Beyond the Launch: SeedHive and the Stages of Entrepreneurship
Businesses face different challenges at different stages in their development. An individual entrepreneur, batting around a business idea, faces fundamentally different questions and challenges than one who already has a prototype, one who has raised angel funding, and one who is looking for an exit through IPO or acquisition. It’s a simple concept, but one which I had failed to consider in my initial thinking on SeedHive, a business concept for an entrepreneur’s social network.
This modest but important revelation is courtesy Manish Shah, the co-founder and CEO of RapLeaf, a business which helps you manage your reputation online. I contacted Manish in order to get his reaction to the SeedHive concept as someone who fits squarely into my target user profile: he’s young, smart, web connected, and running a small business. His thoughts were valuable, and gave me pause.
Staying relevant to entrepreneurs of all stages
Businesses face different obstacles as they mature. As Manish said in our conversation, “It’s not always ‘early days.’” An entrepreneur may start with question about the basics, like how to find a good business partner, or how to legally incorporate. With time, however, those questions will shift to things like “How do I hire people?” “How much should I pay them, and how (equity, cash, etc)?”
In order for SeedHive to succeed, it would need to be both helpful for the newbies, and for those with experience. In essence, its success would hinge on the site’s ability to follow their journey.
Manish predicted that entrepreneurs would likely use the site in bursts. They might be extremely active and engaged in the community for a week or two at a time, as they tackle a new challenge, but then will “put their heads down” and get to work. Only if the site had proven truly useful in that initial period would they return when the next obstacle presented itself.
How he got started
Manish became an entrepreneur straight out of university, networking his way into a partnership with an experienced entrepreneur. In many ways, his partner’s knowledge of entrepreneurship, experience, and networks, eliminated the need for Manish to seek help to the basic questions of how to start a business, thus reducing the likelihood that he would have sought out the forums of SeedHive for advice.
Given his own experience, Manish strongly advocated that someone seeking a route into the world of startups must start through networking. Since Silicon Valley operates very much through informal networks, the onus is upon the entrepreneur to get plugged in. In this regard, SeedHive might hold some promise, since it would allow entrepreneurs and VCs to find each other easily, and start relationships online which could be transferred into the real world.
Challenges for a business social network
“Social network fatigue” is an ailment affecting not only Manish but many of the friends whom I would classify as “early adopters.” While Facebook is a novelty to my friends here in London, social networks seem like yesterday’s news to those in the Bay Area. If that attitude is consistent with the venture capital audience (which it likely is) then SeedHive might struggle to raise funding.
Most importantly, however, if the very people I would hope to be reaching with SeedHive, young, “plugged in,” entrepreneurs, are tired of social networks, and less likely to join and give it a try, the site might never get off the ground.
Sexy Industries: The Sandbag Business
Here’s an interesting business idea and product: “self-inflating” sand bags. Not exactly sexy, but immensely practical. A 25 year old in Worcestershire, UK has rapidly created quite a high-volume business in sandbags after he experienced the flooding this summer first hand. The product actually sounds quite innovative since it can be easily stored and transported dry, then “inflated” in water - perhaps there would be a market in New Orleans?
A young entrepreneur is making money from the recent flooding in the United Kingdom by selling an innovative ’self-inflating sandbag’ selling 200,000 units in the first months trading... within 4 weeks of the floods that caused so much havoc, Simon has launched FloodFight selling a revolutionary ‘self-inflating sandbag’.
The self-inflating sandbags require no sand, you just submerge them in water and within 3-5 minutes they expand from 1lb to 34lbs. The bags work by using recyclable type bags filled with polyacrylate polymer which absorbs the water and protects from flooding up to 2 feet high.
Check out the press release: “On my way to a million - How One Young Entrepreneur Is Making Money From The Floods“
Buckle Up: Why Entrepreneurs Should Be Scared of the Shifting US Economy
Entrepreneurs, who might otherwise be somewhat anathema to worrying about macroeconomic trends, need to pay attention to what is happening in the US economy at the moment. The changes that are just beginning to take shape in the form of a weaker dollar and tighter credit, will affect their ability to successful negotiate an “exit” for their business, and even more importantly, find customers for their products and services.
The New York Times editorial staff have outdone themselves today with an excellent analysis of the sticky situation in which the Federal Reserve find itself (”A Weak Dollar and the Fed“).
A declining dollar is a source of inflationary pressure because it can boost the cost of imports. So if the Fed tried to rev up the economy with a rate cut at the same time the dollar is falling, it could end up provoking even more inflation. That would be a drag on economic growth rather than a boost. In an extreme case, it could result in a toxic combination of weak growth and high prices that is a central banker’s nightmare.
How did the Fed lose room to maneuver? The answer is rooted in the Bush administration’s misguided economic policies.
The stage is set. Essentially, the US could find itself in the very difficult situation of having both a weak dollar (meaning that for you, the average customer, things like traveling abroad, buying imported cars, electronics, etc. is going to be more expensive) and rising inflation (meaning that your savings start to lose their value more quickly, because the things you like to buy are getting more expensive. This results in a net loss of incentive to save, because that car/laptop/iPod are going to be more expensive, and the value of your savings less, one year from now than the difference of those two today).
The only lasting way to fix the imbalances — and reduce that borrowing — is to increase America’s savings… It would also require revamping the nation’s tax incentives so that they create new savings by typical families, instead of new shelters for the existing wealth of affluent families…
Stymied by what it won’t do, the administration has gone for a quicker fix — letting the dollar slide. A weaker dollar helps to ease the nation’s imbalances by making American exports more affordable, thus narrowing the trade deficit.
But to be truly effective, a weaker dollar must be paired with higher domestic savings.
Just as I mentioned above, however, greater domestic savings is going to be hard to stimulate in today’s market. The choice the country faces, it seems, is to improve the incentives for domestic savings to overcome these growing challenges. That is because doing the opposite, or staying the course, has even uglier consequences:
Otherwise, the need to borrow from abroad remains large, even as a weakening currency makes dollar-based debt less attractive… Among other ills, it could lead to a deterioration in American living standards as money flows abroad to pay foreign creditors, leaving less to spend at home on critical needs. Or, it could lead to abrupt spikes in interest rates as American debtors are forced to pay whatever it takes to get the loans they need.
“Yes,” you’re saying, “we get it. The future looks grim. But what does it mean for me as an entrepreneur?”
It has an impact in two important ways:
- Exits are going to be harder: The businesses that you were hoping would acquire your startup are going to have a harder time borrowing money (at a good price) to finance the deal. Private equity-style takeovers are attractive only when they can be properly leveraged (as in, they can borrow a lot of money cheaply, and invest only a small amount of their own cash). If US consumers are feeling a squeeze on their pocket books, they are less likely to be investing in the stock of your company at IPO, reducing your ability to do so.
- US customers are going to start pinching pennies: As it becomes apparent to consumers that a weak dollar has real implications on what they can afford to buy, they may well choose to spend less, say, on things like social network premium memberships or bio-fuels and expensive eco-friendly cars, and more on the things that they need or enjoy, but now cost more: say, Chilean produce. Or Sony laptops.
There is one distinct upside to a weaker dollar: international exports. If you are lucky enough to be in the position of producing a product or selling a service overseas, it will be easier to do so because the cost will be relatively lower for the customer. Unfortunately, and I say this with no real knowledge or justification, my hunch is that the majority of US entrepreneurs are not currently in this position.
And if you believe what I was beginning to say in a post late last week (”Will a Debt Crunch Drive Smart Minds Away From VC, Entrepreneurship?“), it may well be harder for startups to find quality talent.
But what do you say? Is this view of the economy too dark? Is my projection on how these trends will affect entrepreneurs exaggerated?
The Hollow Echo of Second Life
I do not have a Second Life. I have never built a property in Second Life, dressed my avatar in sexy clothing, visited Sears in Second Life, or converted Linden Dollars to US currency. I bet you haven’t either. Even if you have, you probably haven’t in quite some time (Second Life has less than 10% retention of users after 3 months).
We all HAVE, however, read about Second Life. Why? Because it’s got the digital media advertising world in a tizzy, and it’s the apple of every trend-watching journalist’s eye. It’s made the front page of BusinessWeek (Oct ‘06) and been featured in at least eight New York Times articles.
Stephen Totilo at The Columbia Journalism Review wrote a very in-depth, interesting and analytical feature article (“Burning the Virtual Shoe Leather: Does Reporting in a Virtual World Matter?”) on journalism within Second Life. It’s an apt and appropriately timed article about something which is like the digital world’s celebrity: all gossip, glitz, and glamour, but very, very little content.
Totilo describes how journalism has evolved around this virtual world.
In the early days, Second Life reporters were stars of an experimental online culture, the Web-based town criers of a place where every innovation—the first gun, the first hug, the first recreation of Hiroshima as it was minutes after the bomb—was worth writing about.
In a second phase that began about a year ago, a new wave of reporters, representing big media outlets and with a somewhat different agenda from the pioneers, came in. They shined a spotlight, asked for real names, and were generally more interested in the phenomenon of Second Life—in the wow factor and the growing number of ways it mimicked real life—rather than the liberating possibilities of building a world from scratch.
With that second wave of “real world” media attention, Second Life attracted a whole cadre of advertisers and retailers, looking to establish a presence in this virtual haven. It seems to me, however, that Second Life is all spectacle and little substance. Call it a hunch [after all, I've never gotten past the registration page], but is Second Life a world populated purely with journalists, media buyers, and college students without anything much better to do with their time? Is it actually a place where businesses can find potentially lucrative customers? Is it really a place where value is being created, either for its “residents” or for the firms which have invested so much in creating their online presence?
The Inter Public Group released a polished, deep look at the business economics of advertising in Second Life for their media customers. Their report (”Should Second Life Be Your First Choice?”) is available for free online.
What is their conclusion?
Originally, many of the investments that real-world companies made in Second Life were justified as generating good first-mover PR, but those types of justifications tend to lose their validity as the investment cost increases above $50,000 and the hype surrounding Second Life begins to subside.
So maybe aside from the first few businesses who generated big buzz through their big moves into SecondLife, setting up a retail storefront may, in fact, be just a big waste of a company’s advertising budget. But who knows, maybe there’s somebody in Second Life who’s not a journalist or advertising analyst there to see it.
Maybe there’s not.
Thanks for the article reference, Mary! [at Valleywag] Also see Game Set Watch for their synopsis of the article.
VC Wisdom for SeedHive: A Conversation with Kurt Hawks
In order to determine whether my business concept, SeedHive (a social network for entrepreneurs), really has the potential to be successful, I must start with the question “what does this site provide for each of [my] target audiences?” This was the simple, but sage advice of Kurt Hawks, a former colleague from Monitor Group, working at Monitor Ventures, and now VP of Operations at Greystripe.
About two weeks ago, Kurt generously agreed to speak with me about the SeedHive concept, providing critique and advice from the perspective of a venture capitalist. He was, in effect, the first of my three target audiences with whom I would need to test the idea: entrepreneurs, venture capitalists, and service providers offering goods and services tailored to these businesses.
From our conversation, I believe SeedHive would benefit venture capitalists in three significant ways:
- Information: The aggregation of news, data, and trends which are today disparate and inconsistent, into an intelligent, reliable news source
- Sourcing: Simplifying the identification of both new business ideas which might be attractive investments and entrepreneurs with whom they would like to do business
- Networking: Facilitating the face-to-face networking that is the mainstay method of interaction within the world of entrepreneurship, and providing a viable (if ultimately less desirable) alternative
He validated each of these needs, and helped me better understand how VCs work and think.
Concerns:
Kurt did, however, bring up some concerns about SeedHive which reiterated critique I have received from other thought partners. Will people really be willing to share a significant amount of detail on the business plans they are developing? How will the site attract the critical first adopters who will begin to create content for the site?
One of the areas where Kurt helped push my thinking was related to the integration of a provider network into the site, particularly one which has users voting and rating each vendor’s quality. First off, he confirmed that the real need (which he has already experienced at Greystripe) is for entrepreneurs to be able to find pre-qualified vendors and providers they can trust without being able to call upon the long experience or deep pockets of larger firms. The more information potential buyers have about a vendor, the better.
Nevertheless, in order to get providers to engage with the site and pay to list their services and products in any sort of SeedHive marketplace, providers will need to be comfortable that the reviews they might receive would be honest and fair. Just like eBay, where a merchant score is crucial to winning business, providers will recognize that a few unfair reviews could seriously hurt their ability to do business. He pointed to LinkedIn as an example of a site which has attempted to balance vendor control with user ratings.
What Now?
Coming out of the conversation with Kurt, I felt both energized and appropriately hesitant. There are clearly a number of other organizations working in very similar, related areas, and in many cases, their business models are much clearer and more focused than that of SeedHive. PartnerUp, for instance, is an intelligent solution to the need for entrepreneurs to find potential business partners with appropriate skills and experience. The Go Big Network has created a showroom for investors to easy find businesses looking to raise capital.
The next steps will be to continue to investigate the other businesses and individuals who are playing in this same space, continue refining the business idea, and most importantly, creating a financial model. Kurt posed the question quite simply as “how many people do you need to generate a profit?” How many users? How many advertisers? Paying how much? They are simple questions, but ones which I must answer honestly before I move too far ahead with the idea.
Will a Debt Crunch Drive Smart Minds Away from VC, Entrepreneurship?
The stumbling of the debt market in the United States and internationally within the last couple weeks is an issue of concern not just for banks and big businesses, but for entrepreneurs and venture capitalists as well.
Roger McNamee, the Managing Director and co-founder of Elevation Partners and author of The New Normal, spoke yesterday at the Stanford Summit about the “Long Shadow of Debt” facing Silicon Valley.
If you’re an entrepreneur, do the things you need to make the company more valuable — and be prepared to do it for awhile… We are going to vaporize a ton of private equity, venture capital, and public market capital, and when that’s done, we’re going to have a bull market like no one has ever seen.
He did not deny, however, that these will be hard times for entrepreneurs, who will have to cope with a tightening of the purse strings of venture capitalists, and reduced opportunity of an exit by being acquired by a private equity shop.
As Epicenter paraphrases from McNamee, “The lesson? Hard times are coming as the amount of liquidity available dries up. But it won’t disappear forever, because the underlying opportunities are still there.” McNamee continues, “If you’re an entrepreneur, don’t run out of money — and be prepared to do it for a long time. But the market potential is huge. I think this is a great time to be an entrepreneur.”
The question that leaves in my mind, is how this emerging shift should shape the decisions of someone who is considering entering the ventures world. Will opportunities be fewer and further between? Will that drive smart minds back into bigger business and industry?
That’s It. Next Stop: Canada
It turns out all those people who said they were going to “move to Canada” if George Bush was elected for a second term weren’t kidding. ABC news reported yesterday that the number of Americans moving to Canada reached a 30 year high in 2006.
The number of U.S. citizens who moved to Canada last year hit a 30-year high, with a 20 percent increase over the previous year and almost double the number who moved in 2000.
In 2006, 10,942 Americans went to Canada, compared with 9,262 in 2005 and 5,828 in 2000, according to a survey by the Association for Canadian Studies.
Paul Kedrosky highlighted this article out today on his blog, but failed to point out one obvious connection: what was happening 30 years ago? The Vietnam war had justed reached its close, and an entire generation of Americans was fed up with its government and a war they deemed as unnecessary and detrimental to our society. Sound familiar?
It is, of course, negligent to fail to mention that before jumping to the conclusion that whole swaths of the country are moving north, remember that the border still booms in the opposite direction:
Of course, those numbers are still outweighed by the number of Canadians going the other way. Yet, that imbalance is shrinking. Last year, 23,913 Canadians moved to the United States, a significant decrease from 29,930 in 2005.
- Welcome to The Strategy Fox
Welcome to the professional weblog of Mitchell W. Fox, a management strategy consultant at Bain & Company in Sydney, Australia.Mitch was previously a Consultant at the Monitor Group, is a graduate of Georgetown University (MSB '05), and was the founder of Hilltop Consultants.