Get An MBA, But Not Until You’re Useful

As an MBA working in early stage tech, I’m ambivalent about the current conversation in the community about the value of these degrees. On one hand, I’ve met enough MBA founding teams to understand where the vitriol comes from, but I also believe that my graduate business education has been the most rewarding investment I’ve made to date.

Why Many MBAs Are Bad For Startups

An MBA education teaches students to analyze markets and assess opportunities from a high level [e.g. crowd-funding is going to be a huge opportunity and disrupt traditional business financing, an $xx bn. annual market in the U.S. alone!]. That thinking is fine, but it can only get you so far in the early stage.

The best consumer-facing products satisfy an unmet need. Consumers don’t care where a particular market is headed,  they often don’t even know how to articulate the problem that they want fixed. Nothing in an MBA program really equips students to develop products that solve real world problems, so MBAs tend to create products that wedge themselves into what they view as a market opportunity.  That approach often produces low quality products that don’t solve real problems.  The best products start with an acute, definable consumer ‘problem’ and grow into market-disrupting companies, it’s never the other way around.  While the difference in approach might sound trivial, it results in products that are usually worlds apart in execution.

Also, in the early stage there are very few day-to-day activities where having an MBA is actually useful.  At most early stage companies, people are either building the product or selling it.  Neither of those functions require an MBA, so the other skills become ‘nice to have’, but they don’t necessarily drive the business forward.

Why MBAs Can Be a Really Useful Tool

On the other side, I view MBA programs as a safe place in an unsafe world.  I think they’re safe in two ways:

First, MBA programs tend to lag trends in the business world and that can be a good thing for your career arc, especially if you’re working in an industry that’s very fast-paced.  Skills like strategic thinking, data-analysis and an understanding of the broader business world and global economy don’t run out of funding, they don’t exit and they don’t become irrelevant when the market is disrupted.  MBA programs have curriculum in place that helps students navigate the business world for decades.  That’s extremely valuable in the long term.

Second, MBA programs are a place to learn things that you’ve never understood and that the real world isn’t going to let you learn on the clock.  If you’re an engineer, there are very few on-the-job opportunities to understand option values, venture financing, accounting, macro economics or product marketing.  While it’s true that you can learn many of these things on your own, having a curriculum and a classroom are incredibly helpful aides to the process.  Just having to show up with your homework done will propel you forward.

MBAs Are Useful After You’re Useful

Everyone has a unique set of inputs that should drive their decision about a graduate business education, but my broad advice to most young people interested in early stage tech and considering an MBA is to go for it, but only if you’ve already developed practical skills that will make you invaluable an early-stage company.   An MBA alone will never be enough.

Don’t Be Busy (self-help post)

I’ve had a pretty full calendar lately. I’ve been trying to accomplish a number of important goals since this year started, both personal and professional, and I’m finding that my to-do list is spiraling out of control.

One of the things I learned to do in graduate school was focus on the important things on my lists, and deflect urgent issues whenever possible. In practice, this is incredibly difficult to do. The hardest part of my day is trying to prioritize what’s most important to accomplish, and then making sure that I do those few things and manage expectations around everything else. We all have multiple stakeholders in our lives and all of them demand attention, usually more attention than we have time to give. Without higher level planning, we end up burning ourselves out doing ineffective things for others, which doesn’t help us in the longrun.

I’ve been working on honing my prioritization and effectiveness chops for years, as I’m sure we all have.  These are the things that work for me:

1. Try to be mid-term goal driven: The best thing about a new year is the opportunity to reflect on accomplishments form the previous year and define goals for the next twelve months. Every three months or so I try to think about where I’d like to be in a year or two.  I then course correct and engage in activities that I think will get me there.  For me, thinking a year or two into the future works really well.  Some people take a longer view, and some people are very focused on the immediate.  I find two years is a good horizon because I can build an actionable plan around that. Anything further out and there’s too much uncertainty.

2. Make smart lists / be organized: I am a huge fan of keeping a list.  I have one in evernote that I update every morning. I try not to let it go over 5-6 items, but it invariably does.  I also try to keep everything on the list something that I can push into a new version within the week.  For example,  If I’m trying to build a sales department for a startup, I might add something like 1.) build and populate sales pipeline 2.) create draft of sales deck for one week, then run a cycle and change them to fit the next phase.

3. Use technology to help you and fend off time wasters:  I practice Inbox Zero, which is a fancy way of saying I try to keep my email inbox empty.  To do this, I use (and live by) a product called sanebox. Sanebox pre-sorts my emails and only puts what’s important in my inbox.  Everything that makes it into my inbox gets read, responded to and archived.  I cannot begin to explain what a game changer this has been for me.  Use it.

 

The second part of this, fending off time wasters, is getting harder every year. I try not to respond to push notifications on my phone, I try not to bring my phone into meetings and I try to keep my browser tabs to a minimum. I fail pretty miserably at all of this, but I do make a concerted effort.

4. Know when to zone out: This is what I use to justify my failure to filter techno-noise. If I’m running around the city this is a non-starter, but if I’m working on a longer project I take regular breaks and zone out for a couple minutes.  It keeps me from getting distracted when I’m actually working,  I try not to do this for more than five minutes at a time every hour or so.

5. Eat healthy food: If I eat a lot of sugar or carbs I find that I get really sluggish. I try to avoid both during the day.  I also ty (and fail) to limit my caffeine intake so I dont crash.

6. Get enough sleep: This one is easier said than done, but I can’t seem to function if I dont sleep six-seven hours.

7. Exercise every day:  Another difficult promise to keep, but I find that if I can get in 30 minutes of cardio I am a much better person to be around. I bet you’re the same.

Content Is King Again

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The never-ending power struggle between content and distribution seems to be writing a new chapter around the film and tv worlds.  Some very big things have already happened in the first quarter of this year in the media business.  These are just a few happenings that have rocked the media biz recently:

– Comcast speeds the acquisition of NBC

Twitter acquires Blue Fin Labs

Liberty Media Purchased Virgin Media

Netflix debuts exclusive premium content

HBO Go becomes available on Apple TV

Amazon & CBS Expand A Content Deal

– Time Warner is selling off a huge piece of Time Inc.

What’s Happening

I look at the value chain in the old cable television industry as such: Studios -> Networks -> Operators -> Consumers

In a simplified model of cable television, studios pay to create content (or networks would pay advances), the networks buy rights to that content and sell advertising against it , and then cable operators pay networks for the content that they pipe through their lines to reach consumers in their homes.

You’ll notice that Apple, Netflix, Hulu, Google and Amazon aren’t really an obvious part of that chain.

Consumers want content, hate their cable bills and are increasingly willing to watch the content that they want online. This is particularly true of  younger consumers.  Online streaming services can now circumvent networks and operators, cut deals with studios and deliver content directly to consumers over the Internet.  This is rapidly changing the dynamic of the media and entertainment industries and shifting the value away from distributors and towards content creators.

It’s not immediately obvious how this is going to affect consumers. One the one hand, disintermediation should lower costs for consumers, but it’s unlikely to do so in this case because most of the value in this chain is on the content, not the distribution.  Because there’s no marginal cost to delivering the N+1 unit of Breaking Bad or Downton Abby,  the price for the content in a perfect market will be set at whatever price the creators can profit the most at.  The cost of delivery isn’t really part of the equation.

Another stakeholder group that’s going to be hugely affected by this change is advertisers. Currently prime time television CPMs are probably somewhere around $50, but pre-roll video ad eCPMs are probably between $5-$10 (nowhere near the value of tv).  As the value of advertising declines and as customers increasingly purchase their content via subscription and ala carte models, advertisers are going to find it difficult to get in front of audiences at scale with high value brand messaging. Additionally, ad supported content is going to become increasingly rare and the demographic composition of consumers watching ad-supported content is going to shift.

What 2013 Will Look Like

These shifts will increase in speed over the next year. I think we’re going to see studios and networks potentially change hands.  Operators are going to struggle to backwards integrate into content  and Internet services are going to bid up the price of premium content and pass those costs onto customers in the form of ala carte premium pricing.

TV ad dollars will at last  begin to decline as advertisers realize that their audiences have moved online. These dollars will flow into online ad channels (video being a big one), social advertising and, to a lesser extent, mobile.

Signal in the Social Noise

Eric Schmidt famously said in 2010 that every two days we generate more data that we have up to 2003. To clarify:

  • dawn of civilization -> 2003 = X amount of data
  • this past weekend = X amount of data

That’s a mind-bending statement.

For a long time, middle management in large organizations has lamented the tornados of data that it’s faced with processing on a near daily basis.  Middle management’s primary responsibility in large organizations is processing and interpreting vast swaths of information in order to report to upper management for strategic decision-making. We had to invent middle management in the business world just to process data.

And if that wasn’t enough, now we seem to have as much data in other spheres of our lives: social, personal, professional.  Everything is being documented and quantified now. The silver lining, of course,  is that our ability to process huge amounts of data is also in its infancy. As storage costs continue to decline and as more data stores are hosted on cloud-based systems, the possibilities are nearly infinite for us to track, process, analyze and interpret larger and larger pools of data than we ever have previously.

Facebook’s new graph search is an early attempt to address the need for a new kind of search, one that’s built on the people we know.

For me, the followup question is about untapped opportunity.  What haven’t we started to process that can help change the way we do business and the way we live our lives?  Is there any signal left in the social media noise that we haven’t found? I assume that graph search will produce a ton of value that hasn’t been unlocked: restaurants, travel, workplace searches will all become more interesting. But are there insights that it won’t pick up?

Here’s another question. If we use Google to search information about the world and we will presumably use Facebook’s graphsearch for information about our friends, what will we use in the future to search for information about ourselves?  Who is going to store our personal data, process it and feed insights back to us and our doctors?  I doubt that Google or Facebook are going to provide that service. I think we’re going to want that information in a ‘closed’ system, or at least a one way street (pull data from other services but never let my weight history, blood history, dietary habits, emotions, measurements or other personal information out into the real world).

Not that this is a new idea, but I believe that we’re on the cusp of tremendous innovation around data processing, and I’m personally excited to be here for the ride.

Future Perfect

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I just finished reading Future Perfect by Steven Johnson and wanted o recommend it, as well as get the salient points across in words to help me better understand the reading.

Johnson takes the reader through vignettes in history, and describes various social structures to make the point that decentralized, or distributed networks of decision-making are generally superior to what he refers to as centralized, top-down decision-making structures.

The most visual representation of the dichotomy that Johnson creates is the story of the evolution of the rail systems in France and Germany. Referred to as the Legrand Star, the French developed a rail system in the 1800’s that focused most of its traffic on main lines, all of which ran through Paris.  The entire system was designed from start to finished and was highly centralized. This made a train system that could reach very high speeds, and get people in and out of Paris from all over the country.  The Germans, on the other side of the Rhine, developed their system with no centralized design, the final product was mostly a messy network of small linkages.  When the French and Germans went to war in the late 1800’s, however, the German rail system ended up being the better solution because it was more flexible, while the French had to move all of their soldiers through Paris before getting to the front on the eastern border. Because the germans could get more troops to the line faster, they ended up winning the war.

The book has so many great, optimistic ideas about how distributed networks can make a better future. I think we’ve seen some of this at work with Kickstarter, SOPA’s defeat and a thousand amazing geopolitical events that have been amplified through social media. While some of his vision is a bit too optimistic for me, I agree that we’re at the dawn of a new way of interacting and connecting with one another.  While the growth of distributed communication platforms has amplified certain risks (the new borderless terrorist organizations, for example, thrive in distributed networks). The benefits are only beginning to become evident.

Future perfect is a great read, check it out if you have the chance.

 

Facebook Stock is Undervalued (or is it?)

Someone asked me to take a look at Facebook’s stock this evening, so I took a page from Aswath Damordaran’s valuations class and did a quick equity analysis, borrowing a number of his assumptions. You can download my worksheet here (Dropbox Link).

My analysis generated an implied market cap of about $48 Bn.  The stock closed today with a market cap of $41 Bn. implying that the stock is slightly undervalued by the public markets.

So is it?

I’ll let you decide, but regardless it’s a very risky stock and the future for the company is hazy due to the nature of its business (online and mobile advertising) and the newness of the media (social). The same factors that make it a game-changer generate significant risk.  To me, doing a 10-year discounted cash flow analysis on Facebook is like trying to guess what cars will look like in 50 years,  you might have an idea but so many things can happen between now and then there’s really no telling.  With that being said, it’s helpful to ground the speculation with revenue and margin estimates. A few big questions to ask related to this:

  • Is the team going to figure out mobile advertising?  Effective CPM rates on mobile (the price to advertise)  are significantly lower than desktop
  • Is corporate management and communication going to level expectations with the public markets?  The ‘story’ has much to do with tech valuations.
  • Will users get bored and go elsewhere?

I’d love any comments on the approach, or any thoughts on Facebook’s stock value.

Mobile Advertising Sucks and That Needs to Change

I was not surprised to see a recent report from Trademob finding that 40% of mobile ad clicks are either accidental or fraudulent.

When I interned for Jerry Neumann, he had me take a look at the mobile vs. display ecosystem, which I did. Back then I was interested in the differences between mobile and desktop traffic with respect to audience buying.  My conclusion from that exercise was that existing DSPs were best-positioned to figure this out when mobile ad buying demand was big enough, so the risks of creating a mobile DSP probably outweighed the opportunity.

But after reading the recent Trendmob report on click results, I’m starting to think that we haven’t been looking at the ecosystem in the right way.  I previously thought of mobile the way a lot of people look at mobile: a smaller version of our desktop experiences with some nuanced differences in cookie technology. I’m building some new theories about mobile advertising.  I’m starting with the statement that mobile advertising fundamentally sucks, but also that it’s important for  it to eventually not suck.

Related to my point above about DSPs, even if we get better at audience targeting on mobile, we haven’t solved the engagement problem. Selling clicks on mobile is not an indicator of anything other than a bot or my fat thumb accidentally hitting a banner.  What’s worse: more and more, we’re consuming our content on mobile devices.  If your primary revenue driver is advertising and your customers are increasingly consuming your product in a medium that’s a bad format for advertising, you are going to have a big problem on your hands in the near term.

According to Mary Meeker’s 2012 Internet Trends Report,  here are a few disparate data points that, in my opinion, spell disaster for the ad-supported media industry:

  1. Mobile Internet Usage surpassed desktop internet usage in India this year.  I’m betting that much of the world is moving in the same direction.  While mobile traffic won’t replace desktop access in more developed countries, it’s going to become an increasingly bigger piece of the pie.
  2. eCPMs on mobile are $0.75 vs. desktop which are about $3.50. Based on The Law of Shitty Clickthroughs, this isn’t a great start to the relationship between advertisers and consumers on mobile.  It will likely improve, but probably not by much.
  3. Mobile monetization levels could surpass desktop in three years (but not through advertising).  Most revenue in the mobile ecosystem is commerce-based, whether through game in-app transactions, app purchases, etc.  So, while monetization levels will increase, there’s no indication that media companies will take part in that.

I see this as an ominous sign for publishers, as well as an opportunity to create value.

Focus (a.k.a. f(success) = M * (runway / burn rate) )

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Of all the characteristics and skills we consider when assessing the quality of a given entrepreneurial team, the ability to focus on the right things is probably the most critical.

Any given early stage startup probability of success can be expressed as the relationship between a key problem-solving milestone, the cost of taking a shot at hitting that milestone and the amount of shots you get.

I picture startups as being lined up at a one of those carnival attractions where you’re trying to hit a dunk tank bullseye.   The bullseye represents a real market problem that you’re trying to ‘fix’.  The amount of chances you get to hit depends on how much money you have in your pocket to buy beanbags, or balls, or whatever object you’re using to hit the goal with.

It turns out that, often times, you shouldn’t even be there because you’re not ‘solving a problem’.  In other words, even if you hit the target no one will care.  This is the problem for 60% of startups.

Assuming you are solving a problem, you need to have enough capital to trade in for shots at the goal.  That can come in the form of time or money.  Most first-time entrepreneurs get very few shots because no one is willing to give them tons of money and if they’re bootstrapped they can only survive or so long..

Then, the biggest problem that first-time entrepreneurs seem to have is that, assuming they get past the first two hurdles and they get to take a few shots at their target, they lose track of the bullseye because they become distracted by other things.  All of a sudden there are new people nearby, and other bulls-eyes pop up, and suddenly your goal doesn’t seem as interesting.  Before you know it, you’re out of chances.

Obsessive focus on customer problems allow great entrepreneurs to get closer to the goal by the time they need more capital.  Startups are just a game of those cycles – don’t waste yours.

eCommerce Hack Day & The NYC Startup Ecosystem


I had the great pleasure of hitting the demo session for e-commerce hack day ny on Sunday.  Anyone who doubts the power and legitimacy of the startup ecosystem in New York City should have checked this event out. A Sunday in August had over 255 attendees, media, a slew of vcs and a ton of great ideas from Hackers that descended from all over the country [and Canada!].

Hack Day was phenomenally organized and executed by Dwolla and Etsy, and hosted at AlleyNYC, an amazing space for early and growth stage companies in mid-town.

I was impressed with the show of force that the new york startup scene is capable of and inspired by the hackers I saw present. Big congrats to everyone involved in what was undeniably a huge success.