Endeavor Keynote: Reid Hoffman

I’m at the Endeavor conference in Miami and today’s keynote speaker is Reid Hoffman (Founder & CEO of LinkedIn). I’m going to try and paraphrase what Reid says – so this blog post is by no means verbatim and just highlights the key themes of his talk.

Part of the thesis upon which LinkedIn is based, is that all individuals are in effect small businesses and need to brand themselves as such and preserve their relationships with the people that you meet.

Entrepreneurs are typically always looking for people for advice, funding, employees etc. By using LinkedIn, you can narrow down and reliably look for people that are in your network who can assist you in your venture.

Innovation: You have to assume that they are ahead
Speed: The company who deploys the product or service first – becomes the leader
Adaptation: Fail fast – fail often – quick learning allows for iterative development and allows you to adapt.

Silicon Valley has a culture of sharing ideas and getting feedback, and then optimizing the business model for that feedback. Don’t operate in a vacuum.

Competitive awareness: LinkedIn saw the rise of Twitter a long time before the rest of the market and built special apps that pick up on it.

Reid invested in FlickR based on a personal introduction – which is a good filter for him. Also, applies to hiring – personal recommendations are much better for hiring people than any other channel.

In terms of find employees, LinkedIn is good for:

1. Finding a huge pool of passive employees
2. Reaching people in your network
3. Reference checking

“Entrepreneurship is throwing yourself off a cliff, and building a plane on the way down” – Reid Hoffman

Success as an individual is often achieved by leveraging the knowledge and experience of your network.

The hallmark of successful entrepreneurs and businesses is the ability to quickly assemble high quality teams to solve problems.

The Silicon Cape

Welcome to the New Year! I’m been very quiet lately, for a variety of reasons, but let’s just say that you can expect the quantum of posts on this blog to pick up considerably in the new few weeks. Since my previous post, things in the global market have gotten far worse (as expected), the only glimmer of hope for the world economy being President Obama’s election. His inauguration speech moved me, and in my opinion, he is one of the few politicians that I’ve seen, that has truly noble intentions.

Vincent Maher wrote a very controversial article today that has received much fanfare in the South African blogosphere. I have much to say on this topic, so instead of just commenting on Vince’s blog, I’d rather detail it in a blog post. I affectionately call my home, Silicon Cape (Cape Town) – that’s where we’re (SynthaSite) from and we still have strong roots there with our development office now bursting at nearly 20 people, in addition to the 25 strong we have in San Francisco.

Nice article Vince – but the real question you are asking is, why are there not enough breakthroughs in the South African web space, like SynthaSite. Like Eve (who commented on the post), I am also aware of many Cape Town startups (much more than the two that Eve mentioned) that have now successfully raising funding either locally or internationally – and in large sums – expect a number of press releases in the next 8 weeks. I’m not going to delve in the Johannesburg startup scene, as I’m not familiar with it, so my comments here are regarding Silicon Cape based startups. Many of my comments applies to startups that are not just based in South Africa, but around the world – why are there not enough web based success stories from outside Silicon Valley?

A question has also been raised, asking if there is a bubble – how can there be a bubble if no one has made any (real) money in this space, yet? I agree that far too many startups with stupid ideas have received funding in the past 2 years, but technically a bubble is when people are making a lot of money, not spending a lot. Most people just don’t realize that when investors put money INTO a company, that’s where it goes – not into the entrepreneur’s back pocket! The money is used to build a company – the payoff is the exit or the profits.

That said, here are a number the key reasons why the SA startup scene has not taken off yet, IMHO:

1. Punishment for failure

South Africa is not friendly on those who have failed in business – it’s like you’re a criminal if you do. I’ve been there. Broke, unemployed, living in Johannesburg in 2000 with major student loan debt and a failed business attempt. I had two options, try to start a company with bad credit and no capital, or take a nice stable corporate job with a high salary. Guess what, I took the salary and got stuck in the corporate trap for 3.5 years, which as it turned out, was a good thing as I learned some excellent skills, but the key was getting out of that trap (read: Rich Dad, Poor Dad). In the US, you can declare bankruptcy and walk into a VC the next day and raise capital for your next business – in SA and many other parts of the world, you would be ostracized for failing the first time. Most solid entrepreneurs have had a couple of major failures, and will continue to do so their entire life. Failure is just a part of the learning process. If we punish those who fail, we prevent ourselves (society) and them from benefiting from their learnings and their subsequent future successes. Unless you’ve been to the edge of the cliff and peered over it, no-one can ever understand what you’ve seen.

2. Failure to take risks

After leaving Clicks2Customers, and before raising capital, I literally put every cent I had into SynthaSite. I was selling shares and other assets on a monthly basis to fund SynthaSite and keep it going in the hopes of raising capital. I put a very large % of the wealth I had created in the previous 4 years on the line for my “risky” venture. Most people I spoke to thought I wouldn’t make it out the gate. I maxed out credits card and overdrafts yet again (as I did the first time round with Clicks2Customers) in the belief that by getting the business further and further down the line from concept to prototype, I would attract capital. Yes, I risked it all, arguably – but if you believe in yourself and you’re willing to take risks, your chances of success are much higher than taking the low road and protecting yourself – yet you can still fail. But I wasn’t willing to fail… those who know what I went through during this tough time understand the stamina it took to raise capital during a time where both my personal and business life was in flux. I just never gave up – I probably spoke to at least 20 VC’s & Investors before raising the capital it took. And this is from someone who had already had moderate success locally with a prior company. I had a profile, a track record and good experience – and it was tough – if I hadn’t taken the risks I had, we wouldn’t have raised our $5m in funding. I had to take the risks to in order to get far enough down the road.

3. Unavailability of capital

It’s very easy to blame the unavailability of capital in South Africa in particular, and to a large degree it’s true, but it’s changing rapidly. In the past year – no fewer than 3 VC/startup investment funds have announced/launched. The biggest issue they are having is finding battle-tested entrepreneurs who see the bigger picture. At the end of the day VC’s are looking to make money from their investments. If you want to build a business that serves the South African web, all the power to you – but don’t expect it to be easy to get investment. Even if you create web service that people would pay for, assuming the South African web is 5m people and you get 1% paying you R100/year, that’s only R5m/year turnover. If you are able to make R500k profit per year ($50,000 USD), it wouldn’t even pique the interest of the smallest VC – the economics just don’t make sense. The money is out there, but mainly for ideas that address a broader market problem. Remember, the Internet is global. Over 50% of Google’s revenue comes from outside the USA – just because they are a Silicon Valley startup, doesn’t mean they have to make their money from the USA. They serve a bigger need. South Africans needs to start thinking in the same vein. Build Web business that appeal to 1bn+ people worldwide, build it from South Africa and bring those revenues into the country, creating much needed employment and skills transfer! Unless you have big global ideas, capital is largely going to be unavailable. South Africa need to get over the idea that if it’s not homegrown, it’s unpatriotic. One of the comments suggested that we should stop using Facebook and Twitter – that’s just stupid. Why would anyone use a local version which would have far less utility given the diminished network effect? In short – thing global and raise capital to address a real market need, where there is real money to be made. Be commercial – focus on making money and addressing under served markets and the capital will present itself. A University of Cape Town student who has a student loan to pay off and decides to take the high paying corporate job – arguably it’s far easier in the US to get student loans, but that also acts as a filter – those who are unwilling to take personal risks using debt, probably shouldn’t go into business either.

4. Too many consultants

I do agree with Vince – I see far too many so-called “SEO, PPC, Social Media, blah blah” “Experts” in the market today. How many of these people have ever build a business or made real money? If these guys would put their skills to good use, they would be building products and using their great marketing skills to build a successful business. It’s much easier (and safer) though to sell hours and help some else with their “strategy” – if it doesn’t work, then nothing lost right? Well, that’s the problem – no risk, no return. My hat’s off to the guys who create real value through consulting – but then again, I ask them : Why are you not building and marketing your own product or service? If you’re billing by the hour, you’re making someone else rich. Trust me, I know. Having established myself as an “online marketing expert”, I realized that I spent many years building other people’s company and generating hundreds of millions of dollars in revenues for them. Enough was enough for me. SynthaSite has grown in one year, from 10,000 users to over 1m people building and maintaining their website and we’re already generating healthy and fast growing revenue streams from that user base. I’m putting my marketing skills to good use by not consulting and instead creating value – shouldn’t the same apply to all these other “experts”. Even with all the market presence SynthaSite has in South Africa – it still accounts for less than 10% of our customer base. We are achieving a major economy of scale by going global – this is critical for building a successful business.

5. Lack of global experience

Too many startups look at the foreign markets from their hole in the wall in SA. Many startup entrepreneurs never get the chance sit in traffic on the 101 (main highway in Silicon Valley), breathe the somewhat dirty air here, attend at meeting or two at Google and Yahoo, attend a conference in the US or UK and see your global competitors. It’s very difficult building a solution for a market you’ve never seen and an invisible enemy. Reverse engineering is not enough -without substantial data it’s stupid to “guess” why competitors do certain things, and then try to do them differently because it’s “cooler” or better – this is why so many clones fail. Without a user base, you cannot make data driven decisions. You need to be in the thick of things. Flights are so cheap these days ($500/R5k to get to London and back) – there is no excuse. The good thing is that with companies such as Google & Amazon who have offices now in South Africa – there is effective skills transfer. Eventually these guys move on – make sure your startup is positioned to hire from them!

6. No liquidity events

Other than Mark Shuttleworth’s sale of Thawte to Verisign back in 1998, there has not been a major exit of a South African web company (ok, maybe a few more, but I can’t recall offhand) in ten years!! The lack of liquidity events for entrepeneurs is a problem. Seed capitalists (the angel investors who put money in), often have their cash trapped for many years inside a company – either the company makes a profit and pays dividends or closes down. Without any liquidity, the money does not recirculate from one startup to another. The lack of liquidity in the SA market is the main reason, I believe, for the stagnant innovation. Also, those who control government funds are not in touch with the market and therefore don’t know where and how to allocate the money. Angel investors are urgently needed to get prototypes to market. Most VC’s cannot invest in a concept, they need more than that and there are to few angel investors around. I myself have invested in a few companies – and I had to take a long term view, knowing that there is no liquidity – either they become very profitable or close done. Exits are not really an option as all the major web companies are based in Silicon Valley (eBay, AOL, Yahoo, Google, etc) – and they do not want small offices in Africa with no one to run them.

7. Too much focus on advertising

Most startups I meet today are monetizing using advertising. It’s not sustainable during downturns. Those who understand online advertising and business understand that advertising rates are a function of business efficiency (this is a topic for another day!). Companies that can advertise, acquire customers at a certain price point and then need to monetize at a rate higher than the cost of acquisition. The biggest issue comes in when there is a downturn – the dumb money leaves, the smart money stays and unless your business is capable of driving real value to advertisers, you will fail. Period. Advertising revenues should be the cream on top – not the milk. If you can’t build a business that sustains itself on creating true value for users, you’re at risk when the dumb advertisers leave. And this is coming from an online advertising “guru”…

Where South Africa really succeeds is that entrepreneurs who get out of the gate have been through such a large number of filters (struggles!) that invariably there is no other destiny but for them to succeed because they are the best of the best. The toughest steel is forged in the harshest conditions. I’ve met so many top SA entrepreneurs living in the US, UK & Australia who are magnificently successful, due to the fact that it is so much harder to achieve any level of success in SA, that after running a business there, and then moving to a more developed country, the conditions are much easier for business to be conducted. The reason I say this is a success, is that we are breeding a better class of entrepreneur – those who will weather the current global storm.

I could go on, and there will be many opinions as to whether or not I’m right or wrong. The bottom line is, that I think we need to celebrate our heroes, our successes and our failures. Only then can we make true progress. I am very positive about the Silicon Cape – we have a number of success stories and future success stories to be proud of – it will take time, but I’m betting that over the next 5 years, SA will become virtual hub of web successes.

Paul Graham wrote a great essay about 2 years ago, on how to create a Silicon Valley. If you read this – those who live in Cape Town will agree, we have most of the ingredients already. While living here in San Francisco, I must say that the lifestyle is very similar – small community, great city, beautiful outdoors.

To end off, I’d like to highlight my top Silicon Cape startups to watch out for in 2009, in no particular order (and I’m excluding SynthaSite because I’m clearly biased :-) ):

ChessCube (Disclosure: I am an investor)
SkyRove (Disclosure: I am an investor)
Fireflight
Yeigo
Mine Bang (currently in stealth mode)
Weddinic (niche, but global appeal)
Springleap (Disclosure: Eric, the CEO is a good friend of mine)
(apologies if I left anyone off – this post has taken nearly 2 hours and I have to run!)

Widgetbox Webinar today

I’ll be joining Widgetbox for their Custom Gallery Webinar today. I’ll be discussing how SynthaSite has successfully integrated the Custom Gallery solution and how it’s really added a lot of value to our offering.

Widgetbox’s Custom Gallery products let anyone create a fully customizable widget gallery for their website from the largest selection of widgets on the web. Join our web seminar to learn about the different gallery solutions we offer and get tips on how to make the most of your own Custom Gallery.

See a demo our newest feature: Custom Gallery Express, the fastest and easiest way to personalize any website with a gallery of your personal or favorite widgets.

Hear from our guest Vinny Lingham, CEO of Synthasite, about Synthasite’s experience adding a Custom Gallery to their site.

If you’d like to join me, please register here

Online Reputation Management

One of the companies that I am involved in, (disclosure: as a non-executive director & shareholder) is Quirk, which is an eMarketing agency. Quirk has just launched an exciting new product called BrandsEye today, which plays in the realm of Online Reputation Management (ORM). BrandEye has been in development for a long time now and it competes with other services such as Trackur, which is headed up by Andy Beal of Marketing Pilgrim.

ORM deals with managing the huge flux of information, opinion and reviews about your company and your brand online, and both these services make it very easy to track what’s being said about your brand – good and bad. As a business owner, it’s extremely important to understand what’s in the public domain, as a poor online image can really impact your business negatively. The skills and resources to monitor what happens online are not usually available to the average business owner, and therefore it really makes sense to outsource it to a service that can really monitor what’s happening on the web.

The fact that both Andy & Rob (CEO of Quirk) – both of whom I highly respect – have launched similar services within a few weeks of each other, speaks for itself on the opportunity in this space to assist businesses in understanding how to control and manage their brand online. Companies such as Dell & Telkom have had some online PR nightmares with Dell Hell & Helkom – and perhaps these are extreme cases.

In the world of Web 2.0, where sharing is caring, you can expect users to offer more opinions about more companies online and sites like Yelp can make or break a local business if they do no know what people are saying about them. This part of social networking really allows the cream to rise to the top and businesses need to look inward to improve their products and services in order to remain competitive. I see a major marketing exploding in ORM, so I wish both Andy & Rob all the best!

What does $240m buy you?

Well, definitely not loyalty! Have a look at Facebook, they are still using Google Maps in the Facebook Events app (which is built by Facebook). When Microsoft paid $240m for less than 2% of Facebook, I’m pretty sure they missed that part in the fine print, or else Facebook would be using Live Maps!

Ok, so now that the word is out – let’s see how long it takes for Facebook to switch to Microsoft Live Maps! Remember, you heard it here first!

GlobalScholar.com


I often find that in the new Web 2.0 world of “social media” and “communities”, that there are some very flaky business models. I was quite impressed to come across Global Scholar today. Not only are they proposing a very valuable community offering, but they’re also finding a way to monetize it from the early stages – which sometimes isn’t always a good idea. However, what they’re doing is pushing the idea of actually paying for the experience – even if it’s just $1 for the first hour, in order to get people into the idea that not everything online will be free in the future (VC money does run out at some point, and sustainable business models need to be in place by then!).

Global Scholar offers:

* all tutoring occurs on online via chat/audio/whiteboard/curriculum sharing
* all tutoring sessions are recorded and archived with a “playback” option, for students/parents to review
* tutors set their own prices/courses/hours of operation
* GlobalScholar.com background checks every tutor (criminal + education) and trains them on the site
* All tutors need to have a minimum four-year degree
* Users can leave ratings/reviews for tutors

They’re creating a community that has value for all parties – and are charging for it, as it will most definitely have value for a lot of students and parents.

There was quite an interesting article on ReadWriteWeb recently on The Danger of Free, which I highly recommend reading – and which actually inspired this post as I was very comforted to see “Web 2.0″ companies trying to charge for their services. I know… it sounds rich from a guy that’s giving away free websites :-) but at least we have a long term plan :-) :-) :-)