Society and business in the 21st Century
Some interesting thoughts from startup guru Mark Suster on what it takes to build a tech startup community.
In Suster’s view, just being cheerleaders is not enough; a viable industry hub needs a combination of capital, resources and skills. It’s not an easy environment to create and one that governments alone cannot do.
In an interview with Decoding The New Economy, Katz describes a startup journey that covers all the bases.
“I had what my wife describes as non toxic form of midlife crisis,” says Don Katz of Audible, the company he founded in 1994 and remains CEO of today. In an interview with Decoding The New Economy, Katz describes a startup journey that covers all the bases.
As Rolling Stone’s European correspondent Katz was engaged to write a book in the early 1990s about how digital technologies were changing music and what he realised was the industry was about to go through a fundamental change.
“I had a wonderful career as a writer, I was a long form magazine writer in the glory days of ten thousand word articles,” Katz says of his life in journalism. A book commission lead him to research the future of digital distribution of written works.
One of the driving ideas was how creators can sustain themselves in the digital economy, “my content was already being ripped off on the Unix internet and I thought ‘how will the profession creative class sustain themselves if there’s no ability to control the distribution?'”
Having founded Audible in 1995 at a time when few people were downloading or even using the net, Katz was in the box seat of the first tech boom and subsequent tech wreck in 2001.
At the peak of the dot com boom Audible was floated on the NASDAQ stock market, “In 1999 good companies that were leading categories went public and got massive amounts of free capital.” Katz recalls, “It was one of those weird moments, there were 1500 publicly listed internet companies at the beginning of 2000 and there were 140 by 2003.”
Katz puts the company’s survival during that period to a conservative attitude towards capital and the alliances he had created with the industry’s major players — at one stage Microsoft held a 37% share in the company and Katz was one of Steve Jobs’ confidants during the early development of the iPod.
Eventually one of those alliances became critical when Katz became bored with running a listed company, “it was an amazing adventure being a public company CEO for nine and a half years. It was very exciting and an honour to serve shareholders.”
Katz’s patience ran out with being a public company CEO when automated trading came to dominate the daily operations of management, “suddenly you had this metaphysical sense of ‘who are you working for if someone wants volatility?’ That suddenly got old.”
Audible already had a relationship with Amazon who had taken five percent of the business in 2000 in return for bundling audio book links on the ecommerce giant’s book pages. Katz also found Amazon founder Jeff Bezo’s long term view towards investment and returns a much more satisfying business model than the day to day grind of meeting short term shareholder demands.
In early 2008 Amazon bought Audible for $300 million and retained Katz as the company’s CEO.
For new startups, Katz advises “make an absolutely fearless inventory of what you know is true about this idea and what you’re good at and what you’re not good at.”
“You need to have people you can trust and believe in. Beyond that, be very sober about business models that are sustainable. There’s a lot mistakes that people make where you’re solving a problem in a piece of a value chain that isn’t sustainable. It’s easy to get confused about who the customer is.”
“Figure out who the real customer is. Sometime people overplay the fact that the customer is the capital, the capital will come if people have the innovation and the passion.”
One of the irritations of being in Australia is the often insular and myopic view many of the nation’s business and community leaders have.
A consequence of that insularity is that business operates at a slower pace than in more competitive markets; there could be up to a five year lag between technologies being introduced in North America, Europe or East Asia and them being rolled out Down Under.
That lag creates an arbitrage opportunity for canny local investors, this post on the Investment Biker Analyst blog illustrates the thinking .
I’m not sure about the barriers to entry for potential competitors to Digivizer because part of my view as an investor since I got back to Australia is the way the markets geography has always insulated it from quick counter-punches. Think about the way the UK always seems to be the second place North American business rolls out it’s plans for sector domination. We’ve seen it over and over again. Australia on the other hand is well down the list as the market, while affluent is at 25million quite small. Also it’s a long way to come if you have to get on a plane . . . Oh, and besides that the “Aussies” can find us themselves without investing extra start-up capital.
Mike’s model is the standard for the Aussie start community; local entrepreneur looks at the hottest businesses in Silicon Valley, sets up a minimum viable copycat, pitches to investors who put money in on the hope of making a profitable exit to a dumb local player or to selling out to the market leader when they finally decide to set up an Australian operation.
Increasingly the second option isn’t working as the big player are either moving into the market quicker, which also screws the first exit option, or the locals are asking too much for their cheap knock offs.
As a consequence the local copycats are increasingly finding themselves stranded in the marketplace.
Quickflix is a good example of the local knock offs being stranded, having copied Netflix’s business model, the company has toddled along for a decade with its movie and entertainment delivery business and now faces Netflix starting an Aussie operation.
With a formidable competitor entering the marketplace, Quickflix is frantically trying to shore up its defenses, having made a $5.7 million capital raising and committing to cut costs.
One suspects though this will be nowhere near enough to build up defenses against Netflix, incumbent cable operator Foxtel, fellow steaming service Fetch TV or the bizarrely named and probably doomed Stan service setup by an uneasy coalition of fading old media companies.
In an increasingly connected world relying on the tyranny of distance to protect your business is a losing game, something that many Australian companies and investors are yet to learn.
Then again, as long as the coal trains keep running, maybe Australians don’t have to worry.
A great interview with Uber CEO Travis Kalanick by Kara Switzer in Vanity Fair touches on the mental difficulties facing startup founders.
He was depressed after his first start-up failed badly and his second went largely sideways. He was, as he recalls, deeply afraid of failure. “I had gone through eight years of real hard entrepreneuring. I was burned. So, I just wasn’t ready yet,” says Kalanick. In fact, he had been living at home with his parents in his childhood bedroom not long before his trip to Paris, after those two start-ups had failed to flourish.
xys
A fascinating interview with Google founder Larry Page in the Financial Times raises the question of whether the current startup mania lacks imagination.
Certainly looking at the lists of many startup competitions, incubator admissions and accelerator programs, it’s hard not to be depressed at the number of ‘platform plays’ aimed at clipping the tickets of an established industry.
If anything, it’s encouraging the Google founder is looking at doing more interesting things than taking a few dollars clipping the tickets off industry. We can, and should, aspire to do better.
One of the challenges facing people who’ve started their own businesses is re-entering the broader workforce. Many managers are reluctant to hire previously self employed workers; the PayPal experience shows that attitude could be hurting working
At the Dreamforce Conference in San Francisco yesterday three PayPal alumni, part of Silicon Valley’s infamous ‘PayPal Mafia’, discussed why the company was such a successful incubator of talent.
“The company was composed of a bunch of young folks who were very driven,” said founder of LinkedIn and early PayPal employee, Reed Hoffman. “Once they sold the business to eBay they weren’t the type to retire.”
Along with PayPal’s founders being driven, the company also tended to hire people who had run their own businesses but were finding the going tough in the economy at the time; “Silicon Valley was collapsing under its own weight,” observed PayPal founder and fellow panellist Max Levchin.
“There was a lot of running for safety in the Valley,” Levchin remembers. “We were looking for people who were into risk taking and were excited to take a risk and this would be the last company they worked for because the next one would be their own. As a result we biased the selection towards entrepreneurs.”
Copying that hiring practice today is Stripe where co-founder John Collison told Decoding the New Economy last month that one of the keys to managing a fast growth business is to hire entrepreneurs and former self employed workers.
“They are self starters; they don’t need much supervision,” said Collison in describing how hiring people who’ve run their own businesses makes running a business that has gone from ten to 150 employees in three years.
it’s no coincidence that one of the investors in stripe is Peter Theil who along with Levchin founded PayPal and is probably the best known of the ‘PayPal mafia’.
PayPal and Stripe’s experience show the folly of overlooking workers who’ve run their own businesses; in a world where business is becoming more competitive, having entrepreneurial employees is an asset too good to miss out on.
One of the reasons for the success of London’s Silicon Roundabout neighbourhood was the Google Campus that provided a drop in centre and community venue for the growing tech hub.
It turns out the success of London’s Google Campus can be replicated, as shown by the Tel Aviv outpost having similar results.
As a consequence Google are now opening new campuses in Warsaw, São Paulo, Seoul and Madrid.
Whether these cities will have the same success as London and Tel Aviv, both had a thriving tech start up community before their Google Campuses opened, remains to be soon.
One thing is for sure, we’ll see other cities’ governments and tech communities lobbying Google to base a Campus in their tech neighbourhood. It may be worthwhile they have a look at the London one to see what works and how they can set their own local hub.
