Ooga Labs

The book “Built to Last” is excellent. Here’s an excerpt.
“…a key aspect of highly visionary companies: They do not oppress themselves with what we call the ‘Tyranny of the OR.’ The ‘tyranny of the OR’ pushes people to believe that things must be either A OR B, but not both. “OR” thinkers say:

· ‘You can have low cost OR high quality.’
· ‘You can have creative autonomy OR consistency and control.’
· ‘You can make progress by methodical planning OR by opportunistic groping.’
· ‘You can create wealth for your shareholders OR do good for the world.’
· ‘You can be idealistic (values-driven) OR pragmatic (profit-driven).’

Visionary companies liberate themselves with the ‘Genius of the AND’ – the ability to embrace both extremes of a number of dimensions at the same time. Instead of choosing between A OR B, they figure out a way to have both A AND B.

- purpose beyond profit AND pragmatic pursuit of profit

- a relatively fixed core ideology AND vigorous change and movement

- conservatism around the core AND bold, committing, risky moves

- clear vision and sense of direction AND opportunistic groping and experimentation

- audacious goals AND incremental evolutionary progress

- selection of managers steeped in the core AND selection of managers that induce change

- ideological control AND operational autonomy

- extremely tight culture AND ability to change, move, adapt

- investment for the long-term AND demands for short- term performance

- philosophical, visionary, futuristic AND superb daily execution, ‘nuts and bolts’

- organization aligned with a core ideology AND organization adapted to its environment

We’re not talking about mere balance here. ‘Balance’ implies going to the midpoint, fifty-fifty, half and half. A visionary company doesn’t seek balance between short-term and long-term, for example. It seeks to do very well in the short-term and very well in the long- term. A visionary company doesn’t simply balance between idealism and profitability; it seeks to be highly idealistic and highly profitable. A visionary company doesn’t simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to an extreme. In short, a highly visionary company doesn’t want to blend yin and yang into gray, indistinguishable circle that is neither highly yin nor highly yang; it aims to be distinctly yin and distinctly yang – both at the same time, all the time.

As F. Scott Fitzgerald pointed out, ‘The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.’ This is exactly what the visionary companies are able to do.”

I’m getting the feeling that there is a significant gap between what a good Advisor is worth to your start up, and what the going compensation rate for them is in Silicon Valley.  An Advisor typically gets .1% – .4% of a start up, vesting over 2-3 years, with 100% acceleration on change of control.  But they can add more than 10X that value to your company by doing just one of many things including: introducing you to a key teammate like a VP Engineering, giving you credibility where you had none, keeping you from wasting 6 months pursuing a wrong strategy, improving your pitch to investors by 10%, telling you business metrics that would’ve taken a year to discover on your own, or keeping you from signing a contract giving someone a “first right of refusal.”  Good Advisors often do several of these things, adding huge value, but not getting compensated for it.   

Off the top of my head, I can think of five possible reasons this gap persists. 

1) Advisors tolerate the gap because they have fun

2) Advisors tolerate the gap because they believe they will learning something valuable 

3) Entrepreneurs won’t pay more because Advisor performance is too variable.  Maybe the entrepreneur actually IS paying for the value overall because they give .1% – 4% to many Advisors, and only one Advisor makes the difference. 

4)  Perhaps there is no perceived cost to the Advisor for giving a few hours per month.  There really is both a cost and an opportunity cost, but the point is the perception of that cost may be too low due to underlying math, which says ”What’s two hours out of 720 hours per month? Nothing, really.”

5) Perhaps Advisors tolerate it because it’s the going rate, and everyone has gotten used to it.  Kind of like how everyone has become used to 2.5% management fees for hedge funds. 

The other way to look at it might be to conclude there is no real gap.  Maybe I’m imagining it.  Perhaps we would feel this same gap for anyone in a startup if we looked closely at their situation… like the Office Manager, or the Director of Sales, or the interface designer. 

So I wonder what would happen if we created a website that auctioned off Advisor time?  Would the average compensation go up or down?  What should a rational Board of Directors be willing to pay for their CEO to get advice from a guy like Philip Rosedale about their startup?  Or from Caterina Fake about their Website design?

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There’s a lot of discussion about “bad luck” and “good luck” around here. My mom, who was visiting from Boston last week even asked me, “Do you believe in luck?”

My answer is that our concept of “luck” is fundamentally time-based. In other words, given enough time (or iterations), luck, or randomness, melts away, and each of us tends to our talent level.

For example, you can look at a guy like Matt Cohler.  He joined LinkedIn when he first got to Silicon Valley around 2003. Luck? Maybe. Then he joined Facebook. Luck? Hmm… Now he’s an equal Partner at Benchmark. At this point, it’s getting hard to claim luck as the explanitory variable for his success.

Were you unlucky not to raise money before the crash? Were you unlucky when your co-founder went wacko? Were you unlucky not to sell your company when it was soooo close? Maybe, but there may also be a pattern that a third party could easily discern.

I can point to 30+ lucky things that happened to me in the last 10 years that have allowed me to be where I am (where ever that is…). When people ask me about it, I tell them it’s mostly luck. And that’s true for each individual event. However, the full truth is that if you back away and look at a person’s career over 10-15 years, those thirty lucky things happen because of their processes and decision making.

For instance, those thirty lucky things happened because my team and I always work hard enough to have multiple options for every key success factor such as revenue sources, where to lease real estate, who to raise money from, who to hire for a key position, who to partner with, methods for trimming costs, etc. These thirty lucky things happened because I had reasonable judgment on who the good people were. They happened because I chose to move to San Francisco instead of staying in Boston. They happened because I stayed in the game long enough to survive 300 bad things so the 30 good ones could fall on me. Etc. My processes and judgment were such that over time, I am where I am. Over the same period, some people have soared higher, some lower.

It often feels like luck plays a huge role. But as time goes on, there is no such thing as luck.

Creative endeavors are, for creative people, estatic experiences.  Playing music, writing poetry, sculpting, designing websites, cooking, etc.  Fun and spiritually fulfilling, creative endeavors also make you popular.  Creative people will create for free.  Even at free, it’s a good deal. 

But in every age, technology favors some creative talents over others with huge quantities of money.  Often shocking amounts of money.  I started thinking about this when I read Billy Bragg’s editorial calling for Michael Birch, the creative genius behind Bebo (who is a friend and Adviser to Ooga) to share some of his earnings from the sale of Bebo with the musicians who put their music and video up on Bebo’s site and contributed to Bebo’s popularity.  A good summary of the resulting debate is here on ReadWriteWeb. 

It occured to me that Bragg feels wronged because he doesn’t understand that a technology shift has taken place and he, with his talent for recording music, will no longer be over compensated for that talent, something which he would actually do for free.  The new creative talent which is being over-rewarded is inventing great user experience on computer screens — something Birch would probably do for free, given that it’s fun, inherently fulfilling to do for him, it touches millions of people and it makes him popular.  His particular bundle of creative talents happen to fit with the economics of creativity in this age. 

Let me flesh out a few more examples to amplify.  In the mid 1800′s a grandfather of mine (who was an American) married a Von Brandenberg woman in Germany, where he was living with his dad who was the conductor of the Berlin Orchestra.  I found out a few years ago that a Von Brandenberg is kind of royalty in Germany.  How could it be, I thought, that my dumpy ancestor could marry a royalty.  I didn’t make sense.  Until you realized there was no radio back then.  People who played in the orchestra were rock stars of their day, and the conductor too.  Even the conductor’s son was part of the creative elite.  Royalty lavished big bucks on musicians and, I guess sometimes, fell in love with them.  That was the technology of the day, and it happened to favor the particular bundle of talents my great great great grandfather had.

Fast forward to 1925 when my grandfather was trying to make it as a cellist in Boston.  He got paid for playing his cello at dinner at the Chatam Inn on Cape Cod but he could barely support himself and his bride.  When the kids came, he became a machinist and a fork lift driver at a brewery.  His creative endeavor no longer paid the bills because radio was availble and the transition was underway in the 20′s from rewarding live music to rewarding recorded music.  Later in his life, my grandfather would practice and play the cello for free.

Forward to the 1940′s when my grandfather’s sister, Florence, 20 years younger than my grandfather, loved to sing from the time she was three years old.  It was in her nature and she would do it for free.  She recorded 8 albums in the 1950′s which were distributed on vinyl and played on radio stations around the U.S.  She’s loaded!  The technology available to distribute creative endeavors richly rewarded the talent for recording music.

Forward to the 1990′s, when a friend from college who won the Julliard Prize for playing piano, tried to make it as a concert pianist.  She was much more talented than my grandfather, but by the 1990′s, the economics of live music had deteriorated to $50 stipend for an hour performance.  And it takes her 80 hours to prepare for that hour.  She still performs every chance she gets.  She’s willing to do it for free today, while my ancestor got to marry royalty 150 years ago for a similar talent.

Designing user experiences on computer screens may be one of the creative endeavors economically favored by the state of  technology today.   How long do you  think it will last?

We saw this near the end of the first Internet boom, and we’re starting to see it again — consumers are just getting tired of trying out all the new online services we all are cranking out. What that means is that even if you find a way to get a great, new, differentiated service in front of them in a cost effective manner, the consumer is significantly more likely to pass just because they’re too busy figuring out other services they found earlier.

Time Magazine has an interesting article this week about a new book out called “X-Teams” by a professor at MIT Sloan School and one at INSEAD. The thesis is that in corporate management theory, we have become overly obsessed with the internal dynamics of teams as a way of improving productivity and happiness in our companies, while, in fact, the relationships and communications employees have with people external to the company are equally important to productivity, happiness, and ultimately to success. The authors show decades of research proving this is the case.

The article doesn’t mention online services, but it got me thinking that this is yet another reason companies should actively embrace work-oriented social networking services like LinkedIn and Xing even though those services are hosted outside the company firewall, and even though those tools open up their employees to being poached.  For anyone reading this blog, I’m not saying anything new.  But the “X-Teams” research at least provides a credible and logical counterpoint to the fears of corporate managers who have blocked these services or purchased social software tools that are hosted inside the company firewall (company directories, blogs, etc).

The turning of companies inside out is good for them, ultimately. My bet is that tools like LinkedIn and Xing are in their infancy as to what can be done for making work much more fun and much more productive. Those companies will keep pushing the boundaries, or other companies will come along that do even more to connect people inside their company, turn that network outside to great benefit, and make it all more fun, fast, and productive. Regardless of who does it, we will continue to need arguements such as that of “X-Teams” to help managers get over their fears so they can let these services turn their companies inside out to great benefit.

A lot has been written about Facebook getting thousands of developers to build applications inside the Facebook wall using FML and other proprietary languages.  The excitement is in part due to the idea that much of the value created will somehow accrue to Facebook because they are now the platform (even though it’s unclear Facebook has figured out really slick ways to monetize all that action, but they probably will).  I agree it’s very cool.  Like Second Life has been doing for 5 years and Microsoft did so well 20+ years ago.  But as I was thinking about building a branded destination site today, it occured to me that because 65%+ of all Internet visits start with them, Google is the real platform and we are all building applications on top of their platform, the Internet, using their languages HTML, XML, etc.  Just as people go to facebook.com to get to FB apps, people go to google.com to get to ALL the apps.  And with Ad Words, Google has actually figured out a slick way to make money off it already.  And they make us bid against each other!  A pretty slick way to monetize us app builders on their platform. 

On the one hand, we see a mess:  we see 6.5+ billion people most of which know nothing about managing their health, we see the wasted billions people spend on their health every year (or is it trillions), we see charities spending billions (e.g. Gates Foundation) to improve health, we see the battle between scientifically proven medicine and the persistant superstitions, we see obesity and late night TV, the list goes on.  On the other hand, we see the Internet, free, increasingly robust, growing like a weed to every corner of the globe, fully capable of getting the right information to the right place.  So what gives?  Why is health information on the Internet still so bad 13+ years into this?

Has anyone been on WebMD recently?  Given it’s the #1 medical site (by Comscore, so take it with a grain of salt), I found the experience suprsingly lacking…lacking in depth, readability, clarity, humanity.  Not only does the site navigation and design feel so 1997, so does their unwillingness to give much information other than “consult your physician.”   I was hoping that Revolution Health was going to make a difference, and their interface does scream Web 2.0, but I don’t see them getting much traction, and I heard they are burning $6 million per month.  With deep pockets, strong vision, real passion and a bunch of very capable management, Revolution Health has probably bitten off more than they can chew. 

60% of all medical searches online start at Google, and they do seem to be making some small adjustments to their product that may pay off for users.  (See screen shot)

Right above their results for “common cold,” they let you narrow your search so you have a better chance of avoiding the Spam Sites that are trying to swamp their SEO results.   If they do that, people will certainly get marginally more educated.  But Google, from what they say, are not focused on education as much as they are focused on patient records.  It’s certainly a huge mess deserving of attention, and if they solve it, it would make a big difference.   (That’s also probably a wise strategy for them — letting other companies come up with the great health information sites they can spider and put ads next to.)

So we are still left with the sense that getting good health information to people in a way they can absorb it and use it could have a big benefit to the world.  Could be world changing.  The fact it hasn’t happened could be a result of 1) intractability of the problem, 2) entrenched interests don’t want it to happen, 3) good laws and processes we’ve put in place to stop health fraud are now also stopping us from sharing truly useful health information.  I’m interested to find out which one it is.

Here’s more indication that the consumer Internet is moving closer to the Hollywood operational model. In Hollywood, movies are often popular because of a star power like Tom Cruise. The movie doesn’t have to be good, but if Tom is in it, it will make money. In tech, things have traditionally been different: your product has to make sense and work. Value is created, not just through popularity, but by first-mover advantage, or technical excellence, or discovery of a new business model… typically something substantial.

Certainly there are a few serial winners in Silicon Valley like Steve Jobs, or Mike Cassidy (directhit, xfire) or Peter Thiel (paypal, facebook), but each time they’ve succeeded, they’ve done it from scratch, producing great products and great teams that battled their way to the top. They were never Tom Cruise. Their involvement didn’t guarantee success. In fact, most of the time, when you see people say “He’s done it before, so he can do it again this time, I’m puttin’ money in!” … it typically doesn’t work out. The tech market is unforgiving.

But Kevin Rose, with Pownce at 700 on Alexa in the U.S., may be revealing himself as Silicon Valley’s first Tom Cruise, where if he’s involved with something, it gets high adoption, which creates value, as long as it’s a network effect business. Is “Executive Producer: Kevin Rose” (ala Speilberg) far off?

Given the glowing reviews F8 is getting, can we pause for a minute and consider that F8 was a pretty big mistake for Facebook? They say that smart people don’t make small mistakes, they make big ones. Consider that Facebook was going to win anyway, so they could have held off for another 12-18 months before they “platformed” their company. They weren’t facing much tough competition, they had a lock on the flexible clean interface, they were simultaneously growing their new user base and deepening the number of connections per user. By opening up, they have taken on a number of risks they didn’t have before:

1) Their site could MySpace-ize pretty quickly, get chaotic and ugly and loose its interface advantage

2) Worse yet, the UI could get so confusing with so random apps being thrown at you and the feed getting too long that users wouldn’t adjust their settings to reduce the chaos, rather they’d just get overwhelmed and stop using Facebook

3) What Facebook IS to people (their brand) could get confused, and it would be picked apart by a swarm of competitors like LinkedIn, MySpace, Yelp and the 10′s of new vertical social networks. Maybe even some clean college networks would spring up to siphon off users.

4) Maybe this would give too much value to their partners, and the resultant energy would dissipate into the wider net rather than accrue to Facebook like it would if they just build the key apps themselves

All are still possible downsides for Facebook, but in the end, after considering these issues, it’s still a very strong move. First, it is energizing and exciting to their young staff, who are working longer hours than any other startup in the Valley. That alone could be worth it. Second, sure they could have waited another 12 months, but this leaves their any competition flat-footed. Third, there is a magic and a power to the distributed mind, in the collective efforts of 10,000′s of smart people. We saw it with Microsoft and you can see it at SecondLife. Now, of course API’s are not nearly as hard as Win32, so Facebook’s defensibility isn’t necessarily the same as Microsoft’s, and I expect other big social networks to get in the platform business over the next 10 months, but by then, Facebook will be well ahead and be down the learning curve on managing this business.

I think they were right to trust their instincts and fall backwards off the stage into the crowd. For instance, already, several of the applications being built by some of the 30,000 platform developers address my four concerns above. Magic and power. Facebook may not have all the answers, but they’re betting 100,000 smart people do, and that’s not a bad bet. My props to the team at Facebook. They are showing themselves the class of the competition, and they are accelerating the evolution of the social Net dramatically by letting 1000′s social application ideas be tested quickly and easily. Everyone in the social Net, including Ooga Labs, now gets to accelerate their thinking.

As a side note, people have asked what Facebook is worth now. I think of it rather like Schroedinger’s cat where the actual state of the cat cannot be known. This is true for Facebook’s valuation because there is no transaction to be had, so the valuation is indeterminate. Given that the management team knows they will create $X billions of value over the next 12 months, and given that they haven’t done it yet, no one can step up and pay something close to what they know they will be worth. And most likely, even if there were such an offer, it would cause the management team’s belief in their prospects to increase. Perhaps justifiably. And since the company isn’t ready to go public (and shouldn’t!), there is not deal to be done, either by a corporate buyer or the public to establish the state of the cat.

Oh, one more thing, small companies to sell to Facebook in the next 6-9 months will do well. RockYou?