Month: February 2015

What Netflix Doesn’t Do

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Founders like to talk about "focus" a lot, but when it comes to creating focused brand messaging many find that it's actually a more frustrating and challenging experience than they expected. The reality is that you face a struggle between two conflicting instincts: the need to clearly and narrowly  define what your company does; and the desire to paint a compelling, expansive, and inspiring picture of what you envision your company will become. 

By definition, using focused and definitive language is an exclusionary act. If you say you build accounting software for SMB's you'll worry you might be in trouble when pitching a Fortune 500 contract. If you say you're a web shop experienced in building e-commerce sites, you are concerned that you'll have trouble with your dream of building a media website. And so on. 

I used the terms "need" and "desire" for a reason however. You may want to paint the most broad and rosy picture of your business, but in order to succeed with brand messaging you absolutely must be able to communicate quickly and simply what kind of thing you are. 

And let's face it, people know how to read past vagueness. So don't tell people you're a leading transportation logistics company if you're a taxi service, or that you're an mobile events food provider if you're a hot dog cart. People like taxis and hot dogs, and they might like you. 

For an excellent example, here's an excerpt on focus from Netflix's investor relations page: 

Netflix is a global Internet TV network offering movies and TV series commercial-free, with unlimited viewing on any Internet-connected screen for an affordable no-commitment monthly fee.

We don’t and can’t compete on breadth of entertainment with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google.  For us to be hugely successful we have to be a focused passion brand.  Starbucks, not 7-Eleven.  Southwest, not United.  HBO, not Dish. 

We don’t offer pay-per-view or ad-supported content.  Those are fine business models that other firms do well.   We are about flat fee unlimited viewing commercial-free. 

We are not a generic “video” company that streams all types of video such as news, user-generated, sports, porn, music video, or reality.   We are a movie and TV series entertainment network. 

Remember, if it's not immediately clear what you are not, then nobody is going to ever know what you actually are. 

Selling Dollars For 85 Cents

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Writing on Above the Crowd, Bill Gurley digs into the recent spate of ultra-high valuation startup investments. 

Over the last few years, the late-stage (pre-IPO) market has become the most competitive, the most crowded, and the frothiest of these financing stages. Investors from all walks of life have decided that “late stage private” is where they want to play. As a result, a “late-stage” financing is no longer reserved for high-revenue, pre-profitability companies getting ready for an IPO; it is simply any large round of financing done at a high price. An unprecedented 80 private companies have raised financings at valuations over $1B in the last few years. These large, high-priced private financings are the defining characteristic of this particular technology cycle.

Conventional wisdom in the post Web 1.0 era has been that a "normal" state of affairs would be for these relatively mature companies to have reached an IPO already by this point, but due to a variety of terrors — lawyers, regulation, Sarbanes-Oxley, and so on – these poor companies have no choice but to resort to private equity. Gurley points out that this conventional wisdom is both incorrect and dangerous. 

Actually, very few of these companies are at a point where they could or should consider being public. Lost in this conversation are the dramatic differences between a high priced private round and an IPO.

The first critical difference is that these late-stage private companies have not endured the immense scrutiny that is a part of every IPO process. IPOs are remarkably intense, and represent the most thorough inspection that a company will endure in its lifetime. This is why companies and their board of directors agonize over whether or not they are “ready” to go public. Auditors, bankers, three different sets of lawyers, and let us not forget the S.E.C., spend months and months making sure that every single number is correct, important risks are identified, the accounting is all buttoned up, and the proper controls are in place.

He goes on to highlight the many minefields present in these deals, things like shady tactics in reporting gross vs. net revenue, or the broader problem of investing in a business that has had its economics severely distorted by the infusion of enormous amounts of capital, and are "simply selling dollars for $0.85."

All of this suggests that we are not in a valuation bubble, as the mainstream media seems to think. We are in a risk bubble. Companies are taking on huge burn rates to justify spending the capital they are raising in these enormous financings, putting their long-term viability in jeopardy. Late-stage investors, desperately afraid of missing out on acquiring shareholding positions in possible “unicorn” companies, have essentially abandoned their traditional risk analysis. Traditional early-stage investors, institutional public investors, and anyone with extra millions are rushing in to the high-stakes, late-stage game.

Story: Late-stage Private Rounds Are Very Different from an IPO

Through A Glass, Darkly

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At The Verge, Josh Dzieza pinpoints the verité nature of contemporary life that has made Black Mirror so unsettling:

The bewildering escalation of events is a key part of Black Mirror, and it's a phenomenon this year was rich in — that how did we get here? Is this real life? feeling that so many of 2014's events had. Did some kids upset about critiques of their games really just threaten women from their homes and turn the internet into a hellscape? Did a dumb bro-comedy really become a matter of national security? Did the president just commend Seth Rogen?

This is the paranoia at the heart of Black Mirror: we’re building systems the full repercussions of which we don’t yet understand, and the idea of opting out of them is a myth. It’s the suspicion that even as technology is making life better and better — and I believe it is — it’s exposing us to dangers we won’t understand until it’s too late to do anything about them.

At times this year has felt like a Black Mirror clarifying moment, which is to say, it felt like the future, but in an ominous way. Everything is connected now, which turns out to mean that pretty much everything is getting hacked. Anyone can talk to anyone now, which means everyone risks getting harassed by trolls. Our news is increasingly curated by algorithms whose biases and blind spots we’re just beginning to understand. Oh, and also those algorithms can inadvertently inflict pain, and they’re kept relatively clean by an army of foreign laborers traumatized daily by the worst humanity has to offer. Of course, I’m still saving everything to the cloud, still on every social network and signing up for new ones, still not really sure where my data is going.

Story: I can't stop comparing everything to Black Mirror 

Predictably Rational

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Bouree Lam in The Atlantic rounds up some recent thinking on the difference between round number pricing and the more common $X.99 style of pricing.

Of the lunch spots near my office, the chain Le Pain Quotidien's menu always demands more of my attention than others. The reason that the menu at Le Pain Quotidien is unusual isn't because they serve open-faced sandwiches or that I'm not sure what kind of cheese Fourme d’Ambert is, but rather that their prices aren't formatted like those of other shops. Organic egg frittata costs $12.00, curried chicken salad tartine is $12.25, a large cappuccino is $5.35. In a world where most prices end with ".99", Le Pain Quotidien's prices make my brain hurt.

The "undercover" economist Tim Harford (he has a book and writes column at the Financial Times by that title) has explained the theories for why prices in our world end in "9." First is something called the left-digit effect, which suggests that consumers just can't be bothered to read to the end of prices. The mind puts the most emphasis on the number on the far-left, so even though $59.99 is closer to $60, it's the "5" that registers. The other theory is that prices ending in ".99" signal a deal to consumers. In short, consumers seem to like prices that end in "9," and experiments say that pricing things this way increases purchases.

This topic is a favorite for those who like to geek out on the subtleties of heuristics and biases (a foundation of behavioral economics) but the idea that consumers are "lazy" when considering prices, that they simply don't notice that $9.99 is a lot like $10.00, seems facile. 

Despite the ubiquitous "9" pricing practice, most numbers used in everyday life are whole numbers. It's not common to say, "just give me 5.27 minutes." But why do Le Pain Quotidien's prices still make my mind reel? A new study in the Journal of Consumer Research might have the answer. Researchers found that shoppers deal with pricing information differently when prices feature round numbers ("5"), as opposed to non-round ones ("4.99"). When something costs $100, consumers tend to rely on their feelings, whereas when something has an irregular price—such as $98.67—consumers have to use reason to compute whether it's a good price.

Perhaps the exact opposite effect is at work, and irregular pricing actually makes consumers "slow down" and pay more attention to the price, leading to a higher liklihood of a sale. 

Intelligence

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I remember reading somewhere that intelligence is fairly well summarized as just knowing a bunch of things that are factually true. In other words, the whole “learning how to learn” idea is for the most part bogus. Thus, intelligence is mostly about context, about knowing what else has happened that’s similar, recognizing patterns, drawing correct metaphors, and knowing enough to discern the rule from the exception. In short: knowing enough relevant facts yields context, and context yields insight.

I find that argument compelling.

Doing It For The Lulz

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The BBC profiles scientist Delroy Paulhus, a specialist studying why some people have an unusual propensity to be selfish, manipulative, and unkind.

If you had the opportunity to feed harmless bugs into a coffee grinder, would you enjoy the experience? Even if the bugs had names, and you could hear their shells painfully crunching? And would you take a perverse pleasure from blasting an innocent bystander with an excruciating noise?

These are just some of the tests that Delroy Paulhus uses to understand the “dark personalities” around us. Essentially, he wants to answer a question we all may have asked: why do some people take pleasure in cruelty? Not just psychopaths and murderers – but school bullies, internet trolls and even apparently upstanding members of society such as politicians and policemen.

It is easy, he says, to make quick and simplistic assumptions about these people. “We have a tendency to use the halo or devil framing of individuals we meet – we want to simplify our world into good or bad people,” says Paulhus, who is based at the University of British Columbia in Canada. But while Paulhus doesn’t excuse cruelty, his approach has been more detached, like a zoologist studying poisonous insects – allowing him to build a “taxonomy”, as he calls it, of the different flavours of everyday evil.

He turns his eye to a particularly vexing problem for those who create online communities as well:

He thinks this is directly relevant to internet trolls. “They appear to be the internet version of everyday sadists because they spend time searching for people to hurt.” Sure enough, an anonymous survey of trollish commentators found that they scored highly on dark tetrad traits, but particularly the everyday sadism component – and enjoyment was their prime motivation. Indeed, the bug-crushing experiment suggested that everyday sadists may have more muted emotional responses to all kinds of pleasurable activities – so perhaps their random acts of cruelty are attempts to break through the emotional numbness.

Story: Psychology: the man who studies everyday evil