The Best Technology Ventures Pursue Vision First and Monetization Later–They are in effect Social Enterprises that are For Profit by Necessity not Design
"[My aspiration is] to change the world," said Dennis Crowley, cofounder of Foursquare. "If this turns out to be an amazingly big business at the same time, well, that's an added bonus." This is hardly what you would expect to hear from a founder who raised $20 million in a Series A from all stars including Andreessen Horowitz. Aren't these guys supposed to be razor focused on monetization? In a quixotic way, many founders of revolutionary internet companies begin with visions that have no component on monetization. How can we explain this irony: some of the "best" and "most innovative" internet companies--and therefore those with the highest valuations--are often founded by visionaries who are supposedly indifferent to--you might even say disinterested in--monetization.
Consider Crowley, a dreamer who was fascinated by the idea of bringing a gaming layer to the physical world. Indeed he even wrote his NYU thesis on the subject. And it was this nearly-academic curiosity that shaped his vision for the company. "We just want to get all these things built... and to put as many pieces in place as possible. After we do that, then we'll try to monetize," he explained. "And if we can't monetize, at least we will have pushed the world forward a little. We taught people about check-ins. We taught them about location services and about life as a game," he offered. For Crowley, monetization is literally an afterthought. It is secondary in sequence and importance to product and impact. To understand Crowley and founders like him, it is critical to understand his personal motivations. He values teaching society about a concept. He values helping people build better relationships. And he values pioneering sociological concepts that enable future companies to realize his vision. His passion reminds me of Ronald Reagan's line: "It is amazing how much you can get done if you don't care who gets the credit."
Yet this attitude--indifference to ownership and IP, a disinterest in monetization--would seem a poor fit for the model of venture-backed s-corps that nearly all of these companies pursue. How do we make sense of the essentially communitarian, visionary disposition of innovative founders in the context of venture-backed companies with billion dollar valuations? Would Martin Luther King have built a megachurch and charged for attendance? Would Karl Marx have required a subscription for his podcast? Would Mother Theresa have billed $500 an hour for a hospital visit? Probably not.
A conversation with Chris Cox, VP of Product for facebook, helped me answer this question. He said that in certain ways facebook should be a non-profit. Facebook’s mission--"to give people the power to share and make the world more open and connected"--sounds like it could be the mission of the Reporters Without Borders or the Berkman Center. So why not run facebook as a nonprofit? They ran into a little problem: in order to realize the mission, they needed a few hundred of the smartest engineers, pedabytes of data storage, and world class infrastructure. And to have this, they needed money. And lots of it.
The essential tension is this: in order to realize revolutionary impact from innovative new technology products--even ones with social, communitarian purposes--the business must have a way to monetize so that it can finance the development, roll out, and support of the product. Thus for facebook, monetization became a tactic to help realize the vision of the product--monetization was not an end in itself.
We might even go as far as to say that the success of revolutionary internet companies is partly explained by the absence of monetization strategies at their founding. Monetization ought to emerge—but only as a supporting mechanism to realizing the vision.
This post was written for Launching Technology Ventures, a course taught by Professor Tom Eisenmann at Harvard Business School. The blog can be found here.
Who is better at product development: The Visionary or the Statistician?
Consider two very different approaches to product development:
- Apple's Ron Johnson describes that Apple is about building a beautiful product or experience and then persuading users that they actually want it.
- At Zynga, their math-driven product development cycle essentially says: if we can make one penny more by making the tractor have 6 pixel wheels instead of 5 pixel wheels, let's do it.
The former is about having a vision of adding value and meaning to the user... of contributing to their human flourishing... of capturing a valuable insight into what makes them happy and building something that fulfills a desire they may not have even known they had. These product developers have vision, insight, and a deep understanding of people. Think Ideo: hundreds of man hours spent on observation, questioning, sketching, prototyping... and eventually out comes a beautiful shopping cart.
The latter is about a huge array of A/B testing that constantly iterates based on the user feedback. These product developers begin with a basic idea and turn it over to the user, allowing thousands or millions of them to lead the product in any direction the users desire. (From the offline world), think Harrah's casino: eye-grabbing blinking, beeping, waitresses, booze, dealers... all "A/B tested" to extract every last penny from casino goers.
On the surface, these two approaches seem incompatible. Yet in a recent exchange Eric Ries helped make sense of how insightful vision can be combined with iterative, agile implementation. I identified this dichotomy: if you are trying to build something users don't know they need, then it doesn't make sense to ask them what they want (cf. Henry Ford's quip: "Had I asked them what they wanted they would have said 'a faster horse.'") Eric said it clearly: "Listen to your customers, but don't do what they say. Their feedback tells you about them, not about you."
In this integrated approach, the developer never becomes a mercenary--under the control of the user and meeting their every desire. They remain a visionary... but not an arrogant, ignorant one. They begin with a dream... but really get to know the people for whom they want to dream to become a reality. Observation and data collection is critical not in order to dictate design but rather to clarify and focus vision. (Nate Gross reminded me of Doug Bowman's resignation letter from Google in which he wrote, "data eventually becomes a crutch for every decision, paralyzing the company and preventing it from making any daring design decisions.")
On a visit with Facebook COO Sheryl Sandberg, I laid out these two approaches and asked which Facebook pursues. She said: "Both." Zuck began with a vision of connecting the world; indeed this vision involved people sharing in ways that they current do not. His vision is quite Apple-like in that he has an insight into what will make people flourish; even though users don't know they want this, over time they will realize it. And Zuck's job is to bring them along on this journey. Although the vision is clear, the implementation is not. Facebook has to understand and learn from its users to find out exactly how to create deeply social and meaningful experiences. So in effect Facebook began with a long-term vision to which they will lead users, yet the path to that vision is unclear. Zuck has a vision... but gets to converse with 650 million users about how to get there. Perhaps Zuck has pulled off "doing both."
Yet it would be false to "do both" in the sense of being partly one and partly the other. Products created with a hint of vision and a hint of feedback are likely neither visionary nor useful. Successfully combining the two approaches requires a keen understanding of the role of vision and the role of feedback. Both Steve Jobs and Zuck do this incredibly well and are what I would call "ethnographer visionaries" - leaders whose profound product visions come not out of prophecy or momentary brilliance but rather out of a deep understanding of people. In the realm of product management, I favor visionaries over zealots and statisticians over mercenaries.
Hipster Jeans versus Pin Stripes: Why Creative Work Must Be Outsourced
As you walk down the alley between two rusty warehouses, you get a glimpse of waves crashing under the Bay Bridge. When you enter the facility, bright sunlight pours through curved skylight windows, bringing to life the dark tones of the original wood flooring, the shine of beautiful metallic chairs, and the bright white of meticulously organized shelves. The employees move around quickly, though not hurried, often carrying a recently brewed cup of exotic tea. The people themselves are works of art--their distinctive hair, stylish yet hipster clothing, and rare footwear. Small moments over a catered lunch or taking in views of the bay provide opportunities to talk about their passions, their vision, and how they can make the world a more beautiful place.
This is Ideo - a revolutionary design firm whose patriarch, David Kelley, invented "design thinking" (see this for a great introduction) and founded Stanford's d.school. These institutions and this school of thought is exerting tremendous influence on corporations and their attempts to innovate. However, when Ideo hipsters meet corporate pinstripes, some things get lost in translation. This clash of cultures--you might even say of civilizations--is instructive for how big corporations ought to partner with innovators/creatives.
Corporations are desperate for innovation. John Hagel argues that American companies have seen dramatically reduced return on assets in the last four decades, due in large part to changes in technology and failure to innovate. So big companies have received the message: it is time to innovate. I was recently with a VP of a large corporation after his first encounter with Ideo. Although he did not know exactly what Ideo does or what it might mean for his business, he told me: "I want to get some Ideo." "If only we could have a team like that at our company," he reflected.
Following an encounter with these chic, innovative, and inspiring designers, it is easy to understand this urge to build a team of Ideo-like innovators inside your corporation--yet this desire should be quashed. The cultural gulf between creative hipsters and analytical pinstripes is so deep that the best hope we have is to facilitate short, structured exchanges of ideas and information. Deeper cultural integration--the kind required to actually build a team within a corporation--is likely impossible for five reasons:
1. Designers are communitarians disinterested in profits: the entire apparatus of human resources and talent management built in the last 50 years in an era of knowledge workers does not work for creatives. (See HBS Grad Scott Belsky's Making Ideas Happen for color on this.) They are rarely motivated by money and instead desire respect from their peers and to know they made something more beautiful than they found it. There are numerous examples of cases where creatives turn down profitable work because they fear the impact to their reputation of producing something that is not avant-garde. Successfully managing and motivating prima donnas is nearly impossible inside today's corporation.
2. Design firms (or internal business units) have no business model: Even the most famous design firms today exhibit tumultuous corporate histories: filled with mergers, breakups, big personalities, and poor economic performance. This troubled corporate history suggests that creative business units inside larger corporations are likely to be loss leaders. So even if the fees from design consultants seem high, the alternative of bringing the creative's in-house will prove even more expensive--and certainly more painful.
3. Designers are hard to manage: They are often disinterested in profits, are unwilling to work for clients they do not like, push back on practical feedback from strategy and business people, and expect to be treated as "artists" (said with french accent).
4. Designers are hard to attract: Given the importance of reputation and pedigree of firm, you might assume that any designer who would be willing to work for a non-innovative big company is a designer you should not hire.
5. Designers are hard to retain: Even if the corporation is able to attract high-quality designers it will be very difficult to retain them. Pushing new, innovative ideas (whether radical product designs or edgy marketing materials) through big corporations is a difficult process. You can probably assume that only a small percentage of new ideas generated from within the company actually see the light of day. This process is likely to prove very frustrating for creatives employed in-house. If Ideo delivers a set of product recommendations to clients and the client chooses to not accept them, the Ideo designer can walk away thinking, “They have no idea what they are doing. Thank goodness I do not work there." If the designers worked in-house, their frequent frustration would kill their motivation and likely result in high turnover.
Designers are absolutely critical for the future of innovation–and therefore for the future of the modern corporation. And it is more than just their chic clothing and beautiful whiteboards–their process of idea generation is remarkable and will likely be responsible for tremendous economic growth. However, managers of modern corporations must be smart in how they partner with designers. Given the tremendous cultural gulf, these partnerships should be created between two separate firms–firms that have two very different business models–instead of trying to merge the corporate entities by bringing creatives in-house.
Note: this semester at Harvard Business School I am privileged to study with Karim Lakhani, who is leading a seminar on Managing Innovation. Karim is a superb teacher and evangelist of innovation. I'm borrowing one of his favorite quotes to give you a glimpse into what excites him:
Creativity is dangerous. We cannot open ourselves to new insights without endangering the security of our prior assumptions. We cannot propose new ideas without risking disapproval or rejection. Creative achievement is the boldest initiative of mind, an adventure that takes its hero simultaneously to the rim of knowledge and the limits of propriety. Its pleasure is not the comfort of the safe harbor, but the thrill of reaching sail. - Robert Grudin, “The Grace of Great Things”
Chick-fil-A and the Business of Story Listening
Consumer-facing businesses have a unique opportunity to touch millions of real lives in a personal way every day. Put on your consumer hat for a minute and think through your day: the coffee shop barrista, the cashier at McDonalds, the sales associate at Target, the attendant at the gas station, the waiter at your restaurant, and on and on. Indeed we have conversations with several people every day--probably dozens a month--in the context of retail businesses. Retail employees are amazingly prevalent in our lives - a prevalence surpassed only by our friends and family members. That consumers spend so much time and even emotional energy interacting with employees creates a real opportunity for businesses to go beyond traditional roles of sales and customer service.
Visual Presentations: From Bullet Points to Story Telling
Most people's use of Powerpoint is appalling. Times New Roman. Stock Powerpoint templates. Way too much text. Not sure of the next slide. Eek. Combine this with the fact that most people giving a Powerpoint presentation are actually trying to persuade their audience, and we quickly understand the oxymoron that is "Powerpoint persuasion."
Edward Tufte - the father of visual representation of data - has a wonderful essay on the perils of Powerpoint. He writes, "the popular PowerPoint templates (ready-made designs) usually weaken verbal and spatial reasoning, and almost always corrupt statistical analysis." Zing.
Into this morass of bad fonts and poor communication lands an emerging school of "visual thinking." Dan Roam's book The Back of a Napkin is a fabulous "how-to" guide for using diagrams and sketches to present ideas. It's so basic - yet so profound.
Data Visualization and Its Future in Consumer Web
Data visualization will likely be central to the future of the consumer web experience. Much design today seems to begin with the idea of a literal page on which we scroll up and down to view its length. It is as if we are looking at a long piece of paper which just doesn’t fit within the size of our monitor. Gaming has led the way in creating awesome experiences for interacting with objects. My hope is that we will see the world of data viz brought to bear on other types of content: data, news, and video.
For anyone new to the field, it is worth buying a book by Edward Tufte, considered the grandfather of data visualization. Trained as a political scientist, Tufte began exploring data representation on his own as a side project, 
self-published a “little book” (The Visual Display of Quantitative Information) on the subject, and over a few years essentially became the father of a new discipline. Next time you are around hackers, check out their bookshelf. Positioned next to MySQL, PHP, and JSON books, you’ll often seen the oversized Tufte hardback. A surprising number of serious hackers have been inspired by Tufte’s work. I have also heard that Tufte’s one-day in person course is truly superb—and a great way to get a good price on the books.
The Underappreciated Competitive Advantage: The Ability to Get Things Done
The more time I spend observing men and women who are high achievers, the more I realize that while many have visionary leadership, keen intellect, and a passion for change, perhaps their most unappreciated yet impressive skill is their ability to get things done. This sounds outrageously oversimplified. To many people “getting things done” seems like a commodity skill set—sure there are tricks but at the end of the day all that matters is that people check off their task list. From my study of a few outrageously impressive people, efficient task management is one of their key competitive advantages. So if you are serious about making a difference in whatever sphere you work, spend a few hours exploring project management. You’ll find that productive management results in more successful projects (e.g. that new non-profit finally gets off the ground), more free time (for your friends or family), more sleep (yielding more focus), and/or more time to explore your passions (to figure out how you actually want to spend your time). Below are a few resources I have found helpful in my journey. Please send your tricks and tips my way!
Compassionate Conservatism: Its Brief History, Demise, and Future Prospects
Many allege—or, arguably, observe—that conservatives are without message. “Conservatives are not for anything—only against things,” they suggest. It is a good question to ponder: what are conservatives for? What is our agenda or platform? About a decade ago American conservatives developed and rolled out an agenda they called “compassionate conservatism,” spearheaded by several brilliant minds deeply schooled in the writings of Alexis de Tocqueville and Edmund Burke. The agenda was rooted in civil society, public/private partnerships, and an empiricism that examined what social policies actually delivered results. Despite the policy’s roots in
sound political theory and sociology and its exemplary advocates, the effort failed so miserably that even the phrase “compassionate conservatism” is unusable. In this reflection I detail what Bush’s compassionate conservatism was, why it failed, and how we might revive its sound foundations for future use. Especially given our nation’s current state—with the federal government growing in unprecedented ways (e.g. bailouts, healthcare, and energy), conservatives still having no credibility in fighting for limited government, and conservatives/Republicans struggling to find their message—the time is ripe for thoughtful conservatives to recall the best of Tocqueville to develop a uniquely American picture of human flourishing where families, neighborhoods, and communities thrive.
The Early Days
Marvin Olasky, John DiIulio, and Don Eberly were at the center of the brain trust of the “compassionate conservative” agenda introduced by President George W. Bush in the 2000 campaign. It provided conservatives with a way to respond to accusations that they had a cold heart and were indifferent to suffering. The concept—part political theory rooted in Tocqueville and Burke, part public branding effort—was promising. After all, conservatives had been a party of “no” since the ’94 Gingrich revolution (cf. their intense and successful effort in the ‘96 welfare reform act). Compassionate conservatism attempted to (rightly) make the case that conservatism is compassionate in that the domestic public policies it advocates result in Americans faring better—be better cared for, educated, and even paid.
In Defense of Management Consulting: A Critique of Matthew Stewart’s “The Management Myth”
I recently tweeted this Wall Street Journal book review titled, “Bogus Theories, Bad for Business,” a review of Matthew Stewart’s The Management Myth. I’ve not read the book nor do I know much about consulting, but found the article rather provocative. Sure enough, a friend who is much more knowledgeable about this space than I am penned the response below, which I found too insightful to not share. Adam B. Hopkins, Princeton ’05, is a former Mercer Oliver Wyman consultant and currently a PhD student in physics at Princeton.
Evan: Coming from a former consultant - and one who left consulting because he didn't believe that in the long run he wanted his life to revolve around increasing the "shareholder value" or profits of businesses that already make plenty of money - the article/book you tweeted is really off-base, and you might not want to support such a clearly biased "piece of work.”
Perhaps Matthew Stewart has some interesting things to say about management philosophy (or management science, as it is sometimes called) and its moral (or amoral) implications. I don't know, I haven't read his book. But his bombastic statements about the uselessness of consultants are quite overblown. He writes that management consultants are "intelligent nut-jobs devoted to corporate in-fighting, client-gouging, psychological humiliation and sexual harassment", according to the article.