What Really Drives Social Networks

VCs and entrepreneurs spend a significant amount of time talking about the power of networks. And for good reason – many of the most successful companies of the past 15 years have had networks at their core. The standard argument for why networks are attractive is that the service (and company) becomes more valuable to each participant in the network as more participants join – if there are more people on YouTube that are creating, rating and curating content, my experience becomes better as a result, making me more likely to spend time there.

An important angle I’d add is the relevance of each of the participants to one another. Put another way – it’s great if a KKK member and I are on the same social network; but by and large, that person does not make the experience any more sticky for me (likely the opposite). A different example is Tinder – where most young black singles I know have abandoned it, because it’s difficult to find people open to dating them (OK Cupid’s co-founder wrote an excellent related post). Smaller communities of relevant actors are a big part of what drives engagement, repeat usage, and ultimately creates long-term defensibility for networks. The larger social networks (e.g., Facebook, LinkedIn, etc.) are better thought of as platforms for overlapping communities.

For Facebook, these communities are a personally curated combination of family, friends, colleagues, acquaintances and sometimes tangential figures. LinkedIn tends to be centered around your professional community – current and past colleagues, classmates, and business partners. Twitter breaks down into a complicated mix of interest communities (e.g., tech, sports, literature, music) and demographics (e.g., “black twitter”). While the communities themselves are powerful, they also present a challenge – how do you create enough cohesion across communities to realize the benefits of the entire user base, without destroying what makes each community “work” separately?

For each of these major networks, I’d argue people that bridge multiple communities play an important role in creating a unified whole. Though we’re are all a part of multiple communities – most people are multi-faceted – those that actively strive to share across them are the channels that allow information and ideas (as well as memes, jokes, and dances) to flow throughout the network. They often have a unique perspective on problems in each sphere that helps them build a following from diverse groups- a good example is Bob Lefsetz and his thoughts on how music and technology are beginning to resemble one another. These individuals also create conversations between others that might never otherwise speak to one another- people like Teju Cole (literature and photography) and Bianca St. Louis (startups and diversity) are a few examples on my Twitter timeline that do this often. Like Reddit’s moderators, the people who share across communities are the unsung heroes that keep these services fresh and interesting. I’m excited to see how platforms can use their tools (e.g., algorithmic feeds) to make these connections even more powerful.

Would love to hear your thoughts – you can find me at @ablordesays.

The CEO Balancing Act

Though I’m still a junior VC, I’ve had the privilege to meet with >100 entrepreneurs and learn more about their vision for the future. That 100+ isn’t a massive sample, but there’s an important commonality amongst those I’ve found really impressive – a mastery of some of the inherent tensions in being a startup entrepreneur. They manage to strike a balance between poles that, taken to their extremes, can endanger their business. They build paradoxes out of what could be contradictions. Here are a few examples of those paradoxical characteristics:

  • Insatiably curious, but biased towards action. Brad Feld referred to these kinds of CEOs as learning machines. They manage to learn something valuable from nearly every interaction – even if the person isn’t directly in their industry, or familiar with the challenges they’re trying to solve. During our diligence, which has perceived goal of allowing us to learn about their company and worldview, these CEOs were almost equally as inquisitive as we were – asking for our input, and trying to learn from what we’ve seen in the market. But that desire to continue learning didn’t manifest itself in ‘paralysis by analysis’; they understood how much knowledge was sufficient to inform their first actions, knowing that the most valuable lessons come from customers and the market.
  • Rational and honest, but with a clear point of view. More than any other CEOs, they were the first to admit what they didn’t have figured out and what risks kept them up the most at night. They approached their business rationally, had a clear sense for what questions an outsider would wonder about, and were open about the degree of certainty they had in their answers. This rational approach was mixed with a passion for the problem they were trying to solve and clearly thought through hypotheses about the answers they had selected and why. The combination of these traits creates a clarity that allows them to execute against the biggest risks, and seize the biggest opportunities.
  • Deeply understands all functions, but allows team members to have ultimate ownership. These CEOs showed a clear grasp of the major happenings in the business – the strategies for each function, the big experiments running and the important metrics. But, just as important – they recruited world class teams to build their visions (often including folks from previous ventures), and gave them the freedom to execute quickly. I’ve written previously about how transparency and decentralization can provide organizations with a speed advantage – and these CEOs demonstrate that daily. One interesting early indicator of this is how comfortable a CEO is letting their team field questions, without feeling the need to cut them off or correct them (if the substance of what they said is correct).

Would love to hear if there are some other tensions you think great CEOs must master – you can find me @ablordesays.

The transparency wave

Technology by and large is a powerful force for openness and transparency. One of the clearest benefits of this transparency is the ability to push decision-making authority to the front line of an organization. If smart, capable people have access to the right information and context, they can execute complex tasks far more rapidly across all functions than centralized organizations. Sales people close more effectively, marketing people allocate resources towards the highest value activities and channels, developers iterate faster on product, and the organization as a whole outpaces competitors.

Startups (and even the Marines) have realized this for a long time – but more and more enterprises are seeing the value that decentralization brings to organizational speed and effectiveness. While there are process and cultural changes that are necessary to drive decentralization, technology will likely play an important role in making this mindset change a reality. The most direct way is as a conduit of information – through BI and analytics tools, but also through lightweight means of distributing that information throughout the enterprise. Much of this is being embedded directly in popular SaaS workflow tools (e.g., leasing pipeline analytics in Hightower). But I think there will be some second order effects that are less direct – here are a few I’ve been thinking about:

  • The decline of per user pricing: while being easy to grasp and somewhat tied to usage, per user licenses often create barriers to the flow of information in an organization. I’d be surprised if more startups didn’t figure out ways to price that merge the best of both worlds.
  • The (continued) rise of HR: though organizations have long touted their people as their largest competitive advantage, the benefits of information ubiquity ultimately depend on talented team members whom you trust to make decisions. HR is not only the linchpin of the recruiting process, but also works with the management team to drive much of the organizational context (mission, values, culture etc.) that allow for good decisions.
  • Transparency as competitive advantage: Tied to the point above, talented people are drawn towards organizations that allow them autonomy, opportunities for growth, and the chance to be a part of something special, all of which is more likely in dynamic organizations. Better information flows not only increase execution speed, but also creates a talent acquisition advantage, both driven by transparency.

Would love to hear some others that you’re seeing or thinking about – you can find me @ablordesays.

Networks and Enterprises

A prominent trend of the internet era is the tech-enabled network.  Starting with forums in the early days to Facebook today, networks are arguably the web’s “killer app.”  The most recent incarnation of this is the current crop of marketplaces and networks designed to directly facilitate transactions and social interactions (e.g., Facebook, Uber, Twitter, Etsy, Lending Club, and many others).  These networks ease transactions and connections that were previously either near impossible or highly inefficient, improve transparency in opaque industries, and generate significant consumer surplus and enterprise value as a result.  I believe we’re now seeing the network model applied not to the core transactional experience, but to enabling and enriching them.

After aggregating participants, much of the focus for network businesses has been focused on reducing friction for consumers and users (and rightfully so).  The revolution in product and interaction design over the past 5 years has done much to improve user engagement and streamline transactions.  Software and e-commerce sites have become easier to use, which, alongside technological advances and new services (e.g., AWS) , has allowed software to penetrate historically resistant end markets.   I’m excited by this shift as both an investor and consumer, and think it has far from played out completely.

But there are other obstacles outside of the usage and transaction flow that derail purchases and inhibit selling activities (e.g., prospecting, nurturing, merchandising).  For potential enterprise customers, the education required to get all stakeholders on board and the lack of relevant decision-making data (e.g., customer satisfaction) are non-trivial roadblocks that swing decisions.  Vendors still expend significant effort prospecting for leads, creating and distributing marketing content for demand gen, and distributing product information to their channel partners.  Because nearly every purchase is influenced by factors outside of the transaction flow, these costs (both tangible and opportunity) represent real lost revenue.

Over the past few months, I’ve seen more and more entrepreneurs identify interesting network models to aggregate people, services, and information to supply these gaps and create value for both sides.  In addition, these solutions tend to combine many of the benefits of traditional networks (asset light, long-term defensibility, etc.) with the revenue potential of enterprise facing companies.  I’m increasingly excited about the power of networks to make the transaction experience a smoother one – looking forward to seeing big businesses built in the space.

The Boldness of Bezos

This weekend, I spent some time reviewing my notes on The Everything Store, written about the rise of Amazon – a story that’s inseparable from the rise of Jeff Bezos. Similar to Apple and Steve Jobs (through 2011, at least), the company and the founder are both one and the same. After having read Warfighting recently, one defining characteristic of Bezos that clearly resonates is his boldness. Bezos is nearly always willing to take risk to strike a decisive blow or innovate. This willingness is apparent in the very beginnings of Amazon; he left a high paying job at a quantitative hedge fund because he saw a massive paradigm shift – the rise of the internet – and decided he couldn’t be left behind. Not only does he decide he wants to participate in the rise of the internet, but he creates a vision of “The Everything Store”, with limitless selection and personalized service – a very small vision, indeed.

Examples of his boldness abound in the history of the company, on both the success and failure sides of the ledger. The Kindle (e-reader + tablet), AWS, Amazon Marketplaces, user generated reviews, personalized purchase recommendations, along with the core retailing business were all major successes. The Fire Phone, Amazon zShops, Amazon Auctions, the multiple massive distribution centers that were closed during the bubble, raising $2B+ of debt for poor acquisitions, and venture investing in a number of category specific e-commerce flameouts register as failures. All told, Bezos probably failed more than he succeeded. But his successes were orders of magnitudes larger and more impactful. AWS, which now pulls in $6B and growing in revenue, is proof enough.

Bezos is constitutionally unafraid to take big swings – the kind of swings that change the outcome of a battle, or drastically lower the costs of starting a technology business, and thereby enable a wave of innovative companies. The kind of swings that are exciting, both as an investor and a human being.

Startup strategy – as taught by the Marines

While in transit to Gambia last month (24+ hours each way), I got the chance to catch up on some reading – including Warfighting, the US Marines’ manual / manifesto for conducting and preparing for conflict (recommended by Keith Rabois, a veteran operator from Paypal & Square). Though not written with startups or personal development in mind, the book ends up being very relevant to both. Startup and war analogies are extremely common (e.g., competitive battles, fighting to survive), but the application of military strategy to startups is, if anything, undervalued.

One of the concepts I found highly applicable was how the Marines deal with uncertainty.  Like operating in an emerging market or disrupting an old one, nearly all decisions in battle must be made with incomplete information.  Teams (and especially their leaders) must be comfortable operating and executing effectively, knowing that their initial understanding of the situation is missing important detail.  The marines try to mitigate this lack of information through four strategies, all of which sound similar to what has become standard startup advice:
– Developing simple, flexible plans that allow for disorder and uncertainty
– Planning for likely contingencies
– Developing standard operating procedures that allow for trust to emerge between commanders and junior officers, without explicit, top-down orders
– Encouraging initiative amongst their subordinates. More specifically – they expect their junior officers to use the informational advantage on the ground to make quick decisions and exploit enemy weaknesses.  This doesn’t mean junior officers aren’t held accountable for their decisions; but the graver sin is unwillingness to take action.

This is only the tip of the iceberg; the book is littered with insightful takes with clear applicability to an early stage business. If you’re looking for a short, good read I’d definitely recommend Warfighting.

Asking good questions

As I mentioned my recent post about Quora, I believe a lot of value is created by asking really good questions. It’s a skillset that’s not only core to my work as a VC, but one I think is important in nearly all facets of life, both personal and professional. In that spirit, I thought I would share David Jackson’s (CEO of Seeking Alpha, who maintains an excellent blog) post about how to generate them (excerpt below):

Step 1: Find a white board or flip chart where your team can do its question-centric work. (For what it’s worth, standing up seems to jumpstart better questions than sitting down.)

Step 2: Pick a problem that your team cares about intellectually and emotionally. Double check to make sure that the problem (or opportunity, for the optimists of the world) is one that you honestly don’t have an answer to.

Step 3: Question everything. Engage in pure question talk, with one team member writing down each question verbatim. This gives everyone the chance (especially introverts) to see each question, reflect a bit, and then create even better ones. Don’t give preambles to the questions and don’t devote any time or energy to answering them. Just ask as many questions as you can. Go for at least 50, perhaps 75. But don’t give up when your mind goes blank around question 35. Savor the momentary dead space and continue the search for even better, more provocative questions, which will come with patience and persistence. It usually takes 10 to 20 minutes to exhaust a group’s questioning capacity. Push for exhaustion.

Step 4: Decide which questions on your list seem most “catalytic,” or which ones hold the most potential for disrupting the status quo. Focus on a few questions that your team honestly can’t answer but is ready and willing to investigate. Winnow your questions down to three or four that truly matter.

Given its importance, continually improving on what questions I ask and how is something that I’m constantly working on. Tweet at me @ablordesays if you’ve found other interesting ways (or relevant resources) to generate good ones.