty boring reads.
So I've decided to try using the tools built by past guests to track them. I first went into Feedster (which used to be CEOed by VV interviewee Scott Rafer) and entered in this short little search phrase: "Dick Costolo" or "Philip Kaplan" or "Joe Kraus" or "Scott Heiferman" or "Kelly Perdew" or "Jeremy Hague" or "Brad Feld" or "Scott Rafer" or "Deborah Farrington" or VideoEgg or "Tom Szaky" or "Jason Fried" or "Mena Trott" or "Derek Sivers" or "Joel Spolsky" or "Fabrice Grinda" or "Randy Komisar" or "Bo Peabody" or "John Bogle" or "Shoba Purushothaman" to get these search results. I then ran that RSS feed of the search results through FeedBurner (CEO Dick Costolo was our first guest) so it would be a bit more manageable and came up with this feed (if anyone subscribes to it I'll update it with the names of people we interview in the future).
Just for fun, you can view some of the real-time headlines about our past guests here:
The results are overwhelming. There are hundreds of entries a day! When I did this search the first time it was dominated by references to a post titled Kate Moss is Not an Accredited Investor in response to Brad Feld's post Are You Accredited?. While Brad recommends against taking money from unaccredited investors, the thought of never having Kate Moss as an angel gives some pause for thought.
This could be a lot of work.
I tried giving Google News (no, I haven't interviewed Larry and Sergey... yet) a shot and the results were pretty good. On average it has about one news item per day. However, it only searches traditional news sources which often miss the most interesting stories about entrepreneurs.
Looks like I'll have to do some work to get the real story here, but these searches should be a good start. In the end, there may be no finer method to get the scoop than working the telephone.
Posted by greg at 12:17 AM | Comments (0) | TrackBack
March 22, 2006
FundingPost's Perfect Venture Conference
When: April 5-7, 2006
Where: New York City
What: Venture Voice host Greg Galant will be moderating a panel at the Perfect Venture Conference titled "How to Build a Winning Management Team"
Posted by greg at 10:28 PM | Comments (0) | TrackBack
Media Devolution or: How I Learned to Stop Worrying and Love the Blog
We’ve come a long way since we first started this podcast nine months ago.
When I used to go to tech conferences and tell people I had just launched a podcast, the response was usually something along the lines of “Podcast, very cool. How long have you been blogging?”
After hearing I’d never had a blog and still don’t (unless you count the text portion of our podcast a blog, which I don’t unless it will get us more press), I’d usually get a strange stare. “No blog, are you really Web 2.0? Isn’t a blog a prerequisite for a podcast anyhow?”
I didn’t care though. In my mind podcasting was always a cooler – or at least richer – form of media than a blog anyhow.
So why would we stoop to launching a blog on Venture Voice? Simply because entrepreneurs are doing too many cool things! We want to tell you about them pronto.
Past guests have had some major accomplishments since they’ve appeared on our show. We’ve also noticed a lot of trends in the startup economy that we’d like to point out quickly to our audience. However, we adhere to a very strict format and only release podcast shows when we’ve got an in-depth interview or a story to share.
I also like to write.
So now we’ve got a blog component to keep you up-to-date on all things entrepreneurship, particularly as they relate to what’s been said on our podcast. As always, we’ll do our best to keep our opinions to ourselves in favor of illuminating the world of new ventures and provoking discussion.
A couple of housekeeping matters: We’ve relegated the blog to a separate portion of our website, but we’re combining the RSS feed. You can now find all of the events we’re involved with or attending on our new events page. We’ve also added a navigation bar that makes it easy to browse our podcast library, read what the press has to say about us or contact us.
Enjoy the blog.
Posted by greg at 10:20 PM | Comments (0) | TrackBack
March 18, 2006
VV Show #29 - Shoba Purushothaman of The NewsMarket
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Shoba Purushothaman’s career has shifted dramatically since she started her first job as a business journalist in Malaysia. After spending several years working for the Wall Street Journal and Dow Jones Newswires, she grew restless just covering how the world was changing. She wanted to influence it. Shoba co-founded a public relations consultancy that helped corporations ride the wave of change brought on by the rapid expansion of television news. She saw first hand how inefficient video distribution was, so in 2000 she sold her first business and started The NewsMarket to make video distribution simpler. Though she weathered some tough times in 2001, she’s managed to build the company to millions in revenue and recently closed on a $12 million venture round.
Show notes:
1:40 Starting career as a journalist
- Grew up and started career in Malaysia.
- Worked for the Wall Street Journal in Washington DC.
8:10 Getting out of journalism and into business
- “I was taking a substantial pay cut.”
- “It took me two years before I could admit that I was no longer a journalist, that I had crossed over to the dark side.”
12:00 Taking advantage of the television news revolution
- “Most of our sales, and most of the sales that I’ve personally done, has been cold calling -- not networking driven.”
16:15 Selling to Fortune 500s
- “We often have situations where somebody refuses to take a meeting for a long time because they don’t believe that you have value and then they finally take a meeting and they go ‘wow, why didn’t I take a meeting earlier?’ Those experiences are hard to beat.”
21:00 Starting The NewsMarket
- “Probably the hardest thing for us was raising money.”
- “I have no doubt that it was harder to raise money then it was to win customers.”
29:00 Current state of The NewsMarket
- Revenues are in the millions.
30:40 The explosion of video on the web
33:20 Deal with Google
37:00 Rise of user-generated content
39:00 Entrepreneurial opportunities in video
41:50 Outlook for the future
- “I believe the opportunity for video is enormous.”
46:00 Advice for entrepreneurs
- “There are so many things out there that we’re doing that can be improved.”
Venture Voice updates:
48:15 Feedback from last show with John Bogle
49:15 Past guest Scott Heiferman’s Meetup.com announced that it received an investment from eBay
Posted by greg at 4:28 PM | Comments (2) | TrackBack
