I hate writing about the next big thing because it is usually trite, clichéd or just hype, but I read a great piece in the Harvard Business Review about the collaborative economy (“Sharing’s Not Just for Start-Ups” by Rachel Botsman) that I wanted to share. Most of us have come across and probably used start-ups leveraging collaboration or sharing, companies such as Airbnb (where people share excess rooms with travelers) or Uber and Lyft (where people who need a ride can find a driver who is looking to earn extra funds. In and of itself, this is an exciting space with many promising early stage companies, from peer-to-peer lending (money club) to online lessons (Udemy). What I found interesting in Botsman’s article is how this opportunity can be extended to many other businesses.
There are great opportunities in the collaborative economy to create additional revenue streams (which may supplant their core business at some point) or provide channels for user growth. Botsman starts by discussing Marriott, the hotel chain, which rolled out an offering in conjunction with LiquidSpace so people and businesses could book excess conference rooms at market clearing prices. Not only did this initiative create a new revenue stream for Marriott by generating income from rooms that were sitting unused, it also helped grow the customer base. Continue reading “The collaborative economy is an opportunity for all companies”
There was an interesting post recently on the Kissmetrics blog, “5 Psychological Principles of High Converting Websites,” that had some very interesting insights not just for website conversion but for overall product performance. Although I do not agree with all of these principles, understanding how your users think or play is crucial to success.
Law of pithiness
The article starts with the law of pithiness, in which people tend to order their experiences in a symmetrical, simple manner. They prefer things that are clear and orderly, and are afraid of complex, complicated ideas or designs. The law of pithiness leads to a design principle that I think is critical: The simpler your product or game, the greater its chances for success. If it is a game, every second of training or tutorial reduces the chance it succeeds. If it is a product, the easier it is to use and the simpler it makes the users life, the more powerful it will be. Uber is successful because it takes about 15 seconds to hail a taxi, set the destination and pay. Social casinos games are habitually in the top grossing because you download the game, click on a slot machine, and you are playing. The more complex or difficult the process, the less likely for success.
Law of past experience
This principle suggests people interpret current experiences by their past experiences. If you try to change the way they need to do things, they are likely to not understand or rebel. For example, in your shopping cart or buy page, you may have a clever attractive icon for people to buy, but they are more likely to make a purchase if you have a button that says buy now because they remember that is how they make a purchase. Also, if you have an existing product with a large user base, you may improve the product but lose many of your existing users because they are used to using the product in a traditional way. For many years, in the land-based slot machine business, even when the slots went digital and only needed the push of a digital button, they had to include a mechanical arm because that is how people felt they should play a slot machine. Continue reading “Psychology that can improve your metrics”
One of the best books I read this year is The Alliance: Managing Talent in the Networked Age by Reid Hoffman. The core concept in the book is that there is no longer employment for life but there is still a way to build a win-win relationship between employers and employees. Hoffman and his co-authors suggest a tour-of-duty type relationship, where employer and employee agree to a short or medium term engagement with a defined goal.
The current reality
Hoffman begins by pointing out that in the at-will era (when employers can and do fire employees at their discretion), employees thus think of themselves as “free agents,” seeking out the best opportunities for growth and changing jobs whenever they get a better offers. He points to a 2012 study that found even though about half of employees wanted to stay with their current employer, most of them felt that they would have to take a job at a different company to advance their careers. Hoffman writes, “loyalty is scarce, long-term ties are scarcer, but there’s plenty of disillusionment to go around.”
Related to this point, employees’ trust of management is at an all-time low. One reason employees do not trust their employer is that the foundation of the relationship is built on dishonesty. When employees are courted, they are told about the fantastic long-term opportunities. When they answer interview question, they comment on how there goal is to spend their life contributing to the company. Both parties know this is nonsense but feel they must utter these phrases. It creates a relationship built on lies and a relationship without trust is a relationship without loyalty. A business without loyalty is a business without long-term thinking. A business without long-term thinking is a business that’s unable to invest in the future and thus one doomed to fail.
Tour of duty concept
A tour of duty is when the employer and employee mutually agree on a finite project, with goals for the employee’s contribution. It also includes how the tour of duty will benefit the employee. To create a fictitious example, say Uber wants to open the Las Vegas market to its service. When recruiting a VP, rather than pitching them on working for Uber for life, the hiring manager specifically lays out that the task will be a two-year project to penetrate Las Vegas. The employee will need to work with the legal team to counteract the local taxi companies and then recruit drivers. The candidate would learn how to lobby local governments and launch a location based tech product. Both agree that at the end of the two-year tour of duty, there may be another tour of duty at Uber that is mutually beneficial or the employee might use the skills he learned to help another company. For example, he may go over to Peapod to open the Austin market with the skills he learned at Uber. Uber benefits by having a successful launch in Las Vegas, and the employee is more valuable and has a great new opportunity. The important thing is both parties are honest with each other and they have built a mutually beneficial relationship. Continue reading “Using tours of duty to have a better company employee relationship”
I have written multiple times about collaboration and how valuable it is, and a recent piece in the Harvard Business Review – “Bringing out the best in your team” by Brian Bonner and Alexander Bolinger – reminded me of one critical ingredient. As all of us have experienced repeatedly, from case studies in business school to conference calls to team meetings, usually a small subset of the group drives the call or meeting. This phenomenon leads to two problems:
- The people dominating the meeting are not necessarily the ones with the most relevant knowledge.
- Everyone at the meeting should have something valuable to add, otherwise they should not be at the meeting, so letting a few monopolize restricts the knowledge shared.
Effectively, outgoing people get the most air time and visibility even if they are not the most expert on the topic or problem. Continue reading “Bringing out the best in your team”
You often hear how important it is to look at a person or company’s history before hiring, investing, etc., and although it is crucial, it is also crucial to do more than look superficially. Conversely, just looking superficially can cause significant damage and lead you into a bad decision.
Using track record when hiring
Probably the most important factor when considering a candidate is what they have previously done in their career. While a weak candidate can shine for a day of interviews and a great candidate may not be good in an interview environment, what a person has done previously in their career is a strong indicator of what they can do for you.
The challenge is how to analyze a person’s track record. If you look on LinkedIn, 90 percent of people are all in the top 10 percent. In some cases (though I have found it rare among candidates for senior positions), people lie about their prior roles and achievements. This issue is easy to uncover; you just need to ensure you do your due diligence on background and reference checks. The one caveat is not to rely on the references that you are given, as almost anyone can find three or four people (often friends) that will say good things about them. You need to dig deeper, for key positions and achievements figure out who they reported to or worked with, then reach out directly to those people (I usually use LinkedIn) to get the real story.
The other key element of checking candidates’ track records is understanding their true roles on the major achievements they tout. Continue reading “Look closely at track record, with the emphasis on closely”
I recently wrote about the winner-takes-all economy, based on what I read in The Second Machine Age by Erik Brynjolfsson and Andrew McAfee. The authors also provided some fascinating insights into how recombinations are driving economic growth. The insights about recombinations is very helpful in understanding the type of start-ups that are most likely to succeed.
Effectively, recombinations are taking different technological improvements and combining them to create disruptive products. An example they use is Waze, the smartphone app that provides optimal driving directions. Waze is a recombination of a location sensor, data transmission device (that is, a phone), GPS system, and social network. The team at Waze invented none of these technologies; they just put them together in a new way. None of these elements was particularly novel. Their combination was revolutionary.
While recombinations initially feel like something that would drive incremental innovation, because you are combining multiple rapidly increasing technologies it leads toexponential growth that creates staggeringly big numbers, ones that leave our intuition and experience behind.
The authors cite economist Martin Weitzman, who developed a mathematical model of new growth theory, in which the fixed factors in an economy—machine tools, trucks, laboratories, etc— are augmented over time by pieces of knowledge that he calls ‘seed ideas,’ and knowledge itself increases over time as previous seed ideas are recombined into new ones. This is an innovation-as-building-block view of the world, where both the knowledge pieces and the seed ideas can be combined and recombined over time. This model has a fascinating result: Because combinatorial possibilities explode so quickly, there is an infinite number of recombinations of the existing knowledge pieces. Continue reading “Creating billion-dollar businesses through recombination”
One theme that comes up repeatedly in what I read, and thus write, is the importance of Triggers. In my February analysis of Jonah Berger’s book Contagious, I discussed how triggers are one of the five core elements to creating a product with word of mouth. Then in June, I discussed Nir Eyal’s bestseller, Hooked, in which the author builds a model on creating a habit-forming product; triggers represent one of four phases of the model. Given the importance of word of mouth (virality) and habit (retention) as two of the three core components of customer lifetime value (LTV), this highlights the crucial role that triggers provide in success.
The role of triggers in virality and retention
Triggers are reminders for people to talk about our product, game or ideas. In Berger’s book, triggers are the foundation of word of mouth and contagiousness. For example, you may regularly show images of your game with coffee, so that people will think about and start discussing your product when they go to Starbucks.
The first step of Eyal’s Hook Model of retention is triggers. Triggers cue the user to take action. There are two types of triggers: external and internal. Habit-forming products start by alerting users with external triggers like an email, a website link or the app icon on a phone. An external trigger communicates the next action the user should take. Online, an external trigger may take the form of a prominent button, such as the Play Now button on many games. When users start to automatically cue their next behavior, the new habit becomes part of their everyday routine. Continue reading “Lifetime Value Part 23: Triggers, the key to both retention and virality”
One mistake I frequently see is when tech or game companies underestimate the competition, particularly when responding to a competitor’s product or game. Coupled with the need to be 9X better to get someone to switch to your product, this failure leads to many businesses nose-diving.
Thinking your competitor is dumb
The most basic mistake is acting as if you are smarter than your competitor. Although most readers of this blog are quite intelligent (hence, why you are reading this blog ☺), so are leaders of your competitors. You are not going to create a more successful product or better game simply because you are smarter than other companies in the space. They also have great teams who are looking at the market. You need to find true competitive advantages. You are not going to win just because your mother told you that you were smart. Continue reading “Don’t underestimate the competition”
I recently read The Second Machine Age by Erik Brynjolfsson and Andrew McAfee and they highlighted a phenomenon extremely critical for technology and game companies. The economy has evolved, especially for apps and other entertainment products, from a system in which there are multiple profitable products to one where there is one product that sees tremendous success and virtually all competitors are failures.
Why the economy has become winner takes all
There are three reasons described in the book that winner-takes-all markets have come to dominate the landscape. In addition to the three I detail below, I have noticed an additional strong factor in the app and gaming spaces.
- Shifts in the technology for production and distribution, particularly these three changes: a) the digitization of more and more information, goods, and services, b) the vast improvements in telecommunications and, to a lesser extent, transportation, and c) the increased importance of networks and standards. Digitization creates winner-take-all markets because with digital goods capacity constraints become increasingly irrelevant, according to Brynjolfsson and McAfee. A single producer with a website can fill the demand from millions or even billions of customers.Facebook is a great example. Since they have had little trouble scaling (not meaning to underestimate the tech effort but proprietary technology was not the key to Facebook’s growth), it did not leave room for competitors to be a successful second or third social network. In the twentieth century, even a business as successful as a Facebook would only have been able to satisfy a subset of potential customers, leaving profitable opportunities for competitors to satisfy people who could not get Facebook. With digitization, everyone can get Facebook.
- Technological improvements in telecommunications and transportation that expand the market individuals and companies can reach contributes to winner-takes-all markets. If there are many small local markets, there can be leading local providers in each (winners for those markets), and these local heroes frequently can all earn a good income. If these markets merge into a single global market, top performers have an opportunity to win more customers, while the next-best performers face harsher competition from all directions. A similar dynamic comes into play when technologies like Google or even Amazon’s recommendation engine reduce search costs. Suddenly second-rate producers can no longer count on consumer ignorance or geographic barriers to protect their margins.A great example is the demise of chain restaurants, like Darden’s Red Lobster chain, which were very profitable until Yelp came around and helped people find better dining options.As the authors point out, when there are capacity constraints or significant transportation costs, then the best seller will only be able to satisfy a small fraction of the global market. Inferior products will also have a market. Fast forward to now and the top-quality provider can capture the whole market. The next-best provider might be almost as good, but it will not matter. Each time a market becomes more digital, these winner -take-all economics become more compelling.
- A third reason the authors cite is the increased importance of networks (like the Internet or credit card networks ) and interoperable products (like computer components) can also create winner-takes-all markets. The App store is an example of this phenomenon. When Apple’s app ecosystem is strong, buyers will want to buy into that platform, attracting even more developers. But the opposite dynamic can unravel a dominant standard, as it almost did for the Apple Macintosh platform in the mid-1990s. Like low marginal costs, network effects can create both winner -take-all markets and high turbulence.
- There is a fourth driver that the authors do not discuss but that contributes to the winner-takes-all phenomenon: The emergence of freemium and free-to-play business models. When a product is sold discretely as a one-time purchase, it is created to have a limited life, be a consumable. People will use it or play it, finish it and move onto a product so there is room for second and third best products. With a free-to-play or freemium product, however, rather than creating a consumable the company creates a service that is constantly upgraded with new content and features. Thus, the user never uses up the product and has no need to switch to the second best offering.
Continue reading “Winner takes it all”
For those of you who foolishly decided to take a vacation this summer rather than stay at home and read my blog, I wanted to summarize what I feel were my top ten posts this summer (and below will also summarize the rests of my posts since I am sure you will want to catch up on all of them). Continue reading “My top ten summer posts”