Category Archives: Web/Tech

Truth, Magic, Stories, and the Digital Campfire

Do yourself a favor and watch Marco Tempest on this brilliant six-minute TED video. If you don’t see it here, use this link to go to the TED site to watch it. After you’re done, I’d like to tell two true stories that seem somehow related. And before the video, I want to highlight some quotes from it. First:

Experts believe that stories go beyond their capacity for keeping us entertained. We think in narrative structures. We connect events and emotions and instinctively transform them into a sequence that can be easily understood. It’s a uniquely human achievement.

And second, Marco’s delightful definition of social networking, as…

… the digital campfires around which the audience gathers to hear our stories. We turn facts into similes and metaphors and even fantasies. We polish our affections of our lives so that they feel whole. Our stories make us the people we are, and sometimes, the people we want to be. They give us our identity and a sense of community.

http://video.ted.com/assets/player/swf/EmbedPlayer.swf

And from there, two true stories:

  1. In the late 1990s there was a business plan that won almost a quarter of a million dollars in MBA-level business plan competitions that was a fictional exercise, using real people, presenting a technology that sounded plausible but didn’t exist. The contestants who submitted and pitched the plan had no intention of ever launching the company it described. They wanted to win business plan contests. And they did.
  2. I once witnessed overwhelming, loud, bawling, personal-loss kind of grief, so all-encompassing that nobody else in a carful of people could talk, over the death of a fictional character is a movie.

And I think that if you watch this TED talk, you’ll see how these two little stories are related.

Q&A: Valuing a SaaS Business

This question was posted on my “ask me” page on my timberry.com site. I can’t promise to answer all the questions I get, but I try, and I’m particularly happy when I get one whose answer might be useful to other people. So here’s a question:

Do you have any idea how to value a SaaS business? Do we use our users, growth in users, revenues, margins, or what? What do investors like to see?

My answer: I’m probably a bit biased on this one because of my position in Palo Alto Software, which publishes our LivePlan SaaS offering for online business planning. But I can’t say I haven’t thought about it. Here’s what I can do to help:

  1. I really like How should you value a SaaS company, posted a few months ago by Robin Vessey and then edited by Joel Spolsky on OnStartups. Joel knows software. You’ll see there that it’s about a variety of factors, usually done on a case-by-case basis. It’s a combination of baseline revenue multiple, market potential, value of the technology, and what’s needed to take it to the next level. This is a good discussion.
  2. Notice that Robin and Joel don’t even mention profits or margins. High-tech companies are almost always valued on growth and revenues, not profits. I explained why in profits are overrated here on this blog.
  3. I read recently that publicly traded SaaS companies are valued at 5-20 times revenues. Publicly traded means that their stock appears for sale to anybody on a major stock exchange, which makes them inherently different from the smaller startups. And, unfortunately for you and me, we smaller private companies take a discount on the numbers of the big companies because we aren’t big and our stock isn’t liquid and we don’t have to publish financial information. Even there, however, it’s still more about growth and revenues than profits. A SaaS company showing strong growth and breaking even or losing a bit does better than a SaaS company with profits and stable.
  4. Investors vary on revenue vs. growth in users. I’d say that revenue is much better than just growth in free users, but then look at Twitter and Facebook and the like, which got huge valuations first for huge user bases and then only later for revenue models. So that’s debatable. When I read a business plan I mistrust user numbers that aren’t tied to revenues, because that’s too easy.

What really matters is the future. Valuation isn’t what something is worth, but rather what somebody will pay for it. So what really sells, in SaaS, is its future. There’s nothing better for valuation than indicators of growth in paying users, stories that tell about market need, and a team that can push it. And it’s magic. There’s no MBA algorithm that applies.

 

What’s In It For You from The Startup America Partnership

So how cool is this? The Startup America Partnership is offering a collection of real business tools and resources, mostly web-based, to help high-growth startups.

StartupPartnership.jpg

This was announced at the White House a year ago this month. Here’s what I wrote then on this blog:

The Obama White House [Feb. 1, 2011] announced its Startup America Partnership yesterday with some very slick online video streaming, some serious financial commitments, and the good sense to lead with real entrepreneurs including Steve Case and Brad Feld, and real information provided by the Small Business Administration and the Kauffman Foundation. That was a great start.

The announcement now is that the partnership has come out with actual resources people can use. We’re talking about software tools like web apps, analytics tools, accounting, legal forms helps, and of course business planning, things people can use, made available to people who need it. If you are an entrepreneur, high-growth business owner, or in the process of starting, you can join the program for free and take advantage of different tools and resources, depending on your stage of business.

You can use this link to register your business, started or about to start.

And I’m proud to say, by the way, that my company, Palo Alto Software, is one of the participating companies. I like to see us doing our part.

And another note, just because it should be said: I don’t like the sentiment that says this is like “at last” the federal government is helping small business. I’ve posted on this blog often about how much I respect the government’s Small Business Administration (SBA) programs to help small business. I cooperate with the SBA whenever I can, and I blog for the SBA community site, and I have business plan tutorials on that site too. I also work often with the SBA-funded Small Business Development Centers (SBDC), which offer help to small businesses in 1,000 locations; they are excellent. And I am a member of SCORE, a mentorship program, sponsored by the SBA. The difference between these and Startup America is that Startup America isn’t using tax dollars at all.

What Would You Do About This Facebook Post?

Hats off to Inc Magazine for this great treatment of a problem a lot of business owners face. In this case it’s a man named Mark, who discovers:screen shot

Recently an employee put a photo of the cover of the book Your Company Sucks on their own Facebook wall, titling the entry “Succinct.”

To his great credit, author Jeff Haden offers no easy solutions.

First he points out that Mark doesn’t know whether the employee even thought that the post might be taken as a complaint against his company. Maybe that person liked the book, and the title.

Then he quotes HR expert Suzanne Lucas saying …

ignore it completely. The chances of anyone caring one bit about this are extremely small. The chances of this blowing up in an employer’s face by taking action are much greater.

And I like his recommendation too, Jeff the author:

I would ask the employee to delete the post. No matter what the intent, others could take it the wrong way. A good employees who meant no harm will immediately say, “Oh, wow, I didn’t think of that. I’ll take it down.” If the employee really is unhappy with the company, that gives us the chance to discuss what’s wrong and hopefully make a bad situation better.

That doesn’t sound bad either. Actually, I like Jeff’s suggestion better; but that’s just me. Who knows?

I think it’s an interesting problem. Social media is publishing, and publishing is freedom, and employment doesn’t — or isn’t supposed to — limit freedom. And even before social media, did I as an employers get to monitor what people wrote in, say, letters to the editor published in the local newspaper? No. On the other hand, did I have to continue paying somebody who publicly and openly insults me or my company? Probably not, but that gets into some interesting legal issues, and I’m not a lawyer.

What do you think?

Truth About Women in Startups

Yes. I couldn’t agree more. I just read Alexia Tsotsis’ Stop Telling Women Not To Do Startups on TechCrunch. The key moment:

Because nothing says link bait like “taking on a controversial topic” stupidly, using gross generalizations. The latest in this series is a post by Penelope Trunk, who is either a master at extrapolation or seems to have seriously conflated the word “women” with “Penelope Trunk.” I remember being a young TechCruncher reading her first post, “Women Don’t Want To Run Startups Because They’d Rather Have Children” and thinking, “Wow, this seems deliberate.”

The trouble with link bait like that, as Alexia points out, is that people read it, believe it, and use it, oftentimes use it against a good cause. It becomes justification. Rationalization. Reinforcement.

And I like her conclusion, too:

And here’s a piece of advice to women (or any other minority) in tech — Every time you get worked up over a dumb blog post, you’re wasting time that you could have spent building a world-changing company, writing your own blog post and/or proving pundits like Penelope Trunk wrong. And that starts with voting with your feet (or pen even).

So go, prove her wrong. Because a) This needs to stop b) The future depends on it.

Agreed.

(Image: from the TechCrunch post)

Only Two Numbers Matter

This is Howard Morgan, managing partner at First Round Capital, serial entrepreneur, and former professor at Wharton. He says:

If you have a business that’s based around the internet, there are basically only two numbers you need to know: what’s the cost to acquire a customer, and what’s the lifetime customer value. If the lifetime value is higher than the cost to acquire a customer, then you have a business. If it isn’t, then you don’t.

Here’s the quick video, from gust.com, one of a rich collection of short videos from angel investors. It’s a great resource:

If for any reason you don’t see that video embedded here, you can click here for the link to the original.

User Interface Dark Side: When Deception Works

No ambiguity with this one: the site is named darkpatterns.org…

a pattern library with the specific goal of naming and shaming deceptive user interfaces (aka “dark patterns”) and the companies that use them.

… and author Harry Brignull, in his List Apart post Dark Patterns: Deception vs. Honesty in UI Design, calls them “evil web designers. You can see the list in the illustration here: bait and switch, forced continuity, road block, all of them tried-and-false techniques to deceive users. He writes:

perhaps you’ve never thought about it before but all of the guidelines, principles, and methods that ethical designers use to design usable websites can be easily subverted to benefit business owners at the expense of users. It’s actually quite simple to take our understanding of human psychology and flip it over to the dark side.

“But it tests well,” he points out, as a good reason to use deceptive techniques.

Dark patterns tend to perform very well in A/B and multivariate tests simply because a design that tricks users into doing something is likely to achieve more conversions than one that allows users to make an informed decision.

Just reading the categories on the wiki-like dark patterns site, you recognize most of these techniques. Hidden costs, misdirection, forced continuity … we’re all exposed to most of them most of the time. Call them dark patterns, write about evil web designers, and your position on the ethics are pretty clear. It works for me.

I still believe that business ethics win over the long term. Good business practices keep customers loyal and tricks get caught often enough to impact business.

And we all say that, right? Are you doing it, in your business?

9 Women Can’t Make a Baby in a Month

I’ve been meaning to post about Mark Suster’s 9 Women Can’t Make a Baby in a Month for a couple of months now. What a great reminder, and useful in a lot of contexts.

Mark makes his point about the dangers of overfunding a startup with too much outside investment. He says:

Over funding often produces bad behavior in early-stage companies. You hire people too fast, you over build your products, you try to force market adoption and you do PR blitzes before your product is really ready for prime time. And having too much money certainly raises board expectations that you will do big things quickly. No board is going to give you $25 million up front and then expect your year-one staff expenditures to be $2 million.

And that’s great; well said. But I think the underlying problem applies to a lot of other areas in a business. Having three developers doesn’t mean the software project will be done three times faster. A lot of things take time, and time doesn’t divide into meaningful units like bricks.

Mark is a venture capitalist who also maintains an excellent blog called Both Sides of the Table.

Ideas: Evolutionary Computing and Internet As Brain

Call it coincidence, serendipity, synchronicity, or just random, but last week I was accidentally exposed to two seemingly unrelated ideas that ended up seeming very related to me. And they gave me a fascinating whack on the side of the head. I thought artificial intelligence had run its course, but computers that learn could be much more important.

Blondie24First, the book Blondie24, by David Fogel, describing how he and his team used evolutionary computing to develop computer programming that taught itself to play checkers. It’s well written, logical, easy to follow, and fascinating. Here’s a snippet (direct quote from the book):

Suppose we could harness the fundamental processes of natural evolution inside a computer. We could generate many thousands, or maybe millions, of solutions to problems, test these solutions, keep the ones that are better, and use them as parents of future improved solutions. We could write a computer program that uses an evolutionary algorithm to breed solutions to problems and perfect them over time.

There is so much more there that I have trouble summarizing, but what it means is something way better than what we used to call artificial intelligence, which was rules-based computing in which humans summarized knowledge and experience into rules (sorry, that’s my definition, so I apologize to all the AI people out there). This, in stark contrast, is computers that learn, using a process that mimics evolution: It’s survival of the fittest, in compressed time.

Having suffered through some serious attempts to create a rules-based system for financial forecasting, back in the 1980s, I am instantly intrigued by the change of perspective: let the algorithms learn by themselves. Don’t try to codify, just manage evolution. I’m sure that sounds very far fetched, but in the book takes the reader through actual cases with practical implications. Blondie24, as it turns out, is a program that taught itself to play checkers. It ends up sounding much more believable, in the book, than any summary that does it justice.

Wired for ThoughtThe day after reading that book I spent all morning with Dun and Bradstreet Credibility Corp, whose founder, Jeff Stibel, is the author of Wired for Thought, which has some striking parallels. Consider this paragraph (another direct quote) and compare it to the one above:

Think of it this way: evolution took hundreds of thousands of years to evolve the human brain to its current level of complexity and sophistication. The Internet will approximate that in a few generations. We will have experienced in cyberspace a replication of biological growth itself, as though it were the brain of a living thing. But more to the point, we will replicate not only the brain itself but also its by-product: thought.

Again, in this quote like the one above it, I ask you to trust me that this book too, like Blondie24, is very well written, easy to follow, and exciting. They are both talking about some high-flying ideas, but they guide the reader through them very considerately.

Which brings me to another coincidence, parallel thought. Although they don’t know each other (I don’t think) and they are approaching this from different directions, they both ended up with the same example of what’s going on.

First, from Blondie24, David Fogel is making the point that the goal is not elaborating human thought into computers in sets of rules and conclusions, but generating an independent evolutionary process:

For example, suppose we wanted to design a flying machine. We might look to nature for inspiration and see a vast array of feathered birds flapping their wings. But in emulating those specific manifestations of flight, we’d be led astray. Neither feathers nor flapping wings is a cause, but rather an effect. It’s no surprise that we’ve failed to build a practical man-carrying ornithopter.

Alternatively, we can adopt a high-level and more abstract perspective that exploits the common ground found across all learning systems. This ‘top-down’ approach seeks out repeated patterns in systems and does not lead us astray. Considering my example of aerodynamics, the top-down approach focuses on the countering forces of lift and gravity, thrust and drag, and air flowing over an airfoil…

The pattern repeated in all natural learnings systems is an evolutionary process of adaptation by variations and selection. Evolution, then, provides a simple yet complete prescription for programming a learning machine, a computer that can adapt its behavior to meet goals in a range of environments and to generate solutions tio problems that we don’t yet know how to solve.

Interesting? Yes. And Dr. Fogel plays that out in actual cases involving some classic logic problems, playing checkers, and even some practical results in reading images to diagnose cancers.

And then I picked up Jeff’s book, where he uses strikingly similar metaphor about solving the problem of flight. He’s talking about the development of the Internet as similar to nodes in a human brain, and the hope of developing something akin to learning and thought, from the Internet:

This development is not unlike the evolution of flight. When the Wright Brothers first flew … their intent was not to create a bird. To be sure, some innovators thought that building a ‘bird’ was the road to flight, but it was not. The Wright brothers harnessed the laws of flight, and not the body of a duck or a bluejay.

So here I was thinking that artificial intelligence had lost traction because it was impossible to mimic human knowledge and experience in a rules-based system, or maybe just not worth the effort. And then I discover that there’s some fascinating work going on, not in what we used to call artificial intelligence, but, rather, computers that learn, and the Internet as brain.

Final thought: are we the same species we were 500 years ago, and that we have been for a few thousand years? Or are we now a new species that has new powers of communication, storing and retrieving information, instant interaction over large distances?

What do you think?

How to Stop Micromanaging in 3 Easy Steps

How could anybody resist this title? How to Spot a Micromanager, on Liz Strauss’ Successful Blog.

As I clicked I was guessing my answer: My guess was that the micromanager would be that person you know who is chronically frustrated with people asking him or her questions all the time instead of just doing things. His or her lament would be: Why don’t they take any initiative? Why does everybody ask me every little detail?

Micromanaging isn’t just what you do; it’s the natural result of what you did: you gave (or pretended to give, because you didn’t really give it) a job to somebody, then you second-guessed their decisions and complained about results. It’s cause and effect. Ask somebody to do something and then complain that they did it wrong, and they’ll never make a decision again.

That’s not exactly what that post said, but it was close enough. And that left me thinking about what might be much more important: how to stop being a micromanager. Here’s my prescription, learned the hard way, in three steps:

  1. Give a person a whole job, not just pieces. Discuss the possibilities and uncertainties related to the job. Agree on expected results, the range of possibilities, and how to measure results.
  2. Close your eyes trust them. You didn’t want to do it, you wanted it done, so let it go. If you didn’t trust them then you shouldn’t have asked them.
  3. If you don’t like the results, you have two choices: never again delegate to that person or support them with the understanding that they had to make tough choices on the fly and you still trust them even though you don’t like these results. Make it clear that you know you might have had the same results too. Remind yourself that there was uncertainty from the outset. Don’t second-guess their decisions or they will never make another decision without asking you.

From what I’ve seen, micromanagers unwittingly create their own problem by making people ask them every detail. If you’re my boss and you don’t like what I decided, then I’m not going to make a decision again; I’m going to ask you. I’m going to ask you in excruciating detail. And it’s not my fault, it’s yours.

For the record, Liz’ post took a different angle, but I think it’s another view of the same problem:

You can usually spot a micromanager a mile away – the individual who wants to be a good leader but goes about in the wrong manner. While trying to better their workers, athletes, students, loved ones etc. they end up creating an issue that was not there in the first place.

The micromanager in many instances becomes just that because they want to make sure everything goes according to plan, their plan.