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.