Oh Sweet Irony

There’s a row of mailboxes here where I live, with a small wastebasket nearby where folks toss junk mail. Here’s a recent picture of that wastebasket’s contents …

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Social Network Cartography Rebooted

I’ve looked at maps breaking out social networks earlier this year. Time for an update, this time courtesy of Owyweb’s lovely rendered map, shown below (click on the map for a full size view).

As with last time, a few observations…

• Language ostensibly still ties some of the social networks together – the clearest example would be  France and Algeria.
• Surprisingly (well, to me at least), Xiaonei is not popular with the Taiwanese. I’m a little suspicious though, since my own experience is that Facebook is more common among the Chinese than the local contender (which looks EXACTLY like Facebook, by the way).
• Facebook is the one player which seems to be emerging as the global network, both in the “developed” world and in the “third” world. Everyone else seems dominant only ina small sliver of the world.
• Hi5 seems to be popular in segments around the world, mostly in smaller developing countries like Thailand, Cambodia, and Peru. Orkut still has the developing world heavyweights Brazil and India. My read is they are both prime acquisition targets.
• One drawback for this cartograph is the lack of detailed data, resulting in a winner take all map. The United States does indeed have strong Myspace adoption, but also has strong Facebook adoption not represented here. Germany’s Facebook adoption is similarly strong, albeit not stronger than the local player.

I’m Not Harmonious

If you’ve traveled in China, you’ve likely heard about the Harmonious Society (“和谐社会”). It serves as the ultimate goal for the ruling Communist Party of China (CCP) along with Xiaokang society, which aims for a balanced middle-class oriented society, as first proposed under the Hu administration during the 2005 National People’s Congress.

The communist party’s dominant socio-economic vision defines policy around economic development, tax policy, and social conventions. In practice, vocal differences of opinion are considered misguided and citizens should place the “collective” over the individual. Diverging opinion with the popular party position are a sort of political apocrypha. That is, those parts of China which fall in line with the popular party position are patriotic and hence pro-China. This implies of course that some areas are somehow less pro-China.

Now I have a confession to make. This post, in fact, is not about China. This post is in fact a big mind-f**k.

Try re-reading second paragraph after replacing “China” with “America”, and “communist party” with “GOP”.

This is what went through my mind when I read Sarah Palin’s “Pro-America areas” quip she made during a North Carolina rally. Apparently she feels 32 million of us living in California are apparently not pro-American. This kind of verbal detritus is just one example of why so many of us have left the Republican party. We’re rooting for the country, not a political machine our founding fathers warned us about.

I’m not suggesting the GOP is as repressive as the CCP nor am I suggesting some sort of equivalency. I am however suggesting that the GOP is taking a page out of the one-party system’s playbook. And that’s something you should find unsettling…… if you are pro-American.

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Update: Ironically, some Republicans are running away from their own party in some parts of the country, going so far as to change ballots to “Grand Old Party”. Original photo here.

Photo from Aidennag on Flickr

Object-Orientated Advertising Economics

A number of bloggers have noticed Barack Obama’s advertising in games. Which sparked my interest in posting about an idea I’ve been sitting on for a while: object-orientated advertising.

Exhibit A is the console game Burnout Paradise, a racing game.  The game’s publisher incorporates virtual billboard advertising as players race through virtual streets, and advertisers can buy advertising time since consoles are equipped to receive feeds which can update ads. Here’s one such billboard:

Putting aside political affiliations a minute and you’ll see there’s an interactivity mechanism here which makes virtual advertising far superior to webspace or meatspace ads. Like the web, there’s no startup costs here associated with actually putting up the ad, but there’s also the ability to perhaps click on the ad and queue content in a second window for later viewing, along with serving up similar ads. Obviously Google Adsense can do this as well, but what’s really neat about advertising in game is that ads can be switched up in real time as players drive laps around the racetrack.

Yes it’s creepy and big-brotherish, but it’s coming. Free game network subscriptions are already subsidized with ads (Xbox 360 live for instance). Now consider Hulu, the online network, whose advertising revenues are stuck in the 1950’s model. That is, you have programming and you have a few ads placed around the programming itself. No consider a subtler approach for contextual ads which can be swaped in and out of programming based on advertiser purchased timeframes.

Here’s an example – it’s pretty obvious that the television show Heroes was paid some amount of money to pimp the Nissan Versa automobile, since it was all over the show and the online comic.

Now imagine hot swapping the Nissan Versa for the Toyota Prius if the advertiser changes. Neat stuff, but it mus be done gingerly of course or fans will cry foul. I personally have referred to the movie “Die Another Day” facetiously as “Buy Another Day”, because of the nausiatingly pervasive vodka, auto, and clothing advertising. If I wanted to pay for advertising aimed at impresisonable young males, I’d just pick up Maxim, thanks.

Off the top of my head, here are some advertising usage segments which we might see in the future include virtual billboards, rotate plug-in product placements in background scenery, such as cars, and programmable swap out labels for bottles a game or video personality drinks out of.

The infrastructure required to make this happen involves three things:

• A standard platform for digital film and games to incorporate  programmable objects – consumables, background props, etc. Gaming is pretty much there already. I suspect television and film will follow shortly once everything is released digitally.
• A standardized method of turning ratings of games, films and television programming into advertising multipliers. For example, superbowl advertising naturally is more expensive than soap opera advertising.
• A standardized method of turn objects into advertising multipliers demand for certain shows and virtual supply of placement objects. For example, an object a character holds (bottle with a programmable label) or wears (watch with a programmable face) would be a more expensive placement than a background object (programmable banner overhead characters).

Of course all this assumes there is  infrastructure in place supporting an unbiased popularity rating is in place, which isn’t the case. It’ll also spike demand for minute green screens to say the least.

As a bonus, these capabilities will probably tip the scales in the direction of digitally distributed media as opposed to CD-based media. That’s a good thing. I don’t know about you, but I’m done with physical media (et tu, Sony?)

Brace for Impact

Those of us who have been in Silicon Valley for few years now have been through bombastic highs and lows which seem, frankly, far from the lows of this blogger’s humble beginnings. Yet despite our roots in paranoia there’s been a certain feeling of invincibility in the face of difficult odds which typifies the Silicon Valley entrepreneur. That’s worth remembering as business cycle gravity takes hold and we head into an era of far slower growth and possibly contraction. It’s also worth looking a hard look at the tactics which will increase survivability in tough times, even as the balance of power has tipped heavily from entrepreneur to investor in the span of two weeks.

The Only Thing We Have to Fear is Fear Itself

Sensibly, some investors have been quietly coaching their investees on strategies to come out of the economic black hole. It;s understandable, as this downturn is different than most since mortgage equity withdrawal is no longer fueling domestic consumption. Sequoia Capital’s downturn strategy presentation to its funded entrepreneurs has leaked out and added to dread. Oh and the first slide doesn’t help:

Sequoia Capital on startups and the economic downturn

View SlideShare presentation or Upload your own. (tags: depression recession)

Startup angel investor/advisor Dave McClure “smacked-down” doomsayers, calling on them to persevere like the fictional desert-dweller Muad’dib. In Dave’s words:

the companies and people i bet on HAVE to be both optimistic & opportunistic, if only because THE ODDS AGAINST STARTUPS SUCK ***ALL*** THE TIME, not just in downturns.  you damn well *better* have a positive attitude, or you’re just never going to get out of bed in the morning.

The messenger is overpowering the message a bit here, but he’s essentially correct. Ramen-profitable businesses are best poised for long term success and high cash-burn businesses aren’t, irrespective of the general economic climate. Besides, a number of macroeconomic factors are in our favor here. To see why, let’s take a stroll down ancient history. The last time panic set in here was in in 2000-2003, where highly leveraged debt crushed a number of startups who tanked when the interest payments began to far outpace revenues. We’re talking 9:1 debt/equity ratios here in some cases – not pretty.

The Force is With You, Young Jedi

Nothing like this exists in the post-Web 1.0 world, where capital requirements for startups are a fraction of the massive costs incurred laying down fiber optic cable to found the original web. How many Web 2.0 startups burn through 300 million in a few months? None, and that’s the point. Web 2.0 startups have a far quicker time to utility and require far less capital and hence are imbued with a lower burn rate right out of the gate because of lower financing costs. The best visual I’ve seen of the differences between Web 1.0 and 2.0 startups was in Amy Shuen’s book, which I’ve semi-plagiarized below..

Visual Representation of Web 1.0 v Web 2.0 Profitability Over Time (x axis)

The most successful founders I’ve met are far more MacGwyver or Luke Skywalker than Jack Welch, and the evaporating time to revenue driving Web 2.0 startups make it easier than ever to be a entrepreneurial Jedi. It’s never been easy, but has never been easier than now.

Tactical Maneuvers

This blog tends to focus on ideas and possibilities, mostly because that’s what I enjoy reading and speaking about. However, bracing for a slowdown tends to make such talk seem a bit trite. So while others have made lists of things you can do right now to depression-proof your startup, it might be worth adding a brief list of things I’m observing from the fault lines. Here’s what entrepreneurs I know personally are doing now to weather the economic storm:

1. They’re Communicating. Our CEO assembled the team to address the economic crisis as the full brunt of reality hit Wall Street. The message? We’re a software as a service company, and positioned for success when potential clients are looking to outsource to lower burn rate. He asked us to filter out the noise and focus on executing. Have you done the same? If you haven’t, let me assure you your team isn’t focused on executing right now – they’re focused on what they will do if they lose their jobs. Speaking of which..

2. They’re Dumping Mr. Milquetoast. This one is uncomfortable to speak about, and I’m not suggesting that layoffs is to be taken lightly. Having said that, a highly motivated, smart teammate is worth many average ones. We’re likely to see a few more announcements like the one made by Loic LeMeur in the new few weeks. Which leads me to the next point..

3. They’re Investing in the Core Team. This is always a good thing to do, regardless of the macroeconomic circumstances. Calancais dropped this nugget of common sense in his post:  “Invest in training and education of your top people, because they are the ones who will lead your company through this mess.” Besides, there’s inherent risk mitigation in a slowdown anyway – the top people you train are less likely in a recession or depression to jump ship, giving you a longer investment horizon.

3. They’re Finding a Revenue Stream and Hanging on For Dear Life. The expression “cash is king” is truer now than ever. A few startups I’m familiar with have changed strategic direction in a matter of a day or two to  generate cash flows. No joke. Every startup I’m familiar with is also making a list of their top 10 customers (by cash flow of course), and is calling on them all the time to make sure they won’t leave. Bonus points for developing new revenue streams from clients who are already reliable about paying you.

4. They’re Forgetting Seed Capital. Seed and early stage capital are the first to dry up going into a down cycle. Every time. There are two reasons why. The first is that investors who are currently long on a few startups are going to try to nurse those startups that much more to mitigate their risk. That is, they’ll spend a whole lot more time with their current portfolio and forget acquiring new startups. The sceond reason has to do with business cycles and value investing. Simply put, if you think spending will rise in the macro economy, it makes sense to invest early in promising startups to get in on the growth for a bargain price. That dynamic works in reverse going into a downturn. For more reading, hit up Fred Wilson’s “Startup Depression” post. In short, bootstrap if you can, or fund your new venture out of current services you’re providing. Now would be a great time to turn your consulting project into a product.

5. They’re Taking Root. It might be tempting to pull out of the domestic market and try to jump into China, but hold on before you do. The Chinese haven’t focused on building up domestic consumer markets fast enough to head off the U.S. slowdown – which they should have seen coming when American consumers began cannibalizing home equity to support unsustainable consumption. Driving growth through an addiction to US Dollars will now start to stress newly minted graduates who will have a tougher time finding work when the Dollars stop flowing (it was already tough for many of them, by the way). Paul Denlinger has more analysis here. For good measure, I’ll mention the Euro region isn’t going to fare much better.

6. They’re Renegotiating Everything. Try to negotiate with your credit line suppliers to give yourself some extra breathing room (it’s unlikely, but worth trying). Renegotiate with your every supplier provider and insist they reduce prices or you’ll leave them. More often than not, it will work – remember #3 on this list?

7. They’re Preparing to Feed off the Dying. An item that caught my eye from Jason’s “10 Things to Do Right Now” is this little quip:

Make a list of every Web 2.0 startup to raise an A or B round and cross 80% of them off the list, because they will not make it to their next round of funding or profitability.

Every single startup CEO or GM I’ve spoken with has told me he or she is targeting the “walking dead” amongst their competitors and are preparing to strike at their customer list.

8. They’re Connecting with Others. Here’s some additional reading material to get your business geared up for the coming downturn. If you can contribute, get involved in the discussion!

The Startup Depression

VC Fred Wilson’s Thoughts

What Startups Can Learn from Sequoia

15 Ways to Cut Your Home Budget by Mukund

The Economist Magazine’s background on the downturn