Instagram, Leverage And The (Second) Silicon Valley Gold Rush
Almost everyone and their grandmother has weighed in on the Instagram acquisition over the last 24 hours, which demonstrates the extent to which tech startups have made it into the mainstream consciousness of our culture (in part thanks to ‘The Social Network’). There is compelling Aaron Sorkin-esque storyline behind the Instagram acquisition: company sells for $1B with zero revenue in two years flat. It’s impressive to say the least and, of course, controversial. But the real story is the fact that Instragram built and scaled their service to thousands of users with just a dozen people. Do the math on that. $1,000,000,000 / 12 person headcount = approx. $83M per head. That is just fucking nuts.
The Instagram acquisition provides us with yet another proof point for a very big trend in tech. The cost of starting AND scaling startups going down = dramatically more leverage for entrepreneurs.
10 years ago, entrepreneurs with an idea and a Powerpoint presentation had to go to the VCs on Sand Hill road and basically ask for permission (read: $5M) to start their companies and hire the 20 engineers needed to work on a prototype. Today, two twenty something year olds can get free office space, free hosting and start building their prototype on a shoestring Rammen budget—funding the entire venture on their credit cards. The reduced cost in getting started has unleashed a dramatic shift in leverage away from investors and towards entrepreneurs. Sweat, not money, is where the power lies now.
This shift in power represents a golden opportunity for entrepreneurs—a sort of modern day tech gold rush. Unlike the frothiness of the late 1990s, the Internet has matured as a platform and become ubiquitous in every household and on every mobile phone. The catch 22 here is that there will be a dramatic rise in the number of founders (see Naval’s post on why we have a shortage of engineers in the Valley) which will inevitably lead to a lot more companies being created and destroyed—capitalist creative destruction on steroids. This is not a bad thing. The net effect is positive because there will be more product experiments going on simultaneously, more companies achieving product-market fit, more value created, jobs created… you get the picture. However, it does mean that if you are a founder, you are going to have to spend much more time picking your market to avoid the “me too, also ran” syndrome.
As in all things tech, everything I am saying in this post will probably be irrelevant in 6-12 months, but it will be fascinating to watch how this power shift plays out.
read moreFrom Techcrunch: Instagram Aftermath: It’s Time For Entrepreneurs To Go All-In
Editor’s note: Adeo Ressi is founding member at TheFunded and The Founder Institute. Follow him on Twitter @adeoressi.
Q: What does the Instagram acquisition mean for startups?
A: A LOT.
At the close of 2011, there was a lot of uncertainty for startups. Stock market fluctuations, underwhelming talent acquisitions (“acqui-hires”), and structural investment problems threatened the prospects for startups.
But what a difference a few weeks can make. The passage of crowdfunding legislation in the U.S. coupled with the $1 billion acquisition offer of Instagram, signals the beginning of a full startup boom. In preparation for the good times, venture capitalists have started to raise new fund money at their pre-crash highs.
Two and a half years ago, Mint.com was acquired for $170 million, and everyone thought that was an amazing deal following the great recession. Now, a fledgling company with a small team gets acquired for $1 billion.
My best guess is that it is about to get crazy. And, only fools sit on the sidelines. Many strong and older entrepreneurs that I know are wealthy today because they made intelligent decisions during the dot-com bubble of the late ’90s. Success was not easy then, and it will not be easy now, either. But, the likelihood of a great outcome is much higher in a boom.
There are a lot of newly minted entrepreneurs that pursue their dream company in a halfhearted way. You may tinker with your idea while toiling at a day job. You may refuse to put in the work required to recruit the best talent. You might be afraid of launching an imperfect product. Or, you may put a mediocre effort into fundraising.
However, if you want to take advantage of a boom cycle and reap the rewards, you need to slide all of your chips on to the table. You need to go all-in. And, you need to play smart. Every move that you take and every bet that you make needs to have the best odds of success.
You can’t enter the game too late, either. If what I predict happens, very soon you will start to read about more and more crazy deals. When “crazy” becomes the new normal, the opportunity will have already passed you by.
So, let me get really specific. As an entrepreneur, you have a decision to make. Ask yourself, “is this my boom?” If your answer is “yes,” then you have a lot of work to do.
Look around you. If everyone that you deal with is not top-notch, from co-founders to vendors, fire them immediately and bring on the best. Now. Right now. Seriously. Now. To really win during a boom, you need to play at the top level, and the winners in every boom always have the best talent. Always.
Is it your time? Is this your boom?
read moreGame Dynamics In The Enterprise
The rise of social gaming has been nothing short of breathtaking. It’s mind boggling how many hours people are willing to devote to tending their virtual plantations on Farmville without a dime of real compensation to show for it. So why in an economy with 10% unemployment is social gaming still captivating millions of users? Two factors seem to stand out. Social gaming is both 1) socially rewarding and 2) addictive. The social pressure of competing to build your virtual empire combined with the addictive nature of the game dynamics themselves meld into a powerfully intoxicating combination that drives hours and hours of online engagement.
So why can’t these game dynamics be applied to the enterprise? Why can’t there be social and financial rewards for playing the game of business? Instead of farming virtual cucumbers with virtual tractors, why can’t we apply real rewards to real-life productivity through virtual currency, milestone achievements and “in-game” upgrades? That’s exactly what Fusion is in the business of doing–turning business collaboration into a social game. A social game that’s highly mobile and simple for business teams to play. The way we see it, the game of business is real whether acknowledged or not. We are just building the interface to make it visible to the masses.
So how did we reach the conclusion that game dynamics are the single best way to drive web and mobile-based business collaboration? It would be nice if we were just that brilliant, but the process wasn’t all that pretty. We started off as in Internet marketing firm back in 2008–just a bunch of college kids hustling web design, SEO and social media marketing to small and medium sized businesses. A lot of the things we had to do day to day weren’t sexy, and perhaps the worst of all tasks was cold calling. Cold calling was one of the activities that our sales team would dread most. So what did we do? We turned cold calling into a game with a social and financial reward. We put a handle of Jack Daniels on the table and every time someone booked a meeting, they would take a shot and whoever got the most meetings in the day would get a bonus. Game dynamics are powerful because they turn even those monotonous tasks into something fun.
By tying daily productivity to real rewards, we can get engagement up and make work less cumbersome. These rewards can come in three categories: social, virtual and financial. Social rewards (such as rankings, milestone badges and credits) have social and reputational value because they are visible to the people you work with and are based on your real achievements. Over time, your “stats” can serve as a sort of productivity credit score that carries weight with your current and prospective employers. Virtual rewards can come in the form of “in-game” upgrades within our product. Users earn credits from their coworkers for productivity and can spend those credits on upgrades such as extra projects, storage space or tools on the product itself. Finally, companies can use our system to determine end of year bonuses or special rewards that have a real financial impact.
Of course game dynamics aren’t enough. The product itself has to work not just for a certain type of business team, but all kinds of business teams. We came up with the idea of building a collaboration product so solve another personal pain point. Even though we were a small business with only 6 people, we were using a half dozen different software tools to manage our really small business. Salesforce for CRM, Basecamp for Project Management, Yammer for Collaboration, Google Calendar for scheduling… you get the idea. Not only were we paying for a ton of functionality we never used, the real hidden cost was having all our data siloed across all these platforms. We wanted to build a simple, one page product with a very basic set of collaboration tools for business teams.
