Recently I had the CEO of a local startup ask me about a branding strategy for his technology startup. He wanted to brand the company itself, and also create sub-brands for specific company products.

In some ways, that makes sense. Different products may appeal to different users. The more specific your goal with a brand, the more likely you can make it resonate with certain customers.

But there are reasons why most tech startups should create a single company brand, and avoid creating product sub-brands.

Money. It is expensive to build a brand. It is more expensive to build multiple brands. Unless you are serving such a diverse set of customers that you can’t build a crossover brand, you should stick with one brand. And if you can’t build a crossover brand due to divergent customer needs, you might consider re-thinking your strategy.

Focus. It also takes focus to build a brand. You need to expose customers to the a brand multiple times before it “clicks”. Seeing too many brands on a website is just confusing. Besides, if they see multiple brands… which one do they tell their friends about? Building a startup is hard enough without borrowing trouble. Managing and encouraging multiple brands sounds like a colossal headache. I would rather be focused on building one brand really well.

Rapid pace of change. Tech companies change rapidly. Brands should be (mostly) immutable because you don’t want customers confused about what you stand for. A well positioned company should base its brand around a set of core competencies / assets that remain mostly consistent over time. Products may change, but the central brand should not. Products evolve quickly, and so building an effective brand around a startup product can be really difficult.

You’ll note that most automobile manufacturers use rather stark names for their products. I used to have a BMW M3 (loved that car, by the way). That product involves three brands: “BMW”, “M” and “3″. The BMW brand is almost immutable.

Over time there has been evolution, but it’s still basically the “ultimate driving machine.” You can get BMW’s in a bunch of sizes (1, 3, 5, 6, and 7), but they all share certain attributes. If you’re really cool like me (insert laughter), you can even get a “M”otorsports version. Over time, the products change, but the brand remains the same.

Most consumer goods manufacturers use the opposite strategy. Proctor & Gamble uses the “house of brands” strategy, nurturing billion dollar brands such as “Tide”, “Pampers”, and “Gillette.” P&G spends considerable dollars every year building each brand. Each brand has its own unique flavor and history, and most consumers have no idea (and no care) that P&G makes the product. This is important, because who wants to buy diapers and razors from the same company?

Savvy tech companies like Amazon recognize the importance of the master brand. Amazon’s new cloud services have names like “S3″ and “EC2.” Meanwhile, Amazon is branching out a bit with the “Kindle,” presumably because they feel that it targets a substantially different audience. It’s also likely they are concerned about emphasizing the tethered nature of the product… it really only supports books purchased on Amazon.

In any case, my advice is to create a strong brand for the company itself, and let the product brands play second fiddle. As your company matures, you may want to branch out into sub-brands, but by then you probably won’t be a startup any more.

As an entrepreneur, I’m into building value. That goes without saying, right?

When I started my first company in 1994, my only business plan was to make the $600 minimum monthly payment on my credit card for startup expenses. A brilliant and reasoned plan, I know.

When, in the first month, I brought in $25,000 I thought I hit the lottery (aside from the splitting headache from lack of sleep). Things only improved from there (except for the lack of sleep part). Very quickly I had 20 employees. Still, I had never stopped to figure out what I was doing, or more importantly what I wanted out of it.

It is easy to say that you want to build a successful company. It’s harder to say exactly why. In retrospect, much of what I did in those first two years was to build my own ego. I hate to admit it, but it’s true.

It was not until I had my first significant failure that I took pause to collect my thoughts. In 1996 I founded The Virtual Market, one of the first dynamically generated e-commerce sites on the Internet. It won all sorts of technology awards, and was really fancy. And it lost me over $500,000 cash. It almost took down my other company, although we pulled through and paid off the creditors.

It was then that I realized I was looking inward, not outward. I was thinking of myself and how I could increase my own importance. Inevitably, I failed to understand the market and made decisions that did not create value for the company. Because of my early success, I thought I knew everything.

Why is this so important? Because so many entrepreneurs are building ego instead of building value. If that is what you want, go for it. I just won’t be joining in. I’m into building value.

Of course, building ego and building value can be closely intertwined. Money is often the measuring stick of self-evaluation. Therefore, it’s really easy to be fooled about what you’re really up to.

How can you tell when an entrepreneur is building ego? It shows up in his need for control, his irrational valuation expectations, his failure to focus on market needs, and in many other ways. If the word “legacy” is appealing to you, then you might want to stop and think twice about what you’re focusing on.

When I consider doing business with people, one of the first things I try to assess is whether the executive team is building value or building ego.

I prefer working with people who are building value. They are more rational. They tend to be more fun to spend time with. And it’s much easier to work with them to build even greater value together.

Ego builders, on the other hand, are hard to work with. I feel like I’m having to manage them to get them focused on value creation. It’s not much fun, and it’s very hard to create a mutually beneficial relationship with them.

Like I said, there is nothing intrinsically wrong with building ego. It’s just that I’m into building value, and that is the sort of people I prefer to have around.

Effortless scalability. I want it. I’ll pay for it.

Planning a smooth scale-out growth of a web application can be a nightmare. You are never certain how popular the application will be. You can’t tell when the users will actually use the service. When your site hits the first page on Digg, you feel elation and terror at the same time. Even worse, it can be very difficult to estimate how your users will use the site, how many videos they will watch, and how many database updates they will trigger.

It is easy to set up a single-server web application, or even to separate the major tiers onto separate servers. But when it comes to scaling out to more servers, particularly more database servers, life gets difficult. You face data concurrency issues, latency challenges, failover needs, and backup requirements. Solving each of these is complex, time-consuming, and often expensive.

None of this is conducive to building the next big Internet startup. Solving the scaling issue is a necessary evil… for now. In my opinion, whoever fixes it will make a heap of money. It’s a commodity problem. Someone ought to fix it.

The cloud computing services (such as AWS and now Google AppEngine) are the first steps towards effortless scalability, but they leave a lot to be desired. With a combination of EC2 and S3, you can build a very credible Linux (or even Windows with emulation) solution that can scale with reasonable ease and cost efficiency. However, you still have to bake your own solution for load balancing, database clustering, and server provisioning. Amazon’s SimpleDB is not a great database alternative (it’s not really a database in my opinion), and has some limitations (eventual consistency, data type limitation) that require a substantial layer of custom code to serve the needs of most applications.

I want a better solution. I suppose the market is heading for it, but just in case, I’m going to whine until I get it. I want effortless scalability.

What is effortless scalability? I build my application on my local machine. Once it’s working, I upload it to the cloud, assign it a URL, and I’m done. I get 100 visitors, I pay a bit. I get 10 million visitors, no problem (although I pay a lot more). Some key requirements:

• No server requisitioning… computing resources are allocated automatically as needed
• Built-in database scaling, without the limitations of SimpleDB
• Automated load balancing, with configurable settings for picky developers
• Automated data storage that looks like a file system to me (think cPanel like you would see in a shared hosting environment)
• Flexible stack support (check out CohesiveFT for an example of how that might work)
• Automatic failover

Amazon Web Services is a good start. A highly scalable relational database in the cloud would be a great next step. Or at least a cloud datastore that more closely approximates the capabilities of a relational database, and abstracts away the complexities from the developer.

Some will argue that one of the things that makes Amazon Web Services so powerful is its very simplicity. Complexity abstracted away from the developer will inevitably accrue to the cloud. That is likely true, although from an allocation of resources standpoint, it makes more sense than requiring developers to solve the same problem over and over.

Solutions such as Media Temple only chip away at the problem, for example offering dedicated MySQL containers as their database scaling solution. How can that support a heavy duty site?

Anyway, someone please turn application scaling into a click of a button. I’ll be happy to pay for it.

[Disclosure: I have a relationship with CohesiveFT mentioned in the post through my role at OCA Ventures, a venture firm that has an investment in the company.]

The blogosphere is replete with references to an interesting post by Michael Mace, “Mobile Applications, RIP“. Michael believes that the age of custom mobile application stacks is dead. Instead, he posits, the mobile web is surging in importance, despite its being inelegant and inferior technologically. He points out that

“A platform that is technically flawed but has a good business model will always beat a platform that is elegant but has a poor business model.”

In principle, I agree with him, but his choice of language and approach to the issue suggest that technology comes first. As he says “A platform (subject) … has a … business model (object).” I don’t mean to sound like a third-grade English teacher, but this is an important distinction. Platforms don’t have business models (or at least they shouldn’t). Business models have platforms.

For the past 14 years I have been managing teams of very capable engineers. I myself do a lot of the software design, and for some projects, the coding. It is very easy to think technology first, because that is often the way things are built. Engineers naturally want to make their software elegant.

But elegant architectures do not necessarily make money. And there is real danger that by starting to plan or build the technology before nailing down the business issues, you’ll build the wrong thing. Of course, given today’s frantic and competitive technology markets, the technology and the strategy usually evolve concurrently. The problem is that the during such concurrent development, the technology is often the most concrete thing you have. It is easy to relegate the business strategy and consumer needs to a secondary role.

The “technology first” attitude is at the heart of more startup failures than I could ever list. Never let the engineers (the crazy people) run the startup (the asylum).

But what can we do to minimize the risk that the technology takes on a greater importance than the business objectives? Here are some suggestions:

• Start every technology meeting with a review of the current business objectives. This will help remind your team of where they’re really trying to head.
• Challenge your team to explain why their technology decisions are the best choice to achieve your business goals. Never let them build the technology “right” unless they can persuasively articulate how that plays into your business needs.
• Use business milestones to motivate your technology team rather than development milestones. Don’t reward them for the release of version 2, but rather for acquiring 3,000 new users on version 2. That will make them think more like a consumer when they’re developing, and will force them to work with marketing to get the job done rather than just passing it off and saying “good luck.”
• Stress the importance of maintainability and flexibility in their software design. They will be tempted to go for scalability and stability instead. Remind them that until we have settled on what we need to build, work on scalability and stability is wasted. Maintainable, flexible code can evolve as we determine our business needs. Once that is set, we can focus on locking down performance.
• Contextual design interviews are key. It’s very easy for engineers to lose track of what customers actually need/want unless they actually see it. It still amazes me sometimes how stupid users can be (like I can be sometimes when using a new product I’m not really paying attention to). Accommodating their (our) ignorance is critical for a good product.

[Fellow engineers, fear not. Some day I’ll write a post about the ignorance of non-engineer managers ignoring the technology realities, and pushing out a product that is not ready, and will never be any good.]

Readers, do you have any other suggestions about how to ensure business objectives remain paramount?

Note: This article derives from a paper I co-authored in 2007, “Understanding Key Success Factors for Social Web Ventures”. It won first place in the Insightory.com competition. You can view the entire paper here. This blog entry is part of a series of entries covering social web ventures.

Metcalfe’s Law says the value of a network equals the square of the number of its users. Larger networks create network externalities, leading to competitive advantage. Users post on YouTube because there are more visitors. And visitors come to YouTube because there are more videos to watch.

Therefore, network size is key to a successful social web venture. More users and content than your competitors means more consumer value, which in turn creates a snowball growth effect.

But when should you start monetizing your traffic? Critics suggest that many startups wait too long to start monetizing. However, until we find revenue models that do not reduce consumer value, the wisest strategy is to hold off monetizing your traffic at least until you reach an inflection point (e.g., second derivative hits zero).

Most revenue models, such as advertising, reduce consumer value. Metacafe, which has long had relatively intrusive ads, launched nearly two years before YouTube, but continues to trail far behind the market leaders.

When a site starts monetizing its traffic, it reduces consumer value, which can give your competition an advantage. Therefore, sites should delay monetizing until they reach the point of diminishing growth… as they come closer to their long-term stable size. This suggests that the larger the potential market for a site, the longer you should wait to monetize.

Once you get big enough (like YouTube), you may have the breathing room to capture some of the user value without reducing your net value proposition below that of the competition.

Heavy.com has done a great job of monetizing traffic without hurting consumer value too much. Of course, the best solution would be to monetize while increasing consumer value. Brickfish.com is doing a fantastic job of that by melding user generated content and revenue generation into one unit [disclaimer - I have performed consulting services for BrickFish in the past].

Do you have any comments, or ideas are for monetizing while enhancing consumer value?

I’m on the executive board for a very promising Chicago-based startup. The CEO and CTO consult me weekly (sometimes daily) for my thoughts and advice about various aspects of their business. We often shoot emails back and forth about industry news and events, and the activities of potential acquirers, competitors, etc.

There is one competitor in particular that has been creating a lot of buzz. Each time their competitor makes a big PR splash, I can see / hear the stress on the faces of the entrepreneurs. It’s a natural thing, and to a certain extent it can be helpful. But many entrepreneurs overreact to the activities of the competition.

I used to be quite guilty of managing against the competition, rather than the market. When a competitor announced a new product line, I might feel devastated, thinking that I had ceded part of the market. Meanwhile, when I heard (even anecdotally) that a competitor was suffering, I felt a sense of elation.

The problem is that these emotions, while natural, can cause entrepreneurs to make irrational decisions. There have been times (thankfully long ago), when I mimicked my competitor’s offerings in a dead race to win (yes, I can be rather competitive). But who says your competition is doing the right thing? And even if they are, why can’t you carve out a differentiated niche?

Flickr image courtesy of Koltregasges

Building a business in a competitive market is like rally racing. You’re moving at high speed over uncertain terrain, and any mistake could send you into the trees. Often, you don’t know what is over the next hill or around the next corner. While it is wise to keep an eye on your competitors, the ultimate goal is to move fast along the road (follow the market). The most successful drivers remain calm and focused on the road. Focusing too much on the other drivers will just slow you down.

Don’t worry too much about what the competition is doing. Just focus on following the market (your customers).

Note: This article derives from a paper I co-authored in 2007, “Understanding Key Success Factors for Social Web Ventures”. It won first place in the Insightory.com competition. You can view the entire paper here. This blog entry is part of a series of entries covering social web ventures.

Social Web Ventures

Despite the financial and market challenges of the dot-com crash, some companies not only survived, but flourished. Many new internet sites also emerged. Google hurtled past incumbent search engines like Yahoo and AltaVista. EBay grew steadily. Friendster and then MySpace appeared without warning. In 2005, YouTube began its meteoric rise.

These sites all share one thing in common: they are to one extent or another social web ventures. These ventures harness the social interests of their customers to create value, enabled by an Internet platform. This category includes obvious players such as MySpace, YouTube, Flickr, Wikipedia, and Digg. A less obvious example is eBay, a sort of social commerce site where reputation determined by other users plays one of the key roles in the platform’s success.

But what are the factors that differentiate a successful social web venture from a bust? Our user participation hierarchy provides the beginning of a framework for this sort of analysis.

The User Participation Hierarchy

Traditionally, mainstream media content has been created by a few select entities. Hollywood studios, big record labels, newspaper and television journalists created small libraries of content and generated significant value by attracting large audiences through limited distribution channels like cinema chains, music stores, and television networks. This top-down value creation model concentrated power in the hands of select creators and distributors.

At the same time, consumers created content, like photos and written content, which were shared primarily with their friends and family. Yet the mass distribution of this user-generated content was limited by technological constraints.

In recent years, these technological constraints have been removed. The increasing comfort of consumers with online activity has changed the way that content is consumed. Traditional media, like television shows and movies, are now accessible online and can be viewed on demand anytime by consumers. At the same time, user-generated content can now be shared with a mass audience, setting off an explosion of new types of content like blogs, social imaging sites, wikis, and online videos. This online phenomenon is changing the rules of media creation and creating a new hierarchy of participants - creators, distributors, collaborators, and consumers. It is also rapidly blurring the divide between the consumers and the creators as consumers move up the hierarchy through collaboration, distribution, and creation.

Creators: Person(s) who define and create the original content. These people seed the original idea and occupy the top tier of the user participation hierarchy. Based on the frequency distribution there are mainly two types of creative activities: commercial and non-commercial. The commercial (typically mass media) creators occupy a narrow high traffic band. Non-commercial users (typically individual and purpose specific creators) create the majority of the content and occupy the long tail.

Distributors: Person(s) who provide outlets and utilize channels for consumption of content. These people are credited with cross-fertilization of the content which they take from original channel and inject into other channels. In some sense they work as filters by cross-planting content that is high quality and provides value. Distributors use word of mouth to spread ventures, ideas, websites, and content.

Collaborators: Person(s) who add secondary value to the content (e.g. reviews, tags, or comments). The value added is highly dependent upon the level or service and options provided by the social ventures. An ideal website would make it easier for consumers to become collaborators. Collaborators could themselves be subdivided based on level of involvement – tagging, rating, commenting, reviewing, and responding.

Consumers: Person(s) who passively consume content without adding any value to the content itself. But we would point out that consumers in fact do passively add value to the creators by spending time on the content. Thus each view constitutes a value activity for the content and the website. The consumption activities are also mainly of two types based on frequency distribution: a narrow band where high frequency of unique consumers occurs and the long tail where most of the consumption takes place.

Social web disrupts the status quo ante

Social web sites introduce the means for a much broader group to participate in creation, distribution, and collaboration. As users move up the user participation hierarchy, their participation expands to include additional roles. In traditional media, creators, distributors, and collaborators comprise a minority of the market, and a relatively small percentage of the user population falls into those categories.

The social web dramatically increases the scope of involvement, bringing a broader array of perspectives, interests, and skills to the creation of original content. This evolution of the content creation model creates a substantial increase in consumer utility through greater variety and volume of content.

Why is the user participation hierarchy so important? Because it leads to useful insights into why certain social web ventures were more successful than others. The successful ventures consistently followed two rules:

1. Focus on providing value to consumers
2. Encourage and facilitate consumer movement up the hierarchy

Stay tuned for a follow-up post examining why these rules are so important, and how to assess the value of a social web venture.

This is my first blog post. Ever. I should have done this years ago. Apparently, the first bloggers started at it in 1994, around the same time I began my first technology startup, a web consultancy. Although I was knee deep in the web, I had never heard of blogging, and was sleeping about four hours a night. No blogging for me at that time.

By 1999 when blogging became more popular, DDS (the unfortunately unappealing acronym for my first startup) had grown so much that I had to split it into two companies with a total of perhaps 60 employees. I was also an executive board member and CTO of a venture backed online mortgage company. In retrospect, I probably would have both enjoyed and benefited from starting a blog at that time. But I was too busy, or at least that is what I told myself.

Which leads us to the question, “How far ahead of the chasm am I?” I am speaking of Geoffrey Moore’s chasm, of course. Am I an enthusiast or a visionary? Or (shudder) am I part of the early majority (the first post-chasm group).

My wife would like to peg me as the earliest of enthusiast adopters, always trying out the newest and uncertain technologies. As evidence, she would present the very nature of Blir, one of my more successful (prior) companies.

Blir was a custom software development and technology strategy consulting firm. For clients such as Albertson’s, Exodus Computing, and Bain & Company, we cut deep into the bleeding edge of technology to find ways to improve performance or create new business opportunities. The technologies we used were typically so new that our clients had very few people to turn to for implementing them. It was, of course, a critical part of the way we won business against the much bigger players in the market.

In response, I would point out that while we used cutting edge technology, our goals were eminently practical. Enthusiasm for the technology itself was far less important than excitement about what it could do for a company. In 1996-97 I had failed with an angel backed e-commerce marketplace. That (hard) lesson taught me to think twice about technology opportunity. Part of Blir’s marketing was that we could leverage our past failures to benefit our clients. The web, after all, was still a very woolly and frightening place.

By now, I can tell far too many stories about how uncertain web technology and startup businesses can be (mine included). Have these experiences changed me? Made me more reluctant to jump into new technologies? For example, I have put off purchasing an iPhone until version 2 comes out (I want 3G support). Also, I’m rarely the one playing with the latest nightly builds of an open source project. I go straight to the most stable release, and stick with it until there’s a reason to change.

As a serial entrepreneur (and sometime venture capitalist), it is my job to keep abreast of the latest technology. I like to think that I’m in the “visionary” bucket of adopters, which is where I think people such as I belong. But are hard knocks pushing me back along the adoption curve? Am I becoming a part of the “early majority” of adopters? My wife would tell you no, but it’s definitely something I’m keeping an eye on.

Readers, where are you on the adoption curve? Where do you think entrepreneurs should be?