March 9, 2011
Internet Startups: 5 Information Arbitrage

In economics, arbitrage is the practice of taking advantage of an imbalance in price between two markets. That arbitrage is almost no risk and short lived.

I define arbitrage as the practice of discovering data and then extracting previously unavailable information from it to create market opportunities. So, in my opinion, the economics definition of arbitrage is just one example of arbitrage. But, to not confuse the two, let me call my definition Information Arbitrage.

Information Arbitrage just provides an opportunity. So, it is naturally more risky. But it is also long lived and can even become your source of defensibility.

To benefit from Information Arbitrage, look for industries where: (Similar to “Data Opportunities” discussed here )

  1. even more data can be generated
  2. data can be captured more efficiently
  3. data can be better analyzed to produce actionable information. 
  4. data can be processed faster (real-time)

6:30pm
Filed under: mba internet startups arbitrage 
March 9, 2011
Internet Startups: 4 Objectivity

Go against convention

Listen to conventional wisdom to understand: 

  • a market and your potential customers and competitors. 
  • the potential flaws in the conventions that you can poke holes in. (convention != disruption)
Example, while Xbox 360 and Playstation 3 were batteling out in the red ocean of graphics and high-def, Nintendo Wii was setting the rules in the blue ocean of casual gaming.

Learn about an industry like a child (Why? Why? Why?). Dont be afraid of asking stupid questions.

But, be objective

  1. Objectivity is what differentiates a disruptive idea from a simply bad idea.
  2. Test your idea in the market with solid research and non-negotiable metrics to make a go-nogo decision. And don’t be afraid to pull the plug.
  3. Example metrics: We will personally work with 10 B2B customers for 3 months. After 3 months, more than 5 should want to pay us to continue working with them. 
  4. Example metrics post launch: Are we break-even (EBITDA >= Expenses) after one year? Are we getting customers in greater numbers or cheaper than before?
  5. As technology and consumer needs evolve, will your solution serve a big enough market? Or will the market become big enough by then?

5:51pm
Filed under: mba internet startups objectivity 
March 1, 2011
Internet Startups: 3 Pain

There’s no happy without sad, no good without evil – You need pain as a catalyst to overcome reluctance to change. A pain can be an inconvenience, added cost, missed opportunity, obsolescence etc.

Mathematically, Pain to resolve > Cost of resolving <=> Adoption

You can’t really understand customers’ pain till you really understand your customer.

Making an opaque part of an industry transparent and cost-effective usually solves a pain.

Some questions to consider:

  1. Does the industry have a supply / demand imbalance? (Groupon / Echo)
  2. Is there significant price elasticity?
  3. Is there fragmentation in the market?
  4. Are there too many steps in the process?
  5. Is there little automation in the process? Time consuming, tedious, error-prone.
  6. Is the customer over-paying for something?
  7. Is the customer not making as much profit as she can?
  8. Is the pain significant enough for the customer to pay for it?
  9. Is the customer solving the pain through some home-grown solutions?
  10. Is the market big enough?

More questions to discover articulated customer needs:

http://namityadav.com/post/3166857651/marketing-developing-new-products-3-customers

Note: Replicating a US business (and its business model) in other countries is getting easier because markets, customers, and their pains are very alike everywhere.

Painful industries

Based on the American Customer Satisfaction Index, some industries have been historically bad in customers’ eyes (Their scores in parenthesis): 

  1. Newspapers (65)
  2. Subscription TV (66). Major offenders – Charter, Comcast, Time Warner
  3. Airlines (66). Major offenders – United, Northwest, US Airways, Delta
  4. Gas Stations (70)
  5. Social Media (70). Major offenders – MySpace, Facebook
  6. USPS (71)
  7. Wireless Telephone (72). Major offenders – AT&T, Sprint
  8. Hospitals (73)
  9. Health Insurance (73). Major offenders – United Health, Aetna, WellPoint
  10. Internet News (74). Major offenders – CNN, MSNBC

11:10pm
Filed under: mba internet startups pain 
March 1, 2011
Internet Startups: 2 Data

  1. With all the data available to us today, very few decisions should be based on faith. 
  2. Look for industries where data is fragmented and needs aggregation.
  3. (a) Find the decisions and actions that your business has to take. (b) Then find the answers based on which you can take those decisions and actions. (c) Then design your information system to get those answers.
  4. Get data from people & give them something useful in return (Think Google’s services). Data is the currency that runs businesses.
  5. “tackling Big Data will determine the winners and losers in the next wave of cloud computing innovation.” - A GigaOm article.
  6. Data can provide defensibility (Ex, Groupon’s future direction) by acting as a source of customization, uniqueness, innovation, etc.
  7. Data can be used as a marketing tool: OKTrends, Admob Mobile Metrics.

Data Opportunities

  1. Infrastructure - Serve the infrastructural needs of big data. For example, storage, management and security of data in cloud-based systems. Ex, Imperva.
  2. Capture – Collect data more efficiently, cheaply, or from new sources. Ex, Google Analytics.
  3. Structure – Translate and structure data for use / analysis.
  4. Analysis – Extract meaningful information from data that help customers in making important decisions. Future opportunities lie in predictive analysis. Ex, Netflix recommendations.
  5. Visualization – Present data in a simple and friendly way. Ex, Hipmunk, Flipboard.
  6. Real-time – Use real-time data to remove inefficiency and unreliability. Ex, Echo.

6:06pm
Filed under: mba internet startups data 
March 1, 2011
Internet Startups: 1 Disruption

  1. Disruption is an innovation that improves a product or service in unexpected ways and lowers price or brings value to a different set of consumers. 
  2. Sometimes disruption comes directly from technology. In other cases, it comes from strategy and business models (which may or may not have been enabled by technology).
  3. Disruption may consist of off-the-shelf components put together in a simple fashion to bring value to a new market, or more commonly, to the lower end of the market (un-served or under-served). If the rate of improvement is significant, the solution then moves up-market. 
  4. Disruptive solutions initially have lower gross margins and smaller markets. 
  5. Example, Digital music’s disruptive effect on music CDs.

Disruption through technology

  1. How can I use technology to disrupt an established industry? 
  2. Can I make an opaque part of an industry transparent and cost-effective?
  3. Is the industry fragmented?
  4. What will the customers need one/three/five years from now?
  5. Can disruption be brought through a hybrid of technology and human processes?

Notes:

  1. Use a rapid application development tool to quickly launch a solution and see if/how customers use it.
  2. Define market segments in terms of “different people”, not in terms of “product usage”.

2:33pm
Filed under: mba internet startups disruption 
February 25, 2011
Network Structures: 7 Stimulation

Spillover

  1. Is it true that to obtain brokerage benefits, one should build connections with brokers? Many business practices, like mentoring, assume this spillover benefit.
  2. There’s a strong correlation between rewards and indirect network constraint (ie, your connections are brokers). 
  3. However a lot of that correlation may be explained by the fact that those having low indirect network constraints also have low direct network constraints. The partial or pure effect of indirect network constraint may be negligible.
  4. Effect of indirect network: Global process - High; Local process - Low; Personal process - Negligible

Stimulation

  1. Agency Question: How much do individuals matter relative to their social structure. 
  2. Network advantage is not a result of having the right access. Individual’s reaction to network is the critical performance variable.
  3. Bent Preferences are evaluations shaped by social comparison. What will I get in comparison to what I already have and what my peers have?
  4. Network fear: The feeling of loss as peers overtake you are more severe than the feeling of gain in overtaking peers. However, the feeling of loss fades as peers continue to do well (because they are no longer your peers?).
  5. Brokers are more motivated by gain than fear of failure. Maybe because they don’t have as many direct peers?

8:41am
Filed under: mba network network structures 
February 24, 2011
Network Structures: 6 Outsider

  1. In business, insider-outsider distinctions manifest in casual conversation as gossip-enforced stereotypes about “those people.”
  2. Outsiders should consider a third kind of network (other than Broker and Closed) — Partner (Hierarchy) network. 
  3. In a partner network, a strategic partner lends you access to others/nodes. She is your sponsor, and has a frame-of-reference effect on others.
  4. For insiders, correlations of Rewards and: Network Size (+ve), Network Density (-ve), Network Hierarchy (-ve). 
  5. For outsiders, correlations of Rewards and: Network Size (insignificant), Network Density (insignificant), Network Hierarchy (+ve).

(Image: Three kinds of networks: Broker, Partner, Closed)

8:10pm
Filed under: mba network network structures 
February 24, 2011
Network Structures: 5 Balancing

Balancing Brokerage and Closure - Where

  1. In stable networks, the primary focus of balancing is on “Where”
  2. Performance is highest for internal closure (cohesive group) and external brokerage (diverse external contacts). 
  3. This makes “Business Networks” valuable (example, Chicago’s Commercial Club).

Balancing Brokerage and Closure - When

  1. In dynamic networks, the primary focus of balancing is on “When”
  2. The focus on brokerage and closure can be alternated through (a) oscillation or (b) learning-curve cascade (Focus on closure mostly with dramatic shift to brokerage for short durations in between)
  3. Example: University of Chicago’s economists. In-depth research (Closure), Workshops with experts from other areas (Brokerage). The combination makes it a “Nobel Prize Factory.”

Transition from Closure to Brokerage

For both, early adopters and laggards, closure fades more slowly than brokerage spreads. This is because closure is based on existing relationships and lack of structural gaps. The rate of fade is greater with early adopters than laggards.

1:58pm
Filed under: mba network network structures 
February 23, 2011
Entrepreneurial Selling: 5 Doing the deal

Close

  1. Be concise and don’t “talk over the close”

Reset expectations

  1. First day, determine the criteria for evaluating the work. This gives clear goals to focus on together. 
  2. Next, send a survey with the criteria that was selected, and ask a few additional questions to further refine it.
  3. Finally, send the last survey. This one will be an in-depth survey, with all the criteria, focusing on the overall experience of the customer so far. 

1:49pm
Filed under: mba sales entrepreneurial selling 
February 23, 2011
Entrepreneurial Selling: 4 Making the match

Two main points: Determining fit & Proposing

Determining fit

  1. Always open meetings with Purpose, Benefit, Check. Pivot meetings with a “Yes, and” (Think Improv)
  2. The biggest hurdle in a sales process comes between Low-interest and Strong-interest (ie, at the point of determining fit).
  3. Determining fit = Preparation + Great questions + Confirmation
  4. Close ended questions get a “yes” or “no” response. Open ended questions require more thoughtful response. Great questions elicit analysis or feelings. 
  5. When you ask great questions, they turn vague issues into concrete needs. They determine consequences of inaction. They mean less talking and still being in control.

Proposing

  1. Sales hurdles are potential deal breakers. Objections are just minor inconveniences.
  2. Sales doesn’t mean manipulation. Sales means finding a match.
  3. Prepare for as many objections and hurdles as possible.
  4. Handling hurdles: Encourage -> Confirm -> Provide Solution -> Check
  5. MathZee’s hurdles and how to handle them: 
  • Unwilling to pay for games - Set up different pricing models, like freemium. 
  • Credibility of math curriculum and its effectiveness - Explain math standards on website, write blog posts, share testimonials and success stories. 
  • Too much gaming for kids - Explain value proposition, qualify better. 
  • Too much time spent on gadgets - Qualify better. 
  • How are you different - Share testimonials and success stories.

12:52pm
Filed under: mba sales entrepreneurial selling 
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