Facebook's mobile risk


Facebook outlines some risks in their S-1 - ranging from Google plus to governments. They mention a risk w.r.t mobile phones - they don't have ads on mobile phones.

It's only a matter of time before they add ads on phone app - so I don't perceive that as a big risk.

Mobile phones are a risk but in a different way.

The big risk in my opinion is:

  • Most people have a limited amount of daily time that they spend on entertainment. For many people time they spend on Facebook falls to some extent in this category.
  • In the past 2 years, the amount of time people spend on their mobile phones has dramatically increased.
  • Options for entertainment are vastly different on mobile than on PC. It's not just the gamers on PCs who are playing games etc. on smart phones. People use their phones in ways they did not their pc's. I play a lot more games on my phone, I never did that on my PC.
  • As people spend more time on apps on their phone - playing games etc, the time they spend on Facebook will start to reduce.
I view the general smartphone platform vying against facebook for people's attention time. This could be a challenge for Facebook, whose business is built on selling the product YOU!

What do you think?





Deal well with the highs and lows: Lessons Learned #2

Lesson #2: It's a roller coaster ride ( as I mentioned in one of my earlier posts).

As exciting as the last 4 years have been ( getting from an idea to 9 million users, to become the largest language learning website), its not linear progress. It might look that way from the outside but it definitely is not that way.

There are lots of ups and down. One day seems down in the dumps, and the next day you could be on a high.

If you work in a regular job at a bigger company and then start a company, this is a huge change and stressful. While there are changes in your job as say an employee at Microsoft, the number of variables that can change and frequency is different. As a startup founder, there are a lot of variables - competition, hiring, funding, partnerships, sales, marketing, legal, pr and each of them can have big impact on you.... There is nothing you can do about that - it just is, so just deal with it well.

Your trajectory as a startup could change based on single event, news article, funding event etc. This is why its so exciting to be a startup. One of my friends who had started a company a year ago, had been working on the site for a while. Last week, they had a blowout event and got picked up on WSJ, Forbes, TV coverage and literally viewed by hundreds of thousands of users. Check it out- Zediva

The lesson I took away is that in a startup everyday you should keep trying to move forward ( even if its two steps foward, one back), try different things and hope that you catch some breaks.

The corollary here is that you should not give up too soon. I read that many of the gold miners in the California gold rush gave up when they were only a feet away from finding gold, after working really hard to get to that point. Many a startup's best moments have come after some dark moments.

(source: wikipedia)

Start something you are passionate about: Lessons Learned from Livemocha

Thought I would put together a top lessons learned over the past 4 years at Livemocha. I tried to pick ones that are big in the long run and write this over a series of posts.

#1 Passion: When starting a company, pick a problem that you are passionate about solving.


Seems really straightforward but not so much in practice when you look at how many startups get started as groupon clones. The goal of starting a company should not be to build something that's attractive to VC's or have google acquire you.

For a long time, I was enamored ( like many people) by the idea of starting a company. Over the past years, I realized that are lots of ups and downs in a startup. You make personal sacrifices - My daughter and wife barely saw me for the first year of Livemocha. It's great if you eventually build a huge business but what will keep you going during your low moments (esp. early on) is if you really believe that you are solving a problem that you believe should be solved.

In some ways you are an early explorer like Columbus who cared passionately about finding a new place. You may not find it or make much money of it but that's not the main focus of that journey. If you are passionate, it will show in the conversations to future employees, customers, investors, press etc. and it makes a huge difference.


You are not going to start more than a few companies in your lifetime. If you are going to put yourself through a bunch of crazy stuff and try to succeed against tough odds, do it for a product you care about passionately.



Value Homes Calculator

When looking for a home previously, I often found myself looking at a home (at windermere, redfin etc.) then immediately checking on zillow if the home is below its estimate.


Since I repeatedly did this, I thought that if zillow had a feature to allow me to see homes that were lower than estimate that might be a handy search feature. It would be great if I can set various thresholds like Kayak to filter results by e.g. 20% below value etc. and run searches.

Looking at Zillow's api - It seems fairly easy to build this:
  • Use their GetRegionPostings api to get listings for a region. http://www.zillow.com/webservice/GetRegionPostings.htm?zws-id=&zipcode=98004&rental=false
  • Use their GetZestimate api to get zestimate for each listing above http://www.zillow.com/webservice/GetZestimate.htm?zws-id=&zpid=48749425
  • Use GetUpdatedPropertyDetails api to get the price of each listing http://www.zillow.com/webservice/GetUpdatedPropertyDetails.htm?zws-id=;&zpid=48749425
  • Compute the difference between price and estimate and sort the results.




Challenges with Groupon


When I first heard about Groupon, it was intriguing. I ended up buying a couple of items on it - one for a handyman and the other for a fitness center. I was feeling pretty good about the money I saved ( Of course I never was looking to buy these items but oh well..)

A couple of weeks later we had a problem and needed an handyman and I said 'Hey I have this coupon why don't we call them'. Of course I was frustrated, when we were told that they were not available until 1 month out.


The challenge with the groupon model is:
  • The services that advertise there are not necessarily the ones who you typically use. Ideally it should be the other way around - you should get a coupon for a service you like.
  • The groupon model is based on local service providers giving you a good deal. But there is no easy way for a provider like a handyman to suddenly scale if they get 900 buyers from groupon - unlike say a provider of a digital, electronic good. The providers are not equipped to handle the volume, get overwhelmed and it can be a bad experience.
  • Almost no service provider say restaurant, has a 75% margin which is what groupon requires ( you have a deal 50% off and give 1/2 of sale to Groupon). Most of them take on the terms because they think they will get repeat customers so the groupon deal is a customer acquisition cost. But if you don't get repeats, it won't work. Right now Groupon can ask for 50% of sale because they are one of two games in town ( livingsocial is the other) - over time, they won't be able to.
What do you think - there a lasting model here? Maybe it works for certain types of products not others.



Funding your startup

Once you get past the idea stage and have something that you think is worth pursuing, what are the next steps?






Bootstrapping

You can choose to build your startup idea on the side while you are working full time somewhere. One of my friends Vivek Bhaskaran founder of QuestionPro got started this way. He has a fascinating story about how he got started.

While some get started this way - its hard to pull this off. Mainly because:
  1. Work gets in the way. You are not as productive after working 8-10 hours at regular job.
  2. Working a few hours a day or weekends will not get you very far. In this internet age, you should assume that someone else ( maybe a couple of 22 year olds :) ) is working on the same idea and working full time on it. They will make more progress in a week -eating and sleeping with the idea than you will in a month.
Of course you could get creative and use some of your salary to get an offshore team going. E.g. if you are making say $10k here, you could fund 2 developers offshore for about $6k.

After a few months - get to the hard question - Do you quit? For most folks - this is the hardest part - jumping off. Hopefully you have found a co-founder .

If it's two of you and you are both technical, then you could start building the product. Most startups will have founders who have mainly product/technical skills.

If you need to hire additional people - what do you do? The first thing you should do is see if you can find folks who can do this cheaper - e.g. Offshore development might be an option. That way the amount of funding required is lower. However offshore development for startups is hard.

Nothing in a startup is typical. Having said that, here are the common models for funding your startup:

Consulting
  • You can try to consult while building your startup. This is hard as it takes away focus from building your startup
Self Funding
  • If you and you co founder can put in any money, this is an option. The good thing about internet startups is that you can launch for very little so you don't have to take huge debts like before.
Friends and Family round
  • You or your co founder could get some friend or family to invest some money. Unless the friend or family angel invests in startups, it can be tricky - mainly because it puts an enormous burden on you. Startups are stressful as it is.
Seed Round
Angel Funding
  • There are folks who invest their own money in startups and in fact some who do this prolifically. Reid Hoffman ( Linkedin Founder) has probably invested in over 80 startups.
Super Angels and others
  • Y Combinator, Founder Institute etc. can provide some funding and help you get your startup off the ground
  • There are angel funds like Floodgate that Mike Maples runs, which can invest in your startup and help you get a bigger round later. Mike has invested in a whole bunch of successful startups including Chegg, Spiceworks, Twitter etc.

Sometimes folks write a convertible note that gives them a certain discount of the Series A round. In some cases (esp. if a VC does a seed round) they get equity- say your company is worth $1mm and 500k will give them 30% of company ( valued at $1.5mm post). Many angels sometimes also like to put time limits on the date of Series A financing. ( So you don't go years and all they have is a note).

VC Funding

This takes a lot of time and effort. Less than 10% of startups get VC funding. Also it's not for every business. For e.g. if you found a niche say dating business for Blackberry fans and the market is $20 million at best. VC's likely won't be interested.

By far this takes the most amount of time and you do this mainly because it lets you raise lots of money in one shot instead of say raising $3mm from 15 angels.

VC's will value your business pre and basically take that equity. Typically they want atleast 30%. So if you go in at series A looking for $3mm, you will likely get valued at $3-6mm pre and that gives them 30-50% of your company later. There are lots of other things to consider (board seats, liquidation preferences etc. etc..). Usually you and the VC will both have separate lawyers to help you draft this ( and their lawyer fees come out of the funding amount :) )




Should you offshore your development?

One of our considerations when we started Livemocha was whether we should setup an offshore development center. I had setup an offshore center for my previous company and grown it to over 50 people and since I had done this before - it seemed natural that we should setup a center there for Livemocha too. (We setup our development center completely here in Seattle).



The pros of offshoring are:
  1. Cheaper - It's cheaper on a per headcount basis to hire someone in India or Russia.
  2. Can be started up quickly than hiring yourself - If you want to hire 3 developers it could take you a while, but offshore teams can in theory be spun up quickly.
Cons:
  1. Coordination challenges - It's very hard to coordinate with developers you have not met, don't speak to more than once every couple of days. The timezone challenges makes it even harder to stay in sync.
  2. Talent level - Contrary to what any offshore provider will tell you - the talent level here locally far exceeds the talent there.
  3. By far the biggest is loss in productivity because you are not all talking to each other. For e.g. if you ask them to implement a facebook connect button, you have to say exactly what it is and if they run into any issues, they wait a day for you to get back. If you were all in the same room - you would have had a 5 minute conversation and made a decision. Especially in a startup, things are not defined well, and changes fairly rapidly.

In my opinion, the cons outweigh the pros especially when you are only hiring 2-3 developers offshore. One really sharp developer working with you locally in your team could easily do the same as 2 people there given the talent level difference, timezone challenges, and flux. Further coordinating with 2 people there will take up 1/2 of a person's time here. If you have a different day job and don't yet have a company in the US - you might find this an option.

If you decide to do this - here are some tips
  • Do it selectively. For e.g. in the early days we had teams in India doing some content work, SEO work, image editing work, later we had some specific QA work etc.
  • Do not offshore critical core components. Unless you know the folks/talent - For e.g. some of my friends from the US have started offshore services in India with specific product focus e.g. mobile and I know the team and the talent level. Or the team has a co-team in the US in your city you can interact with frequently.
  • If you use a provider, talk to the people doing the work. See if you can get them to put 1/2 a project manager to manage the team directly there.
  • In my experience - try to get a monthly cost for a developer, instead of time and material. Otherwise you will get inundated with change requests every day and you will be extremely frustrated.
  • Push them to put shadow resources so you are not affected by attrition. Almost every provider esp. in India will tell you their attrition is better than average :) The reality is that you will lose people and the really talented developers are in product subsidiaries like Google's India center etc.
  • Give requirements clearly and be prepared for a lot of late night calls. Lots of coordination required.
  • In case you are wondering - you won't be able to hire anyone directly offshore unless you setup a subsidiary and that's a huge set of work. Don't go there unless you want to put 50 people in India. When we setup a subsidiary earlier, we knew we want to have a team of over 100 people and so it made sense to do that - since you can hire better developers etc.