There is No Replacement for Physical Presence

I watched U2 3D at the Simons IMAX Theatre near Chinatown, Boston on Central Wharf. Watching them on screen reminded me of the rock concerts I experienced in high school and college, and the people I was with at those times. This type of recollecting life events is probably very common. However, why didn't I flash back to times when I watched music videos of live concerts, or times at a club or a party?

It's because there is no replacement for presence. The combination of the senses with location, time, age, who else you're with all combine to make the recollection of physical life experiences much easier than in virtual or online worlds. When was the last time a thought of an IM conversation came up, or you remember a WOW character instead of your friend playing that character? The closest thing we have been able to accompish with technology is video chat, or chatting in virtual places like Second Life or Qwaq.

Social networking helps us stay in touch with fringe contacts. Now, with the Facebook newsfeed, we can keep up with the goings on for 300-500 friends, effectively shattering Dunbar's 150. With all of this enhanced communication, physical presence becomes more expensive. The next enabling social technologies will likely come from mobile phones, which can incorporate location and match making. For instance, if I were looking for funding, it would be nice to know mutual contacts with a VC at some event, or that we both share an avid passion for white water kayaking.

MIT Concept Clinic Event

I went to the MIT Concept Clinic for the first time last Thursday.

The team presenting was Rob, working on an mobile advertising start up, Brring.com, where you can earn money every time someone calls you. When people call you, they will listen to a 10-15 sec advertisement, and you get paid. They have been running since September, and are pretty much all sweat, running on friends and family money for now. This specific clinic focused on their primary problem: how to quickly and cheaply prove their concept.

The layout of the event was really good. The event went from 6pm to ~8:45pm. The founders get to present their idea for 1 to 1.5 hours, then break up into groups focusing on different topics (product, raising money, marketing, etc). Then we regrouped for comments from the panelists and general audience.
The panelists present seemed to have varying backgrounds, with
many of the local venture groups represented, people tapped into the Boston start up scene.

The overall tone was people trying to give suggestions to help get Brring to the next level. The consensus was that they are trying to fight two problems at the same time:
1. get users
2. get advertisers

If I were in their position, I would try to simplify the situation to solve only one problem, and then look for the quickest way to get cash flow. One of the key points Rob indicated was that advertisers want a minimum of 1 million impressions per month before they start testing things out. I would try to locate different sources for users in large volumes, and then find advertisers. This makes the advertiser problem much more easy to manage.

I think Brring really needs to hone in on an initial niche market, and figure out what they want. For instance, they could spread this service very quickly across college campuses to offer local restaurants a convenient way tell college kids about their promotions. Imagine around dinner time, you call a friend, and hear a local advertisement about $5 specialty pizza at Papa John's for the next hour only. Or, because business is slow on a Tuesday night, a bar owner advertises "1st drink free, no cover" to get more bodies. Getting college students should be pretty straight forward, using internet marketing, or on-campus recruiting campaigns.

Another suggestion I thought would get much better reception is monetizing wasted "on hold" time. If you need to hold to get Verizon customer service, and you don't really have many other options, they might as well be selling that hold time to advertisers. The same thing could be done with call centers. Even though this is not the ideal market, it is readily available, and you can start making money right away.

I wish I had these types of panelists questioning me during my real estate start up. Getting grilled by a bunch of bright, experienced people is not the most pleasurable activity, but you really come out better from that experience. I am really looking forward to the next one.

The Dreaded Elevator Pitch

I attended the SCNE Elevator Pitch event tonight, which was held in Suffolk University, downtown Boston.

An elevator pitch is a quick 20-30 second summary, used to explain your business idea. It is unlikely that a VC will give you any useful assessment after hearing a 25 second elevator pitch. Slimming down your pitch is still a useful and practical exercise in understanding your differentiating factor.

You do not have time to say:
- any facts about the market
- anything about the problem you are solving
- any details about business
- any information about yourself

In 25 seconds, you only have time to deliver your value proposition, and a quick question. The value proposition is meant to immediately catch the listener's attention. The question is an invitation for additional conversation. For simplicity's sake, it may be easier to say "imagine x, but z." So if I were to describe an iMac, "imagine a Windows PC, except secure, friendly, and fun." This shortcut allows people to access things that they are already familiar with, and easily make a comparison.

For my pitch, I said, "You can get property values on broker's websites, and our website, and we make money by selling leads to realtors. How do you brokers get your listings right now?" It would have been a lot easier saying "think Zillow, but 50% more accurate."

Business Model Innovation

This is an argument for studying and understanding how different markets make money and solve problems.

Gift certificates must be one of the easiest money making opportunities for retail stores. You trade real dollars for dollars that will be spent at a later time. In the insurance industry, this money is called float and is a source of additional revenues. For gift cards, not only do you have float, but there is also some likelihood that people lose or don't spend their gift cards before they expire. There have been several times when I just plain forgot to go to Best Buy with my $100 gift card until after it was expired. Best Buy makes tens of millions from unused gift cards. Business schools call this "breakage."

Being a curious cat, I looked at other places for business model innovation. I found three fascinating online companies that borrow business models from other industries to develop new sources of competitive advantage and significant revenue opportunities: BountyJobs, PatientsLikeMe, and uProdigy.

BountyJobs
This startup creates an online interface between recruiters and HR Departments. Recruiting results in large dollar transactions, with fees that could amount to tens of thousands of dollars for placing executive positions. BountyJobs uses the internet to access and manage more applicants and also leverage the concept of float. When HR departments choose to hire an applicant, BountyJobs holds the bounty for several months before paying recruiters to affirm the performance of the employee. They have access to:

$5,000 held per bounty x 2 bounties per day x 90 days holding period = about $900,000 float.

With access to this type of free working capital, they have opportunities to create substantial streams of additional revenue.

PatientsLikeMe
This healthcare startup tries to solve the problem of information asymmetry among patients suffering from similar diseases, which goes one level beyond traditional support groups and online communities. With active and developed communities, they have opportunities to aggregate and sell anonymized information to third parties. Additionally, they are uniquely poised as a new channel for the traditionally expensive and time consuming process of clinical trial recruitment.

uProdigy
This startup is creates an online marketplace for tutoring. Most other online and offline businesses use a cost per hour pricing model. Instead, uProdigy has implemented an "all you can eat" monthly subscription. Why?

There are several different elements that they are using to their favor. The most obvious element is the 3x to 10x labor arbitrage between the cost of local tutors ($20-40/hr for college students) and the wages of masters and PhD students. Also, the people that pay for the service are different from the end users. Parents can pay a low monthly fee thinking that their children will use the service all the time, but in reality, only a small fraction of students will fully utilize uProdigy's resources. There are a lot of moving parts, but these three elements combine to create a unique and compelling value proposition to parents.

By incorporating models from other industries, these startups substantially differentiate themselves from the incumbents in their markets. This is one effective way to slay giants in mature markets, and a great reason to stay abreast of the inner workings of seemingly unrelated markets.

Babson Talk

My friend Li Hong pushed me to attend a Babson University event last Wednesday, and I'm glad I went. Mike Michalowicz was speaking on behalf of Obsidian Launch, which is a type of early stage incubator for first time entrepreneurs.

He started out with a lot of inspirational/motivational comments, which reminded me a lot of Rich Dad, Poor Dad lessons. These type of pep talks about attitude adjustment are commonplace in the real estate industry. There was not much new information, but it was good to remind myself to be cognizant of self-limiting beliefs.

There were several points in his talk that piqued my interest. One unique aspect of Obsidian Launch was the incorporation of a sports psychologist. In retrospect, it actually makes a lot of sense. The difference between a good and bad day can be as simple as an attitude adjustment. And when those bad days come, involving professionals can potentially help accelerate the recovery process. In addition, a lot of people may not realize how powerful words and beliefs are. I am typically not the type to believe in psychological "feel-good" techniques, but there is so much that we do not understand about the human mind. He also mentioned that they only accept single founders in their program. Because they offer a support system of staff and mentors, it doesn't feel like you are starting and running a company by yourself. Another point that caught my interest was defining a 10x differentiator between you and other competitors. This is just another way of describing an unfair competitive advantage. Either you offer some unique feature, ease of use, price difference.

What interested me the most was when he talked about the "Gathering of the Titans" which is an event sponsored by MIT. He spoke of how one guy ran up from his seat and out of the room to the closest Staples. There, he bought a voice recorder, copy paper, and started sketching. After he finished, he immediately faxed his sketches to the office, got on the phone to organize an office meeting the next day. Why did he do that?

He was in the lawn care industry. Typically, home owners give you a call, sets up an appointment, someone comes out with a van, measures the lawn and gives a quote. The cost of these quotes was substantial, taking about six months before lawn care companies could recoup the costs of giving estimates. When he was sitting in the conference hall, playing around with his laptop, he realized that with Google Maps, he could measure the lawn size via the internet from his office instead of giving out estimates. This key insight changed his business, and gave him a key competitive advantage over his competitors.

All in all, pretty interesting.