Social Networking Wars

MySpace vs Facebook vs Friendster vs SecondLife

One of the best cartoons ever.

Mark Zuckerberg interviewed on 60 Minutes

Leslie Stahl interviews 23-year-old Mark Zuckerberg on 60 Minutes.

Facebook’s “Toddler CEO” is grilled about his age, the Beacon PR disaster and going public.

[The Gateway II — extended version] Team Talk

Last week we discussed idea generation and evolution. Here we’re assuming that you’ve got an idea, developed it into a planned product or service and you are now working out who else you need to work with to help turn your dream into reality.

First of all, you probably need co-founders. A quick analysis of all the recent success stories points to 2 or 3 being the optimal number. For example, Bill Gates had Paul Allen at Microsoft [current team of CEO Steve Ballmer and Chairman Bill Gates above left] , Larry Page has Sergey Brin at Google and Mark Zuckerberg initially had Andrew McCollum and Dustin Moskovitz at Facebook.

Setting up a business on your own occasionally works e.g. Jeff Bezos with Amazon, but the process of bouncing ideas around just isn’t possible in the same way. Finally, if the core team start off as 4 or more, people often end up dropping out due to having differing expectations or effectively becoming a ‘spare part’ due to there being an overlap of skills within the team.

A good way to improve your understanding of these sort of relationships is by reading Founders at Work (by Jessica Livingston, Partner, Y Combinator) – a collection of 32 candid interviews about the early days with founders from the likes of Apple, Hotmail, Yahoo!, PayPal and Firefox.

Having read the book myself, it seems that a common pattern emerges – complimentary skill sets. Guy Kawasaki (Author, The Art of the Start) explained the dynamic well at the annual TiE conference in 2006:

“If you’re a great engineer, you need to find a great marketer. If you’ve got a great engineer and a great marketer, then maybe you need to find someone who’s good at operations. If you’re a youthful young visionary, then you need to find adult supervision.”

OK. The last sentence is slightly tongue in cheek, but the point is clear enough and you can draw upon analogies from any number of sporting teams. However, it’s not necessarily essential to cover every single base of skills in the initial team. You’ll learn and develop skills on the job. For example, with GroupSpaces I started off having done a couple of banking internships and an alumni fundraising campaign which furnished me with reasonable finance and sales skills; and my co-founder Andy Young started off with several years of Web development under his belt. After working together for a couple of years, Andy’s developed into a top graphic designer and my understanding of management, marketing and corporate law has developed tremendously. That’s now resulted in us having pretty much all the bases covered

The other thing to bear in mind is quality. You need to “Keep the A-team the A-team”. In the speech mentioned above, Kawasaki also touched on the rationale behind this saying:

“A-team players hire A-team players, B-team players hire C-team players, C-team players hire D-team players and if that happens, before you know it, you’ve got Zee-team players.”

And finally, remember – lots of people have exciting ideas, but they’re worthless without good execution– it doesn’t matter how fantastic your idea is if you don’t have a sufficiently talented team to make it happen.

I’ve got a team, who else do I need?

Find the right mentors. For any first time entrepreneur, this is absolutely crucial. Unfortunately entrepreneurship isn’t something you can learn by studying, you learn by doing. I remember a Harvard MBA saying something particularly memorable to me while we were having dinner at Smollensky’s in Oxford last August:

“Business is a trade; you learn with an apprenticeship and you improve by practicing.”

Where this school of thought derives from is mistakes. You learn about how to start a business by trying stuff out and making mistakes. Gradually you realise what works and what doesn’t and this is called “experience”. This is where the mentor comes in particularly useful. Any good mentor will have lots of experience and can hopefully share the lessons from many of the mistakes which they themselves have made in the past so that you don’t have to make them yourself.

The PayPal Mafia are a prime example of the benefit which good mentors have. PayPal’s original CEO Peter Thiel invested $500,000 in Facebook when Zuckerberg went to meet him in June 2004, 5 months after they launched the website. Having already taken PayPal from zero to a $1.5bn sale to eBay in 2002, Thiel clearly knew his way around Internet business. Now that Facebook has over 50 million users and has been valued at 10 times this figure ($15bn) with 23-year old Zuckerberg and Thiel still composing 2 members of the 3-man board, most would credit Thiel’s guidance significantly.

Further evidence of the value of mentors and experience is provided when one realises that of the original PayPal team, Reid Hoffman (former Executive VP, Business Development) founded LinkedIn, Chad Hurley and Steve Chen (former developers) founded YouTube, Max Levchin (former CTO) set up Yelp and then Slide, and David Sacks (former COO) has recently started Geni. With a combined valuation in excess of $5bn, it’s not hard to see the value in sharing lessons learnt in setting up particular types of business.

At a more mundane level, it can make a big difference having someone with experience to call on when you want to incorporate a company, draft a shareholders’ agreement or even just write important letters.

My idea needs money to make it happen. Where do I go?

1. You’ve probably heard of Venture Capital. VCs (Venture Capitalists) give entrepreneurs cash in exchange for shares in their company. Generally, Venture Capital investments are £500,000+ and firms often don’t want to invest less than £1M in companies for their portfolio. In the UK, VCs tend to only invest in proven concepts; now this could be the entrepreneur running the company (i.e. he/she’s been successful before) or it could be that the company already has a well-developed product and lots of customers. It takes time to get to this sort of stage and a VC would almost certainly want the entrepreneurs they invest in to work full-time on their company. Therefore, this one’s unlikely to work for you.
2. Angel Investors are affluent individuals who provide capital for start-ups and they typically invest their own funds. This is in contrast to VCs, who invest the pooled money of others via a professionally managed fund. Investments of £50,000-£500,000 are typical angel territory, and like VCs, they probably want shares in your business. Connecting early-stage companies and angel investors can be difficult outside of personal networks, so angels often get together in “angel networks”. Formed out of a group of angels, these function like a real-time version of Dragon’s Den. Once every couple of months, a few lucky entrepreneurs get to pitch their idea to the network at a presentation and they are subsequently asked questions. Hopefully they end up receiving offers of investment too. Popular angel networks in the UK include London Business Angels (LBA), Oxford Investment Opportunity Network and Oxford Early Investments (OION & OEI) and the Great Eastern Investment Forum (GEIF).
3. Micro seed funding (as oppose to “seed funding” which is synonymous with “angel-level funding”) has been pioneered by Y Combinator (YC) in recent years. It is a biannual scheme with an intensely competitive application process: first, hundreds of entrepreneurs around the world submit answers to 25-30 questions; next, a chosen few teams are interviewed; finally, around 10 receive funding each cycle. For the chosen ones it was well worth running the gauntlet – not only do they receive somewhere between £5,000 – £15,000, but the teams also spend 3 months living in a start-up hub, get the opportunity to meet many successful entrepreneurs and at the end pitch their ideas and products at an Investor Day. In addition to YC which runs in Boston each summer and Silicon Valley each winter, Techstars (Colarado) and Seedcamp (London) have also launched micro seed funds.
4. If all the above options sound like too much hard work or you don’t feel confident of going through the gruelling process necessary to get financed through one of them, you can always resort to the Three “Fs”:

   >> Friends
   >> Family
   >> Fools

   Typically, people in these groups might give you up to £50,000. The great benefit here is that you’re unlikely to have to do lots of legal work agreeing everything and you can work under a more relaxed arrangement

In terms of student entrepreneurs receiving funding, Oxford Entrepreneurs society (OE) seems to be leading the way in the UK. Having spawned 5 companies who have received at least 6 figures of funding since its inception in 2003, they are developing a reputation for deal flow. As Thomas F. A. Whitfield (Founder, Miomi.com) said:

“Entrepreneurs build companies; OE builds entrepreneurs.”

And with highly motivated alumni such as Sumon Sadhu (currently on Y Combinator in Silicon Valley) graduating and setting up Imperial Entrepreneurs in 2006, the future looks bright. Today – LSE, KCL, Warwick, Bristol, Bath and a growing number of other universities also have societies using similar models. So if you’re looking to raise some money to help make your idea happen, the entrepreneurship society at your university should be one of your first ports of call.

Now you’ve got an idea, you’ve worked out what product or service you’re going to provide, you’ve formed an initial team, got your mentor(s) in place and hopefully raised a little bit of start-up capital. Surely this is great news? But wait. Don’t you still have a degree to do?

Coming up next week: How do I balance my degree with my business?

You can view the original version of this article on page 8 of this week’s edition of The Gateway.

[The Gateway I — extended version] EUREKA!

Archimedes

So you’re studying for a demanding degree, bombarded with a plethora of fantastic career opportunities but you’re also tempted to try out starting something of your own on the side.

How do I come up with an idea?

At the Silicon Valley Comes to Oxford conference on 19^th November 2007 at the Said Business School, Paul Graham (Co-Founder, Viaweb – acquired in 1999 for $49.6M to become Yahoo! Store) put it well:

“Look for things that are evil, broken or stupid. These are usually great opportunities.”

Essentially, there are 3 ways to come up with an idea:

1. Solve real problems.
   Many of the best ideas are inspired by the personal experiences of their creators. Have you ever observed a large number of people sharing a common pain? Perhaps at a previous job or among students at your university? This is how Andy Young (my co-founder) and I came up with our idea. We initially thought of creating a website for all the sports clubs’ results at our university. We then realised that there were hundreds of clubs and societies at most universities – many of which were holding other exciting events. However, in our experience, it was very difficult to find out about them after the Freshers’ Fair at the beginning of each academic year. Therefore, we decided to create a website which would centralise all the news and events from these clubs and societies.
2. Make something better.
   Facebook certainly wasn’t the first social network –MySpace (founded in 1999), Friendster (founded in 2002) and various other sites were already up-and-running before Facebook launched. However, they took an existing concept (a social network) and improved upon it. By initially restricting access to students at a particular university, allowing ‘poking’ and later on introducing the ‘News Feed‘, Facebook has had great success.
3. Copy someone else.
   You are treading a fine line if you take this option. Nevertheless, the technological advancement of countries like the USA and Japan compared with much of Europe and the developing world provides many opportunities. A good example of this is German social network StudiVZ. Launched in October 2005 by students Ehssan Dariani from the University of St. Gallen, near Zurich and Dennis Bemmann from Humboldt University, Berlin. Effectively, they cloned Facebook, dyed it red and translated it into German. Then in January 2007, the company was acquired for $112M by German media company Holtzbrinck.

The final point to make with idea generation is that it’s always easier if it’s something you’ll personally use. Who better to know what people want than a genuine customer?

I’ve got an idea, what next?

The first thing to point out is that having an idea doesn’t mean you could write out a 30-page business plan covering your prospective company’s first four years of activity. Initially, it could be as simple as

“We’re going to create something that makes it easier for students to get a graduate job.”

Next, you need to work out what product or service you’re going to provide. Having thought of some possibilities, you need to do your homework:

• Check with potential customers.
  Find five people or companies who could actually be potential customers for your product/service. Tell them a bit about it and ask for their opinions. Would they buy it? If so, why? If not, is there something that you could do that would make it more appealing? Make clear to them that you want complete honesty.

• Perform some market research.
  Start by typing your idea, or variations thereof, into Google. Your goal here is to determine if someone else is already providing the product or service that you envisage. Make a list of each company that you would consider a competitor and compile a spreadsheet of each of their details – web address, location, product/service offerings and pricing. Then ask yourself a few questions. How many competitors are in the marketplace? What is the size of the market you are targeting? What percentage of that is addressable with your product/service? What percentage market share does each competitor have? Does it look like the companies in this market are making money?

• Do the maths.
  First, accurately cost out how much it will cost to create your product/service – include design, production and labour costs, overheads and any other expenses you may incur along the way. Next, figure out how much you can charge for it. Again, this can probably be done by asking potential customers how much they would be willing to pay. Finally, add up everything (on a per-unit basis) and work out if you can undercut your competitors. If you can’t, do you have something else that differentiates you from the competition?

Now that you have the numbers and have performed a thorough assessment of the competitive marketplace, you should be ready to make a decision as to whether or not it is worth moving forward with your idea. The above research shouldn’t take more than a couple of days.

With web-based ideas, the third point above is not necessarily about monetary cost – the currency would be better described in terms of time and ease of use. It’s almost free to set up a website, but the important thing here is that the idea is something people will adopt so you don’t end up building a graveyard. Gordon Buxton (MD, Oxinet and Board Advisor to GroupSpaces) has a good theory on this – he calls it Gordon’s Law:

1. Does it allow people to be lazier?
2. Does it allow people to be more disorganised?

If you can answer yes to at least one of these questions, you could be onto a winner.

Lastly, don’t get caught up with the intricacies of your initial idea. Many successful businesses don’t end up doing what they originally envisaged – it’s important to let your idea evolve.

For example, we launched the first version of our site at Oxford University’s Freshers’ Fair in October 2006 and we wanted students to set it as their homepage. In addition to news and events from clubs and societies, lots of students were asking for other information – e-mail, BBC News, Facebook feeds and various other things. We then observed that most students log onto the Internet and perform the following tasks: check e-mail, check Facebook, check BBC News, run some Google searches and then do what they had originally logged on for! The process could happen several times each day, and it gave us the idea for ClickUni – create a webpage with e-mail, Facebook, BBC News, Google search and anything else a student wanted all on one page – then suggest students set this as their homepage.

During the Easter holidays last year, we were staying up all night working to develop this idea as quickly as possible and in April launched “The Homepage for Students” at www.ClickUni.com. Within a few days, it had hundreds of users. The main other feedback we received was from the presidents and committee members from societies. It was becoming clear that there were many pains inherent in running a university society – typically, this was the status quo:

• “We use a Yahoo! Group, Google Group or the university servers to run our mailing list.”
• “We use Facebook to organise our events.”
• “We use Microsoft Excel to keep track of our member information.”
• “We have a website built by this guy who graduated last year; no-one knows how to update it anymore.”

It gave us some more ideas, and we realised that there wasn’t just a problem obtaining news and events from societies; societies suffered a lot of pain in managing themselves online. So we started off building a news and events portal; then, having got some users and listened to their feedback, our idea was evolving into a group management tool. Since the group management problems have emerged as the biggest pain-point for our users, these are now what we are focused on solving at http://www.GroupSpaces.com

So we’ve taken quite a journey, but what’s reassuring is that these changes happen to the big boys too! For example, Paypal is one business that ended up with something very different to their original idea. In 1998, founders Peter Thiel and Max Levchin originally intended to build a wallet application for the Palm Pilot that would allow its users to securely beam money back and forth. What they found though was that people were actually trying to use the website to send money instead of downloading the Palm application. Hundreds of people were flocking from eBay mistakenly thinking that this was a web-based method of making a financial transaction with a stranger. With only a handful of people actually using the Palm application they had an epiphany that they were building the wrong thing. So they got their heads down to build what the eBay customers were asking for and a year later essentially had the service that is available now. After they were acquired by eBay on 3^rd October 2002 for $1.5bn I doubt they were regretting their change in direction.

In summary:

1. Look for something evil, broken or stupid.
2. Do your homework and decide whether you want to proceed.
3. Once running with an idea, listen to what your customers/users are asking for and let the idea evolve.

You can view the original version of this article on page 8 of this week’s edition of The Gateway.

Facebook Co-Founder Andrew McCollum speaks in Oxford

 

Andrew McCollum

At 6.15pm on Monday this week, Andrew McCollum, Co-Founder of Facebook spoke at the Said Business School in Oxford. Afterwards, I had the honour of meeting him along with Andy Young and some other Oxford students.

Andrew first introduced the genesis of Facebook referring to 3 founding members: Mark Zuckerberg, Dustin Moskovitz and Andrew McCollum. In Andrew’s words:

“Mark was the high-level thinker, Dustin did operations – stuff like looking after the servers and communicating with the users, while I did all the graphics for the first version of the site, lots of backend development and also built up a reputation as ‘the solver of hard problems’.”

The majority of Andrew’s talk focused on product strategy. With Friendster and plenty of other social networks already up and running when thefacebook.com was launched on 4th February 2004, many people have wondered what led to Facebook’s ridiculous penetration of well over 50 million people’s lives. Andrew explained that it came down to what is called the “social graph” – a notional graph of everyone in the world where each node is a person and each edge is a connection between two people. By trying to simulate pre-existing relationships and interactions in the offline world, they were making it easier for users to carry out tasks they wanted to do anyway – except it was more efficient and easier on Facebook.

Another key to Facebook’s success in the early days was that they only implemented what Andrew described as “everybody features”. Things like profiles, private messaging, the wall, photos, groups and events. Despite receiving many requests from people to implement them earlier, features like videos and notes (a.k.a. blogs) were deferred because they wouldn’t have been used by a particularly high proportion of users. They were trying to keep the user interface as clean and intuitive as possible for everyone.

However, Facebook don’t always mollycoddle users. Their implementation of the News Feed on 5^th September 2006 is a good example of this. Product managed by Ruchi Sanghvi, release of this feature totally disrupted the user experience for everyone on Facebook and within two days the backlash from users led to over 1 million people joining groups in rebellion. This even included one entitled “Ruchi is the devil” – an issue Mark clarified in his first apologetic blog post in response to users. But Facebook didn’t remove the feature, they improved the privacy settings, stood their ground, and today most users probably regard the News Feed as one of the most useful features on the site. I certainly do.

The point Andrew illustrated when he talked about this was that you need to push users in the direction you know they want to go in – even if they don’t yet know it themselves. Why? Because it will ultimately lead to a better product.

The final part of Andrew’s talk I’ll mention is about the key form of virality – word of mouth. He said the correlation between:

• success of a web application, and
• probability of a user telling a potential user about the application

is close to 1. And what is it that will cause someone to tell someone else about a website? A compelling experience. Whether this is using a feature that makes your life so much easier, or even being bitten by the zombie reincarnation of some guy you went to primary school with, working out how to provide compelling, emotive experiences is the key challenge for anyone looking to build a viral Web application. It’s something that Andy and I have recently been focusing on with GroupSpaces, and we’re just beginning to see some results from our e-mail newsletter feature.