Babbling VC

How Screwed is the Valley? A European Perspective

I don't care to start an argument about whether the Valley is a better place to launch a business or not. I won't even get into the discussion of whether it's better than Europe or not. It is! If you have the experience, the connections and the balls, there is no better place to launch a venture-backed tech business than the Valley. Plenty of evidence is available in this regard. At the same time, I sure have a lot of expat European friends who live in the States visiting me recently. They look like they just saw a ghost (or can "see dead people!") Maybe it's all the living-dead companies surrounding them?

We're all getting hit by the financial situation and companies are going to fail. Yet, in the past 15 years I've regularly lived in Europe, I have never heard anyone say they are bailing out on the US and coming home. As a European VC, it's probably easier to squeeze coal until you get a diamond than it is convincing say a German entrepreneur who has been successful to come back here to start or run a business. No more! In Europe you are regularly hearing of people in the States who are stock-piling money at home, just in case. One friend told me has has 30k cash at his house and some packed bags, with all necessary documents in case they need to get out quick. WTF?

Yet, I said this wasn't a post about where it's better to launch a business. Nor is this a post about how bad the situation really is. In my opinion, not as bad as the media make it out to be by the way. But, what effect is this having on all the non-Americans who swarm to the US to pursue their dreams. I'm not hearing many young people talk anymore of having to get to the US to make it. Actually, I haven't heard anyone say they were moving to the US in quite some time. Isn't the Valley absolutely dependent on all these nationalities showing up so that the best-of-the-best are represented in that small environment we refer to as "the Valley." Isn't this what allowed so many great companies to get off the ground?

My question is actually more how will the Valley perform if Indians, Chinese, Europeans, Russians and what-not decide to stay home? Is there enough local talent already in the Valley to get it back on track once things get a bit better. Will people near-term risk going there or will they simply say "my chances are just as good here" plus my family and friends are around. I may sound pessimistic but quite the contrary. I believe this is an opportunity for other regions to step up to the plate. It's good for everyone if great businesses can be launched in Europe or Asia and so forth. There's been so much talk of "Valley-like" regions establishing themselves in Europe, for example, in London or Berlin. Maybe it's finally time. What do you think? Will other regions outside of the US position themselves as technology hubs and try to get a bit of that "Valley feeling?" Is it the optimal time for this to happen? Or is the Valley an anomaly which will continue to prosper, even long after this downturn is over? Let me know in the comments.

Update: note Fred Wilson's points in this post about Obama's speech yesterday, especially 1., 2., and 4.!

Further Update: here is what McKinsey thinks about the Valley and how difficult it would be to re-create it.

Effective Discovery

As an add-on to yesterday's post about discovery, I wanted to share some thoughts to how I am using services such as Twitter. I'll summarize it as "being more effective at discovering interesting things online".  I've realized that there is no way to read everything all the people I am following write. Further, the 80 RSS feeds or so I was following simply became too much. At the same time, I noticed I was doubling up on reading. I'd find something in my feeds and then see 10 minutes later that three people had tweeted it. Often I'd find something and tweet it and then three other people tweeted it too. What's the point? I basically concluded that there are experts who are much more focused on certain industries and hence the relevant news. It's basically their job to be up to speed on things. People such as Fee Beyer, who works in the mobile industry, are screening their industry and feeds regularly as part of their day-to-day activities. Further, they are tweeting the most relevant links. They also are much more in tune with what is relevant and what isn't. Hence, you can pretty much rely on them to catch the majority of interesting news and tweet it. I use Tweetdeck and have seperate colums for about 10 people who have dedicated streams. Each stream technically saves me the time of reading 10 RSS feeds or so. It's quite effective.

Slowly but surely, experts are positioning themselves on Twitter and you simply have to find and follow them. I know that when Howard Lindzon tweets something, it's going to be about private equity. When Jeff Nolan tweets something, it'll either be tech or politics.  Brodie Beta, better known as iPhoneGirl, will usually write about iPhones. And so on and so forth. You get my drift. Simply put, these folks have become the human filters which are so missing when it comes to the deluge of information projected at us on-line. So many tools out there are trying to be my filters but the human touch still can't be beat. The "human filters" or aggregators of information are basically commoditizing journalism. It's less important who writes what, as long as the right aggregator distributes it to his or her loyal readership and they care enough to read it.

I foresee many more people positioning themselves this way on Twitter and within other social networks. There is a way to monetize this as long as these folks can remain relevant and unbiased. And honestly, a lot of times I really don't mind their bias as long as it's clearly disclosed. Nevertheless, it'll be interesting to follow the development of information flow on Twitter and to see how people end up making money there.

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Discovery versus Surveillance

I recently saw a presentation entitled "Discovery is the new Cocaine" which sparked some thoughts. I totally agree that you cannot overlook the "discovery" component of things going on on-line. We all want the thrill of discovering something new, be it a website, friend's activities or developments in our business network. We are constantly bombarded now by things to discover, be it via Facebook, Twitter, Xing/LinkedIn and many other social networks. Further, the web continues to evolve at such a fast clip that there are new services and products coming at us non-stop. Yet, there's a huge drawback in all of this. It's nothing new to realize that all these social networks and Internet distractions are a huge time drain. It all came to a head though for me once I activated Google Latitude. It became clear to me that, as the presentation puts it, done right, "discovery can make a website irresistible". The crux in all this is that you have to ask yourself when enough is enough. I am more than happy to know what all my contacts are doing via above mentioned social networks or location-based services, like Latitude. But where does it stop? Nothing really exists to filter it all. Once I played around a bit with Latitude, it started feeling like surveillance. Where is that person now? What did they just tweet? Hmm, what are they up to? Who did they just link up with via Facebook? It all seemed fun for a while but for me, it simply hit a point where it became somewhat senseless. I wasn't discovering much which was truly new or innovative. I also wasn't effectively using my time on these services. Hence, I've decided to take a different approach. I dumped Latitude. I absolutely love the concept of location-based services but right now, Latitude is just surveillance. It needs to add additional features to be truly effective. Further, I've stopped trying to read everything on Twitter. I look at my stream a couple of times a day when I have a moment of downtime (usually using my iPhone) and just scan quickly what catches my eye. Facebook I've reduced to a bare minimum as I saw myself drifting away from it anyway. Xing or LinkedIn have become purely tools. I store addresses there and that's basically it. One thing I didn't mention above are RSS feeds. I found myself using feeds less and less and simply trying to catch it all via Twitter. Yet, I know about 80% of the stuff I find relevant, I discover myself going to the websites I usually read. Fred kind of touches upon this with this post. So in summary, I've gone back to discovery driven by my own path through the web. I don't want everything consolidated in two or three areas. I want to discover what is interesting to me and this is basically going to be a different approach to using all of these services. I am not cutting out one or the other or in any way questioning their usefulness (I'll also probably go back to Latitude once it gets better). I am simply taking a different approach to how I use them. If you have any interesting thoughts on how you've changed your habits using such services, I'd be happy to hear them in the comments below.

Books Aren't Going Anywhere

Image via Wikipedia

This post was a bit too long for Twitter hence here. I've seen the launch of the Kindle 2 leading to multiple comments of "books are going to disappear" or something along those lines. Nope, folks, it ain't happenin'! Don't get me wrong. I love the concept of the Kindle and Kindle 2. Would love to get the new one as soon as it comes out (Amazon, you hear that, you'd have customers in Germany if you were to offer it here!) Yet, we'll see books for many years to come. They won't go the way of the dinosaur. The argument would be same as the concept of radio. When TV came out, people said radio would disappear. Many years later, we still have both television and radio. There are simply different uses. Same goes for books. There are times when books make sense and they will do so for a long time. Just think little kids. Would you read your kids to sleep using a Kindle? Well maybe, but I don't see children's books completely being replaced by Kindles. It just goes against the grain of what people are used to and it takes time, lots of time, to completely change habits.

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It's all about free! Wait, no it's not!

Two recent posts triggered my thought process about business models going forward. I first read Fred Wilson's post on business models which was triggered by Chris Anderson's post on the "Economics of Giving it Away". Fred's post is great. Chris's isn't exactly clear to me. Let me start with the latter. After reading a fairly long article, Chris concludes that you should give things away for free but also figure out how to make money. Huh? I don't know about you but I've always been of the opinion that a business not making money (or in some way growing its user base to make money) is a dead business. You shouldn't first figure out how you're going to be free. You should figure out how you're going to make money. Fred clearly makes the point that you better also be profitable and you'll probably have higher margins staying "lean & mean" (really, do take a moment, go to his blog linked above and read this). Here's one of his points:

Let's look at Craiglist. I've heard people estimate that they are doing close to $100mm in annual revenues at this point. Many say, "they could be doing so much more". But the Craigslist profit equation is interesting. They apparently have less than 30 employees. That's about $4mm/year in employee costs. Let's assume that they spend another $6mm per year on hosting and bandwidth costs and other costs. So it's very possible that Craigslist's annual costs are around $10mm/year. Their value equation then is 10 x (100-10) = $900mm. That's almost a billion dollars in value for a company with only 30 employees.

Don't get me wrong, both Chris and Fred are making good points but Fred nails it. Make money but also make sure you do so with your costs as low as possible. This is the new reality. Your competition can kill you by simply operating with a much higher margin (and they'll probably end up getting bought before you do!) In the current economy, you'll see everyone becoming extremely creative on how to cut and keep down costs. If you're a start-up and you haven't taken a long, hard look at your cost structure you're facing a tough slog. Further, if you don't have some kind of innovative edge, it'll be tough to simply compete on costs. Everyone else is creative too. Are lots of companies out there now doomed? Well, yes, probably. They simply are clones without a cost edge. At the same time, there are businesses out there who made the effort to significantly reduce their costs and they may simply outlive their competition be they clones or not. To make a long story short, it's all about operating margins. Keep your costs as low as absolutely possible, make money wherever you can and innovate like there's no tomorrow.

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