Monday, April 21, 2008

Startup School: Surfing the Wave

The most interesting pair of talks at Startup School were Greg McAdoo from Sequoia, followed by David Heinemeier Hansson from 37 Signals. McAdoo talked about how to build a billion dollar company, and Hansson spoke about how to create a small profitable one.

The contrast couldn’t have been bigger: The Sequoia talk was about big words and surfing metaphors. The ridicule in the video's comments shows that the audience was displeased. Hansson, on the other hand, wanted small web companies that charge users. A simple model. People loved it.

In reality, the two talks were about different things. Hansson talked about how to create a profitable business with a web site. This is a well-known if underused model. McAdoo, on the other hand, was talking about building the next Cisco, PayPal, Yahoo, or Google. Billion dollar businesses, not million dollar ones.

In order to make a really successful billion-dollar startup, you do have to have find a large, growing technology market. Marc Andreessen agrees. Xobni, for example, found great market when we changed our focus from an analytics package to today’s sidebar, a product people use for hours a day. We’re now in a much better, billion-dollar market, have a wider audience, and greater odds of success.

So why the disconnect? Two reasons.

First, I think that smart technical people – the kind that inhabit the computer science halls of Stanford, Berkeley, MIT, CMU, ETH and Oxford – have a strong appreciation for beautiful technology: The beautiful technology that, for example, made Google what it is today. But it’s not the technology that created that success, but the fact that people wanted fast full-text web search, which was just happened to be very hard to build. The market did it, not technology.

Second, when business guys mention "identifying customer needs", "designing a platform", and "assembling great team DNA", hackers shrug. Why use these big terms for talking to customers, drawing up architecture diagrams, and recruiting that great hacker? Because these are abstractions. Just like you wouldn't discuss each for-loop when describing what that method does, VCs use these abstractions to communicate effectively. It often takes experience to really understand the meaning behind them. Once entrepreneur, you’ll understand what it means to identify markets and customer needs, and you won’t need the baby steps spelled out for you. You’ll be using those big words yourself.

1 comment:

Aaron Harnly said...

Are the rumors true? I hope you hold out for nothing less than $40 billion :)