ZenFriend Project Log

Inspired by the fantastic developer log by Amir Rajan, developer of #1 game A Dark Room, I have decided to try something similar for ZenFriend, our new meditation app project. The same way that Amir inspired us, we wish to inspire others by sharing our experiences with this app project: Here is the ZenFriend Project Log

The Business Model Canvas

This talk – plus the posters I see at my coworking space every day ;) – has started me off to the world of the Business Model Canvas and I have to admit that I fell in love with the concept.

In the meantime I have finished the book Business Model Generation by Alexander Osterwalder et al. to deepen my knowledge of this concept:

  • It’s a very simple, yet powerful framework how to think about businesses and business models
  • It allows you to generate a big-picture description of a business idea or established business in a matter of minutes
  • It provides a common language to talk about and analyze businesses
  • A “Business model” is not just the part that generates the revenue. It’s the complete picture of a business, including the cost structure, key partnerships, key activities etc.
  • When reading the book, I discovered how important it is to start with either the customer segments (who exactly am I serving? Who is my customer?) and/or the value proposition (what problems do my customer segments have? How can I solve them?).
  • Based on the Customer Segements/Value Proposition it’s very important to see the bridge between the two: the channels. How exactly am going to reach those customers? Do I need salespeople? Will I do pay-per-click advertising? What is my assumption regarding conversion rate? What will be my customer acquisition costs?
  • From that, you can derive your needed resources (e.g. sales people), your key partners (e.g. Google AdWords freelancer or agency) etc.
  • Another great angle is the key resources, key activities and key partners triangle that leads to your cost structure. Do you really need to do everything in-house? Can you use off-the-shelf components? This analysis made me realize, how strongly web-companies rely on open-source. PHP, MySQL, Apache etc. are very crucial building blocks for today’s businesses. So far I took these things for granted. But in reality they are the basis for many things.
  • When I look at my former businesses/products I have to admit that I didn’t think enough about the customer segments, value proposition, and channels. Knowing your customer and providing real value is the basis for every business. That’s why Lean Startup and the concept of validation is so important. I really like the following essence offered by Eric Ries: The question is not: Can it be built? The question is: Should it be built? Very powerful question.

How Product/Market Fit Feels Like

Great conversation with Marc Andreessen and Eric Ries about how product/market fit feels like, and some deep thoughts about the Lean Startup methodology.

  • People who ask themselves whether they have achieved product/market fit usually haven’t achieved it
  • You know when you get there. You feel it. The space ship is taking off. Customers are pouring in. The wind has turned. It’s not ‘OMG it’s so difficult to get customers’ anymore. It’s more like ‘OMG, so many customers, we’re exploding’.
  • A great pre-requisite to product/market fit is product/founder fit. When the founders are power-users themselves, that’s a good sign. When the product is used by employees enthusiastically, that’s a very good sign.
  • Before Gmail launched, they made sure the product made 100 Google employees very happy (watch the talk by Paul Buchheit, co-creator of Gmail). They have iterated so long until this was achieved. Once they made those 100 Googlers happy, they knew they would make happy many more.

By above standards, I have to admit that I have never reached product/market fit so far in my career.

  • In 2004 we had some serious traction with webmasterforum.ch but unfortunately this traction got killed by a stupid mistake of mine that cost us 80% of our traffic (we changed the domain to ayom.com and fell out of Google – our main traffic source – because the domain has been burned by the previous owners. The worst thing: before switching I felt there was something fishy because we tried to index something and it didn’t, but I didn’t take any action. Very stupid mistake, hurts until today. This product would have been 2x, 5x or 10x more popular without this mistake.)
  • In 2005/2006 Parlaris lost traction because we didn’t have any working revenue model. Should have pivoted earlier.
  • In 2007 Trigami was very close to product/market fit, but we didn’t really get there. The main issue was Google again. 6 months after launch Google launched it’s attack against paid links (and several of our bloggers temporarily lost some or all of their PageRank – ouch). As backlinks were the main value in the eyes of our customers, our value proposition got much weaker. Probably should have taken this opportunity to pivot. We did introduce new offerings (many of them, probably too many) but failed to kill off the non-working ones. On a sidenote: whenever someone starts offering ‘consulting’ services, that’s a sign that something might not be working ;)

We’ll keep experimenting. Maybe someday we’ll get there. Without Google getting in our way :).

Lean Startup Essentials

Even though I have pre-ordered the Lean Startup book in 2011, and started reading the first few pages in 2013, I have actually never finished it. So recently – as a usual Late Adopter – I have started studying the methodology. And I instantly fell in love with it.

Here are some essentials if you want to get started with Lean Startup – or get a refresher.

Great talks by Eric Ries (you can find more here):

Great case study of how to validate a business idea in 24 Hours instead of 6 Months:

Lean Canvas – Capture your Business Model in 20 Minutes

Bonus:
In case you get excited (like I did), I highly recommend the videos of the Lean Startup Conferences

Twitter Early Days

I have finished reading the Twitter founding story. I remember when I signed up for Twitter in April 2007 and instantly fell in love. I loved the concept of ‘blogging via SMS’ and did it using my Palm Treo at the time.

Learnings:

  • Twitter was born because Odeo – a podcasting company – has failed and needed a new product. One reason why Odeo failed was because none of the founders and employees really used it. They weren’t really passionate about podcasting. Once they started with Twitter, everybody in the team immediately became a power user. This is an important principle: Build something for yourself. Eat your own dogfood. Watch out for the warning sign: If not even you are using your own product, this is not good.
  • The first version of Twitter was built in two weeks.
  • Odeo and Twitter were a pretty large mess internally. Lots of anarchy, no structure, weak leadership, lots of conflict, LOTS of outages (remember the Fail Whale?). I am a believer that companies die because of internal problems, not because of competition or external things. So I’m glad that Twitter managed to survive somehow, as it’s a very important service.
  • Some stories – especially descriptions of the behaviour of some involved people –  were pretty irritating and scary. The author claims to have done a thorough research. As I don’t know the people personally and haven’t been there myself, I will not comment on those stories. The bottom line is: we are all human beings, and we all have our flaws. Startups are no different. You find ugly stuff there, as everywhere else. Be prepared for conflict, fights, broken friendships, struggle for power, and other ugly stuff.
  • For me the key success factor of Twitter was simplicity, usability, convenience and access. From the beginning I have used it as a microblog, and very soon it was my favourite way of blogging. The SMS part was key in the beginning. It was realtime, mobile communication in the pre-smartphone era. One time I tweeted that I was on my way to Munich, and suddenly a friend who lived near Berlin contacted me that he was in Munich as well. So we are able to meet up. Such experiences showed me the power and value of Twitter.
  • Twitter had no business model for the first 3 years. Zero revenues. At the same time they had to pay tens and later hundreds of thousands of dollars per month for SMSes alone. Not very cool. I wonder whether it is possible to build a service like Twitter or Facebook and from the beginning be cashflow positive with a sustainable business model. I believe that some sort of Freemium or Subscription business model should be possible. When WordPress.com started, people were selling subdomain names (e.g. cars.wordpress.com) on eBay for $100. WordPress.com could have sold those premium names. The same with Twitter. They could have sold 1/2/3/4/5-character user names. Or offer 10/20/30 SMS’s for free per month and if you wanted more you would have to pay. I easily would have paid $5 or $10 per month like I do for other services. I wonder whether this is possible. (My gut feelings say: Hell yes!!!). This lack of revenue generated huge pressure later on, which probably could have been avoided.
  • The goal of the current management team is to make Twitter a $100b company. Currently Twitter has a market cap of $31b.
  • The turning point for Twitter was the SXSW conference in 2007. They decided to take advantage of the conference by installing plasma screens with Twitter feeds and instructions of how to sign up. With that the critical mass was reached, press started to get obsessed by this new phenomenon and Twitter started to grow like crazy. In the first 6 months or so they only attracted a couple thousand users. So it didn’t take off immediately. However, the founders and team were already addicted and were using the service daily. This probably kept them going through the relative slow start. Again, it comes down to: Build something users want. Build something for yourself.
  • Unfortunately the book focused very strongly on the fights and personal conflicts. I would have wished to learn more about the product and the company itself, what the milestones were etc. Nevertheless a very interesting book about a product that I use and love.

PayPal Early Days

I have finished reading the PayPal founding story. I love reading stories about the products I use.

Learnings:

  • PayPal (Confinity-side) assembled a wonderful team and created a very entrepreneurial culture. David Sacks and Peter Thiel played important roles. It was actually David Sacks who was responsible for the last-minute deal with eBay. He played a critical role as COO as well. He did it again with Yammer. Huge respect! I loved reading about Max Levchin and Reid Hoffman as well. Very inspiring entrepreneurs.
  • PayPal had no business model early on. They actually claimed to be free and remain free forever. They wanted to make money on the float. I believe it’s critical to have a business model early on. PayPal was lucky that their introduction of fees was accepted by users. Yahoo wasn’t that lucky: when they introduced fees for Yahoo Auctions, their service basically fell apart.
  • PayPal burned lots of money. They have raised (and burned) about $200M and Peter Thiel was mostly responsible for fundraising.
  • Most of the key people knew each other before. They worked together at the student-newspaper The Stanford Review. This crew was the magic sauce.
  • Again a reminder that M&A’s can be very tricky. Both mergers with X.com and eBay were tricky as the cultures turned out to be quite different both times, which caused trouble.
  • They mostly succeeded because they had a culture of rapid development, iterating and shipping new features fast. From my view this was the single most important factor: Make customers happy. Build something users want.
  • The vision was very bold: Changing the world by giving people more freedom about their currencies and money transfers.
  • Most of the employees were customer service representatives. They have built a 500 person customer service team in Omaha, Nebraska (hometown of Warren Buffett).  Only about 200 people worked at the headquarter in Silicon Valley. The point is: no matter how scalable your product is, once you have millions of users, you need customer service. As Facebook and other companies, there was a time when their backlog of unanswered emails was tens of thousands of emails.
  • A catchy name is a plus. PayPal was much better than X.com, although there was a big struggle because the X.com people pushed that PayPal be rebranded.
  • Today PayPal doesn’t have a very good reputation, because of their poor usability and slow site. Nevertheless I use the service quite often as it’s just very convenient.
  • The large fees are critiziced very often as well. The problem is that credit card processing costs PayPal about 2%, plus they also have fraud charges (at one time fraud alone accounted for 1% or even more). They have lost many millions on fraud alone. It was a huge problem in early days until they focused on anti-fraud features.
  • They communicated with their customers on message boards. That was quite important.
  • Their focus on eBay was clearly the most important pivot/strategy

Note: All facts are from my memory so not all details might be 100% accurate. If you want to check the details, go read the book :)