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Data Data Blah Blah – It Ain’t That Easy

March 27, 2012

Brad Svrluga

Like most investors, I’m hearing more and more entrepreneurs tell me that they’re very excited to have a portion of their not-yet-proven business model be a “data play.” It usually goes something like this:

“we’re going to have thousands (or millions) of customer on our platform, interacting and doing X again and again, and that’s going to lead us to capturing a database of customers and their activity in this marketplace that we’ll be able to sell access to and make boatloads of money.”

Sorry, not nearly good enough.

This is indeed the era of Big Data. We are simultaneously witnessing the massive proliferation of smart devices creating a tidal wave of new data collection, and the maturation of cloud computing and virtualization, combined with the steady advances of Moore’s Law, making the tackling of computational challenges that would have seemed unfathomable just a decade ago suddenly feasible and cost-effective.

We’re generating and collecting radically more data than ever before. One of my favorite statistics – 90% of all of the data that exists in the world has been created in the last two years. That means that 10% of all the world’s data has been created since New Year’s Day this year. Try to get your head around that one! Fortunately, we have computing platforms and paradigms that give us a chance at actually doing something with it all this stuff.

One of the great things about the Big Data revolution (and if you want to stay up on big data and the startup world, read Roger Ehrenberg, who started a firm built entirely around a data thesis), and the dawn of powerful startups tackling massive data sets in healthcare, finance, search, retail, etc. is that it has made almost every entrepreneur and technology executive aware of the opportunities presented by data. In our portfolio Ticketfly, for one, understands that it is building a powerful and insight-rich database of consumer music tastes and purchase behavior, and they are working with partners to marry their data to other datasets to build even richer profiles of consumers, all of which will help Ticketfly help its venue customers sell more tickets, and help consumers get better information about, and not miss opportunities to see and hear, the music they love.

The opportunities presented by all of this data are, indeed, important. But entrepreneurs need to be careful not to get seduced by a blanket promise of big data without carefully contemplating the development of a true data strategy. Simply generating massive amounts of data is nowhere near enough to build a data-driven business model. Some of the biggest and best companies in the world are struggling with data strategies – developing algorithms that can wrestle insights out of raw data and being thoughtful about the costs of processing, the challenges of privacy, and designing data insights and interfaces that customers will actually use.

This last challenge is a critical one – companies who are going to generate meaningful revenue from data strategies need to ensure that they are developing data and insights that their would be customers are going to be able to use. A powerful illustration of this challenge comes from the grocery industry. For almost 20 years grocers have been collecting loyalty program data that tracks incredibly rich data about consumer purchase behavior – they can answer “Who bought what and when?” for the majority of their customers. This data could in theory be used to help tailor offers to consumers, to shape store and chain-level merchandising strategy, and to provide valuable insights to the Krafts, Kellogs, and P&G’s of the world –companies that sell billions of dollars of groceries per year but have limited access to data on who actually purchases their products.

Yet while this POS data has been collected for well over a decade, and the data has been aggregated and stored, grocers have only just begun to scratch the surface of the value of that data. They didn’t have the systems, the computing power, the database structures or the organizational mindset to enable mining the billions of pieces of data they were collecting. They were sitting on gold, but they had neither the know-how nor the resources to dig for it. And just having the data was nowhere near enough.

Last week I had a conversation with some folks from the Amazon Web Services group. This business, which now powers most of the web companies in our portfolio, and most web startups around the world, has had an amazing impact on the internet landscape by simplifying and decreasing the costs of launching a web service.

When you think about it, the incredible market position of AWS – which powers not just the lion’s share of the startup world but also massive web properties like Zynga and Netflix and even the online presence of some banks – gives Amazon unparalleled insight into aggregate level consumer behavior on the internet and, increasingly, mobile devices.

As the folks who own and run the servers that sit behind all of these businesses, they have massively valuable, macro-level data on where traffic is coming from, what devices are using it and when, etc. They are sitting on a data set that is likely far more valuable than the web usage data collected by Comscore or Compete.

But like the grocers, Amazon has done nothing to monetize this treasure trove. I’m sure they use the data internally to guide their own planning, but they haven’t yet even made the data available to their AWS sales team to help inform their discussions with prospective customers. Think about how valuable that aggregate data would be about things like iOS vs. Android mobile traffic.

While they’re sitting on pure gold, it’s just not that simple. For one thing, they’re not structurally oriented towards utilizing that data. They’d have to build an organization to mine, manage, and package the data. But they also have considerable privacy concerns – folks like Netflix are happy to be able to run their business on AWS, but do they want their usage data, even aggregated with others, to be shared? It’s not a straightforward question.

The point is this – when you’ve got both Amazon and the entire grocery business failing to optimize their use of the data they generate in their businesses, it points pretty strongly to the challenges of building and implementing an effective data strategy.

As an entrepreneur, when thinking about your business, just be careful what you’re pitching and promising. If you’re committing to a data strategy as an important near or medium term revenue source, then make sure you know what you’re talking about and have thought carefully through the array of issues that could get in your way.  Data can’t just be the convenient, hand-waving answer to how you’re going to monetize some cool but otherwise revenue-free consumer application.

On the other hand, if you don’t think of yourself as a “data first” business, be sure to give some thought as to where your business model might be creating or unearthing unique data. Even if you’re not sure how you’ll use it, starting to think today about how you collect it and structure it could open up important opportunities down the road. Try Roger’s post on paradigms for creating competitive advantage through data. It’s a great framework for starting your thinking.

Lies, Lies, and More Lies

March 12, 2012

Brad Svrluga

 I have a question for my fellow investors – is it just me, or are entrepreneurs lying to you, too?

I met an entrepreneur the other day and as he walked me through his pitch he showed a slide that detailed his team and his advisors. On the Advisory Board he listed a friend of mine. I said, “Oh, Eric is involved? That’s awesome – he’s terrific.” The entrepreneur said “yeah, we really like him.”

After the meeting, which had gone pretty well, I called Eric. “I just met AcmeCo. Cool company. I didn’t realize you were on their Advisory Board. How’d you meet them?”

Eric replied, “I’m not on their Advisory Board. I told them I thought what they’re doing is interesting, and that I’d be happy to be helpful, but I didn’t want to formalize any relationship at this point.”

AcmeCo’s chances of getting an investment from High Peaks were over. And their relationship with Eric might be, too. Life is too short to deal with people who aren’t straight about this stuff. It was really disappointing.

What’s got me completely perplexed is that this was the fifth time this has happened to me in the last six months. I’m not kidding. Five times in six months I’ve had someone blatantly over-represent the involvement of a notable person who, when I reached out to them, told me they were just informal friends of the company in question. And that’s only counting the situations where I actually knew someone well enough to go check up on it. How many times was I lied to but didn’t know enough to catch it?

Do none of these people remember George O’Leary’s 5 day tenure as football coach at Notre Dame (fired when it surfaced he had lied on his resume)? Or Yale coach Tom Williams, driven out last year after lying about being a Rhodes Scholar finalist? Or Jeff Papows, former CEO of Lotus, who pulled off the resume-fudging trifecta, lying about his military record (exaggerated his rank), education (phony PhD), and even his parental status (falsely claimed to be an orphan).

I can understand where there might occasionally be a miscommunication between a company and a would-be advisor, but five times in six months – and that’s just the validated ones – feels like an epidemic of misrepresentation. And that’s just Advisory Boards.

Equally, if not more common is the company who is stretching the truth when they say “we’re in active partnership talks with Company X,” or, “Company Y is likely to become one of our beta customers.” We hear these statements, and then we do our diligence, going and talking to Company X and Company Y.

You’d be amazed at how often the feedback from X and Y is something along the lines of “Well sure, we’ve had a conversation or two, but it’s a long way from being anything real.”

I know where this all comes from – good entrepreneurs are by their nature wildly optimistic. They’re terrific at willing things to happen. See a customer you want; believe you’re going to get them; will it into being. If you put an obstacle in front of them, they just plow right through it. These are admirable traits, and critical to entrepreneurial success.

But they can be dangerous traits, too. When you tell me Company X is your partner, and they’re not, then one of two things is going on – either you’re stretching the truth and being unethical, or you’re drunk on optimism and are misreading the situation.

Even if it seems like just an innocuous little truth-stretching, I’ve got to take it seriously. I definitely don’t want to do business with unethical people. I also don’t want to do business with people who are prone to reckless optimism – believing that Eric is an Advisor when he actually hasn’t signed on yet, or that your partnership with Company X is imminent. I’ve been to that movie before, and it ends badly after wasting time and money chasing windmills.

If you’re pitching your business to prospective investors, please be careful with what you represent about your relationships. As professional investors, it’s our job to take advantage of our networks to learn as much as we can about you and your business. Most good investors have pretty deep networks, and will be able to chase down any important relationship that you have. If what you’ve represented turns out to be untrue, you’re toast.

Optimism is indeed admirable. But lying is lying.

Mixing Work & Play: The Value of Signature Events

March 6, 2012

Brad Svrluga

We’re basking in the glow over here at High Peaks this week, fresh off an amazingly successful event we threw last Thursday and Friday. It sparked some thoughts for me over the weekend about when and how events can be a valuable part of an organization’s branding/outreach/PR strategy.

Every March, we host an event called Peak Pitch. It’s our spin on the business plan competition – a mashup of a ski day and an elevator pitch contest. The concept for Peak Pitch can be credited to our friends at Borealis Ventures in New Hampshire. We hosted our first one six years ago, and based on the trajectory of the first six, I think we’ll be doing this every March for years to come.

This year we had 30 investors and 50 entrepreneurs gather for a half-day of skiing at Hunter Mountain, a couple hours north of New York City. As in years past, we hosted an investors dinner on Thursday night, and then bring in the entrepreneurs (most of them traveling via the early morning wifi-enabled, coffee & bagel serving bus we provide from Manhattan) for breakfast through a late lunch on Friday.

The format is simple – investors wear green ski bibs, entrepreneurs wear blue. We block off a short and simple chairlift at the mountain. Get in the lift line, find a bib of the opposite color, and ride the lift to the top. In that 8 minute ride, entrepreneur gives her best pitch to investor. Get to the top, ski down, find another opposite bib, repeat. If you ski hard, you’ll get about 15 lifts/meetings in 2.5 hours. Then you can meet more people over breakfast and lunch. It’s unique, it’s efficient, and it’s a blast.

It takes a lot of work to get an event like this pulled together (just ask my colleagues Rahul and Tracy, who carried most of the burden), but having done this six times now, there is not an ounce of doubt in my head that all the work is worthwhile. Peak Pitch has become something of a signature event for us – an opportunity to bring our community together, connect casually with friends, and meet amazing new people. And it’s a tremendous goodwill generator. The sort of goodwill that is pure gold, and not easy to come by, in our relationship-driven business.

The value and momentum we get out of hosting Peak Pitch is the sort of thing that nearly every organization would benefit from, and should consider if and how they can achieve.

So why has Peak Pitch become so successful when so many other comparable events fall flat, with attendees arriving with a sense of obligation, not anticipation? I’ve seen a number of organizations pull it off (our portfolio company Ticketfly stands out with their Client Marketing Summit, as well as the trivia night hosted by the Charter School my wife runs – her counter to the traditional fundraising rubber chicken dinner). Thinking across these examples there are a few themes that I think almost any organization interested in a jolt of marketing juice can learn from.

  1. Make it feel like a gift. This is critical. You’re having the event because you want to get something from it. But you’ll never succeed in getting people to just show up en masse to help you out. You’ve got to give them something, and it’s got to be good. We offer people a free day of skiing and a highly structured environment in which to have a rapid fire succession of meetings with potential partners. A gift. Ticketfly offered a free trip to San Francisco, some great parties and music, and lots of collaborative thinking about how promoters could sell more concert tickets. Gift.
  2. Creative and memorable format. Peak Pitch is totally unique in its format. Every investor and entrepreneur has been to several business plan competitions and investor speed dating events before. But the added spice of the ski lift gets people’s attention, drives signups, and creates a unique context for the pitches, leading to more engaged dialogue. Don’t be afraid to take risks and be creative when contemplating formats. We were dead certain that Peak Pitch would be an embarrassing flop on the morning of our very first edition. But it worked.
  3. Make it rich and efficient. People’s time is very valuable. Be respectful of it, and pack your event full of good material. Part of what we communicate to people in inviting them to Peak Pitch is that it’s actually an incredibly efficient format for entrepreneurs and investors to connect. For an entrepreneur who gives up 5 hours at the event we promise them the captive attention of a couple dozen or more potential investors. Where else are they going to get that in 5 hours? This is a critical distinction vs the traditional boondoggle. Sure, it would be fun to play golf and have a fancy dinner w/ a group of peers or prospective partners, but why am I going to give up ½ a day to do that? I need more value than that.
  4. Make it casual, and shift people out of their normal context. Create an environment that is not about sportscoats and slacks. Put people in an environment where they can let their guard down. Who wouldn’t be more comfortable and candid when they’re wearing a ski helmet?
  5. Do the hard work to fill the room with the right people. A creative format and the promise of an efficient program will get people’s attention. But it won’t be enough to drive attention. Particularly in the early years of any event like this, you are going to have to twist arms, grovel, and flat out get on your knees and beg to get people to show up. That doesn’t mean your organization and event aren’t appealing, it’s just that inertia is a powerful thing – left to their own devices, people won’t do new things, regardless how appealing they may seem.
  6. Give people time to interact. At least half the value that people get from programs like this is in the casual conversations that emerge in the lunch line or otherwise around the edges of the core content. There was a fascinating piece in the New Yorker last week about what actually goes on at Davos, perhaps the most signature-ish of all signature events. One of the themes, not surprisingly, is that it isn’t so much about the conference content, but it’s about who’s there and the efficiency with which one can pack his days with scheduled and impromptu meetings. As Larry Summers said, “Everyone comes because everyone else comes.” Achieve that status with your event and you’ve found the Holy Grail.

Signature events are not for everyone, for sure. But if you have an excuse or an idea that will bring people together, they’re often worth the work to make it happen. If you’re at the scale where you have 100+ customers with whom you have deep relationships (a la Ticketfly), just bringing together customers is enough of an excuse.

It’s a lot of effort, but give it a try. When it works out, it feels great.

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