To Focus Or To Pivot, That’s The Question

Well this could be a question facing many firms particularly early stage start-ups today. Given the fact that different people give different perspectives – many people say Do One Thing Right – and many say You Need To Pivot To Win. Well, which advice should you follow?

The answer, it turns out, is the same as the one we had for Product Vs Service, or for Network Effect – Avoid Vs Embrace – both directions work, and there is heavy survivorship bias in the stories that are told. AirBnB could have been a limited edition cereal maker, or Groupon could have been a platform for mobilizing groups of people towards action for various causes. As Ben Silberman says, the future is unwritten.

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Yahoo: ‘We Need More Revenue. Let’s Fire Some People’

We spotted this today:

“But one analyst warned of further demoralization at Yahoo, something that he said could weaken the Internet giant’s ability to generate growth in revenue.
“Yahoo’s issue right now is not profitability — it’s revenue growth,” BGC Partners analyst Colin Gillis said in an interview. “That’s why the market is reacting so tepidly to this.”

Yahoo shares edged up a fraction to close at $15.27, against the backdrop of a broadly lower U.S. equities market. Yahoo’s stock has lost more than 5% since Jan. 1.”

Statistics Source: MarketWatch

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Rails Inventor DHH Was Right About Facebook, After All

We had spotted an interesting argument on Facebook’s valuation in September 2010 – from 37signals and rails founder DHH. Basically, the argument was that Facebook was not worth 33 Billion Dollars.

“In other words, the valuation is resting on the flawed assumption that Facebook could actually ever get 33 times as much money to change hands if they wanted to. There’s just no way, no how that’s happening right now. If it could, they’d IPO tomorrow.

So the Facebook valuation based on minority investments is in my mind a complete joke in the sense that there was $33,000,000,000 dollars on the table. Irrational investor exuberance indeed.”

DHH was right, after all, How so true. Facebook is actually worth much more now, thrice that number?

We had got that wrong as well. We had concluded on our Facebook valuation analysis as below:

“So here is why we think extending the SecondMarket numbers to value the whole of Facebook valuation is a stretch:

1. The auctions have seen a miniscule part of Facebook shares
2. The market is a private market, accessible to a very select few, with a possible positive bias towards net economy
3. Tools to make negative bets (e.g. derivatives to short facebook) are not available
4. The firm is not IPOed yet to say a miniscule volume can be extended to the company’s valuation.”

Our conclusion was safe – but it was wrong.

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Incomes Go Down, Spending Goes Up

Another fooled by randomness scenario, lets just accept it, it is all random:

“CNNMoney looks at government data released Friday that shows personal incomes falling by 0.1% last month, whereas personal spending still seems to be slowly on the rise with an 0.2% uptick. In the long run, these patterns are likely to put a damper on that willingness to spend as prices rise for certain things like gas and food.”

Statistics Source: Consumerist

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Network Effect: Avoid Or Embrace?

Well everyone out there seems to say “Have some viral element in your product”. There are tonnes of examples.
So we were surprised to spot this today:

“Avoid the “network effect”

I think that’s the key – an idea where a single user can benefit immediately when they sign up. Put simply, “tools”. This is the single biggest difference between idea of OnePage, my previous startup, and the idea of Buffer. OnePage, with its network effects, constrained me to working part-time for a full year and a half whilst building (little) traction, whereas Buffer, which was useful for people and had payment options from day 1, allowed me to quit my contract work completely within 5 months.”


The issue we have is, people who argue for the network effect give the exact same reason: its quick. wow.

Statistics Source: Joel.is

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Product Vs Service: James Altucher Vs Mark Suster

We all get conflicting perspectives, suggestions and ideas all the time. But this particular set of strong, contradictory suggestions came in so close to each other, we couldn’t help but wonder, who exactly is fooled by randomness here: Mark Suster, James Altucher, or the readers.



Here is Mark Suster this week on Techcrunch – “What Should You Do With Your Crappy Little Services Business?”

“And stop effing around trying to create a product company. Trying to turn a successful services business into a product business is getting the cart before the horse.”

More here

And here is James Altucher on Freakanomics Blog:

“If you are offering a service, call it a product. Oracle did it. They claimed they had a database. But if you “bought” their database they would send in a team of consultants to help you “install” the database to fit your needs. In other words, for the first several years of their existence, they claimed to have a product but they really were a consulting company. Don’t forget this story. Products are valued higher than services.”

Confused? We are confused too.

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Roulette: After 3 Reds, Do You Pick Red Or Black?

[This post is based on a great paper from Voxeu, titled ‘Predicting the Improbable’.]

All of us have a tendency to over-react to recent events. It is obvious in many of our actions, starting with what we talk about all the way to where we spend or invest. But the reaction could be in two ways – we see the trend, and either think that the trend will break, or that the trend will continue. Why is this important? Turns out, this is the easiest way to classify people: take them to a Roulette table that has thrown three consecutive Reds. Do they bet on black or red?

“There are two plausible but apparently contradicting intuitions about how people over-infer from observing recent events.

The “gambler’s fallacy” claims that people expect rapid reversion to the mean.

For example, upon observing three outcomes of “red” in roulette, gamblers tend to think that “black” is now due and tend to bet more on “black” (Croson and Sundali 2005).

The “hot hand fallacy” claims that upon observing an unusual streak of events, people tend to predict that the streak will continue.”

But the biggest learning for us is this: the number of times Red turns up or Black turns up will become approximately equal only when the number of turns on the Roulette wheel is very high, running into Millions of turns..

For any of us to expect that over a small number of turns this probability will work is just being stupid. The paper puts this succinctly:

“A person believing in the “law of small numbers” thinks that small samples should “look like” the parent distribution, i.e. that the sample should be representative of the parent distribution. Thus, the person believes that out of, say, 6 spins 3 should be red and 3 should be black (ignoring green). If observed outcomes in the small sample differ from the 50:50 ratio, immediate reversal is expected. Thus, somebody observing 2 times red in 6 consecutive spins believes that black is “due” on the 3rd spin to restore the 50:50 ratio.”

Think about it – we all believe in the law of small numbers one way or the other. In all fields. We are just being stupid.

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Wall Street and The War On Iraq

We wrote about 135 Billion recently – the total Wall Street compensation for the year 2010. That number is strikingly close to another number that is a US priority – the war on Iraq and Afghanistan. According to the Department of Defense, the US has budgeted 159.3 Billion USD for the wars in Iraq and Afghanistan for the year 2011.

Statistics Source: Defense.gov

This equals that!

And, thinking that Wall Street deserves that 135 Billion would be a classic ‘fooled by randomness’ scenario. Iraq and Afghanistan we understand – Wall Street, we don’t !

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