Monthly Archives: June 2012

A Recipe for Growth: Adding Layers to the Cake

Businesses don’t grow themselves. One of the most important jobs of a CEO is to aggressively define and pursue a growth agenda for his or her business. Why is this important? Growth typically improves a company’s competitive position and provides increased scale and leverage, and investors clearly value growth.

The pursuit of growth continues to be important regardless of the lifecycle of the company. Obviously it’s critical early in a company’s life… or it won’t be a company for long. But it continues to be important as a company develops. Virtually all businesses, even hyper-growth ones, inevitably experience slower growth as they get larger, with their growth rates falling relentlessly back down to Earth over time. I call this effect “gravity” and it will weigh down even the most promising of companies—unless a CEO can find a way to accelerate growth and positively change the long-term growth trajectory of the business.

The first real operating job I had was managing eBay’s U.S. business in mid-2000, which included the ebay.com website. Virtually all the revenue—and more than all of the profits—of the eBay company came from the U.S. unit at the time, and despite the bursting of the bubble, EBAY was still trading at highly robust multiples. So you can imagine the terror I felt when the U.S. segment failed to deliver month-over-month growth for the first time ever in my first month on the job. The heavy weight of sky-high growth expectations was showing the first signs of a potential collision with the brutal effects of gravity.

It was clear we needed to quickly define a growth agenda that had the scale to fight gravity’s impact. We quickly narrowed the options down to a few: spend more marketing or spend it more efficiently, innovate the product, or buy a company to help us grow.

Marketing had some leverage, but it was limited. eBay was already one of the biggest marketers on the Internet and efforts to optimize spend were already underway. M&A, on the other hand, felt both desperate and was controlled in a separate part of the organization. So we quickly turned our attention to focusing on product innovation.

One of the first places we looked for growth was in buying formats. ebay.com at the time enabled the community to buy and sell solely through online auctions. Many in the community thought this was the magic of the site, and it clearly helped propel the company to a very strong start. But auctions intimidated many prospective users who expressed preference for the ease and simplicity of fixed price formats. Interestingly, our research suggested that our online auction users were biased towards men, who relished the competitive aspect of the auction. So the first major innovation we pursued was to implement the (revolutionary!) concept of offering items for a fixed price on ebay.com, which we termed “buy-it-now”.

Buy-it-now was surprisingly controversial to many in both the eBay community and in eBay headquarters. But we swallowed hard, took the risk and launched the feature… and it paid off big: Buy-it-now complemented auctions well, brought new users and new listings to the site, and became a very important driver of growth for many years. These days, the buy-it-now format represents over $40 billion of annual Gross Merchandise Volume for eBay, 62% of their total.

With an initial success, we doubled down on innovation to drive growth. We introduced stores on eBay, which dramatically increased the amount of product offered for sale on the platform. We expanded the menu of optional features that sellers could purchase to better highlight their listings on the site. We improved the post-transaction experience on ebay.com by significantly improving the “checkout” flow, including the eventual seamless integration of PayPal on the eBay site. Each of these innovations supported the growth of the business and helped to keep that gravity at bay.

I came to call this process of layering in new innovations on top of the core business “adding layers to the cake”. Much of the natural effort in the organization is spent on chasing optimization of the core business. This makes sense, as small improvements in a big business can have a meaningful impact. But there is huge potential leverage to adding layers of new, complementary businesses on top of the core (aka “cake”). In the ebay.com case, buy-it-now, stores, features, checkout and PayPal integration were all new initiatives that layered on top of the core business but added something new to it.

The eBay company in its first decade is a good illustration of the impact of “layers on the cake”. eBay U.S. was the company’s original business, and my team worked tirelessly to optimize it and add layers on top of it. And at the company level, the eBay Inc. management team also looked to add layers. Our first was international expansion, which started in earnest in the early 2000’s. We followed with payments, facilitated by our acquisition of PayPal (and worth noting here that PayPal’s early growth was primarily as the payment functionality on the eBay marketplace). Here’s what the result looked like at the company level:

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eBay U.S. clearly was a fantastic business in and of itself, and it demonstrated strong, sustained growth. At the same time, the international and payments layers grew from virtually nothing in 2000 to around 60% of the company’s revenue by 2005. As a result, the overall company grew dramatically faster than its original core business and successfully fought off the impact of gravity for a decade.

And the market rewarded the company handsomely for this growth. Here’s EBAY’s stock price during the period:

Image

After eBay, I continued to deploy the layers-on-the-cake approach at the other Internet companies that I’ve managed. At PayPal, the key layers we implemented there were international expansion, improving PayPal’s offerings for merchants who wanted to sell outside of the eBay platform (called “Merchant Services”), and starting to offer credit on top of our payments business. We even trialed a text-based mobile payments product in 2006, although the market wasn’t quite ready for it at that time (I’m convinced the product’s developers and I were the only people who ever used it).

During my time at OpenTable, the key layers we introduced included building a robust set of mobile applications that expanded diner use cases, expanding internationally (again), introducing a new “Connect” product that meaningfully increased the addressable market of restaurants, and developing yield generation products that helped restaurants attract additional diners. These initiatives helped OpenTable overcome gravity. For example, year-over-year revenue growth rates accelerated from 23% in 2009 to 44% in 2010.

Two other illustrations of the success of this layering approach are provided by two of the most successful growth companies of the past decade: Apple and Amazon. Steve Jobs and the Apple team relentlessly added new layers at Apple that sat on top of their original core business of computers, including the iPod, iTunes, the iPhone and the iPad. And Amazon in recent years has innovated incredibly skillfully beyond their core physical merchandise business, adding layers such as Prime, digital goods, Amazon Web Services and the Kindle and now Fire digital devices. These very large companies demonstrated explosive growth pretty much entirely through brilliant innovation.

Innovation clearly is THE success model on the Internet. It explains how Google emerged as the dominant player in search, despite being relatively late to market and competing with established companies like Yahoo and Microsoft. It explains how PayPal buried the other online payment sites that started around the same time, including billpoint.com and accept.com, despite these companies having preferred access to the massive eBay and Amazon platforms, respectively. And it explains how Facebook has come to dominate social networking, even though it was very late to market relative to Friendster and MySpace.

These winning Net companies are incredibly strong at product innovation. They invest in it, they create cultures that support it, they prize it and they reward it. The companies above that failed to capitalize on their early success arguably did not. The best innovations improve and compliment the core business of a company, taking advantage of and enhancing its most valuable assets. Diversification outside of the core business is a much more challenging strategy. The further a company strays from its core in its innovation, the longer the odds of success.

I’m a huge believer in the potential for innovation to drive results for all companies, but particularly for technology companies. Core to the CEO’s job is to rise above the day-to-day requirements to keep his or her vision far out on the horizon, proactively delivering new innovations today that have the impact to materially boost the long-term growth of the business in the future.

Wilson in Washington: 10 Tips on Getting the Best Out of Networking – Entrepreneurs.my

The word – “networking” makes many people confused as many see it as a business activity to serve oneself and we need to act in a different way. Many view it as insincere at best, manipulative at worst. In fact, networking is supposed to be genuine and friendly.

Reid Hoffman, the guru of networking and also the co-founder of LinkedIn, said that building a genuine relationship with another person depends on at least two abilities. The first is seeing the world from another person’s perspective; the second ability is being able to think about how you can collaborate with and help the other person rather than thinking about what you can get.

These two abilities are the foundations to get the best out of networking.

Networking is about making connections and building mutually beneficial, enduring relationships. At the end of the day, it is not just about who you know, but more importantly who knows you.

When I first arrived in Washington D.C., I literally knew no one. I had no choice but to network smartly and reached out to the right people. On my first International Finance lecture at Marymount University, Professor Scott Sibbald reminded the class: “To be successful in the business world, network – as if your life depends on it.”

Later whenever I joined conferences like Clinton Global Initiative University or interning in the World Bank Group, I learnt networking, built up a strong supportive group and made good friends over the cause.

These are 10 tips on getting the Best out of Networking which I learnt from books, friends and experiences.

1. Have a plan – know what you want to achieve after the networking session.
Set a goal and be prepared in any networking session. Are you going to look for job opportunities, project funding or a co-founder?

2. Be clear about what you do.
Tell a story about yourself in 60s. Include your most up-to-date works and what you are looking for.

3. It’s far more important to understand their needs before you tell them about your needs.
People are selfish. We always care about ourselves first. So, show interest to other’s needs and they will do the same.

4. You don’t need to know the most people, just the right people.
More is not always the better. It is more meaningful to connect with 5 people who can actually help you rather than getting 50 business cards without much interaction.

5. Start by offering praise, not requesting help.
Everyone loves to be praised – but do it genuinely. Get to know each other more before start requesting for help.

6. Remember names
A person’s name is to that person the sweetest and most important sound in any language – Dale Cargenie.

7. Ask open-ended questions
An open-ended question requires an answer greater than a single word or two. A closed-ended question can be answered with a simple “Yes,” “No,” or other very simple answer.

Perhaps the most famous (or infamous) open-ended question is “How does this make you feel?”

8. Be a connecter – Try to provide as much value as you possibly can – networking is about helping others too.
Don’t hesitate to share your network or connect two persons you know personally – if they could be a great partner in business or building new friendships.

Yes, networking is about helping each other.

9. Don’t worry about rejection. It’s OK to get a No.
You’ll meet people who can’t or don’t want to help you. That’s the reality of life. Just don’t take it too seriously. Move on.

10. Follow up
I personally like how Reid Hoffman describes relationships.

Relationships are living, breathing things. Feed, nurture, and care about them; they grow. Neglect them; they die. You might be nodding your head at the importance of staying in touch.

Send a follow up email or a thank you note after your encounter. Write down where did you meet this person and what impression do you have to him or her.

via Wilson in Washington: 10 Tips on Getting the Best Out of Networking – Entrepreneurs.my.

What Success Really Is for Entrepreneurs and Startups? – Entrepreneurs.my

I have had the opportunity to be doing business in a few countries. Meeting people from different background and different culture allow me to have a sense of discovery. I love the way people talk about success. One of the things that I usually ask the people that I meet is about their personal definition of success. To my surprise I ended up with different answers.

Some people feel that fame is success. Some said that success is when they can travel around the world. Some feel like if they have some branded cars or big houses they are successful. Success means being able to give back to the community for some. Some people told me if they have A Million dollar in their bank account is the meaning of success. The list goes on and on and on.

I realized that through all these diverse and broad answers, the definition of success becomes more and more vague. Some says that the first thing to do to achieve something that you want is to become crystal clear about what exactly do you want. The problem I had was, all these answers people that I met gave me sound brilliant. Why would anyone not want to have a nice set of wheels or a big house or a million dollar and at the same time all they do is travel around the world?

This problem became bigger when I started feeling overwhelmed by all the things that I want. When this happened I lost my motivation to move on and that’s probably the worst thing to happen to an entrepreneur.

A few years ago while doing business in Vietnam, I started connecting the dots to all these different answers to find a common denominator. Then it hit me, what we all really want (well at least this is true for me) is feelings. I don’t really want a branded car. I want the feeling that owning a branded car gives me. I don’t really want one million dollar, all I want is the feeling that I can get when I have a million dollar in my bank. I think you get what I am trying to say here.

So if we want is feeling, and we control our feeling. I figured the best way to be successful is to begin feeling successful. The best thing about that would be to have all these feelings it is absolutely free. Isn’t that great? Well not really. When business is not doing well and when things are not going to plan. When you are constantly checking your bank account to see if an extra zero could magically appear, it is not really easy.

Today, this is the definition that keeps me going. Success is a journey. I realized that all you need to do to be successful is to keep the journey going. Keep on moving every time you are down. Getting back on your two feet and starting that business again when you have butterflies in your guts. Picking up that phone another time when you just got rejected from your previous cold calls. These small events are what I define as success. I do belief that the hardest person to beat is someone who keeps on bouncing back every time he/she is down. Well at least for me, that’s what success is.

via What Success Really Is for Entrepreneurs and Startups? – Entrepreneurs.my.

How Do I Partner with Another Startup Company? | Entrepreneur.com

You can associate or create a joint venture, where you retain control of your own part of the business.

Discuss with an advisor or tax attorney the best fits for what you are doing and the industry. But beware of any type of partnership arrangement or limited partnership agreement. You don’t want to give up pieces of your company before you’ve even started – and there are many other ways to share and leverage resources, skills, contacts and knowledge.

Most people team up based on a personal friendship or co-worker relationship. But a good partnership should be grounded in business and treated as a business relationship.

Also beware of bringing in another person and giving them a title, or control over your product, services or resources when you’re really not sure about his or her skills, competence, aptitude and, more importantly, attitude.

Do some additional questioning of yourself and others before making anything official. Once you have a clear vision of what your company is and what you want it to be, you’ll be better equipped to make a useful partnership agreement.

via How Do I Partner with Another Startup Company? | Entrepreneur.com.

Removing Potential Points of Failure in Your Startup Idea – Entrepreneurs.my

The rise of startup communities all over the world is a great thing. It’s a beautiful sight to see startups blossoming the world over in exotic cities like Santiago Chile, our lovely neighbors Singapore, Taiwan and not forgetting our lovely home Kuala Lumpur, Malaysia. This means that the next economic wave of the internet is upon us and you guys, my friends are the front runners to ride this wave.

However, there are still a couple of barriers we need to overcome for the startup communities in these areas to be bustling with awesome startups and potential investors. And in my super duper humble opinion, one of the most crucial is the ability of entrepreneurs, and potential entrepreneurs to identify, understand and REMOVE “potential points of failure” in their startups.

So, what are “Potential Points of Failure” (PPoF)?

PPoFs represent to TOP HURDLES that your particular startup idea needs to overcome for it to have a chance of success. And it’s the job of the CEO/Founder of the company to channel ALL his startup’s resources to solve these hurdles in the fastest possible way.

Let’s have a look at the types of Consumer Internet ideas and the PPoF for each of them. I learnt this the hard way with AtticTV and I will share my story at a later point in this article…

For most consumer internet ideas, the top PPoF is customer acquisition and adoption. The challenge here is that competition for customer attention is so high, that it takes an awesome product and unique marketing ideas coupled with excellent execution of these ideas for it to have a chance to succeed. AtticTV, which aims to be your personal MTV, falls within this category. Where all product and marketing effort is channeled towards 2 main metrics — Customer Acquisition and Customer Retention. So it is pretty clear cut and those represent the core PPoFs of the idea. The initial target market has to be global from the get-go with these startups.

For marketplace related startups, the PPoF is represented by the challenge of fulfilling 2 sides of the equation, i.e. the Supply Side, (for example the apartments up for rent in AirBnB’s case) and Demand Side, (the people who are finding for short-term vacation rentals). The challenge here is to solve the problem of the chicken and egg issue. AirBNB found a great way to do by hacking Craigslist. The bad news for these startups is that it might take longer to be able to reach critical mass for their business to be valuable to users. However, the good news is that if you’re able to achieve it, it would represent a huge barrier to entry to potential competitors. With this model, you have a choice of either going global immediately (possible as seen in the case of AirBnB) or do a city by city roll-out like eBay.

Lastly, the worst possible idea in terms of the number of PPoF will be consumer internet ideas with a huge Business Development element to it (BD). The key will be to assess (honestly) the ability of the team to overcome these hurdles. And if you’re able to, you will build a huge, huge barrier to entry to potential competitors. Examples of these kinds of businesses include Square – where they had to deal with merchants and credit card companies (which is a huge pain), Uber – which had to have all the cabs in NYC have an iPhone for it to work + the customer acquisition problem which they solved rather nicely. My humble opinion would be, unless you are a seasoned veteran with strong existing connections to reduce the PPoF of the business development deals, it would be best to tweak your idea to be able to utilize existing public APIs to be able to get to traction first, then expand into Business Development deals as it goes further along.

Now, back to the story I promised..

Now, before AtticTV, we were working on a startup called Tickade. It aims to be premier non-cash prize casual gaming tournament site on the net. The idea is that people can go on the site, play casual games competitively and create So let us dissect the idea into PPoFs.

1. it needed the best casual games to be on the platform (which we grossly underestimated) to ensure user retention

2. we needed a worldwide physical prize distribution platform

3. we needed a killer customer acquisition strategy as we were competing in a highly competitive space

So, we solved PPoF number 2 pretty quickly by hacking the eBay API to be our global prize distribution platform (which took us a good number of months in itself), but we stumbled on 1 almost immediately when we couldn’t get any of the big boys like Popcap or Wooga to come on board with their games as the BD process was just too huge. So, basically we wasted a good 6 months of our lives chugging away to nothing.

That was when we took a step back to evaluate the opportunity and we decided that as content was the problem, we made the decision to choose a different content medium — videos. And that was how AtticTV was born.

Being in Malaysia or any of the other new startup communities in the world is a challenge in itself. So, we have to do all we can to reduce chances of failure in other parts of our startups that are not within our control. I know that these advice will very well fall on deaf ears for the most of you, but hopefully, it could increase the chances of success for the few that would take it in their stride.

via Removing Potential Points of Failure in Your Startup Idea – Entrepreneurs.my.

6 Must Read Books For A Lean Startup – Entrepreneurs.my

6 Must Read Books For A Lean Startup

As the Lean Startup conversation brings some new experiences and processes to startups derived from Lean Programming and Lean Manufacturing, there are times when folks ask about what books would help then engage in the process more deeply. There are six books that often come up in conversation for one idea or another. Here is a quick list of a core set of books that are helpful for people engaged in taking the next step.

The Lean Startup is the current hot book on the topic. It is a good strategic overview of the conversation and it puts a lot of the pieces in perspective.

The 4 steps is the seminal book for this area. This is Lean Startup Before it was Lean startup and it covers some very important tactical issues around how to approach the market place directly.
It is a bit of work to go thru, but it is worth the effort.

This is the Cliff-notes version of the 4 Steps. It helps simplify and focus some of the conversation.

The Business Model Generation is a fun crowdsourced book aiming at focusing on the process of getting the right questions answered for your business and getting clarity on your business model.

Running Lean is a story of the journey for a startup software company using the 4 steps and the Business model generation to get to the end. Ash tells an interesting pattern and it leads to the Lean Canvas. I have usedhttp://www.leancanvas.com often to help focus the conversation about a startup.

One of the hardest things for entrepreneurs is to focus on the right thing. Personal Kanban presents an interesting method of keeping focus and getting teams to play together and to as a group focus on what they need in order to make rapid progress.

via 6 Must Read Books For A Lean Startup – Entrepreneurs.my.

How Can I Get Businesses to Advertise on My Website? | Entrepreneur.com

How Can I Get Businesses to Advertise on My Website?

I created a website that I think will actually make people want to view advertisements. I need ads before I can get traffic, but advertisers want traffic first. What do you suggest?

Monetizing your website with ads is a challenging business model. As you’ve pointed out, the best way to be attractive to an advertiser is to make sure your website generates more qualified traffic than your advertisers can generate on their own.

Still, there are a few ways you can make your ads interesting and available while you’re building up your traffic:

Using advertising networks: One way to monetize websites with smaller traffic is to sell your space to an advertising network such as Google AdSense. AdSense provides you with code to display ads created by Google customers that you can place on your site and in your videos. You get a small commission for every click.

Other ad networks include Yahoo! Publisher Network, OpenX and AdBrite.

Pricing your ads based on actions: If you want to sell your own ads without using a network, there are three basic advertising pricing models. Cost Per Thousand (CPM) charges the advertiser for every 1,000 times the ad displays or loads on a page. Cost Per Click (CPC) charges the advertiser for every one click on an ad. Cost Per Action (CPA) charges the advertiser when a click on an ad results in an action such as a purchase or someone filling out a form with an email address.

Generally, actions are the most valuable to an advertiser, followed by clicks and then impressions. Since you are taking more risk by offering a CPA pricing model, theoretically you can make more margin on charging for actions.

For example, an advertiser who makes $100 on every sale might not be willing to pay $10 per thousand impressions or even $.10 per click, but they may be more than willing to pay $50 or $75 per action because they are virtually guaranteed a profit when they receive a sale that results directly from an advertisement.

Working out the math: To get a ballpark idea of how much traffic you’ll need to make the kind of money you want by charging for actions, take the average click-through rate (CTR) and multiply by the average conversion rate you think you can get for an advertiser.

For example, the average CTR on display ads is around .07 percent, so you’ll need around 1,429 visitors to get a click on one of your ads. If you can convert 5 percent of your clicks into a sale or a lead for your advertiser, you’ll need 28,580 visitors to get one sale or lead for your advertiser. The more valuable the sale or lead, the more you can charge for the action.

If you want to charge for clicks, take the average CTR and multiply by the average Cost-Per-Click (CPC) an advertiser is willing to pay. For example, if the average CTR is .07 percent and the average CPC is $.25, you’ll earn around $1 for every 5,716 visitors.

via How Can I Get Businesses to Advertise on My Website? | Entrepreneur.com.