The difference between Facebook bulls and bears

The bears are only looking at Facebook’s current revenue model. The bulls are thinking about all the potential revenue models Facebook could launch, given their (highly defensible) assets.

If you look at banner advertising and ~$0.25 CPMs, it seems hard to justify $100bn for Facebook. That’s over $100 per active user, more than 100 P/E and more than 10x revenues. As others have pointed out, the growth Facebook needs to justify that valuation can’t come entirely from the userbase—there literally aren’t that many people on Earth. A lot of the growth will have to come from increased CPMs, and there is no clear path to significantly increased CPMs from banner ads.

But if you look at Facebook’s assets and think of potential revenue models they haven’t even launched yet, you can understand a much higher valuation. Imagine banner ad retargeting based on your Facebook identity—across the entire web. Imagine turning viral distribution into a paid channel, with Facebook earning a commission on social referrals. Imagine the oft-rumored Facebook phone, which we can already see the beginnings of with the Messenger and Camera apps.

I have no position in Facebook and no strong opinion on their valuation. But to value them fairly I think you have to look at the full potential of their assets, not just their current revenue model.

(Some of the ideas in post came from a conversation with Andrew Chen.)

Telling 6 million friends

Jeff Bezos in 1996: “If you make customers unhappy in the physical world, they might each tell 6 friends. If you make customers unhappy on the Internet, they can each tell 6,000 friends with one message to a newsgroup.”

Turns out with one music video on YouTube, an unhappy customer can tell 6 million friends. Scratch that—12 million, which is about the number who have watched “United Breaks Guitars”:

The video speaks for itself, but you can also read the story or now, read the book.

How to cope with the Gmail redesign

Reports are coming in from around the Internet that the Gmail redesign, which we were previously able to stave off with “revert to the old look temporarily”, is now forcing itself upon us. I too have succumbed to the new design, and have been forced to find ways to cope. Here’s what I did to make it semi-bearable:

Display density: Compact

The default is lousy information density; too much screen real estate wasted in blank pixels. Fix it like this:

Theme: High Contrast

The “High Contrast” theme is Gmail’s grudging admission that its design is too low-contrast. Find it under Settings > Themes:

Importance markers: No markers

I don’t use Priority Inbox, but I do star a lot of messages. They’re right next to each other and they’re exactly the same color, so I have a hard time telling them apart:

You can get rid of the “importance” markers under Settings > Inbox:

Button labels: Text

Here are the new Gmail action buttons. Quick, what does each one do?

I find these icons hard to parse—too minimalist/iconic. (Worse, the buttons only show up when you have a message selected. But there doesn’t seem to be a way around that.)

You can turn the icons into more understandable text labels under Settings > General:

Disable “web clips”

If you didn’t do this years ago, do it now. The new design is hard enough to parse without news links and ads getting in your way, and you can’t even customize web clips anymore, which maybe is Google’s way of saying that even they don’t want you to use them. Besides, when you’re in your inbox, you should be focused and productive, not distracted by random links. Disable web clips under Settings > Web Clips:


Net effect

Here’s a before-and-after showing the net effect of these changes. Before:



These tips worked for me; some may not be ideal for you if you manage your email in a different way.

Got tips of your own? Better yet, a tip for a better Gmail client? Leave them in the comments.

If you liked this post, follow me on Twitter or subscribe to this blog in your feed reader or by email.

Does great work have to be cold and lonely?

In my post on what real passion looks like I wrote that

every ambitious endeavor goes through a period where things look so bad that it is, in fact, perfectly reasonable to quit. There’s lots of evidence that it will never work, there’s no proof that it will, and from the outside, no one could blame you for giving up. … if you want to achieve something great with your life, you will someday have to pull through that cold, lonely period in the middle.

Some people objected. Keith Schacht commented: “if you are truly passionate about the product idea, the market, and the customers you’re catering to then you enjoy the business even when it’s struggling.” Manjari Narayan said: “the middle is cold/lonely only if you are dependent on tangible rewards for enjoying your work.”

I agree, and that was really the point of the post: not that you must suffer for success, but the opposite: to succeed at something great you must care about it deeply enough that your love for the work is strong enough to carry you through any challenge.

No, great work doesn’t have to be cold or lonely—but your vision must keep you company, and your passion must keep you warm. Because for a long time in the beginning, that’s all you will have. Once you start succeeding, you will have external motivation—tangible rewards, the respect and praise of others. But until then, your motivation must come entirely from within.

The real first-mover advantage

There is a first-mover advantage. But it’s not what everyone thinks. It isn’t being the first product in a market. It’s being the first in a new distribution channel.

I was reminded of this by a recent blog post by Andrew Chen positing that “over time, all marketing strategies result in shitty clickthrough rates.” It’s true, but the flip side is that if you can find a new viable channel, you can exploit it with very high efficiency.

In 1993, the first topic pages and fan pages on the Web attracted disproportionate amounts of attention; Eric Lippert recounts how his Lord of the Rings fan page made him an “expert”. In 2003,  Amazon was able to drive traffic through Google AdWords even though in the beginning it was bidding only the minimum 5 cents a click on every keyword. In 2008, when the iPhone App Store launched, indie developers were able to get top-10 positions with little to no marketing, like Shane Vitarana did with Drum Kit. Today in 2012, all of these channels are quite saturated and fiercely competitive.

Or, as Andrew wrote in a different context:

Getting an “invite” was a big deal in 2003, so addressbook importers were super effective. Banner ads used to get 10% clickthrough rates, and now they’re 0.1%. Over time, marketing channels naturally become saturated and that creates a built-in defense against new entrants in the market. … A corollary to this is that if you discover a new marketing channel or some new viral mechanics, you’ll have a huge advantage early on since your response rates will be great.

When it comes to distribution tactics, don’t fight the last war.

What real passion looks like

It is common wisdom that to do a startup you should have passion for your market. But it wasn’t until I did one that I learned what real passion looks like.

It’s one thing to be passionate about something that’s working, about a going concern, about an engine that is turning. It is a different thing to be passionate about something even when it’s not working yet. When you’re not quite at product/market fit. When the users aren’t coming. When the cash isn’t flowing.

Every startup—I think every ambitious creative endeavor—goes through this. Everything looks like it’s failing before it succeeds.

In fact, I think every ambitious endeavor goes through a period where things look so bad that it is, in fact, perfectly reasonable to quit. There’s lots of evidence that it will never work, there’s no proof that it will, and from the outside, no one could blame you for giving up.

It follows that if you always quit when the going gets rough, you are doomed to mediocrity. To achieve anything great, you must continue on even when it is reasonable to quit.

This does not mean that perseverance is always the right answer (it’s not) or that success is inevitable to those who don’t give up (it isn’t). It means that if you want to achieve something great with your life, you will someday have to pull through that cold, lonely period in the middle.

The only thing that will get you through it is a combination of passion and vision. You must see something others don’t, and you must care about it enough to nurture it even when it seems to be dying.

After the initial enthusiasm wears off, and before you reach “overnight” success, there will be months or years of unglamorous execution with little tangible reward. Are you willing to face that, with no promise of success, for the chance to see your vision made real? That is the dedication you need to be a founder.

When there is no map, you need a compass

In his latest essay, Paul Graham provides advice on how to achieve “frighteningly ambitious” goals:

Empirically, the way to do really big things seems to be to start with deceptively small things. Want to dominate microcomputer software? Start by writing a Basic interpreter for a machine with a few thousand users. Want to make the universal web site? Start by building a site for Harvard undergrads to stalk one another.

Empirically, it’s not just for other people that you need to start small. You need to for your own sake. Neither Bill Gates nor Mark Zuckerberg knew at first how big their companies were going to get. All they knew was that they were onto something. Maybe it’s a bad idea to have really big ambitions initially, because the bigger your ambition, the longer it’s going to take, and the further you project into the future, the more likely you’ll get it wrong.

I think the way to use these big ideas is not to try to identify a precise point in the future and then ask yourself how to get from here to there, like the popular image of a visionary. You’ll be better off if you operate like Columbus and just head in a general westerly direction. Don’t try to construct the future like a building, because your current blueprint is almost certainly mistaken. Start with something you know works, and when you expand, expand westward.

When you are trying to invent the future, you are in uncharted territory. There is no map to follow, and no one can draw one before the territory has been explored. If you try, you’re just guessing.

When you have no map, you need a compass instead. Something to orient you and guide you. Something to allow you to do continual small course corrections along the way.

When doing a startup, that compass is your vision—not the details, but the essence of what you are trying to create and your fundamental understanding of the opportunity and the underlying factors giving rise to it.

If you can’t know the details, how do you even know your vision exists? You can’t make out the details of a mountain far in the distance, either, but you know it exists. It’s too big and too obvious not to.

When you hear entrepreneurs or investors talk about markets that are “ripe for disruption”, such as payments, media, or health, that’s what they’re talking about. It’s clear those mountains are there in the distance, off in uncharted territory. But nobody knows yet exactly what they look like, or exactly what winding path leads to them.

You can fail to change the world by trying to “architect the future like a building”, by following a path on a map you drew by guessing, without looking up to check your course. You can also fail by having no compass, no landmark, no north star to guide you. To achieve something great, something “frighteningly ambitious,” you need both.

Peak age for entrepreneurship: who cares?

People love to talk about whether there is a peak age for entrepreneurship. Who wins, the 20-something just out of college with unlimited energy, no family or other obligations, who’s too naïve to know what he can’t do and isn’t afraid to break the rules? Or the seasoned veteran who’s already made his rookie mistakes, who brings experience, patience, wisdom, and maturity?

For investors, this is probably a fascinating topic. They see lots of pitches and have to use “pattern recognition” to decide whom to fund. Maybe age should play a role in their decisions (maybe not).

As an entrepreneur, I don’t care, and neither should you.

As an entrepreneur, you don’t get to choose how old you are. Your only choice is when to start your company. And when you have a vision you are passionate about, the best time is always now.

Don’t worry about being too young. The worst thing that can happen is that you fail. If you do, no matter how hard you crash and burn, you will still have learned more than you ever could have through any other route.

Don’t worry about being too old. You aren’t getting any younger, and you’re not dead yet. If you don’t pursue your vision now, then when?

Let potential investors worry about how old you are. You have your eyes on your vision. Go out there and make it real.

Don’t overplan your startup

Bryce Roberts tells a story with some life lessons titled Don’t Overplan Your Life. He describes a successful life as:

a series of unplanned opportunities seized. … There was always an underlying agenda and purpose, but often the specifics unfolded in ways that could never have been specifically planned beforehand.

The same applies to startups. Like Jeff Bezos and Amazon, they should be stubborn on vision but flexible on details.

“Learning the necessary skillset”

So true:

People who start-up suffer, they grind, they obsesses, they push against the way the world is because they believe they can change it – for the better. You cannot survive this if you are not driven by passion and you will not do well if you are focused on what is next rather than what is now….

I think the most successful people find ways to always pursue the opportunity they are most passionate about at that moment. Life is too short to spend years “learning the necessary skillset” to do what you actually want to do.

(From “Hey, big baller b-school 2nd year — working at a start-up is not a stepping stone in your career“)