Fabian Schonholz’s Blog

Wow…can you believe it. An iPhone app to write on my blog. This is fantastic and believe it or not, this post is being written on my iPhone. The aspect I will need to figure out is workflow. Normally after I write a post my wife edits it and then it gets published. Such a workflow does not lend itself to writing on the iPhone.

I do see, however, this app as a quick way to jot down some notes and quick ideas that I can later develop into full blog posts. For now … What I need to do is do finish with a few of the blog posts I already started.

I despise talking to customer service. Most of the companies I have had to call either for information, to report a problem, ask for a refund, get an RMA, or anything related to service, have resulted in horrible experiences. The customer service reps have been rude, they have lacked product knowledge, they have been less than attentive and willing to listen and have made no efforts in trying to find a solution that worked; to make matters worse US based reps can barely speak intelligent English. To the above equation you need to add reps not based on the US. It is not the accent that bothers me - mine is so thick you can cut it with a knife - but the lack of a customer centric culture. The accent just gets further in the way and aggravates the situation.

There are two companies where the experience is 180 degrees in the other direction: USAA and LaCie.

To call USAA’s customer service exceptional is to not do them justice. They are superb. I am not sure how the reps are trained, but I am yet to talk to a rep on the phone and not gotten the help I needed. What impresses me is that when a rep does not know the information, they freely admit it and they are not exactly apologetic. However, they know where to go get the information and who to hand you over to. The hand over from one rep to another is also fantastic. The first rep introduces you to the second. The second greets you and the first one asks the second if he/she has you. If the answer is positive, the first bids you good bye and now you are talking to the second rep, who had been fully briefed before you started talking, thus, not having to repeat yourself. Of the few times I had to call USAA - they have a great track record - and in those few times the experience has been consistent: Great customer service every time I call.

The experience with LaCie was completely different. I called to complain about an order I had placed where one of the items was back-ordered. My complaint was that I had been charged for the back-ordered item even though it had not been delivered, or so it seemed. The customer service rep, although I was very short, was nice, cordial, composed and quickly turned the situation around by being understanding of how I viewed the situation. He very quickly changed the mood and tone of the call and resulted on a happy customer. I am not sure if that is the experience I will get next time. Regardless, it was a pleasant one. The most important part of this experience was that even though I was in “the wrong”, I was never made to feel that I was wrong.

Few other experiences rival LaCie’s. So few that I can count them with one hand and have change. By at large, my experiences are really crappy and frustrating. The worst experiences are the in-store experiences. Two companies are notorious in my book: CompUSA and Fry’s Electronics. I will not go into details of these experiences because there is nothing to learn from them and in all honesty, I would waste your time describing them. But let’s just say that the reps where less than intelligent; their knowledge of what the products they carry is near nil; their interest in taking care of you is non-existent; their personal hygiene and presentation also lacking. And their vocabulary … well … let’s just say that my children have a better vocabulary than the people I encountered have.

I completely understand that the opportunities for education these people have had are not, to any degree, comparable to mine or my children’s. And I do not blame them for their lacks. I will, on the other hand, make them responsible for it. Who I really blame is the store managers (who probably also do not know any better) or regional managers. I blame people all the way to the top. They are the ones that lack customer focused service and since they lack it, they can not expect their chain of subordinates to react any different than they currently do.

A while back I was recommended I read a book called “Raving Fans” by Blanchard and Bowles. This book is a good example of why USAA and the CS Rep at LaCie are so effective in providing exemplary customer service. I recommend you read it. To think of it, the person that recommended it should read it again. His organization’s customer service is beyond lacking to the point that Fry’s and CompUSA’s in comparison are not too bad.

The customer service landscape today is, based on my experiences, a minefield with a few safe havens. But it needs not to be such a disaster. Traditionally customer service had information issues. In other words, a customer service rep lacked complete and accurate information. And when the data was available, it was hardly ever integrated and presented in such a way that helped the rep. Once upon a time I used to work for Prudential Group Insurance, West Coast Operations. My main responsibilities were to provide technical assistance to customer service reps (CSRs) and help them navigate a series of disconnected mainframe based systems. This was in 1994, ages ago in internet times.

Fast forward to today. CSRs’ operations are no longer, for the most part, mainframe based, and most system have been integrated in such a way that the information is presented in a series of screens that make life much easier to find. To make matters better for CSRs, many of the system offer key-word search to assist finding information more efficiently. A clear example of some of these advances is banking. When you call your bank, in many cases (BofA Credit Card Services for example), you are connected to CSR in India, The Philippines, and other. The rep has access to a great deal more of information regarding your account and transaction history.

Putting the cultural and language elements aside, the first issue starts with security. Some person in some country half across the world has access to some of your most important financial information. But that would not change if the CSR was located here in the US, or for Europe in Europe or however local. What would change is the ability to do background checks. Secondly, what level of encryption in maintained for the connection between the outfit in India, for example, and the data repository in Colorado, again for example? If it was local, then there are regulations that need to be observed and regulatory bodies that conduct audits. Although these regulatory bodies extend their scrutiny to vendors and providers, I am not sure of the level of efficiency and transparency rendered in the above mentioned audits.

However, security, technolgy and data/information even though paramount, the problem remains with my chief complaint: Lack of customer focus on the part of the CSRs. And with the information they have at their disposal and the installed systems providing the information, I am utterly surprised service is still lacking.

In an early blog posts, Building Scalable Web Systems, I discussed very high level some of the needed premises and basis to architecting scalable systems. What the post did not deal with is insurance and Downtime. What is the point of scalability if you have downtime and what is the business continuity plan that maximizes available resources. Also, the post does not deal with success. What happens and what tolerance does the business and market have in the case of massive and rapid adoption. How do you deal with it?

Enter cloud computing and Amazon’s EC2. For those not familiar, EC2 is a cloud environment that provides virtualized hosting services. They provide the hardware infrastructure, the pipes, storage and other services. You provide the application. The promise is that you can scale the hardware need horizontally without having to deal with the hardware itself and its management and upkeep.

The first question is whether I believe it is 100% ready for prime time. You can argue that loads of companies are using it successfully, thus, it is ready. I have talked to some of them to mixed reviews. You can argue that some of the unconfirmed rumors are to be believed because there are indications of truths, thus it is not ready.  Also, I have talked to some people that were not all that happy with EC2. So on and so forth.

The second question is whether it matters or not if it is 100% ready for prime time. And  on the hills of this question, can it be used as a business continuity tool. I will answer both below.

The obvious third is regarding cost. Through all my calculations (and other people’s), EC2 can be more expensive than running your own systems - of course at some external data center. But some of the advantages come around quick adaptability, separation of concerns, system automation and self healing procedures. I will go into more details on this later as well.

Let’s start with the first question: In my opinion EC2 is not 100% ready for prime time. It is a subjective opinion based on my findings and my level of comfort. Part of the decision is based on cost, but mostly on technical merit:

• Full virtualization is not where it needs to be; although there are ways to set up virtualization in the right configuration to make it not only more stable but also better performing. Not knowing EXACTLY how EC2’s virtualization layer works (and I am assuming virtualization) creates a big question mark on how things will truly stand up to friction. For example, it is hard to optimize a virtual machine to run DB servers  that deals with millions of queries a day. Hardware optimization is important with relational DBs.

• Virtual NICs have sort-comings. They collapse under high traffic. The way to overcome this “limitation” is by attaching each virtual NIC with a physical NIC. However, this defeats the purpose of virtualization and limits, the theoretical unlimited number of VMs you can have running on a single server (only as many as you have physical NICs minus 1; you need one NIC for the host Operating System.)

• Let’s not forget performance.  Even though you can create a limitless amount of VMs, the performance of each VM degrades with the provisioning of each new VM on a single server. What I do not know, however, is if there is an optimal number of VMs. In other words, is there a hard limit where before reaching that limit each VM would not change its  performance characteristics regardless of number of active VMs? Not too long ago I ran a virtualized farm. Unfortunately the application I inherited was so horrible that it superseded all problems we had with the environment. So, I can not even begin to answer the last question. Needless to say that the application and environment were replaced.

• But it is not just the DBs that need “specially” optimized hardware. Application servers as well. Maybe not as specialized but a slow processor creates drag. And adding many VMs to spread the load creates more management and more moving parts adding to the risk management factor and what can go wrong.

Continuing answering questions … YES!!! It does 100% matter that they are not ready for prime time. But really, what we need to ask is the degree of how much it matters. How far is EC2 from being 100% ready? I do not know, but they look darn close. By adding granularity to the question we come up with multiple degrees of “how much it matters”. 100%?, 90%?, etc. In the case of EC2, I think it matters less than 20%. They seem that close to being ready - by my definition.

We can define cloud computing in many ways, however, let define it by a behavior: it needs to work like the electric company. Using Bob’s analogy, we do not really know how many generators the electric company has. We just know that we want/need more juice, we plug to the wall and we get more juice. The more juice we use, the more we pay. In the case of EC2, it seems to work that if you need more capacity, you provision a new “machine” and off you go - well, sort of This creates the idea that if you need more juice, plug to the wall and pay at the end what you consume. Not considering cost, it looks like an attractive proposition. But more importantly, think in terms of what it can do for you. Almost instant scalability when you need it and how you needed it.

A little digression …

I do not worry anymore about scalable systems. I know how to build them; I have come up with a methodology and an architecture philosophy and I have repeated the  implementation of the methodology and architecture philosophy with great success. However, while my architectures scale horizontally without much of a inconvenience, the problem of scalability has become an issue of “need” predictability and time for procurement. Now in English: How much traffic will I get and how long does it take to get the hardware and deploy it - I consider real estate and power procurement as part of deploying the hardware.

Over the course of my experience I found that I need 3 running months to predict needs 3 months ahead. I have reduce the problem of CAPEX planning to getting right the initial installation. This initial installation needs to have “enough” capacity to support 3 months of capacity needs. But … what will be the capacity needs on the first three months? On a web based system, it is somewhat unpredictable. Sure, we could plan marketing campaigns designed to “limit” traffic. However, why would you limit and control traffic - there are a great deal of arguments in this area - if you have the potential of being ultra successful.

There is also the argument of cash flow and spending the right amounts of cash on your infrastructure. Funding is a resource and needs to be maximized. Any hardware that is bought today that is not used and needed - Software as well, but to a lesser extent - depreciates and for less cash you can buy something better in the future when the resource is truly needed. Therefore, the initial deployment of hardware becomes not only critical from a capacity point of view but also from a “capital resource” point of view. This is not to suggest, however, that you should not deploy for capacity needs earlier. In other words, stay ahead of the curve. Deploy 3 to 2 months earlier than  needed. What I am suggesting is that you do not need to deploy hardware beyond 3 months or more.

Back to EC2 …

EC2 not being 100% ready creates a problem compounded by the fact that it seems to work and it seems a short ways away from being the real deal. I resolved the problem by thinking, with Bob’s help, of EC2 as an insurance policy and a business continuity plan: I will build my staging environment on EC2, even multiple staging environments.

Let’s define a staging environment as a facsimile of the production environment but scaled down. The facsimile, if at all possible, must contain ALL components.

How to set up an insurance policy and business continuity plan using “the cloud”.

First, let’s look at process and environments. I advocate and implement total separation of environments as part of my Software Development Methodologies. Developers work on their workstation and QA Engineering occurs in isolated environments that in some way represent as accurate as possible production. Staging is the environment where UAT (User Acceptance Testing) occurs and where the build is certified and readied to release. Once it is certified, it is released to production. Staging must be not as accurate as possible, but precisely a facsimile of production. By hosting the staging environment on EC2 - or any such cloud environment for that matter - you can have that precise facsimile at a small cost.

Let’s consider the case of wild success and the fact that it is hard to predict and the capacity needed to “potentiate” success. In this argument I will equate “success” to a “disaster” and how we not only recover from it but also ensure continuity:

If traffic spikes past available capacity, not only does the user experience degrades but  it disappears altogether. In this case, virtually a “disaster” happened since the service becomes unavailable. In this particular disaster, having the right amount of hardware would have prevented it; as we discussed above, however, this is not always easy to determine. Just like in any disaster, the speed of recovery is vital to the continuation and success of the company.  If staging is indeed 100% a scaled down facsimile of production, then on an environment like EC2 scaling up in order to provide “capacity” should be a matter of minutes to just hours and not days. Basically, enough tolerance for the business not to experience a catastrophic downtime. Temporarily moving the production environment from self managed to EC2 provides the company with the necessary time to build out, and potentially better plan, capacity on its facility. Once the “disaster” passes, production can then be moved back from EC2.

In order for this temporary migration to happen seamlessly and effectively a high degree of automation needs to be incorporated into the overall infrastructure from day one. While the last updated staging environment (there can be multiple) will have the latest code and basic configuration, its data will be not current or accurate. Data migration needs to happen on a regular basis, and all staging environments should have, based on the installed release, the latest data set. Not only the data updates must happen automatically, but the discipline of automation, from a “disaster” detection to recovery must be as automated as possible. Once an issue is detected, a single script needs to be run to get the new production environment ready for operations, including needed changes on DNS, load balancing and firewalls. Furthermore, provisioning and  de-provisioning new VMs should also happen as automaticly as possible based on capacity needs.

The last part of this EC2 consideration is cost. It is more expensive than it looks. Once you start racking up the VMs on a per hour basis, racking up traffic at a premium cost and racking up storage, the $0.10 to $0.40 price ranges start to add up. This is cost that you incur every month and that you can not “lease”. So, does it add up to more than what it would cost you to build it and manage it yourself? No, but the costs are comparable, at least in my calculations. Therefore, running on EC2 for 1 to 3 months, even though duplicates the expense for that timeframe, it does not, in theory, break the bank and provides insurance, albeit, at a premium cost.

I have some strong opinions on how technology should be implemented. I do not care to know the secret sauce, but I do want to know in more detail than just general terms how things work. Especially if I am going to bet my company on a platform. The unknowns, the uncertainties based on lack of SLAs and the assumption around virtualization make me a tensed CTO. The result: Not 100% ready and trustworthy to build an company on it. I admit, however, that it is very impressive what they have accomplished, it makes sense, and of the other commercially viable cloud environments (I am not including Google, Yahoo! and MS), EC2 is the only one that, again in my opinion, is worth considering and ultimately using; whether it is for production, or as in my case, as an insurance policy to support unpredicted growth and create a conscientious business continuity plan. With time and maturity, EC2 is a strong solution.

Image courtesy of rengawman.wordpress.com

I like my ducks in a row. Oh yes .. I do indeed. Every time my ducks get out of alignment I react, to some extent, poorly. This is particularly true as I help build companies through technology. Technology is just a business tool and even though it may take center stage as the enabler of a business, it is not the business itself. But that is no excuse to bypass technology best practices.

A word on best practices:

Most people take best practices as a recipe; as a cookbook; as a road to follow. To me best practices is a set of tools that I can use to accomplish particular tasks. There is no particular guide to the practices but the practices themselves as I adapt them to my needs. The same goes for development and project management methodologies. I only adhere to my own. Each problem is different and requires adaptations. It is ridiculous to think that one size can fit all; especially when each task is in the context of varied corporate cultures, projects and business needs.

Back to my ducks …

The whole thing starts with picking the first duck and placing it at the beginning. Then I pick another duck and I scurry to some supposed end and place the “last” duck there. This duck represents where the company may be in a distant future. Call it 5 to 10 years out. It is 100% my conjecture and based on my personal vision of where the business will be in “a period of time”. I based this vision on discussions I have with other stake holders. Will it go there? Who knows. I just like to think of the possibilities and have something to aim at. Does it matter if it does or not? Not at all. The company will experience changes based on the market. The business will go where the market takes it.

Third, I once again scurry around looking for another duck - the right one too - and I place it following the first duck. I turn around, look at the “last” duck and line the first with the second with the last.

It is time for another duck. I rush to find yet another duck, rush to the front and place it, all neatly lined up with the first, second and “last” duck. I go find another duck and I go back to the fourth position. I look back to the “last” duck, I look at the row in front; I look back just to make sure … and … the “last” duck is gone. I mean, nowhere to be found. This is not a real duck; it is my duck. How can it have flown away? Or walked?

I drop the duck in my hand somewhere in position and run back to find the last duck. I look around … I look around … I look around and I finally find it. There it is. But it is not where it is supposed to be. I pick it up and try to figure out where it really belongs. Undoubtably, since it moved, it does not go back to its original place. I figure out its new placement, most likely based on changed assumptions and market forces. And, I have to go to the front and quickly rearrange all the other ducks and align them with the “last” duck. This process happens again and again.

It does not bother me that the “last” duck moved - as a matter of fact I assumed from the beginning that it WILL move; what truly bothers me is that nobody told me before it got moved and then I am expected to auto-magically aligned the other ducks. If the duck had gone “quack quack”, then by just listening I could have quickly rearrange the other ducks on the fly. But these ducks are quiet. They do not make a peep, especially as they are being moved. Or maybe they are being forced to move pointed by a gun under the threat of death if they “quack” ?
I see building companies very much as a process of putting ducks in a row. True, they do not need to be in a perfect line, but the row should have no gaps. The gaps are potential black holes that can drag the whole business into oblivion. Let’s be clear: gaps does not mean not having answers to all the questions. Many of the business or technology questions are answered as we lay down the ducks. Gaps means skipping the full understanding of basic elements in the business. In manufacturing it can mean skipping quality in the automation. In software development, not respecting a project plan. In business development, not having an out in a business relationship. In business in general, not having a solid strategy and not continually contesting it, revising it and analyzing potential risks factors.

Often I am asked “how can you know where the business will be?” As I stated above, I do not know. But I do imagine what the possibilities can be. It is not that hard to look up and try to take a leap of imagination and visualize where the business can be in 3, 5 or even 10 year. It is a dream. It is pure imagination. It is not real. It is a VISION. It is also a goal to aim for and a way to reverse engineer a road-map. Will the business end up there? Most likely not. Most likely it will take detours, it will change and morph, it will reinvent itself. It will struggle to survive (not necessarily in financial terms.) The market dictates where a business goes. And my ducks are witnesses to the detours and changes.

Regardless of the market, the vision needs to be there at the beginning. And the vision needs to adapt to the market. A business starts with imagining an idea. It continues with the fantasy of success. And follows the excitement of victory. In other words: THE VISION. Not vision as in a corporate statement - The Vision and Mission, those are important and necessary because they are internal call to arms and good external communications tools. But the vision as a quest to conquer some uncharted land or defeat some mortal enemy. Will the vision change? Absolutely. The change is what keeps things interesting.

I am a technologist and see technology as a business process, not as an esoteric pursuit of technicality. Indeed, the better the technical solution I come up with, the better I feel and I always strive to produce great technology including novel work when possible; however, as a function of creating value for the company and not for technology sake. I very strongly believe that in the end, if the technology does not answer the business need, for as good and revolutionary it may be, it is worthless.

My ducks, in the end, are just steps in a process to lead an important part of the business to success. Technology is an equal partner to all of the business units. It is normally considered a cost center, but it really is a revenue generator and through automation and operational efficiencies, a direct profit center.

Once a month, on the second Friday of most months, a CTO networking group that I belong to meets. Each meeting starts with a speaker - speaker in the loose term because it is not a fixed format - and then leads to questions and answers by the members and to discussions. This Friday the speaker was an individual that transitioned from being a CTO to being part of a VC. The attendance was not very abundant. However, since it is the path my career is taking and/or wants to take, I was not about to miss the meeting. The presenter brought up some good points and topics of arguments. And, of course, we all engaged readily. One in particular that developed into a full conversation once the speaker left was the initial cost of starting a company.

What Sangam Pant mentioned in terms of cost is that today it is VERY easy to start a company. It only takes $1M. Now … everybody jumped at that except another member and I. First of all, Sangam was using $1M as a figurate amount. Or at least I think he meant it does not take millions upon millions to start a company. Second of all, it is true, it does not take much money. You can use any of many OpenSource projects that are more than adequate for an initial buildout without compromising too much the quality of the architecture and application. You can successfully build on them. Or, you can use a small local team complemented with an outsource team at a fourth of the cost. I prefer the second option. It allows me to add more value to the company by providing a proprietary  code base and create opportunities for the future. Besides, I am more on the side of build than buy for core elements of the business.

The argument from the members was that if you are trying to build a $100M+ company , you need to start with adequate funding. $1M will just not do. My position is that you do not need to start with $10M or $20M. Or even $5M. What you need is to start. The initial problem of a start-up is two fold:

1. You need a product that works. Not juts technically - which is exceedingly important - but also from a business concept point of view. Is there a need in the market? Can a need be developed? Is the market ready for a product like “this”? Can the market mood help a product like “this”? There are a series of market factors that can be put into the conceptual analysis of a product. And many of those factors will help define the product, its marketing strategy and how the market is approached.
2. You need a business model. Now … this is the hard part. You need to devise a way to make money. It does not mean that you have revenues right away and it does not mean that you are profitable right away - although in a previous post I focused on the March To Profitability. Business models do not come by easily. Let’s restate this: An effective fully developed business model that matches the market mood and not only prevails, but gains traction, does not come by easily. A model like that takes time to develop and can only be developed by generating friction against the market.

How much does it take to start addressing these two questions? It changes from project to project, but does not need to be much. If the company is to get to $100M+ you will need growth investment; I absolutely agree that you will need more investment along the way. ALONG THE WAY. But first prove the “model”. Prove that there is a need in the market, or that the market will be somewhat receptive. And first begin to develop your business model and put it through some friction to see how it fairs. For the “first begin to” part of the project a “$1M” ought to be enough. Once you see a small light at the end of the tunnel and it is not an incoming train, the  you can go ask for $5M, $10 or more.

There is also a financial argument to not “taking” in big rounds at first: Valuation and dilution. The more the above questions are answered, and they do get answered over time, the higher the valuation. The higher the valuation the less the dilution. To the cost of a startup you need to add the cost of getting funding. Often enough there are situations where the founders of a company loose control of the helm because they get too diluted to retain a majority; in many of those cases you get there by either poorly negotiating or by asking too much too early and since there was no tangible value but value of an idea, the percentage sold is too large. Either case can be mitigated by having a more robust offering. Even if you negotiated poorly, the odds are in your favor if you have a more developed project well beyond an idea. Thus, the cost of funding is less. And the upside at the end is much larger for all involved.

Going back to the meeting … I have to say that I did not agree with everything the speaker said, his positions and the reasons for them. I have to say that I did not agree with the speaker in every idea or vision that he has on the market and how the market will develop. But the balance of what I got from him is positive. He was not only well spoken, but eloquent in the way he presented his ideas. And whether I agree with him or not, it does not matter. It is whether I could derive value from his experiences, concepts and intelligence.

Sangam, thank you for your time on Friday.

A couple of weeks ago there was a blog post at TechCrunch (www.techcrunch.com) regarding web sites experiencing downtime as well as infrastructure companies experiencing failures in their operations. Obviously, the first take was on the revenue loss that each one of those companies experienced. In the case of the infrastructure company the concern and criticism comes from the websites they took down with them as they experience problems and their emergency systems failed. While I share on the critiques and concerns regarding revenue loss and customer experience, my take is more consumer centric.

Let’s take a few sentences to focus on defining some concepts: The Internet (internet) and the World Wide Web (web) are not the same. They are indeed related and one sits on top of the other. Internet is the infrastructure were the web sits. Internet is the infrastructure where also, email, Skype, Joost, Quicken and Quickbooks, amongst other applications, sit. But if you can access it on a “web” browser and is a website providing some form of a service, then it is the web. The web, in a sense, is a basic commerce platform. Basic not in terms of simple, but basic because it is a fundamental building block. While the Internet is the aggregated set of hardware and software implementing protocols that enable the web, email, etc. to exist.

The 20th century saw what seems today as accelerated development in technology. The second part of the century, initially driven by the Cold War, gave us a great many new technologies, the internet being one of them. As the infrastructure that is the internet expands into more places and high speed connectivity becomes a standard, more people benefit from access to the web. Indeed, the web of services available are of great benefit to us all; from the convenience of Online-Banking to entertainment to the access to more generic and educational content like Wikipedia. And we have just scratch the surface on the possibilities for services in the form of websites.

Both as the internet expands and service oriented websites become available, our dependency on those services grows as well. The problem must be viewed not in the form of a singleton, from a unique individual’s point of view. Of course, take away from me the online tools I use on a daily basis and my life will be extremely inconvenient. It is not just email, or the stock sites I visit and use, or Google. It is already ingrained in my way of life. So, imagine when a second person, who uses the same tools to interact with me, gets the same tools taken away? A small breakdown of the fabric of our society happens. Now, take it to a larger context, 100 people, all who interact with each other get their tools taken away. Disaster. Yet, we still do not have a complete break down on our society. It will take a few million around the world for that to happen. Nonetheless, it is a problem and a risk factor.

As individuals we are, more or less, dependent on technology as a whole. That dependency is based on personal preferences. But as a society we are infinitely dependent on technology. It is not just our cars, or the cellular telephone, or the internet and the web. It is the whole package. The difference, however, between the car or the telephone and the internet and the web, is that the internet and the web are more mission critical, but we do not realize the magnitude of how mission critical they truly are. The interesting part of the internet is that it was created as a fall-back and alternative communication channel in the case of a nuclear situation. Today, the internet is becoming THE COMMUNICATION channel. Again, our dependency on the internet and the web is becoming infinite.

A few years back there was a movie called Escape From Los Angeles (1996). It was a sequel to another movie premiered years before called Escape From New York (1981). Kurt Russell starred as Snake Plissken, a hard knocks ex military special forces and outlaw who did not mesh well with the new order of things. Both movies share the same basic plot. And both movies, although entertaining, had no permanent value - do not get me wrong, I loved both movies and to me they are cult classics. The second movie had an additional twist. The ultra religious conservative right had taken over the US’ presidency for a number of decades and had driven all form of freedom of expression to become illegal. Smoking had been banned, so was pornography, freedom of religion and speech. The media, all forms, was controlled by the government. In other words, all of the little freedoms to take for granted, in the movie, were gone.

Part of what drove the government and the citizenry was fear of being attacked by foreign forces; thus, a satellite was developed with the capability to neutralized all technologies in specific regions. The satellite was controlled by a remote controlled that had been siezed by a terrorist group which threatened the US if they US did not comply with some demand. Snake is sent in to retrieve the remote and if he succeeds all transgressions would be forgiven. He succeeds but suspecting the government about to double cross him, he decides to put the president to the test. As the plot against Snake is revealed, Snake activates the satellite using the global code. Thus, suppressing all technologies at a global level. Effectively, Snake sent planet earth to the 18th century.

Even though the movie uses technology as a gimmick to tell a tale, it is hard not to consider such a possibility. We have seen the effects on personal lives when online banking is not available or when Facebook goes offline. We have seen the effects on businesses when their sites crash and what it does to the bottom line. The instant something new comes up that sticks we immediately become dependent on it. And there is no end to it. It is as it should be.

Snake … press that button!!

UPDATE: A continuation of this post can be found here 

What makes a startup successful?

Getting to profitability and keeping it there.

At least that is my opinion. But why is it so important to get to profitability?

It gives you choices.

Basically, you can decide what to do and how to do it without having to worry about survivability. And if you have a Board of Directors, it lends credibility to your “choices” along the way, allowing more independence in how the company is lead. And if you are in the process of selling the company, then you are in control of the price and not the buyers (it is not a bail out M&A).

Many start-up companies do not worry about being profitable in their nascent stages, especially during times of economic abundance. They disguise the lack of concern for being in the black as “the time that we should invest in the future”, the “time for growth”. Actually, it is hard to disagree with that. Yes, you want to “grow” the company and you want to “invest” in the future but there should be a balance.  When a company is started, there is no revenue and none can be expected. The revenue needs to be grown. Indeed, in its first 12 months a company will not, most likely, be profitable or even have revenues, however, the drive should be there. The tendency should be created and in place from day one; in this way, the culture of the company will drive profitability and, in a way, make it more achievable.

Let’s not confuse revenue with profitability. Because revenues may be collected, it does not necessarily mean that you are driving to profitability. It is the first stage to it, and it does slow your burn rate giving you more time, but, in this deceptive thinking, you miss the point all together and you feel a renewed need to expand. This will drive your burn rate back up, offsetting even worse your revenues and making profitability that much more unattainable. Then, in order to sustain the company and its growth, new funding is sought, further diluting everybody that invested in the company. It makes the effort unworthy and a waste.

In one of my first blogs entries, “Purist, Opportunity and Growth”, I discussed different ways to build technology for a company. My prefered method is “growth”, since, in my opinion, generates the least amount of friction, thus resistance, the least amount of waste and it protects and safeguards the company assets. Yes, indeed, there is investment going on but not wasted. And growth is a result of answering two questions: (1) What does the company needs in the form of a strong foundation, and (2) What do the Marketing and Business Development groups need in order to make the company’s product strong in the targeted market. All else is a result of answering these two questions.

The last two questions, however basic to building a company, do not completely  answer the question of “time to market”. That answer is found in fast execution. But fast execution can not be done on the backs of your employees and by forced marching them. It can not be done by setting wrong expectation for your clients and partners. It can not be done by promising some date that is 100% driven by a sales need fiction. It is understood that in order to build a company to success we all have to work hard and there will be long days; even long weeks. It goes with the territory. But that effort can not be wasted by continuous desperate moves.

Fast execution is achieved by carefully reducing the scope of the projects to its basic elements and focusing on them. Then, by using and exercising these elements, you will discover what the next steps are. What you were lacking in your original planning, what elements need to be added, what needs to be changed. With these elements (additions and changes included) in place the business begins to develop and will further your vision and your understanding of what is needed next. At the end, the sooner you plant a flag and claim a territory, the sooner it will be yours.

This is what my “new” boss calls “smart speed”. I, on the other hand, call it “lack of desperation” and “focused execution”. Smart speed should not end after the initial product introduction. It should continue since it maximizes productivity and minimizes cost (not just in terms of funding). I normally equate this to baby steps and one step at a time. Before you know it, you are running and not much is left behind and progress is made at giants’ speed.

Once you get going on a project, a great many deal of ideas begin to surface and  are brought forward. Not all of these ideas are good, not all of them bad. They are just ideas. In some cases, these ideas become distractions. In other words, some ideas are brilliant, or deceptively brilliant, that derail the focus from “fast execution”. It is only natural, people have a hard time staying focused. It does not mean, however, that you do not think of new ideas and those ideas not shared. Ideas need to be managed so they can be maximized. And you maximize them  by sharing them with a small group of people with the understanding that they are “just” ideas that need to be challenged in the context of fast execution.

How long after starting should a company be profitable? As soon as it can. As stated above, a company is not successful unless it stays profitable. Staying profitable can take years and that is OK. Not ideal, but OK. What I mean by this is that as long as there is a balance and there is growth a company is not wasting resources, which is 50% of the battle. The other 50% is being self sufficient, to the extent that the company can chug along without further external investments. Once this is achieved, then an external investment is strategic and can be use to expand and extend the reach of the company. As such point the company is in a position to break through the rut and become a success.

The March To Profitability is hard, and if “smart” then is not forced and leads to success.

Startups are interesting “beasts”. I should know, I have a few under my belt. I worked on my own startups, for which I had a hard time funding thus they never really went anywhere, and since I was the only source of investment, not only did they not go anywhere, but I was taken along with them - 100% my choice and I learn a great deal. In a way, I paid for an education.

I have also participated in other peoples’ startups as well. One thrived but never found its execution groove and finally collapsed. One never got off the ground. One I helped sell. The other is a work in progress (a good opportunity that now needs to execute from a business point of view since the technology is in a good and stable place). I also have big company experience as well: Prudential Group Insurance, Xylan, Disney, NASA. And I have also helped other startups as a consultant, as one of my own companies did technology strategy consulting.

One of the things I have noticed is that usually proper and true estimations are either not done or not respected. Estimations are paramount as they help provide a clear picture of the road ahead in more than the conventional ways.

One of the cornerstones of my home grown development methodology is estimations. I wrote a post, Software Development Methodologies, that describes the methodology in some detail. However, I purposely left estimation out of the post. On one hand, I implied and assumed estimations as another step. On the other, estimation is such an important part of managing projects and technologies, that it deserves its own post. And here it is.

These are some reasons why estimating a project is of paramount importance:

•  Managing expectations
•  Managing cost
•  Planning technical resources
•  Planning marketing calendars
•  Planning sales channels

Overall, these reasons point to the fact that nothing in a company is an isolated component. Each part of the company has a direct dependance on all of the others. In  technology companies, companies that provide technology services, or companies who’s core product rely heavily on technology, their dependence on technology is obviously greater. Thus, estimations of technology projects are core and dictate how these company behave.

In contrast, companies who just use technology - in other words, their dependance on technology is based on the fact that technology is a means to create efficiencies, but hardly core to the business -  estimation remains important as a budget control factor. It remains important and critical from a project point of view, but its influence on the business is marginal. However, budget control factor influence is not at all marginal.

But why are estimations so important on a startup?

Startups, by their nature, struggle to survive, and it is not a matter of funding. Even the best funded startups go through this struggle. The question of survivability wears heavily on management and to some extent, the rest of the employees. Nobody joins a startup to fail, as a matter of fact, they join for the upside. The big upside comes from the risk factor that the opportunity represents. Furthermore, there are no assurances that the company will make it but everybody to a large or even larger degree believe in the opportunity. The flip side of this is that startups are in sell mode from the get go. Everybody is aching to have the product finished, on the market and generating some form of revenue. Even the most steady handed startups expose the same sell mentality. And it is perfect, it drives the company to early survivability. Or at least it tries.

One of the problems that startups have is creating a “perfect roadmap”. The roadmap to success. This roadmap includes defining the product and features, developing the product, marketing and selling the product and providing follow on services to the product; by either providing support, additional features or additional products. A factor of the roadmap is the people needed that will get all of these done. Who and when should discreet employees be hired is an important element of the “perfect roadmap”. If you hire too early, you are wasting cash and if too late, then there is the potential to overburden the organization to the risk point of missing the market opportunity.

Estimations have a direct impact on the “perfect roadmap”. If you understand estimations as only providing a ballpark or precise timeframe of when something will be done, then you are missing the point of providing a good and thorough estimation. A good estimation showcases how the project will evolved. It will provide you with hints as to when different parts will be done and become available. A good estimation will tell you when you can start marketing and selling your product before it is even completed (if that is what you choose to do). In particular, in startups, a good estimation will also provide you a timeframe for hiring.

Good estimations reduce the risk of startups and elevate the survivability factor. They provide the framework for growth and expansion. Estimations help manage cash flow. And finally, estimations help manage anxiety so we can all focus on what is important, building success stories.

I am a lucky man. There are many reasons I am a lucky man: my wife, my kids and my friends. I do not have (or want) many friends, but the ones I have are the best. One of them I have known for 30 years (he will argue that it is 29 years, but who is really counting). Another one, Dan, I have only known for 4 and in spite of not having enough time to hang out with him, I still consider him a close friend. He is a real estate agent and a darn good one. What makes Dan such a good agent is his honesty and dedication. He really made the process easy for us. He is great. But this post is not about Dan, but on how traditional industries can benefit from the Internet and interactive media and marketing.

As I read different blog posts and surf the web I have found web sites whose intent is to replace the real estate professional. I am not going to argue the pros and cons of those sites, or whether overall it is a good idea. I will state that, in my opinion, it is a fantastic idea. Yes, it does take business away from my dear friend, and in all honesty, I am concerned for him; but it is a good idea nonetheless and I think that he will not be as affected as others that are not as good as he is. Nevertheless, as I find these sites I send them to him. I want to raise his awareness to the new economy and since he is very entrepreneurial, it might spark an idea, or two.

Sometime ago he asked me if I thought that going through a house with a video camera showcasing the property and then posting it in YouTube was a good idea. He wanted to do it in the format of a TV show. I thought it was a great idea, but it needed a platform to showcase the videos - it has been done before to some level of success but before YouTube. In other words, do not expect people to go to YouTube to find houses for sale. My advice was to start a blog, or some other interactive avenue, and with it, start doing some interactive marketing. He sends a newsletter once a month, he should do an electronic newsletter as well, driving traffic to his blog. I explained to him about the advantages of interactive marketing through  a blog and what content he needed and how it needed to be shown. I am not sure what Dan did with the information I passed along to him, but he knows I am here to help should he need it.

Regarding the sites, in the end, you need to make a choice. Should you use an agent or should you use these websites? My choice is to work with Dan. I am indeed lucky.

But real estate in not the only industry that can benefit from interactive marketing. One day I was helping Andy,  the owner of the wine shop I am more than just fond of, set up a blog and a new interactive marketing strategy. Since the shop has a wine bar, every so often I go to hang out there and write on my blog (my goodness, which one of the posts are wine induced?) while I have some wine and cheese and the best panninis in the world. That day, as I was furiously typing my post, Andy approached me and asked me what was I doing. I have been sending Andy my weekly “Sunday Emails” that some of you get as well; so it was easy to explain to him what I was doing. He, from time to time, visits my photo galleries.

As I was explaining to Andy about blogging and the potential benefits, business models and ancillary revenue that a blog can bring, it occurred to me - well … it had occurred to me several times before - that he can do something similar to what I was proposing to Dan, just different content. I ended up setting up a blog for the shop and showed Andy how to edit and add content.

I know that this post sounds like I am trying to sell blogging as a business platform. Well … it absolutely is a business platform, or it could be if used in such way. For me, it is a way to share my ideas, but as it turns out, it is also a self marketing and self promoting platform. But that is not the focus of this post. The focus is on the value of the Internet for traditional industries. For traditional I mostly mean “mom & pop” shops. “In the Internet you can be a dog and nobody will know.”

The Internet and the Web, in particular, have hardly realized their potential. Viva capitalism!! It is amazing how you can have Google, Microsoft, Yahoo!, even Facebook next to TechCrunch or this blog or a site that provides style sheets for MySpace -  which by the way, is run by a 16 year old and generates over $7M in annual revenues with little cost behind it. Yes, monetarily speaking, completely different orders of magnitude; but because of the differences in magnitude, the contrast is so amazing. “On the Internet you can be a dog and nobody will know.” Indeed. The Internet has democratized capitalism even further.

One of the tenets of capitalism is mobility. People will move up the ladder while others move down. And some are stuck somewhere in the middle. The Internet has added more fluidity to this mobility by creating a new and additional economy and with it, new  opportunities and new wealth. In this new economy “you can be a dog and nobody will know.” You can be anywhere, you do not need sophisticated equipment and you can make a more than handsome living.

What makes the new economy interesting is the fact that it is new. It can be contended that it is not new at all, and just an evolution of the standard economic development of a society. I would not disagree with statements hinting to that; however, I like to think in terms of turning a page in a book. The book it is still there, and so is the story, but as you turn the page, the anticipation and the discovery of a new fork in the story becomes very exiting. The new economy is about discovering new economic avenues, new ventures, new ideas, new markets. We are boldly going where no man has gone before and we are blazing new trails. Innovation fuels the new economy.

Back to Dan and Andy. They can both benefit beyond their current opportunities from an interactive marketing and content strategy. Dan’s video idea is really good, but needs to be hosted and presented well and some effort needs to go not only into traffic but into content. For example, Dan can give the hot tip of the day, week or month. He can document and communicate best practices for selecting a home, for buying it, for selling it; maybe some business tips for aspiring real estate entrepreneurs; funding a loan or getting a mortgage. The sky is the limit.

And Andy has the same opportunity. He can do a product catalog with a description of each item. How it drinks; when it is best to drink; tips on preserving wine; on how to taste wine; how to select wines. The content can be around new arrivals or good deals.  He can have a once a week video talking about the upcoming wine tasting. He can even add a shopping cart and allow people to order from their homes. Again, the sky is the limit. And what makes it all possible is a simple turning of a page in the development of the human system.

So … the Internet is changing real estate, is changing how we drink wine and … the  Internet will make it so dogs will run the economy.

And … I am definitely a lucky man!!

Recently there was a post in TechCrunch regarding Facebook’s hype. One comment to the post was that Facebook was already passe and “the new hype was being already developed by three guys in somebody’s garage”.

I recently wrote an post regarding Innovation In Technology and the process of creating new technologies; from the need to solve a problem, through making existing technology better, and creating new markets by “discovering” new ideas. I also wrote about companies generating fresh ideas and implementing them, and how these new ideas improve the bottom line. The problem of innovation affects us all, at all levels. From technology through education, stopping along the way in government and politics, healthcare and medicine, and economics.

“Three guys” in a garage can do some very powerful and life changing things. Think Steve Jobs and Steven Wozniak, Bill Gates and Paul Allen. Yahoo!, Google, Hewlett Packard and countless other companies started in an actual or figurate garages. These people took everything they had, had the charisma to raise funds and attempted to execute on their dream and would not relent, are to be applauded. Even the ones that did not succeed; because on the shoulders and ashes of every failed company, a new idea is born with the potential to change our lives.

But is hype life changing? I mean, does a company like Facebook have the potential to change the way we live? Yahoo! and then Google did change our lives. So did Microsoft, Apple, Amazon, Dell, etc. Even Friendster and MySpace have had an effect on how we communicate with the ones close to us. Linkedin and Facebook made this communication innovation their own and improved on it. But are they themselves life changing or disrupting enough? Both companies have the potential to be life changing or provides a change in a commerce paradigm the way eBay or Amazon have, for example. And there is no need to go into how Yahoo!, Google, Apple, Microsoft, etc., have indeed change our lives. But potential is not enough. There has to be value for ALL users for that change to happen.

I am going to come clean: I like LinkedIn and extract some value from it, and I do not like Facebook because I do not extract “any” value from it. But strategically speaking, I think that Facebook has had some brilliant ideas and has executed well on them. So, I tip my hat to them. Their technology AND business innovation, as far as I know, has been converting their product into a platform where people can develop application for it; thus, extending the feature base at little cost and by that, perpetuating their freshness. However, and again, in my opinion, unless there are some true productivity applications developed for it, to me there is no value to Facebook.

Let’s be clear. What does it mean “to me there is no value to Facebook”? As a user, there is not much in the product and additional deployed applications that entice me to go back with any regularity. The only draw that the site has on me is when somebody posts a note on my wall or sends me a message or IM and the sites lets me know. I am curious to read it so I go back to the site. Otherwise, there is nothing yet that I have found of any interest to me.

On the other hand, If I was analyzing the company as an investor, there is ton of value (but $15B worth?):

First of all, because I may not find value as a user, it does not mean that others will not as well. The fact remains that hype or not, Facebook is drawing a lot of traffic and keeps on increasing. Then why would Google buy YouTube when they had Google Video? The answer is traffic and with it, the ability to experiment in different ways to monetize that traffic, within the context of the property. Facebook faces the same ability to experiment on different models of traffic monetization; especially with the Microsoft investment and the rumored additional funding.

Second, the Facebook platform is another traffic draw, perpetuating the point above, but beyond that, it provides the potential of added value; the potential to draw me back as a user; the potential to leverage not only the data in the so called social graph, but the social graph and the connections. Whether it is apparent to people or not, it is clear to me that we are in the midst of a paradigm change in computing and computing services, services in general and how all these are combined. Apple with the iPhone and iPod Touch is good evidence of this. As stated above, Facebook has the potential to be a contributing party to this change. I will go more into this last point in another post already named “Social Networks and Cloud Computing”.

In the end, as fun as it is to think of three guys working on their parents garage on producing the next hype, I would rather think of three guys creating the tools and means to usher the new way to interact with technology and once again, change the world.