lwsp

I’m moving the blog over to www.theotherjonlam.com. Too much pressure having to go for lunch every time!!

Eric Ries was kind enough to have lunch with me at the Web 2.0 Expo in San Francisco. Gave me a ton of interesting stuff to think about. I’m a huge fan of Eric and the way that IMVU developed their customers and product. From Web 2.0 Expo: Eric Ries is the author of the blog Lessons Learned. He was the co-founder and served as Chief Technology Officer of IMVU, his third startup. He is the co-author of several books including The Black Art of Java Game Programming (Waite Group Press, 1996). In 2007, BusinessWeek named Ries one of the Best Young Entrepreneurs of Tech. He serves on the advisory board of a number of technology startups including pbWiki, Smule, 750i and KaChing

I’ll be posting in the future about our discussion and the real-world effects in Ph03nix New Media. For today, I just wanted to discuss a book that Eric recommends, and that provides some foundation for the concepts he talks about at Lessons Learned.

Taiichi Ohno’s Toyota Production System talks about Present Capacity = Work + Waste.

In the book, his example is that a production line can have 10 workers, and produce 100 products per day. This gives a line capacity of 100 pieces per day, and 10 pieces per worker/day. However, there may be inefficiencies: workers waiting, overproduction, and other unnecessary movements. Say improvements were made, and 8 workers now could produce 100 products/day. This would suggest that the original 10 workers could actually produce 125 pieces a day. Thus, the capacity to make 125 pieces/day existed before, but was being wasted.

100 (present capacity) = 125 + (-25 waste)

“True efficiency improvement comes when we produce zero waste and bring the percentage of work to 100%.” When examining my own life and business, I would think that our % of waste hovers between 25 and 80%. Hopefully our investors won’t read that and take to the hills screaming! I just have a fairly high standard for what is considered waste and productive time. I would argue that most people’s work & time are like an atom: 99% empty space. That might be a little extreme, but you get the point At a bare minimum, I think the pareto principle would apply, with 20% of our work driving 80% of the results!

Ohno identifies several categories of waste:

1) Waste of overproduction

2) Waste of time on hand (waiting)

3) Waste in transportation

4) Waste of processing itself

5) Waste of stock-on-hand (inventory)

6) Waste of movement

7) Waste of making defective products

For games & software development, I might tweak a few of those:

1) Waste of overproduction

2) Waste of time on hand (waiting)

3) Waste in transportation (from Telus capping my upload speed to 76k/s :P)

4) Waste of processing itself

5) Waste of undeployed code (our version of inventory)

6) Waste of repetition (if you have to do anything more than 2x, then automate it)

7) Waste of making defective products

At this point in time, I’d say 1, 6, and 7 are the biggest sources of pain for me I’ll keep you posted on how close we get to 0% waste!

Apologies for the inactivity, but I have a very good, 7 lbs 10oz. reason! Megan is our first baby, and so it’s taken a little getting used to! This is an uber late posting of a December lunch with the always-brilliant Kelly Graves. Kelly is one of Ph03nix New Media’s advisors. His wins include the sale of Net Effect Systems, of which Kelly was a co-founder, to Ask Jeeves. Currently, Kelly is acting as CTO at Loa Power Tools.

Original Joe’s Kensington, Calgary

JL: So what should we be focused on January?

KG: You mean, you specifically as a company?

JL: Yes

KG: Well, the message hasn’t changed. The conversation you and I had three months ago and the conversation you and I had a year ago is still the same. Only I think the wisdom of the strategy is the more evident now. And that is that you need to behave like the money that you have is the last money that you’re ever going to get. Nowadays, you always see a paragraph that starts out with “in these economic times”… Well, in these economics times, money is going to be very hard to raise. So, businesses that can’t see their way to profitability using the resources that they have …whatever those might be… its going to be very tough. And I don’t think its any surprise for you and your company. I think that you’ve behaved like that all along which why you’re seeing some success. The companies around town that have these business plans which have a paragraph about 2/3 of the way through that essentially translates into: “and magic happens”: Google shows up or eBay shows up, those are the businesses that are in trouble, because Google and eBay are not going to show up. I always liken that strategy to one of the James Bond movies with Pierce Brosnan where 007 and an evil guy are fighting for the airplane.  James bond gets knocked out of the airplane while it takes off, and he runs and grabs the motorcycle and drives off the cliff after the airplane, catches the airplane midair, and jumps from the motorcycle into the plane.

And that’s kind of like the strategy for some companies right now… it’s how you should view the strategy of the companies that are going to need financing to be able to continue operating. That financing is very, very hard to get. When you launch a company based on a presumption that there is further financing, and not based on the presumption that you can generate the money that you need to stay alive through your own operations, it’s very much like jumping off a cliff from a motorcycle hoping to catch the airplane. You’ve got one shot and if you miss, that’s it.

JL: And that’s why from the beginning we wanted to avoid that scenario. Which is why we always tried to stay in a position of not needing the money. And one of the things that we’re starting to see is pretty significant down rounds for anybody that is in the market trying to raise money.

KG: Who needs money.

JL: Yeah, because people are taking advantage of that fact and getting deals. So how long do you think that these Economic times will last?

KG: It depends on how greedily opportunistic people are. This is very much a phenomenon of human behavior. The crash didn’t really have very much to do with changing values in things. It was precipitated by the sub prime mortgage crisis, which was almost exclusively a phenomenon of human behavior. It was legal, but very close to a ponzi scheme. So it’s not that the values of assets is changing as much as it is the behavior of people creating a situation that is revealed to be untenable. If people would behave in a rational fashion and decide they are simply going to sit back, and stop doing opportunistic things, or panicky things, this wouldn’t last very long. But the more companies that put up their hand, and say ‘we need a bailout to;.’ and the more people who sell their stocks too early in order to salvage their RRSPs…basically the more panic that goes on, the longer this is going to last.

JL: So, when you sold Net Effect Systems, that was on an upswing. So looking ahead, and trying to plan years and years in advance for an upswing that should occur…   what do we have to do to best position ourselves to best take advantage of that?

KG: It was general Patton, I believe, who said “if you want to get rich, find out where people will be in 5 years, and go by land.” That’s what I’ve tried to do with respect to investing for years and years and years. Since long before now. So for me, the two things that are necessary for anybody:  One is to find something that generates resources for you, whether it’s the sale of a company or ongoing sale of games like you have…..and to build it and grow it in a rational and linear fashion so that it gets bigger and well managed. But recognize that because all things are cyclical …. Whatever you are doing that is successful will disappear. It’s guaranteed. And the trick for you… it’s just like Dating. If you want to leave a relationship you always leave when things are really really good, because in your reputation is high. If you leave when things are dirt, then your reputation is dirt. So two components, first is some sort of venture that generates good revenue for you, and gives you the resources you need. And the other is some sort forward looking investment that anticipates where people will be. So for you it could be causal gaming related to curriculum now, and your five year project might be virtual worlds related to education. So you see that they are adjacent to each other. But you are betting on the fact that in 5 years people will be there.

…continued next week.

A bit of a changeup today! Coffee with Rob Lewis, President of TechVibes Media. “Techvibes is a community for technology professionals featuring news, events, job listings, and company profiles from across North America.” Prior to joining Techvibes, Rob was Director of Marketing for webnames.ca.

Sciue, Yaletown Vancouver. 126 Davie St.

JL: So what is Techvibes up to?

RL: We’re rolling out a new model in the new year, which is going to see community managers in all of our major cities. That community manager will be responsible for writing a certain number of posts a month, interacting with the community locally, going to events, and introducing Techvibes to people who don’t know anything about it. The hook we’re throwing out there is that we will be paying a monthly stipend to cover some of the expenses related to being out there and going to events. But we’re also sharing revenue based on any new advertising they bring in. There is a definite opportunity for the right person. Someone that is tapped into the network, understands how to grow relationships, and get people excited about Techvibes. It would be an opportunity for them to push hard, grow our traffic, add content to the site, and then benefit from the advertisers coming on board.

The fact is, that as soon as we have a presence in a city, we get inundated by people contacting us to cover them. In the last couple of weeks, every day I probably get 10-15 press releases. People reaching out to ask for coverage. Which is great, because it means we have more and more content to cover. In a way, I assume this is the same thing with Michael Arrington at Techcrunch. He probably gets pitched 100s of times a day. We’re not there yet, but eventually we’ll get there, and as we get there, we’ll have more and more great content to write about. The nice thing about our model is, rather than picking the 10 most interesting stories from 200 coming in nationwide, when we get 200 in, it’s over 10 cities. We’ll be able to choose 2 or 3 from each city. So we aren’t blogging about 10 companies, but 20 or 30 news items. So there’s a lot more content there. Ever since day 1, we’ve referred to ourselves as the Long Tail of the Techcrunches. TC covers the big news. If Ph03nix New Media went and raised 10M, and were located in the valley, they’d write about you. But we’ll write about you even if you raise half a million. We want to make sure that we cover the interesting stories locally.

The other thing that’s happening is that we’re adding more and more content. More people now are adding their events and jobs. More and more companies are adding their companies to our directories. They’re starting to realize that the best way to get covered by us is to add themselves to our directory.

JL: Are you still seeing the shift from the traditional media advertising onto the online space?

RL: I think there’s a bit of that. We’ll see more of that as time goes on. One of the themes we see on our blog, is a wave of hyper local search websites that are sort of the anti-yellow pages. They’re trying to get $200 a year from advertisers that are used to paying $10,000 a year for a yellow pages listing. I think that over time, and certainly if the economy stays crappy for a while, these new sites will succeed. If the YP knocked on your door tomorrow and said “Do you want your listing again? It’s going to cost $5k or 10k”, you might think twice about it this year. Maybe last year you didn’t think twice, and just signed that form. Hopefully we see more of a shift, but the people that are advertising online now are smart and ahead of the curve.

JL: There’s definitely an age where there’s a complete dropoff for using Yellowpages. I never go to the yellow pages anymore. I just search for it.

RL: Well, I’m 10 years older than you, and the last time I looked at the Yellowpages was 15 years ago, because it got delivered to my apartment. I’ve probably looked at it once or twice to get a pizza # or something. I don’t know who uses it now. I guess if you’re a 70 year old woman, and you need your lawn done, you’ll probably go to the YP. But even my dad, who is 70, if he needs something, he just goes online and Googles it. I’d like to think from an environmental standpoint too, in 5 years, 10 years, we won’t see these paper directories anymore. Wouldn’t that be great?

If you were to wander around Vancouver, any office, there’s a very good chance you’ll see a YP on a desk but only to prop up a computer monitor.

JL: Holding a door open or something!

RL: Exactly. I think that those types of directories are long gone. The whole hyper local thing has more value. You’ll probably find sites pop up that handle local markets really well. Essentially, that’s what the YP was, a hyper local offline directory. And the YP will probably figure it out, and jump on that chance, but they’ll never be able to demand the ad revenue that they were offline.

There’s something about getting a full page ad, whether you’re a roofing company, or pizza company or whatever. It’s tangible, and it’s ego driven. If their competitor has a quarter page, they want the full page, right across from the other guy.

Sciue (Pronounced Shoo-ey)

1 Coffee, 1 Latte: $5.00

GST: $0.25

Plane fare amortization: $200.00

Total: $205.25

Sciue was a great place to have a meeting. Unfortunately didn’t try the food, which I heard is quite good. Would definitely come back next time I’m in Van!

Lunchwithsmartpeople. Today’s lunch is with Boris Wertz. From the Suite101.com website: “Dr. Boris Wertz is an Internet entrepreneur and investor and the CEO of W Media Ventures, a Vancouver-based venture capital firm that focuses on Consumer Internet investments in the Pacific Northwest in close cooperation with long-term partner Acton Capital (former Burda Digital Ventures). He is also the CEO of Nexopia.com, Canada’s largest social networking site for youth. Previously, Boris was the Chief Operating Officer of AbeBooks.com, the world’s largest marketplace for new, used and rare and out-of print books which got sold to Amazon in 2008.”

Honjin Japanese (Yaletown) 138 Davie St, Vancouver, BC

JL: So, clearly you have a passion for entrepreneurship. Can you recall when that started and why?

BW: It started very early in my life. As a kid, I was starting to sell things, and make a businesses out of little opportunities, etc. I always had the dream to start my own business, but was never quite sure when it would happen. For me, it happened right after I finished my PhD. It was the big internet boom of ‘99, and we started our own internet company. So it was never really planned for a specific time, but it was always planned as something that would happen in my life.

JL: And you did your doctorate in logistics?

BW: Yeah, something that I never did any more. AbeBooks and JustBooks were  logistics free businesses. Logistics all happened between the book sellers and book buyers. We never touched a book, never saw a book. But you know, as is mostly in the early stages of your career, you’re trying out a few things. I looked into finance, logistics, and production, and ended up more in the business development, marketing side, and being an entrepreneur.

JL: So yesterday, I bought some of your wife’s dog treats. <Aside: Luisa has a company called WildBites. They make organic dog treats. Great for our dog because she is allergic to beef. The treats we got were ostrich/buffalo pepperoni!> The store manager in Calgary said that they were the best selling dog treats they had! What’s it like having a family of entrepreneurs? Do you find that is somewhat of a different dynamic? Do you enjoy that?

BW: I think it’s great because we talk quite a bit about business. And she knows from her own life, what it is to be an entrepreneur, and the risks that you’re taking. I can also give her some advice from what I did. It’s great to have that connection, in terms of really understanding each other.

At the same time, we couldn’t work together, because we’re very different people! Its good that we have our own thing, but still a very strong connection around entrepreneurship and running our own businesses.

JL: At such an early age, you’ve already had a lot of accomplishments. AbeBooks is the latest feather in your cap. <AbeBooks books sold to Amazon. See article> What’s next in your brilliant future? Maybe talk about some of your portfolio companies and where they’re going.

BW: I think overall what I really want to do is help consumer internet companies in BC and Alberta develop faster and better, and hopefully help build a few big companies in this region. So, we’re focusing on different areas: e-commerce, media, and platform. Partly early stage, partly later stage. So that’s where the vision is. At some stage, I could imagine going back and starting my own company again. I’m not done with that, but right now, my focus is on being an investor and helping our portfolio companies. Sometimes really operationally, like in Nexopia, where I’m running the ship for the moment. But it could well be, that down the road in 5-10 years, I’m starting my own company.

JL: I was talking earlier with Rob Lewis from Techvibes about Suite 101. It seems like an interesting model. Can you talk about it?

BW: Suite 101 is aggregating thousands of writers on a site that publishes articles. So we have close to 200,000 articles on the site. It attracts over 10,000,000 uniques a month. So it’s a really large scale site. So why does that model work? It works in a world where suddenly you have no limits in media distribution any more. And we’re really talking long tail. Articles about really specific topics, that are being addressed by the writers, and they probably all have only an audience of 100 people worldwide. But aggregated, that makes big business. And that’s the interesting story about Suite. The company is on track to do very significant revenues in the upcoming years.

JL: Do you actually sell the articles, or is it ad based?

BW: No, it’s ad based. Google adsense is basically the monetization method. The primary monetization method.

JL: So, a person will find the article, and they will see contextual ads placed beside.

BW: Yeah. The typical situation for Suite 101 is that somebody searches for something: an answer to a certain question, and finds our article in Google. They come to our site, read the article, and then click on an ad.

It’s really an ideal environment for monetization as well, because these people are looking for an answer to their question.

JL: So that’s sort of like about.com

BW: But About, in the end what they have is a web 1.0 model. In terms of one writer (what they call a guide) for one topic. So if you’re the writer on Vancouver Travel, there’s nobody else that can post anything there. What we’re trying to create with Suite is the same model, but more open. So even if your topic is Vancouver travel, there are probably a lot of smart people out there that also can contribute to the topic of Vancouver travel, even though they might not be professional writers.

So we have a little more of an open model, where we say that tons of people can contribute to a certain topic, and they’re all experts. Then there are certain community features that decide what content is really valuable, and what is not.

JL: And the layout (I’m hoping) is much more clean than About? With About, it seems like they cut the article in half with ads. I get confused every time I go there…

BW: I know. Yeah - on the monetization side, I think they are really aggressive about it, and we are trying to be less aggressive there.

JL: And my last question is about the sale of AbeBooks. Can you talk ballpark dollar figures?

BW: Unfortunately not, because it’s confidential. But I think it was a very good exit for everybody - for the shareholders and for the employees who were all shareholders as well. Especially in this rather difficult financial market, I think it was a great exit, and definitely one of the bigger consumer internet exits in BC ever.

JL: And did you guys actively pursue that, or was it Amazon that decided to buy?

BW: Yeah, we actively pursued that. We had a process with an investment bank. It was a several month long process between hiring a bank and closing the deal.

Honjin Japanese (Yaletown) Vancouver

2 Sashimi Lunch Combos    25.90
GST                                        1.30
Tip                                          4.00
Plane fare amortization :)    200.00
Total:                                  $231.20    Worth every penny!

Restaurant was good. A bit of an eavesdroppers paradise - we were cosily seated in between 2 other tables. Surf clam a little chewy, but the salmon and tuna were perfect!

Just finished a great day at the Vancouver Angel Forum. We took home 2 prizes: most likely to be acquired, and best pre-revenue company. All in all a great day! Props again to MJ Sikorsky (including helping with tuning the deck in-flight) and the team at CTI! The Angel Forum was a great venue. The ‘investor-only’ sessions after each company presentation really elicits honest questions and comments. A must-attend for any company raising capital!

Lunchwithsmartpeople - Today’s lunch is with Michael J. Sikorsky, CEO of Cambrian House, voted #4 best web 2.0 company in Canada by KPMG. One of their projects is the video game Gwabs. Look out for it soon!

Earl’s Tin Palace Calgary

JL: What do you think of the whole ’sky is falling’ VC view, and the Sequoia doom presentation?

MJ: I think that no one knows if the sky is falling, but when you get enough signals that it might be, you’re better off to act first. I like John Doerr’s comments in that if you are going to cut, you have to cut once and cut deep. But you can’t cut your core…you can’t take a meat cleaver to your body and expect it to work. Unfortunately it means that whatever you are cutting, it’s probably something you should have cut anyways. It’s just belt tightening.

I think that Sequoia and those guys know that when times are good and money feels easier, that people have too many initiatives that aren’t going to convert, and too many staff that aren’t building value. So I think that it’s probably right that they did that. (Made the presentation) I think that all those firms doing layoffs are using it as a brilliant excuse. They wanted to cut those people anyways, but now they’ve cut them with this great peace of mind. It was a good forcing function for anyone who wanted to clean house and not look dumb for doing it.

MJ Sikorsky Earls Calgary

JL: Is it going to impact Canada as much as the States? Because I feel like in Canada, our belts are a lot tighter to begin with.

MJ: Yeah. I would think so. It’s going to impact everybody, but anybody that’s doing it in Canada is totally just following on. Even myself, I have to examine our business and ask whether that’s something we need to do. It makes you think really hard and look around and say, yeah, I don’t have any fat.

But you can’t cut your core. If you cut your core, you’re cutting your business. So, when you hear about all these people cutting staff, if they’re cutting a third, it’s because they have 15 people. And they realized it’s hard to get a product launched when you have 15 people. It’s easier when you have less than 10. So it’s convenient now to cut them.

JL: What do you think of TDD and the importance of rapid iteration as per IMVU and Eric Reis?

So, the point is that every time you start a startup, you have a massive set of assumptions. So imagine you have a plane, and you’re trying to fly somewhere. If I don’t have a map, and I’m flying in the dark, I’m probably dead. But if I have the instruments in my plane, and a map, I’m not having assumptions of where that mountain range is, and I’m not going to crash into it.

So, there are all these techniques and fancy terms to doing it, but it’s nothing more than flying a plane with instruments. In a startup, you can’t see! It’s dark! If you knew exactly what to build: the exact features, and your exact market, then you wouldn’t have a problem and you wouldn’t have to adapt.

The point of all that stuff that Eric’s talking about is actually firing up your instrument panel so you can fly better at night. Now, this idea of an instrument panel has always been true. People have people counters in their ice cream shops! And they go - “how many people walked in my shop today, and how much money did that generate at the till.” What’s happening now, though, is that when people are online, this ability to experiment and aggregate that knowledge - the ability for your instrument panel to be refreshed faster is just there, and its a way more complicated instrument panel.

It’s pretty easy to go and buy the people counter and stick one by your door. It’s not as hard as running 20 experiments inside my software a day. Because in your ice cream shop, you can’t physically do it, it’s too hard. The part that blows people’s minds is the level at which you can experiment, and the level at which you can get data. Unfortunately, it’s really easy to say, and hard to do.

My last point, and this is learning from Eric: The hardest people to get their heads around this is the engineering team. Because there’s so much work going into the instrument panel, when your basically talking about making a flight. An unbelievable amount of work goes into the instrument panel. Unfortunately in startup land, if you don’t put your work into your instrument panel, you have no idea that you’ve stalled in the road. You’re literally in the parking lot, not going anywhere, and you don’t even realize it!

Restaurant: Earl’s TIn Palace, Calgary
Bill:
Parking: 2.00
2 Pt Albino: 12.00
Cheddar Burger & Gravy: 14.50
Scallop Linguini: 18.50
GST: 2.25
Tip: 6.75
Total: 56.00

All in all, a decent place to have a meeting. Upscale, washrooms clean, food and service were good. A little on the noisy side during this time, but that can almost be a plus when you’re trying to talk business!

Books should be judged by what you remember from them. So, in this series, I’l review a book simply from memory, 2 weeks after reading it!

Coincidentally, this has the added benefit of making the reviews exceptionally short - a big plus for both myself, and the busy people reading these reviews!

I only remember 3 things from “Free Prize Inside: How to Make a Purple Cow” by Seth Godin.

First, purple cows are good. Purple cows are the ‘free prize’ or soft innovation inside a product. These can range from the free prize in a cereal box, to the achievement points inside an Xbox game. These free prizes often become the reason people buy the product and talk about it. Whether you want to call this differentiation, a USP, or a free prize, I think it is important to keep in mind for any product development.

Second, Godin’s argument is that Free Prizes are where the money’s really at. He asserts that paradigm shifting technological innovation is ultimately a money loser due to the large amounts of capital required to make the innovation. On the other end of the spectrum, heavy marketing is also a money loser. Again, it is difficult to make your return here exceed the amount of money you need to spend to be effective. Instead, Godin proposes that we should focus on driving “Soft Innovations”. Innovations that don’t cost a lot of money, but often end up being what the customer buys the product for. According to Godin, companies should take all their ad and hard innovation spend, and use that to create really great products. Basically, he thinks companies should focus on making great products with free prizes/purple cows that encourage their users to talk about them.

Coincidentally, I brought this idea up to an Ad Agency in 2005. They looked at me like I was from Mars, and promptly told me that I needed at least 1 Million to launch any kind of product into the online space. On another note, MJ Sikorsky says (and I’m heavily paraphrasing here ) “If you can make something people want, all that other stuff: marketing, cap table, advisory board, BoD, etc, won’t matter. It can always be fixed. If you can’t make something people want, all that stuff doesn’t matter either.”

Last thing I remember from the book is finding “free prizes” by going to the edges. (There’s an actual name for it, but I can’t remember ) Essentially, pick a criteria, and go to either edge of that criteria. So if you pick customer service, either go to the edge of providing bend-over-backwards customer service, or no customer service (with associated price decrease, of course). There are a lot of interesting examples of this in the book. Again, an easy way to make sure you are differentiating, and not doing things half-a$$ed!

On the whole, this was a great book, and worth the money. Not a lot of Earth shattering concepts here, but definitely a good marketing book for non-marketing people. One of the best things about the book is actually the in-depth end notes, which go into great detail about the notes.

If you haven’t seen Private Equity’s miniseries Spiral, you should check it out. In a weird reverse-MXC type remix of a German WWII movie, “Spiral” is an interesting take on today’s financial crisis.

http://equityprivate.typepad.com/