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This Is Not Your CAC

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In my brief time thus far as a VC, I’ve seen entrepreneurs repeatedly screw up one key metric again and again: customer acquisition cost (CAC).

Along with lifetime value (LTV), CAC is one of the most important metrics consumer-facing businesses need to watch. But so many of them get it wrong and do so in a very dangerous way.

The entrepreneurs who get it wrong calculate CAC as follows:

CAC = Advertising Spend / Total New Customers

Instead of:

CAC = Advertising Spend / Total New Customers Attributable to Paid Advertising

Counting all your customers in your CAC metric – rather than just those acquired through paid marketing – is playing with fire. As an entrepreneur, I learned that the worst possible result of a test is a false positive: a result that incorrectly makes a hypothesis look correct when it actually doesn’t work. False positives will waste time, money and precious focus.

Calculating your CAC as a “blend” of all customers is just asking to be on the receiving end of a false positive. Your paid campaigns could very well be unprofitable, but you are making them appear profitable by blending in customers who found your product through organic channels – referral, word-of-mouth, organic search, or social, to name a few.

This is a huge problem since traffic from those organic channels doesn’t scale linearly with traffic from paid channels as a paid advertising budget increases. If you are spending (say) $1,000 on paid marketing and getting 20 new customers per day, it does not follow that your CAC is $50. 5 of those customers may be from paid marketing campaigns while the other 15 are from organic sources, so your CAC is actually $200. When you scale your paid budget to $2,000, you won’t be getting 40 customers per day – only 25 at best. And that’s assuming that CAC stays constant as your budget increases, which is a very optimistic assumption.

Using “blended CAC” in a presentation is a very quick way to get me to pass on an investment. When I hear a pitch, I care less about whether or not a company’s initial paid marketing tests were profitable or not. There are numerous factors that can drive campaign profitability, and there are a lot of ways to acquire customers these days. Rather, I care about how an entrepreneur uses data and thinks about key metrics. Showing a blended CAC means an entrepreneur is loose with the numbers at best and deceptive at worst. And as a company grows and the numbers get bigger, either of those are very bad things.

Written by Brad Hargreaves

March 15th, 2015 at 6:48 am

Accuracy and Precision

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In conversation, the terms accuracy and precision are used interchangeably. But they mean different things, and the difference can play a big role in the growth of a business. Before getting into early stage companies I spent most of my time in a science lab, which couldn’t have put me in a worse position to understand how accuracy and precision affect startups.

Courtesy Jekel 1996

In science, precision is valued above accuracy. In this case it’s called repeatability, and being able to run the same experiment multiple times with the same results is a good thing. After all, most fields of science expect results with 95% confidence, which means that your error rate can be no higher than one in twenty. So controlling for all possible variables and demonstrating repeatability are of utmost importance.

In startups, this kind of thinking will get you killed on two fronts. First, achieving 95% confidence is impossible in business. If you can collect enough data to be right 60% of the time you’ll get buildings named after you. You can’t possibly control for all variables; you’re lucky if you have the time and money to even understand what they are. This can be summarized with with the old business adage “it’s better to be generally correct than exactly wrong.”

Second, running a variety of experiments that yield different results is a positive thing. If all of your business experiments look similar and yield similar results, you haven’t learned very much, and you certainly haven’t explored the full set of possibilities. In all likelihood there is a better outcome elsewhere, open for a competitor to find and exploit. In other words, you don’t want to optimize toward a local maxima while missing a bigger opportunity.

Take marketing strategy, for instance. Good entrepreneurs usually try a number of diverse strategies — perhaps PPC, plus SEO, plus events or social media — to get a few data points around what works and what doesn’t. Thinking about this as a fractal and trying a few diverse strategies within each of these categories can pay dividends as well. While most of these experiments will likely fail, they can provide multiple starting points from which to drill down and test further, or provide guideposts to the right answer.

So while the precision of experiments is not so critical, accuracy is key. With all your experiments, you want to be close enough within range to triangulate the right answers through experiments. While precision without accuracy is dangerous, being neither precise nor accurate is useless. Trying five wildly different social media engagement strategies for a beta product may yield a false negative if social media isn’t the right acquisition channel; picking a wider variety of tactics may have generated more interesting results.

Business isn’t science, but you can be scientific about it. Having the right experimental framework can go a long way to saving time and money.

Written by Brad Hargreaves

May 13th, 2012 at 12:38 pm

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Branding to Founders: What Law Firms Got Right and Others Haven’t

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Say what you want to about law firms, but some of them have nailed a great branding hack: they have taken a stodgy service provider offering and “startupized” it by customizing and branding their work to appeal to founders. Of course, this isn’t just a branding task, there’s often real substance behind it — a solid startup-savvy lawyer can be one of the most critical partnership decisions a CEO makes. But the mere fact that so many first-time founders understand the value of a great law firm is pretty remarkable. 83(b) elections, for instance, are now common knowledge in the startup community, and it doesn’t take most CEOs more than five minutes to track down some publicly-released template seed funding documents.

These firms aren’t simply generous — cultivating a client pool of top seed-stage startups can be a huge win down the road for a service provider when those companies get bigger and pay bigger fees. But as far as I can tell, the path that startup-friendly law firms blazed hasn’t been followed by other service providers, even ones with a similar relationship to entrepreneurs. Who is the Wilson Sonsini or Gunderson of the accounting world, for instance? There isn’t one, but funded startups still pay for outside tax and bookkeeping work. I’ve spoken with several VCs who believe that the lack of startup-savvy accounting and CFO expertise is a talent crisis only exceeded by the deficit of hackers.

This is a branding problem that certain law firms have solved and other service providers haven’t. Because some firms have established thought leadership, savvy founders –even first-time founders — know what law firm they want, and they find an intro to that firm. The discovery process for (say) accountants is totally different, as there aren’t any branded, aspirational accounting firms that appeal to founders. Rather, many founders simply use a friend of a friend or family member to do their tax and accounting work or get a poorly-researched referral from another entrepreneur. This is a huge missed opportunity for everyone, especially the service providers.

Accounting firms aren’t the only ones missing the boat. Here are a few others, although I’m sure there are more:

PEOs and Payroll Providers: I’ve never met a founder who has enjoyed working with a PEO or payroll provider. Dealing with payroll, workers’ comp, insurance, taxes, health coverage and similar headaches is a huge pain, and the PEOs and payroll providers I’ve seen have punted on every opportunity to make it easier. Rather than crafting a unique value prop for startups and charging appropriately, these firms make the mistake of treating startups as “small versions of large companies”, assume that every startup has a dozen departments, charge too little and deliver way too little.

Wealth Management: I’m writing in more detail on this topic in this week’s letter.ly. But in brief, I think wealth management organizations — despite their traditional sales-heavy tactics — are missing a huge opportunity by not developing a savvier brand that can appeal to founders. Of all the wealth management groups, I figure at least one of them would acknowledge the lessons of the Bay Area finance revolution and focus their specialization on risk mitigation and alternative asset classes like P2P lending and real estate.

Office Hardware: The traditional office copier leasing process is miserable for entrepreneurs — which is a shame, because there are a lot of benefits to leasing a machine rather than maintaining your own. Have an office with a mix of Macs and PCs or fewer than two years of tax returns? Good luck.

All of these industries are ripe to be disrupted by savvy service providers that are willing to craft brands and offerings that appeal directly to founders. It’s easier than ever to start a company, and there are far more startups and founders today than there ever have been. So who will tackle the new market?

Written by Brad Hargreaves

December 4th, 2010 at 11:58 am

The Event Strategy

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Jason Cohen has a great post on unfair advantages. One of Cohen’s differentiators — personal authority — is the most useful to first- and second-time entrepreneurs.

So the question arises: how do you build strong and scalable personal authority?

I’ve heard blogging come up often, but I don’t think this is the way to go for most people. Blogging is hard. Rather, building personal authority through blogging is hard, and at the very least it’s total feast-or-famine. Unless your blog heavily incorporates a recognizable brand — like Chris Dixon or Fred Wilson — most people will probably lump your content into the “read it somewhere” bucket and forget that you had any association with it.

Events are different — when you run an event, you’re in front of the crowd. You get to send out regular emails to a large group of people, and the inbox is vastly more powerful than a RSS feed (this is also why I’ve moved some of my content over to letter.ly). In short, events are typically a much better tactic to gain the kind of personal authority that Cohen praises.

Starting an event series is daunting, but it’s actually quite a bit easier than it seems. I get asked about events a lot, so I’ve sketched out a basic strategy to building personal authority through an event series. I try not to be too servicey here, but I think this strategy is too important not to be spelled out:

1) Pick a topic. It should be big enough to potential draw a crowd of hundreds but not so big that you’ll lose focus (and high-quality people). And it goes without saying that this should be something in which you’d like to gain thought leadership. Competition and geography is also important — there probably isn’t room for another general “tech” event in New York right now, so most new events focus on specific verticals, processes or technologies. Over the past two years, I’ve helped create recurring events around gaming, marketplaces, and failed entrepreneurs, all of which fit in the sweet spot.

2) Build your promotional tools. Create a group page on Meetup.com, setting everything to “public” right off the bat. Meetup will actually promote your first event to its membership, which can be significant if you don’t already have a big email list. Create social media pages and an online landing page if you have the technical skills.

3) Find content. This usually means (a) a keynote or (b) some panelists for your first event. Pick the biggest names you can reasonably get in the room. Don’t get too cute or tricky — people are attracted to speakers they recognize and trust.

4) Find 2-3 solid venues. Good places to look include law firms (they love the attention of hosting tech events for free), bars with A/V and desperate restaurants. If you have great relationships with people at each of these types of places — which isn’t that hard to do — you will instantly be one of the most popular people in the small community of tech events organizers.

5) Make sure you have great attendees. Personally email people with leadership roles and deep rolodexes in your topic area. You need these people to show up, and you need to work to get them there. If you don’t, your event will easily become a mixed bag of job seekers, service providers and wannabes. Don’t let it.

6) Play up your social benefit to maintain great content. Because you are providing education to the community and helping entrepreneurs, people will want to help you. You’ll be able to land meetings with awesome people because you are running a community event, and they’ll often be honored to speak. Keep a steady stream (at least one per month) of events happening. I’m pretty agnostic on the “charging” topic, although I usually encourage people to keep their events free if they can. It’ll just make your life easier since attendees are less likely to get upset about all the little things that invariably go wrong at live events — and keep in mind that your goal is to build personal authority, not start a niche events business.

7) Leverage your membership to run events for you. By now, there will be many people approaching you for access to your membership. Your job now shifts from promotion to curation. Learn to distinguish between the self-promoters and the innovators. Pick people who will run awesome events and enable them with venues and promotion. Retain control of the branding and means of promotion (e.g., send the emails yourself, don’t sell your list) and dole out spotlight as you see fit.

The last point is especially critical — events die when organizers feel the need to exert too much control and burn themselves out. If you’re running an event series that regularly gets >50 people per event, it’s very likely that you have smart, well-connected people in the audience that would love to share the stage in exchange for doing almost all of the work.

Written by Brad Hargreaves

November 15th, 2010 at 7:15 pm

Go Into Sales

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Let’s say you’re a college student who wants to be an entrepreneur. Let’s also say — for one reason or another — you don’t want to jump in and dedicate all your time to an idea right now. Maybe it’s money, maybe it’s confidence, maybe it’s the lack of available co-founders or some combination of the above. From what I’ve seen, most people in this situation do one of the following:

1. Join a big company and plan to do your startup later.

2. Join another startup as a non-founder.

3. Go to graduate school.

I have a different suggestion: go into sales. Take a commission-heavy sales job at a company that gives you the ability to source and manage your own leads with as much independence as possible. Find a larger company in your space of interest and just go learn to sell things there.

The ability to sell is the most underappreciated startup skill. In the get-bought-by-Google model, you just have to be able to code and (possibly) market a product. Ideally, you build something so awesome it just takes off by itself. Sadly, this rarely happens. Instead, almost all companies have to sell something at some point in their lives. And this isn’t a bad thing. It can keep your company (and you) independent of venture capitalists and other control-seeking investors. Having a fundamental understanding of the psychology of sales and the sales process can be the difference for your startup.

Also, sales isn’t IBD analyst-style slave labor. There’s literally no cap on the amount you can make, which means that you can potentially bring home a decent six figures a year if you’re really good — way more than most first- or second-year analysts in investment banks. The hours can also be ridiculously flexible; if you’d like, you can work hacker hours.

For whatever reason, sales jobs are off the radar of most Ivy League college graduates. Since a nice degree doesn’t mean anything in sales, little to no recruitment is done on campus. And Ivy League undergrads love to be recruited.

There’s no better training for being an entrepreneur than actually starting your own company. But if — for whatever reason — that’s not feasible, sales is an good and woefully underappreciated route.

Written by Brad Hargreaves

July 11th, 2010 at 9:07 am

The Next Generation of Game Mechanics

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I’ve already had a few things to say on the coming explosion of game mechanisms in non-game apps, but listening to Gabe Zichermann talk at last week’s New York Gaming Meetup raised some new questions.

I agree with Gabe on a lot of things. We’re absolutely seeing a proliferation of game mechanics throughout the internet, and the resulting points or badges are totally divorced from real-world value. But everything I’ve heard on this topic has presumed that most of the innovation in game mechanics has already happened; that the real advances will be in applying points, leaderboards and badges to anything and everything on the internet. In other words, we’ll see a world of thousands of companies replicating a limited pool of “proven” game mechanics to guide user behavior. There have even been entire companies formed to help companies stick points and leaderboards on their apps.

It’s a crock of shit, really. There is a whole world of compelling game mechanics out there, only a small part of which is the Activity > Points > Badges flow that Foursquare nailed. Game mechanics are going to expand throughout the web, but they’re going to diversify and incorporate a wealth of varied engagement strategies as they do. Different tactics work for different people and different sites, and consumers will demand diversity and deeper engagement as they become more hardened to “vanilla” game mechanics.

So what are these next-gen game mechanics, you ask? Here are a few I think we’ll see much more often:

Building and Growing: Most people like to build and grow things. You can chalk the psychology up to our agrarian past, but Ford knew this when they put a virtual tree into the Fusion. Leaderboards feel like a zero-sum game, and many people will respond better to a mechanism that feels more collaborative. Like growing a tree, for instance.

There’s a corollary mechanism to this — building or growing something that can help you play the game better in the future — that could be particularly powerful. This mechanism is analogous to building a strong base in a RTS game. People are doubly motivated to do it since it puts their involvement in the game on an exponential growth trajectory.

PvP Competition: This is a no-brainer. People can be motivated by leaderboards and badges, but it’s nothing compared to the passion you see in player versus player competition. That said, this is somewhat psychographically specific — lots of people have no interest in direct competition with other players, and I imagine that designers will initially approach PvP competition in non-game apps with a lot of caution. But I can’t see it staying on the sidelines forever given its power.

Real World Rivalries: I experimented with this in GoCrossCampus a few years back, and I still think there’s really something here. As I mentioned above, many people love to play games against other live players (whether asynchronously or in real-time), and real-world rivalries only accentuate the power of this mechanic. Your leaderboard isn’t doing enough to engage users? Let players represent major sports teams or their colleges and see which team/college is the best! Use real-world rivalries and your app can piggyback off your users’ natural loyalties and affinities.

Leveling: I’ve seen some non-game apps using this already — such as online forums that reward activity by “leveling up” members based on post count — but it’s still woefully underused. Levels give people goals, the lack of which can be the death of a traditional points-based reward system. If members don’t think they’re working towards anything other than more points or a slightly better place on the leaderboard, they probably won’t hang around too long. Social game developers know this well; it’s worthwhile to study the leveling system that Farmville uses to keep players from leaving in the early stages of gameplay.

Chance: When “gameifying” apps hits the mainstream, incorporating elements of chance into these game structures will be a big deal. People in the tech and media world like the meritocratic, deterministic nature of Foursquare, where points can only be earned, not “won”. But normal folks like to win and will often value a chance to win something valuable over something small and guaranteed. Game designers aren’t blind to this, and the game-based apps of the future will absolutely allow users to wager their virtual currency and tokens.

There are more, but this is enough to argue my point. It’s hard to imagine any of these tools not being used on a large scale over the next five years. Marketers and developers must stop mimicking points and badges and start thinking about how game mechanics integrate with their apps on a fundamental level.

Written by Brad Hargreaves

July 6th, 2010 at 6:52 am

Why They Don’t Answer Your Emails

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Occasionally, people don’t answer my emails.

Realizing that this is a fact of life — and an inevitable part of being an entrepreneur — has been one of the toughest things to wrap my mind around. When I was getting started, it was an insult. I came straight from a world (college) where people received possibly twenty relevant emails a day, and not answering any one of them was an intentional slight. But realizing that the startup world simply doesn’t work this way this was step one.

Step two — which is still in progress — is figuring out why people don’t answer my emails. That’s what this post is about.

(Step three, for the curious, is not answering all of my own emails. I’m really sorry.)

These are observations I’ve made from years of “warm” emailing acquaintances, potential partners, investors and people I met at conferences. This isn’t about cold emailing or email campaign optimization. I assume those people don’t email you back because they don’t know who the fuck you are. As always, your mileage may vary.

Finally, “Busy” is not a sufficient reason for the purposes of this list. Everyone is busy.

1) They’re embarrassed. I think this is the single least-understood reason why people don’t answer their emails. I do this a lot, and I know a lot of people who fall victim to the same pattern. If I’ve been bad at responding to someone, and I’ve sat on an email for three weeks, the chance that I’ll respond with each passing week grows smaller and smaller. If I email them, I’ll simply remind them of how long it took me to respond. Allie Brophy mentions this in her latest wonderful post.

The Fix: Push them. I’ve found that this is often an ideal situation to suggest an in-person meeting. Coffee or drinks can be scheduled well in the future, and removing the tension of a broken line of communication may actually re-open the dialogue in the meantime.

2) They don’t want to deliver bad news. Saying “no” sucks and — in many situations — little is gained by doing it. Turning someone down is difficult, which is why many people make their assistants write those notes. If someone doesn’t have an assistant or simply doesn’t care what you think, the rejection email isn’t getting sent.

The Fix: There’s often nothing that can be done here. Gentle reminders can get you to a clear “no”, but identifying this situation early and taking the hint can save you time. That said, I think many entrepreneurs greatly overestimate how often this is the reason for a non-response. Many people assume that someone isn’t interested when in fact one of the other reasons on this list is delaying the response.

3) They’re preserving option value. This is a corollary to (2) and is very applicable to VCs, but it requires a different response tactic. This is one of the most annoying things that VCs do, but it’s actually much more common than getting a simple “no”. VCs’ reactions to most pitches fall somewhere between “I’m writing the check now” and “security will escort you from the office”. For these median cases, they’ll only write the check when they see a term sheet from Sequoia, but they’d like to preserve their ability to invest in case Sequoia actually gives you a term sheet.

The Fix: Convince them that the train is leaving the station — they should make a decision or forever hold their peace. Investors are coming in, a strategic is interested, the round closes on X date, etc. This is hard to do but is really the only way to get out of this hole. But do it quickly or else the deal will get stale.

4) There isn’t a clear ask. I occasionally get messages that I’m not sure what to do with. Am I supposed to respond to this? Forward it? RSVP to an event? Help me out here. If I’m not sure what I’m supposed to do, I’m probably not going to do anything.

The Fix: Clearly state what you want in the first 1-2 lines of the email. It’s really that simple.

5) There’s no value proposition. Some people will do things out of the kindness of the hearts, especially for people they’ve met. Others won’t.

The Fix: I always try to tie my emails back to some kind of benefit the recipient could see down the road if they respond to my email. There are pluses and minuses to doing this — some people are more willing to help you for the sake of helping you than enter into some kind of vague trade — but in all I think it’s a positive.

6) Politics. Sounds weird to an entrepreneur, but responding to emails at-will is politically difficult in a lot of organizations. A low- or mid-level employee could get in a decent amount of trouble by even hinting at something that may not happen, whereas they probably won’t catch any flak by simply not responding.

The Fix: This is the toughest to overcome. Often it means you are approaching the wrong person in the organization, or you need to approach multiple people. Or perhaps there’s nothing you can do and you should just wait. It really varies based on the organization and situation.

Any others I’m leaving off? Why don’t you respond to emails, fair reader?

Written by Brad Hargreaves

June 20th, 2010 at 2:01 pm

Diaspora: Think about Brand

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Charlie O’Donnell had an interesting post this morning on what Diaspora should do with their Kickstarter riches. One thing he didn’t mention? Figure out your market positioning and brand.

Let’s think of this in terms of the possible likely outcomes of Diaspora’s work:

Low: The team / product / initiative falls apart for some reason or another. Nothing is accomplished.

Middle: Diaspora creates a product that is useful but is restricted to the tech community and never gains strong adoption. Even techies still have both Facebook and Diaspora profiles, limiting the impact and fulfillment of the mission.

High: Diaspora gains mainstream traction, becoming the first legitimate threat to Facebook in years.

Right now, most of the focus is on the distinction between the “low” and “middle” scenarios: How does the team focus and produce anything at all? How do they build the basic operations of their business? These are important, but they aren’t the elements that are going to separate the “middle” and “high” scenarios. And to me, that’s the really important distinction — if they’re aiming to open the social graph, they have to reach beyond a small circle. But what are some of those upside differentiators, you ask?

Usability: How easy is Diaspora to install and customize? Does it “feel” nice?

Dynamics: Facebook spread because it is viral. It uses the fundamental structure of the social graph to spread and stick. Can Diaspora capture those similar dynamics?

Brand Association: This is Diaspora’s biggest long-term problem. Right now their brand is closely associated with a techie revolt against Facebook, and there are real questions about (a) how long this revolt will last and (b) how “deep” the revolt spreads into Facebook’s user base. Diaspora is currently riding a wave that may simply peter out in the near future, perhaps withing weeks if previous Facebook user “revolts” are any indication. In this frame, the Diaspora founders need to take the money they harvested from dissatisfied Facebook users and quickly pivot to a brand that has long-lasting and broader appeal.

Many great companies do this eventually (e.g., Facebook’s shift from a geeky Ivy League classes and social site to a full-blown online manifestation of the social graph), but Diaspora risks being pigeonholed sooner rather than later. It’s getting lots of press way too early and around a message that may work for them now but probably doesn’t reinforce their ultimate goals — and risks forever framing them as something very specific to a tech audience.

This doesn’t necessarily involve a change in strategy or mission — just the frame. Product is still the king, but brand matters if we’re going to be talking about these guys in six months, let alone two or three years.

Written by Brad Hargreaves

May 13th, 2010 at 8:24 am

NY Gaming Meetup: A Study in Iteration and Hockey Sticks

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The more time I spend working with startups, the more I find useful lessons for growing companies in random places. Take my gaming (industry) meetup, for instance. I’ve been running it for over a year, but only recently has it begun to “hockey stick”, in industry parlance.

NY Gaming Meetup RSVPs

The Opportunity: After running a gaming company in New York City for six months, I realized that there wasn’t a good place for people in the gaming industry to meet others in the gaming industry in an open, cross-pollinated environment. The International Game Developers’ Association’s New York chapter held regular events, but they were primarily focused on software developers, not the entire game creation ecosystem.

The Tactic: Create the New York Gaming Meetup, a (monthly) event where game developers can freely interact with others in the gaming industry as well as those outside the industry. Events would be regularly attended by investors, marketers, designers and others with a big role in making successful games. Meetups would be oriented around a series of demos of games built in the NYC area with networking before and after the demos.

Challenges:

(1) The NY gaming industry is highly fragmented with a focus on small (1-3 person) indie development shops. This isn’t Seattle or LA; there are only a handful of mid-sized gaming studios in NYC. It was critical to recognize that New York is a very different place and build a program that caters to those differences.

(2) There are few potential sponsors of such a meetup in NYC. This event would have to take root with minimal budget.

(3) Space in New York is hard to come by. The event would have to be structured and timed to let us take advantage of free space in bars and restaurants.

(4) As I’ve previously written, the New York tech landscape is very siloed, with little cross-pollination between verticals. In Silicon Valley, anyone working on a tech-enabled solution considers themselves part of the tech industry. In New York, we frame ourselves in terms of the particular vertical we are tackling — the “advertising industry”, the “gaming industry” or the “fashion industry”, for instance. This makes it difficult for events to reach across the social graph, and to this day I rarely see any Gaming Meetup regulars at other big tech events like the NY Tech Meetup or the Y+30.

Execution: For its first year, the event took place at Gallery Bar in the Lower East Side on Tuesday nights. On a scale of 1 to 10, I would give the location a 2, the venue a 7 and the cost a 10 — it was a free (but good) space with AV equipment in a out-of-the-way Manhattan neighborhood. Don’t get me wrong, I love the LES, but it’s a suboptimal place to host an after-work event.

Initial Results: The Gaming Meetup got a decent but not overwhelming response. We had a fairly predictable number of attendees — 55 to 75 per meetup — over our first ten months. The event wasn’t really gaining traction, but it was establishing a good core of game developers and people who loved what we created. The content (demos from local game developers and entrepreneurs) was hit or miss. There weren’t enough games being developed in New York City for us to be truly selective, and for every awesomely cool and instructive game that took the stage we had one guy just trying to sell something to the audience.

Iteration: A few months after starting the meetup, I started iterating on the model. Here are some things we tried and the results we got. Since metrics are important, changes were evaluated on (a) the number of attendees we got, (b) how long those attendees stayed and (c) how people reviewed the event.

Moving it later: Most people would show up at 7:30 anyway, so our 6:30 start time didn’t make any sense — especially since attendees had to travel to the Lower East Side. Good change, kept it.

Focusing on networking rather than demos: The demos started to get stale after a while, so I created one networking-only meetup to see how people would react. Bad idea; many people will only travel for content.

Fewer Demos: This was partially out of necessity, but ultimately it proved to be a good call. Six demos is simply too many. Four is much better.

Themed Meetups: We ran our first themed meetup (on Mobile Gaming) in March, and it was a tipping point of sorts. As it turns out, there is a certain “optimal specificity” in this kind of stuff — make it too general (“Game Demos”) and people aren’t sure what they’ll get. Make it too specific (“Android Development Best Practices”) and most people won’t care. Something in the middle (“Social Games”, “Mobile Gaming”, “Innovation in Consoles”) is ideal.

Higher-profile speakers: Last month, Kenny Rosenblatt (CEO, Arkadium) came and spoke on the topic of social games, and our meetup got 2x the number of people we’ve ever gotten. I’m a bit surprised that I hadn’t gone the high-profile-keynote-speaker route before. I’m certainly capable of sourcing them, and they give me far fewer logistical headaches than half a dozen demoers (one of which will inevitably bring a mac without the right VGA adapter).

The Hockey Stick: As you can see from my chart of RSVPs, I’ve started to figure this thing out. Popularity, of course, is self-reinforcing — now that we’re getting real traction, we’ve landed a great venue at AOL Ventures in the Union Square neighborhood. And our May meetup already has 90+ RSVPs, which is well beyond what any previous NY Gaming Meetup has gotten by this point. Most excitingly, we’re lining up partnerships with other Meetup groups for this summer — for example, we’re getting together with the Y+30 to host a panel on the future of gaming.

Written by Brad Hargreaves

May 2nd, 2010 at 9:13 am

What Kind of Business Are You Starting, Really?

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I meet a lot of entrepreneurs and hear a lot of ideas and business plans from all across the board. Most have — at the very least — a kernel of a good idea in them. But many don’t know what kind of business they are. There are an unbelievable number of entrepreneurs focused on technology when their entire business model is predicated on the success or failure of a marketing campaign, for instance.

This isn’t to say that technology isn’t important for those businesses, but rather that it isn’t the core differentiator that interests investors and makes or breaks the company. If you are running a sweepstakes business, for instance, I don’t want to hear about your awesome Rails architecture. I want to hear about how you are going to acquire users for $1.50 and monetize each for $3.00. Sweepstakes (in most forms) is a marketing business, and that is really what a potential investor or partner wants to hear about.

I like to put startups in three categories as defined by the core factors driving their success:

Technology Businesses: The core differentiator of your business is your technology. Generally, your company either (a) has real intellectual property around your technology and/or (b) is founded by leading engineers in the field.

Marketing Businesses: Your business is driven by its ability to acquire and retain users/customers more effectively than your competitors.

Relationship Businesses: Your business’s success or failure will be determined by your ability to forge lasting relationships with customers and/or strategic partners.

I’ve rarely found businesses that are truly driven by some combination of those factors. In most, one factor greatly outweighs all the others. And there are patterns behind misconceptions — most commonly, first-time entrepreneurs overweight the importance of technology as opposed to marketing or relationships. This makes sense, as an entrepreneur’s first goal is often to get a product up. But products are hard to build real differentiation around unless you are doing really innovative stuff, like building new database backends or search algorithms. In most consumer internet businesses, marketing is the most critical component. In B2B plays, relationship-building tends to make the biggest impact. And in general, progress on the core differentiator is what VCs mean when they talk about needing to “see traction.”

Want to generate awesome startup ideas? An interesting trick is to identify immature industries where the leading players are focused on the wrong differentiators. My own LabApp is an example of this — while the existing (immature) players are focused on relationship-building, I happen to believe that software commercialization is a marketing-differentiated business. As with all startups, time will tell if LabApp is on the right track, but looking at “differentiation-based” pivot points can be a great way to generate innovative and revolutionary products in immature industries. Some off-the-cuff ideas:

1) Take a relationship-based approach to marketing-driven social games to piggyback off of major brands’ name recognition. This is similar to what Arkadium is doing to much success with the social advergaming concept.

2) Use a marketing-driven model to gain independent adoption to a new CRM software product from the bottom up. Almost all SaaS CRM providers are currently relationship-driven, which leaves open a massive long tail of independent salespeople.

3) Use technology differentiation to pry government IT contracts out of the hands of bloated, relationship-driven contractors. Easier said than done, but someone’s gonna make a lot of money from this in the next 15 years.

Happy differentiating.

Written by Brad Hargreaves

March 22nd, 2010 at 6:05 pm

Capturing the Union or the Intersection?

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I hate seeing startups make the same mistakes I’ve made. When I see it once, it sucks. When I see it over and over again, it’s worth a blog post.

When I started GoCrossCampus with a few college friends, we set out to build a simple strategy game that could engage any college student with at least a bit of campus pride. I’ll forgo an extended explanation of what GoCrossCampus was (you can check out the link above if you’re curious), but you could think of our intended market as two distinct audiences:

a) Strategy gamers
b) College students

Initially, we were able to capture the union of those groups — large (30%+) percentages of students at Ivy League and tech schools were playing the game. If you had pride in your campus, you played. We also had a big, dedicated group of strategy gamers not associated with any college that played the game because they liked the game.

But at many colleges, we ended up capturing the intersection of those groups. That is, college students with campus pride who also enjoyed playing strategy games. This wasn’t a terribly big group of people, especially for a company that had raised $1.6 million in venture capital. In other words, we ended up capturing the space on the diagram where the two circles intersect rather than any space covered by either circle.

Are you capturing the union or the intersection between two audiences?

This distinction cost me a company. While the union of the circles — gamers and college kids — was certainly big enough to justify raising venture money, the intersection — college kids who played games — wasn’t even big enough to build a lifestyle business without a radical change in business model.

So how do you know when you are aiming to capture the intersection rather than the union of two groups?

There’s probably no way to tell for sure, but that’s not going to prevent me from throwing a few things down on paper. Here are some questions you might want to ask yourself before committing to a two-audience strategy:

1) Is there a major psychographic disparity between your intended audiences? In woot.com, there isn’t. People who like consumer electronics also like deals. In theNethernet (formerly PMOG)? I’m not sure I see why Steampunk fans also want to play an ultra-casual game. But I don’t have their analytics at hand, so please correct me if I’m incorrectly throwing them under the brass-and-mahogany bus. In short, if it is hard to imagine that there are a lot of people that fit into both your audience categories, perhaps it is best to focus on one or the other.

2) Is my product compelling enough to wholly attract at least one of my targeted audiences on its own merit? GoCrossCampus would’ve succeeded if we had spent a bit more time creating a game that was compelling to strategy gamers on its own merit; that is, if the college rivalries element was just a gimmick to get people to play rather than a necessity.

3) Is “technically savvy” already one of my desired audiences? If it’s not, you better build a damn good UI. Many startups claim that they are going after one particular audience (say, “Soccer moms”), when in fact they are building a product that goes after the intersection of their core audience and “technically savvy people”. And that may be well and good for your beta, but if you’re throwing a third category out there — say, “People with an interest in crafts” or “Gamers”, you may be setting yourself up for a much smaller audience than you are anticipating.

4) If my audiences are X and Y, is there a disdain/revulsion/annoyance towards X by Y? If so, run, do not walk, to the nearest exit. College students with bucketfuls school pride tend to think poorly of gamers. It did not bode well for GXC.

That’s all for now. I’m sure this may warrant a follow-up post at some point, since I think it is one of the most under-appreciated mistakes that startups make.

Written by Brad Hargreaves

March 1st, 2010 at 6:26 am