entrepreneurship

Google announced yesterday the initial roll out of a new “store visits” metric for AdWords. Essentially, it is an attempt to trace conversion from an ad click to an actual store visit. According to Google:

With the holiday season upon us, it’s clear that the majority of sales for many industries still happen in person – in fact, roughly 95% of retail sales take place in physical stores.1 And online activities are influencing offline transactions more than ever, bringing together the digital and physical worlds. Thirty-two percent of consumers say that location-based search ads have led them to visit a store or make a purchase, so it’s more important than ever for businesses to understand the impact that search ads have in driving visits to your physical locations, whether that’s a store, hotel, auto dealership or restaurant.

The implementation, however, leaves something to be desired. Google will establish location by conventional means, e.g. geo-fencing and Wi-Fi, and which can have an error rate of over 500 meters!

This means the store visit metric will only work for certain kinds of retailers. It won’t work for stores in dense areas or in shopping malls. It’ll only work for a Costco-like mega store that’s in the middle of nowhere by itself.

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My strategy professor from business school once said that if you left your company’s strategic plan on the bus and a competitor discovered it…and you were then screwed, it was a bad strategic plan. I completely agree.

A great strategy is one that’s unique to your company. For Apple, it’s a commitment to simple designs that cater to the every-person, and to deliver integrated, vertical experiences even if that means basic feature sets. Everyone knows this, but only Apple can be Apple. Only Apple has a large, loyal fan base that absolutely trusts Apple’s product taste and are willing to always pay for it. Only Apple can attract the best talent without needing to pay top dollar for them. Apple’s war chest means they’re able to tightly control their supply chain so competitors have a hard time matching its product quality and profit margins.

Elements of Snapchat’s strategic plan were leaked in the recent hack of Sony Pictures, and so I was surprised to read a very emotional reply from the CEO of Snapchat, Evan Spiegel.

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Yesterday, I wrote how ads are a valid revenue model for online businesses, and not necessarily anti-consumer. Today, I write how display ads don’t even really work.

Intuitively, you know that to be true. How often have you actually looked, processed and clicked on an ad, much less act on it? Take those probabilities and divide them in half, because according to Google, only 44% of all display impressions were even seen by actual human beings.

The definition of seen is quite generous: at least half the ad’s pixels have to be viewable and for at least one second to be counted. So Google is counting even the ads that appear on the side that you completely ignore as you read the web page’s main body of content.

Under this definition of seen, ads that appear just “above the fold” (i.e. are viewable as soon as you arrive) and ads that are vertically long are seen more often.

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When you are drinking at a bar or eating in a restaurant, what’s great service? What makes you loyal to a particular place? Is it not when they know who you are, what you like, and can therefore provide a level of service and intimacy that other places can’t match?

Why then is online, targeted advertising so different? Why do people get up-in-arms about companies getting to know you better, so they can show you ads you might actually like more?

That is probably what Mark Zuckerberg is thinking when he reacted to a comment Tim Cook once made:

When an online service is free, you’re not the customer. You’re the product.

And then Mark Zuckerberg in a recent Time Magazine article:

“A frustration I have,” Zuckerberg says, before a PR handler can change the subject, “is that a lot of people increasingly seem to equate an advertising business model with somehow being out of alignment with your customers. I think it’s the most ridiculous concept. What, you think because you’re paying Apple that you’re somehow in alignment with them? If you were in alignment with them, then they’d make their products a lot cheaper!”

I have to side with Zuckerberg here.

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One way to make e-commerce work is to sell high margin products online — ideally, products that are necessarily high margin in the brick and mortar world to account for distribution costs. Therefore, going online cuts out the middlemen and you can profit even while selling for less. Proven examples include eyeglasses, cosmetics, baby products, and so on.

Re/code has a fascinating story on another example: Harry’s, for razor blades. What makes Harry’s so interesting is that the company raised $197 million on a $350 million valuation on basically zero revenue (they have sales, but at a level insignificant relative to the size of investment).

In short, investors are investing solely on the basis of potential.

Re/code is painting this as yet another example of technology’s growing bubble. But let’s dive deeper — far from a being sign of investor irrationality, this transaction might actually make rational sense.

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There’s a great story on Wired about how several accomplished entrepreneurs are doing “start-up factories,” which really just means experimenting with ideas until something hits. Kevin Rose of Digg fame, for example, has a goal of creating one new app every three months. If the app doesn’t take off, he moves on to the next one. If it does, he doubles down on it.

This was in fact the same model that my co-founder and I started with, and feecha was our first product. feecha did see some traction early, so we doubled down. The second iteration unfortunately was a disaster — it took nearly a year to launch and it was too confusing — but that’s a post-mortem for another day. We’re already working on our next thing.

After three years of the start-up factory model, I’ve come to the conclusion that it only works for “known” entrepreneurs. I.e., entrepreneurs with a large following and friends in the media. When they make something, there’s enough initial curiosity that a sufficient number of people will try it. There will always be data to judge the product by.

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Except this time, that co-founder might actually have a case. Valley Wag is reporting that Douglas Warstler is suing Yik Yak’s two co-founders for excluding him out of Yik Yak. The basic story is that the three started a company with 1/3 ownership each that created and launched Yik Yak.

(Yik Yak is a location-based, anonymous chat app popular in schools. My start-up’s app, feecha, actually started out as something similar, so the fact that Yik Yak is more successful is a testament to the importance of execution. But that’s a story for another day.)

Two of Yik Yak’s co-founders graduated from university and moved to a different city while Warstler had a year left that he intended to complete. The two co-founders didn’t want a long distance, part-time situation and tried to buy him out. Warstler refused. And so the other two co-founders transferred Yik Yak to a new company and didn’t give Warstler any shares.

That’s what happened in a nutshell.

Typically, when these kinds of stories appear, my bias is with the remaining co-founders who actually built the business (e.g. Facebook, Snapchat). In this case however, my sympathies are with Warstler if what’s alleged is actually true.

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