DROdio http://danielodio.com A Sanctuary for Founders and Entrepreneurs en-us Fri, 18 Apr 2014 03:00:37 +0000 http://sett.com Sett RSS Generator Show Me The Money: Six Strategies to Put Your Cash to Work http://danielodio.com/show-me-the-money-six-strategies-to-put-your-cash-to-work
"Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones." - Benjamin Franklin

My wife Sue and I have been mulling over how to most effectively deploy cash in the current economic climate to generate decent returns without taking outsize risks. We've honed in on six main strategies, which I outline below in descending order of risk.

Since everyone has a varying amount of cash to invest, I'm going to specifically call out ways to deploy small amounts of cash in some of these strategies, as I want this post to be really actionable for anyone. The most important part is to just get started, and the biggest barrier to doing that is you thinking "I don't have any money to invest." So get yourself out of that mindset and jump into the world of being an investor, even if it's just with $25 (yes it's possible, below), $100, or $1,000 or $10,000, or whatever. I also recommend putting money aside every month to invest; that's a great way to get started.

Riskiest: Angel Investing

We've made a couple of angel investments, mainly in tech startups, including one in AngelList itself. And as I previously mentioned, I'm mulling over the idea of creating an AngelList syndicate. Syndicates allow backers to make investments as small as $2,500. The key here is to back a syndicate of someone you really trust, as they'll be the ones with their ear to the ground, picking the startups to invest your dollars in. But even then, it's incredibly risky. I wouldn't recommend investing in startups unless you're ready to plan on never seeing that money again. It's a feast or famine return structure, and your cash is typically locked up for years at a time and isn't at all liquid. If you think you want to try angel investing via a syndicate, then I invite you to back mine by reading this blog post and then registering on AngelList as a "backer." If I get enough interest, I'll spool it up. If you want to try investing on your own, play with this new AngelList fundraising filter that allows you to sort by amount raising, valuation, and even "signal" (screenshot above).

Just a Wee Bit Less Risky: Investing in Real Estate

Sue and I are very comfortable investing in real estate because we founded and ran a real estate brokerage years ago. Even so, we still tread carefully in this market. Real estate is typically a leveraged investment (since you're usually putting a down payment down with your own cash, but taking a loan out for the rest), which magnifies both the upside and downside. One option that we've just started looking into is diversifying under a Tenants In Common (TIC) model via sites like RealtyMogul. They call it "real estate crowdfunding," and it's an interesting approach. But generally, I'd recommend you avoid real estate investing unless you're ready to deal with 'toilets, tenants & trash' on a regular basis.

Risky: Betting on specific companies on the stock market

The level of risk here will depend on which stocks you choose. We made a big bet on TSLA and it's turned out well (so far). If you bet on a company like GE, it'll likely be much less risky, but conversely, you may not see much of a return (I held GE stock that was basically unchanged in value for a decade. Bummer.) The good news is that you can get started with ridiculously little cash. Buying a couple shares of a stock might run you $100, depending on the stock. And think about it this way: Owning just one share of a stock is infinitely different than owning zero shares, because just one share a) will still provide you a return on that cash if the stock does well and b) gets you into the mentality of being an investor.

Less Risky (but aggressive): Stock Market ETFs

There's a newish class of securities called ETFs (Exchange Traded Funds) that my wife recently schooled me on (thanks, wife!) and I've really been jazzed about. At a high level, an ETF is like an unmanaged mutual fund. It's just a basket of stocks that tracks a particular segment of the market. There are technology ETFs, biotech ETFs, manufacturing ETFs, etc. You buy an ETF just like a stock, by purchasing a share in it, which you can do via your online brokerage. But the beauty is that the risk is being diversified across many companies in the ETF's portfolio. And since it's unmanaged, the fees are typically much lower than for mutual funds (0.5% vs. 1.5% or more), and its goal is simply to track how well the stocks in that category do. The trick with ETFs is really in picking the right vertical. Do you think the biotech sector is going to outperform the market in general over the next 10 years? Then buy PJP, the PowerShares Dynamic Pharmaceuticals ETF (on NYSE), or IBB, the iShares NASDAQ Biotechnology Index ETF or any of the other biotech ETFs. Think tech is going to keep killing it? Then buy FDN, the First Trust DJ Internet Index Fund (on NYSE) or PNQI, the PowerShares Nasdaq Internet Portfolio. Each ETF takes a varying approach to a similar goal of tracking the vertical with a unique mix of companies in the portfolio. I love the idea of just picking a vertical I believe in, and then letting the ETFs find the next hot company in that space for me. Just like stocks, you can get into this for under $100, so give it a shot.

Even Less Risky (but by no means 'playing it safe'): Lendingclub

I was at a VatorSplash startup event where I heard the CEO of LendingClub, a peer-to-peer investing platform, talking about his company's growth. It was impressive. They've funded over $3.5 billion in loans (including over $250 million in the past month) and they've paid over $345 million out to investors in interest. Although there's a lot of talk about the sharing economy generally (think AirBnb, Getaround, Lyft, etc.), LendingClub might just be the giant of them all: Sharing your hard earned dollars with those who need them, and are willing to compensate you for loaning them out.

The idea behind LendingClub is this: Banks return a paltry, sub 1% return in checking & savings accounts. But credit cards often have a 15%+ interest rate. There's a huge spread there. If a lending platform could use technology to efficiently help investors get a higher return on their money than a bank's offering, while letting borrowers get a lower interest rate (on, say, their credit card debt), then everybody wins. That's exactly what they've done, and it's awesome.

But it gets even better. LendingClub lets you customize the level of return you want to get based on the amount of risk you're willing to take. Every borrower is scored between A1 (best) to G5 (worst). You can pick which types of loans you want to fund. The riskier borrowers will pay higher interest, but there will be more charge-offs. My wife and I created a fairly aggressive portfolio that is projecting a 10.15% annual return. Here's a screenshot:

You can see that the effective interest rate predicted is 18.51% based on our chosen mix of A through G notes we're funding, but 7.65% of that return is expected to be charged off, netting out to 10.15%.

The beauty of LendingClub is that your investment is divided into $25 chunks and is then diversified over hundreds or thousands of loans, which really mitigates your exposure. Think of it as your own personalized CDO :) LendingClub also has a service called "PRIME" which will invest the money for you based on the risk & return profile you specify (that's what the screenshot above is showing). The minimum investment amount for that service is $5k, and I recommend using it so you don't have to try picking the loans you want to fund manually. But if you don't want to put $5k into it, then you can get started with as little as $25, and it's the same story as stocks -- putting just a little money here is infinitely better than zero, if only to get you in the mindset of being an investor. Or conversely, if you have, say, $1MM to deploy and you're willing to put it to work at the risk level we chose above to achieve a projected 10.15% return, you could potentially earn $101k a year in interest income; enough to basically not have to work (don't forget about taxes, though; interest income is typically taxed at ordinary income rates, so cut 35%-ish off the top). You can learn more about peer-to-peer lending here.

Pretty Safe: GE Interest+

GE Interest+ is a great place to park cash if you don't want to invest it in any of the places above. Although it's not FDIC insured, it is backed by the General Electric corporation. It tends to perform as well as a 24 month CD (it's returning 1.05% right now if you have at least $50k there. Even at smaller amounts you're still getting about a 1% return. When interest rates go up, the returns can rise to 3% to 4% or more), but with a very important difference: It's liquid. You can write checks against it, like a checking account, so long as the check is for at least $250. You can get started with just $500, so if you have cash sitting in a checking account, or a savings account, or just under your mattress, I'd recommend moving it over here so at least you're earning the best possible return on it you can while still protecting it.

Really Safe: FDIC Insured account / Bank CD / US Treasuries, etc.

I'm not going to spend any time going over these options, as they're plentiful and you probably already know about them.

And it goes without saying, but I'll say it anyway: I'm not a financial advisor, and by following any of these tips you could end up penniless, living under a bridge for the rest of your life, so proceed at your own risk!

Do you have any other great suggestions? I'd love to get your pro-tips on ways to deploy cash effectively, especially in this market.

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Sat, 01 Mar 2014 09:20:42 +0000 http://danielodio.com/show-me-the-money-six-strategies-to-put-your-cash-to-work
WhatsApp's Journey From Being Ignored To a $19 Billion Exit http://danielodio.com/whatsapps-journey-from-being-ignored-to-a-19-billion-exit Unless you've been living in a cave, you've probably heard that WhatsApp was purchased by Facebook for $16 billion in cash plus $3 billion in RSUs.

But what you may not know is that originally, WhatsApp was not solving a problem that people had. In fact, originally, WhatsApp was completely ignored.

It's a great lesson for startups: WhatsApp kept at it and iterated from zero traction, to the fastest growing messaging platform of all time (in fact, some might say the fastest growing platform as calculated by monthly active users of all time). Here's what that growth looks like:

But the original concept for WhatsApp was more of a status update app. This Forbes article articulates it well:

“Jan was showing me his address book,” recalls Fishman. “His thinking was it would be really cool to have statuses next to individual names of the people.” The statuses would show if you were on a call, your battery was low, or you were at the gym."

Even more revealing is this forum post that Jan, the CEO, wrote on the FlyerTalk forum back in May of 2009:

"i spent a couple of months and developed a little tool called WhatsApp - it can let you set a status like "On the flight to munich, send email instead of calling me"or "In Japan for two weeks, my cell there is +81 829 282718"

But here's the kicker: Nobody responded to his post. Nobody wanted a status update app. Well, almost nobody. The only response was from someone pointing out the classic catch-22 of platforms: Distribution woes.

"It appears that this requires the other party to also have the app installed, right?"

Ha! Indeed. Here's what WhatsApps usage looked like for three full years -- very low:

But Jan and team kept iterating on it and kept making WhatsApp better. And that's what matters. That's how they succeeded. They focused on one thing and knocked the ball out of the park.

The best part of this story? In Sept of 2013 Jan posted an update to the FlyerTalk forum:

"so i was looking on this forum for something else (trying to use my M&M miles) and remembered i posted this thread 4 years ago. i am thinking some of you might be using WhatsApp now."

Indeed.

So if you're an entrepreneur frustrated with your lack of traction, just remember that it took Jan three full years to get usage on his platform to really start taking off -- and that's after he pivoted from a status update app to a messaging app. Your startup doesn't fail until you give up. So instead of giving up, keep iterating until you find something that people want.

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Sun, 23 Feb 2014 19:48:49 +0000 http://danielodio.com/whatsapps-journey-from-being-ignored-to-a-19-billion-exit
"Product Prioritization System" at Pandora by JeremyCee http://danielodio.com/uid/108963 Note from JeremyCee:

Based on your recommendation of First Round's "Review" blog, I've been reading all the posts. AWESOME one today on how Pandora managed an engineering resource crunch to get to where they are today!

“This is incredible, because someone very smart at one point thought, ‘We would be absolutely stupid not to do this thing.’ But really, when viewed in context of all the opportunities for the business, half of the things people thought were important immediately fall away," says Conrad.

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Tue, 04 Feb 2014 21:24:36 +0000 http://danielodio.com/uid/108963
It's settled: Native Wins over HTML5. For now. http://danielodio.com/its-settled-native-wins-over-html5-4-other-myths-busted I've been blogging about mobile for six years. Including things like whether native would beat HTML5, why Facebook switched back to native from HTML5, Native vs. Web, the rise of apps, the evolving definition of ‘app’, how Fortune 1000 CEOs are going to be fired for missing the Mobile Crush, how apps have a strong distribution channel, about NPR, Nat Geo, USA Today, Washington Post & others talking about mobile strategy back in 2010, how mobile is way more than a 2nd screen, how mobile data connections will replace wifi, the future of media on mobile, the mobile engagement challenge that nobody's talking about (yet) and how there are two types of engagement to optimize for, the basics of mobile, the future of mobile advertising, mobile events like WWDC 2010, a 45 min screencast back in 2010 with some big thinking about small phones, how mobile influences social strategies, what the iPad means for media, Sprint vs. AT&T speed comparison (spoiler alert: AT&T wins by a landslide), using mobile to lifehack a check deposit from 2000 miles away, mini apps, how mobile enables the interest graph, why we founded + sold AppMakr and Socialize (and the infrastructure required to run it), Android’s growth, SDK adoption tips (and tricks), as well as what mobile might look like in the future, including a review on Google Glass, hacking Glass, Tile, the Internet of Things, and what APIs mean for mobile. So needless to say, I’m deep into mobile.

But what I just read in the First Round Review (I talk more about FRR here) just blew my mind. They write:

"MYTH #1: Building apps natively per platform is a waste of time and money.
REALITY: If you want a five-star app, build natively. Period.”

Bam. Mind blown. Just like that. Native wins. At least for now.

You can read the entire article here. It’s specifically about the five mistakes startups make around mobile.

The other four myths busted are just as good, as well. What a great article. First Round is killing it.

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Wed, 29 Jan 2014 18:20:00 +0000 http://danielodio.com/its-settled-native-wins-over-html5-4-other-myths-busted
Quantifying Self by Counting Steps: Jawbone UP vs. Fitbit Flex http://danielodio.com/quantifying-self-by-counting-steps-jawbone-up-vs-fitbit-flex

Up until the 1980's we basically all lived in an analog world. Record players, cassette decks, cars, telephones, cameras -- these were all analog. The only digital interaction most of us had was with clunky big-box computers that started appearing in some homes.

Then, by the late 1990's, many of us had started to dip our toes into the digital world, with CDs, digital cameras, cellphones, GPS units, laptops and of course, the early Internet.

But even today, we still lead largely analog lives, and the digital universe is an interloper within it. I call our generation the "digital tweener" period. And especially if you're 30 or older, the idea of the world moving to become more deeply digital isn't an especially comfortable feeling. Not only that, but it can be hard to imagine why we would want it to be more digital. Well, here are just a few examples of some of the data that's generally not being captured in your life today, but could be -- and at some point likely will be:

  • What food you eat; where you eat it, and what its caloric and nutritional content is
  • Where you've been & when you were there, where you are, and where you're planning on going
  • Your body's condition, including things like: How blocked your arteries are. How healthy your organs are. What your vital statistics are. How much you weigh. What your body fat percentage is.
  • A record of who you talked to, what you and they said, and where you and they were when you said it
  • A record of who you interacted non-verbally, what the interaction was, and where you and they were when it happened
  • A record of everything you observe around you

You might think that with smartphones, some of this is being captured, and you'd be right. Conversations made over digital mediums are sometimes captured (and by our government, may always be captured; who knows). But in-person human interactions generally aren't. With the phone's GPS, records of where you've been -- and where you're located currently-- are becoming available. But what's being captured today is just a drop in the bucket compared to what isn't, and even what is being captured is clunky, with different data stores for each, often without the ability to talk to each other. Or to put it another way: There is still room for incalculable amounts of innovation to happen as we continue our inevitable shift into a fully-realized digital world. Even we as analog humans are starting to physically become partially digital; something that science fiction has long theorized would happen. And just like the recent reports of overreaching by the NSA, the security, societal, political and cultural issues surrounding this shift are monumental in scope and will take generations to play out.

A small but intriguing part of this movement that you can play around with today is the concept of "quantified self". To quantify one's self means:

"...to incorporate technology into data acquisition on aspects of a person's daily life in terms of inputs (e.g. food consumed, quality of surrounding air), states (e.g. mood, arousal, blood oxygen levels), and performance (mental and physical)" - Wikipedia

New peripherals are starting to quantify some of the data that was previously not captured in our lives.

I've had the opportunity to test two such devices: The Jawbone UP band and the FitBit Flex. They both strive to do the same thing: Calculate the number of steps we take and the quality of our sleep, but they go about it in entirely different ways. I've been wearing both simultaneously for the past 4 weeks, 24x7. So, which one's better?

To answer that, let me use a camera analogy from my journey to learn to take insanely great pics: Photographers like to say that "The best camera is the one you have with you," meaning a point & shoot camera is better than a DSLR if it's the one you have with you when you need to capture a shot because you left your heavy DSLR at home. The Jawbone UP vs. FitBit is a lot like that -- the Jawbone UP is a much simpler device in almost every respect, and it's not as powerful. But it's the one that I'd personally choose to wear day in and day out because it's the one more likely to actually capture my steps & sleep, if for no other reason than that the battery last 10 days, instead of the FitBit's five. The caveat, though, is that the UP band is known to have terrible reliability issues. It's likely to stop functioning in less than 6 months due what seem to be design, engineering or production defects. Mine stopped working after 3 months, and my friend's died in the same week. Thankfully, Jawbone quickly sent me a replacement, but due to this issue I'd say that the decision really comes down to personal preference at this point. And I've found that because the Flex syncs with my iPhone via Bluetooth, it's more likely to motivate me to take more steps in a day, because I can see in realtime how short I am of my goal. (Jawbone's come out with the UP24 band that offers this real-time updating as well, although I haven't tested it.)

Jawbone UP vs. FitBit Flex: Main Differences

Putting It on: The Jawbone UP is a stylish bracelet band. The FitBit Flex, on the other hand, is a little chicklet device that fits into an also-stylish bracelet holder band. The simplicity theme for the UP is immediately apparent out of the box -- just getting the Flex into its band was confusing and required me to look at the instructions. Winner: UP.

Syncing It: The UP only syncs with a smartphone -- not with a computer, and it syncs via the audio jack of the phone. The Flex, in contrast, can sync directly with a smartphone via bluetooth, and via a USB dongle with a computer. This would seem to be an advantage, but it's not quite that clear cut, mainly because enabling the bluetooth phone sync lowers the Flex's already shorter battery life even further. And syncing via the USB dongle means there's another small piece of electronics that you have to make sure you don't lose. However, the realtime updates enabled by bluetooth syncing on the Flex do motivate me to take more steps in a day. Winner: Tie.

Battery Life: The reality is that the battery life is too short for either device. For the quantified self movement to really get some mass adoption, I'd guess that battery life needs to be measured in months or years instead of days. But having said that, the Jawbone UP lasts 10 days while the FitBit Flex only lasts five. Winner: UP.

Measuring Sleep: Again, both the UP and Flex fall short in this category. Both devices required me to perform an action on the device to enter sleep mode. On the UP I had to press its button until a small "moon" appeared, and on the Flex I had to tap the device rapidly for two seconds. The reality is that many nights, I'd forget to put the devices into sleep mode. The UP band recently introduced a new feature that allows it to automatically exit sleep mode when it detects a certain amount of movement, but the Flex still requires me to perform another action in the morning to take it out of sleep mode. Since I can get away with performing one less action on the UP, the Winner: UP.

Accuracy: Since I only have two sources, I can't say which is accurate or not, which is concerning because the two bands recorded quite different data over the same time periods, as shown below. Winner: Unknown; call it a Tie

App Experience: The UP's app is generally more sophisticated than Fitbit's in terms of presentation of data (like "light" vs. "deep" sleep shown above), but the Fitbit does include a calorie and H20 counter (although I found linking to MyFitnessPal to be a much better way to keep a food diary, and it syncs with the Fitbit or the UP bands). Winner: UP

Reliability: This is where the UP fails completely: Again, using the photographer's mantra, if the UP is left at home because it won't turn on, then it's useless. Winner: Flex

Summary: Although the UP wins in most categories above, due to its reliability issues, I can't recommend it. I'll hope that Jawbone will continue to replace my band as it becomes defective, and will work on improving the reliability of the bands. I initially didn't like the Fitbit Flex as much as the UP due to its shorter battery life, but I've found that the realtime bluetooth step sync is impacting my behavior more than the UP band, getting me to walk more to pick up a few extra steps. Over time that advantage may eclipse the battery life issue. I'll post a followup here with further thoughts after I've used the bands a bit more.

Anyone else have an opinion?

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Tue, 21 Jan 2014 07:20:28 +0000 http://danielodio.com/quantifying-self-by-counting-steps-jawbone-up-vs-fitbit-flex
First Round Capital's 'Review' is Now a Must-Read Publication for Entrepreneurs http://danielodio.com/first-round-capital-is-now-a-must-read-vcs-blog-for-entrepreneurs

Some VCs write great blogs. A few that come to mind are Fred Wilson, Chris Dixon and especially, Ben Horowitz. But I'm usually not impressed with the quality of blogging that VCs do as a firm, which is too bad since VCs expend lots of energy courting top entrepreneurs.

First Round has cracked this code with their "Review" series of articles -- well, publication, really --, and has become the best VC-produced content for entrepreneurs I've found. Their content is exactly what both novice and seasoned entrepreneurs often need guidance on, including topics like:

What's interesting is that this isn't even their blog, which is located here and is much more of a traditional not-as-interesting VC blog. First Round has created a separate publication called the First Round Review, with longer form, way better produced content. Think of it as a "VC as a Publisher" model. And it really works. Very impressive, and it's something other companies -- including startups -- can consider doing for their target audiences if they're willing to make the investment required to produce high quality, targeted content.

PS the pencil in the image above is Pencil 53 -- not sure if it's a stock photo or taken just for the blog, but it's a great example of awesome product placement of one of First Round's portfolio companies.

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Tue, 07 Jan 2014 17:36:02 +0000 http://danielodio.com/first-round-capital-is-now-a-must-read-vcs-blog-for-entrepreneurs
The Future of Customer Loyalty: Dynamic Pricing with a Hedge http://danielodio.com/the-future-of-customer-loyalty-dynamic-pricing-with-a-hedge

I went to get my car washed today in freezing weather, the day of a massive snow storm about to hit DC. Needless to say, nobody else was there. (Why did I do this? Because the car desperately needed to be waxed + interior cleaned, and I'm not in DC for long). The experience got me thinking about dynamic pricing and customer loyalty.

Businesses typically try to use frequent-purchase tactics to drive loyalty, like a "buy 9 get 1 free" card or, in the case of airlines, frequent flyer miles. But I believe there's a better way to drive deep loyalty while at the same time maximizing the revenue a business gets: Dynamic pricing, with a Hedge. Here's what I mean:

Using dynamic pricing and hedging to engender customer loyalty

As I mention in the video above, to say it was a slow day at the car wash facility would be putting it nicely -- I must've been one of only a couple dozen customers they would have the entire day. It's expensive to keep a carwash open on a day like today, including paying at least 10 employees to sit around and do nothing.

Airlines suffer from the same issue: The plane needs to leave the gate on schedule whether it's half full or entirely full. Those empty seats are all lost revenue.

It's the same with most businesses: When they aren't running at their max or optimal capacity, the business is losing out on incremental revenue that would have a very low incremental additional cost associated with garnering it. Or to put it another way, the cost of water & soap at the car wash is only a few dollars, so if the car wash could have more cars passing through, any revenue above, say, its $10 variable cost base per vehicle (and that's being generous) goes right to the bottom line.

I paid $50 for the car wash service, which is crazy on a day like today. So what if the business introduced dynamic pricing? On a non-busy day, why not just price the car wash above the variable cost of offering the service. Maybe $15 or $25 instead of $50. That would drive more volume, which would mean more revenue, but more importantly, it would also mean that more existing customers would be interacting with the business and new customers would be trying it when they otherwise wouldn't have. Anytime a business can increase the number of touchpoints it has with customers, it wins because it's getting customers used to interacting with that business instead of a competitor's.

The same thing applies for airline seats -- if a seat is unsold three hours before the flight is due to leave, why not offer the seat at a deeply discounted price to fill it vs. having it fly empty?

I believe the reason dynamic pricing isn't used more often is:

  1. A fear that it will confuse or anger customers
  2. A fear that it will cannibalize future higher priced revenue opportunities
  3. A technological difficulty in implementation

Uber is a leading player in its use of surge pricing, where it raises fees when demand outstrips supply. And it's gotten plenty of negative press for that. But as Jeremy noted in this post, the use of hedging could help mitigate that.

And that got me thinking about how hedging could really drive deep customer loyalty.

As the technology behind setting prices becomes more sophisticated, I fully expect to see dynamic pricing to become more widely implemented. Reasons #1 and #2 above are based on fear, and fear is never a long-term strategy. The only justifiable reason prices have traditionally been static in the past is because we've lived in an analog world. It's been hard logistically to change the price on a bottle of soda when the price is printed on a sticker or on a store shelf. But that's changing, and some things, like stocks, have always been priced dynamically. So I consider dynamic pricing that equalizes supply to demand to be an unstoppable trend, and the businesses that lead with it will benefit the most. .

The problem with dynamic pricing is that humans are emotional beings. If you're used to paying $50 for a carwash, you'll be happy to get it for $15 on a snowy day, but that doesn't mean you won't be unhappy when it costs $75 on a sunny summer day when everyone else wants their car washed. This is where hedging comes in.

What if I could lock in a price (and my loyalty) at the car wash up-front by buying 10 car washes for $500? I'd be paying an average of $50 per wash. The business gets to pocket $500 up-front and keep the interest float on the cash before the service is rendered. When the actual dynamically priced cost of the wash is less than $50, like a snowy day like today, I don't use one of my pre-purchased washes. Instead, I pay the lower rate of $15. So I'm happy on a day like today. But when I show up on a summer day and the cost of a wash is $75, I use one of my pre-purchased washes. Heck, maybe I can still buy the 10 washes for $500 even on the summer day that a single wash costs $75. When I use one of my wash vouchers, I feel like a VIP. I just got a $75 wash for $50. I feel smart for having locked in a lower price. And the business is happy because it's already made $500 off of me.

In this way, hedging a high dynamically priced service could be a great way to create customer loyalty while locking the customer into the service. And using dynamic pricing, just above -- or even at parity with -- the variable cost when there's low demand keeps revenue coming in the door.

I'd love to know what you think. Why don't more businesses do this?

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Fri, 03 Jan 2014 00:39:02 +0000 http://danielodio.com/the-future-of-customer-loyalty-dynamic-pricing-with-a-hedge
The Secrets Behind Spotify's Product Success http://danielodio.com/the-secrets-behind-spotifys-product-success

I ran across a fantastic PDF on HackerNews by Henrik Kniberg that pulls back the covers on How Spotify Builds Products. It's such a good article -- and so different how many companies actually execute on building products -- that I wanted to highlight a few of the best parts.

Firstly, Spotify starts with a a strong, concise vision (with a singular focus): "Spotify’s vision is to bring you the right music for every moment." This has proven to be a fantastic guide as they iterate on their platform. In a similar way to Dropbox, which I described recently, everything Spotify does furthers that singular vision -- every new feature, every performance enhancement. "Starting as a music player a few years ago, their products are now evolving into a ubiquitous platform for discovering new music and connecting artists with their fans directly." This allows Spotify to expend all its energy on optimizing for product/market fit around that vision, and that's what creates tremendous shareholder value in product companies.

The article sets up, in simple terms, the product prioritization dilemma that trips many companies:

"Here’s the paradox though: Successful companies like Spotify only want to deliver products that people love. But they don’t know if people love it until they’ve delivered it. So how do they do it?"

Spotify's core product philosophy is this (bold emphasis is mine):

  1. "We create innovative products while managing risk by prototyping early and cheaply.
  2. We don’t launch on date, we launch on quality.
  3. We ensure that our products go from being great at launch to becoming amazing, by relentlessly tweaking after launch."

They use a four-step process to product iteration:

  1. "Think It = figure out what type of product we are building and why.
  2. Build It = create a minimum viable product that is ready for real users.
  3. Ship It = gradually roll out to 100% of all users, while measuring and improving.
  4. Tweak It = Continuously improve the product. This is really an end state; the product stays in Tweak It until it is shut down or reimagined (= back to Think It)."

Here's why they follow these four stages:

"The biggest risk is building the wrong product - a product that doesn’t delight our users, or doesn’t improve success metrics such as user acquisition, user retention, etc. We call this “product risk”. The 4-stage model helps us drive down risk and get products out the door quickly."

The article goes into deep detail on each of the steps and how they are executed on. Here's a part that a product guru friend of mine says he especially likes:

"In addition, the Think It squad builds lots of different prototypes to experiment with the look & feel of this product – both “lo-fi” paper prototypes and “hi-fi” runnable prototypes (but with fake data sources and such). Internal focus groups are used to help figure out which prototypes best convey the narrative, until we’ve narrowed down to just a few winning candidates.
This is an iterative process with no deadline. The product is simply not worth building until we can show a compelling narrative and a runnable prototype that fulfills it, and we can’t decide upfront how long that will take."

Hope you enjoy this PDF as much as I did!

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Sun, 29 Dec 2013 16:34:17 +0000 http://danielodio.com/the-secrets-behind-spotifys-product-success
Dissecting Coin's Massively Successful Product Launch http://danielodio.com/dissecting-coins-massively-successful-product-launch

Coin is a new startup that's trying to replace traditional credit cards. Its YouTube video has 6.8MM views. When you Google the word "coin" they show up as the #1 search result -- not only that, but news story results fill out much of the first page of search results. Not bad for a startup with a product that won't even be available for another 6+ months.

What did this startup do to have such massively successful launch? And why is it coming from a small startup vs. an established company in the space?

In the world of product launches, many companies rely on Paid Media (i.e., ads) to launch new products. But startups don't have the huge ad budgets that big companies do, so they have to get creative by leveraging Earned Media (i.e., you, on Facebook, talking about it). Just like Lockitron did last year, Coin has touched a nerve, hitting its $50,000 crowdfunding campaign goal in under an hour, according to this Forbes article. The founder was quoted as saying:

“We’ve been mentioned 410,000 times on Facebook since the launch and on Twitter, people are tweeting about Coin five times a second,” said Coin founder, Kanishk Parashar."

At $50 a pop, that means they pre-sold 1,000 cards in under an hour. Incredible. I personally bought six of the cards for my family the moment I first read about them. Using my personal experience plus some data I have access to from working at ShareThis (and PS yes, we're aggressively hiring!), I'm going to dissect its launch to better understand how Coin leveraged Earned Media to make its launch so successful.

Success Reason #1: A superior product/market fit.

This is something big companies sometimes miss. They overspend in marketing to make up for a deficit in product/market fit. Why? Big companies have brand equity to guard, which makes them risk averse compared to startups. (Do you really want to be the product manager at a big company that took a risk and torpedoed a billion dollar brand?) Big companies also have existing revenue streams to protect. The "Why fix what's not broken?" mentality, and a fear of cannibalizing their existing revenue streams. So Innovation comes in small incremental steps, not huge transformational or disruptive leaps due to the higher perceived cost of failure.

Or to put it another way, the reason that Coin is the company launching this product (and not Visa, or Bank of America, or Intuit) is because they have no other business to protect. If they fail with this product, the company fails. An idea like this likely would've been shot down at a bigger company because of privacy concerns or other CYA excuses. Big companies don't have to take the level of risk that a startup does -- they can copy an idea like Coin if it proves there's a market for the product. But what they miss when they are "fast follower" copycats is the opportunity to leverage Earned Media the way Coin has done. So if leveraging Earned instead of Paid Media matters, the real question to ask as a big company is "what's the long-term cost to my brand of not taking big innovative product risks?" It's hard to quantify, which is why it doesn't get calculated, and so brand protection and revenue cannibalization concerns win every time.

Success Reason #2: Clearly solving a real problem

Anyone watching the Coin promo video will understand the problem they're solving. Their message is clear and easily understandable. "All your cards. One Coin." If you can't get your message down to a few words, then you haven't figured it out yet.

Success Reason #3: Getting a deal w/ urgency

They've also done a great job of creating a strong sense of urgency, saying that the $50 pre-order price is half of the future retail price. Who knows if that'll end up being the case, and it doesn't really matter. It just gives us consumers an excuse to justify the purchase now.

Success Reason #4: Effectively leveraging social media

The first three success reasons are the basics -- what Coin has really done well is leverage Earned Media via social channels effectively.

They created a strong referral program, giving a $5 credit for everyone who orders from your link. Ten referrals means your order is free. As Coin puts it, "Use the URL below to refer a friend. Every referral equals $5 off all the way up to $50. Money for nothing. Clicks for free." They provide the referral code in their "backer update" emails, which they are also using to address privacy & security concerns.

Referral programs are nothing new, but this one was very effective because the product itself was so innovative. People didn't feel like jerks for sharing the referral code, and Coin made it really easy to do so, and there was a lot of discussion on Facebook when I posted, with comments like "I just bought 6. I think that earned u 30 bucks," "This is the smartest thing I have seen!" and "Amazing! Finally someone thinking about all the hassle of carrying all those cards."

So what does the data tell us? Here's a graph of the spike in Twitter mentions of the word "Coin" on 11/14, provided by ShareThis' partner DataSift:

ShareThis has 30 day cookies on 95% of the US Internet population, so I was able to easily run an Insight Report of a couple of hundred social actions around relevant terms like "coin," "coin wallet" and "credit card". Here was the spike we saw around 11/14/13 when Coin launched:

You can see a huge bump in social actions, followed by a quieter weekend, and then a bump back up the following week. My analysis of the ShareThis data provides an even more detailed breakdown:

We can see that Facebook dominated the social channels with 67.7% of the activity. Twitter came in just about 20%, and Google+ a distant third at 2.3%. This is a common breakdown -- Facebook typically picks up 50%+ percent of the social activity.

So, there's some insight into how to leverage Earned Media to create a successful new product launch. Whether you're a startup or a multinational corporation, the rules are the same: Make an innovative product, then make it easy for others to share their excitement by providing a tracking & rewarding mechanism that makes the user look like a hero for being the first one to tell their social & interest graphs about it.

Good luck!

Thanks to ShareThis CEO Kurt Abrahamson for reading a draft of this post and to ShareThis' Chief Data Scientist Dr. Yan Qu for some of the data analysis.

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Wed, 04 Dec 2013 14:45:02 +0000 http://danielodio.com/dissecting-coins-massively-successful-product-launch
Reasoning from First Principles: A Framework for Disruptive Innovation http://danielodio.com/reasoning-from-first-principles-a-framework-for-disruptive-innovation Here's a great post by Skellie that dissects Elon Musk's approach to disruptive innovation, which is based on reasoning from first principles.

I had an MBA group come in to visit ShareThis yesterday, and we were talking about how to create really disruptive innovation. I realized today when I saw this post that reasoning from first principles puts into words what I've gutturally felt to be true: That really disruptive innovation happens when looking at a problem from a completely new angle.

Skellie quotes Musk as saying:

"I think it’s important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. We are doing this because it’s like something else that was done, or it is like what other people are doing. Slight iterations on a theme."

The nice thing about Musk's approach is that it provides a framework with which to do this. Breaking a problem down to its core components and then building back up from there with a fresh perspective often helps us arrive at very different conclusions than established approaches.

The other really nice benefit of reasoning from first principles is that it can get you out of the "it can't be done" mentality -- whether yours or someone else's. And that's especially handy when you're debating an idea with someone. If they are reasoning by analogy and you can break a problem down to its core first principles, then you have a way to say "If all of these things are true, then it can be done, we just haven't figured out how yet." And that is a solvable problem with enough intense passion, focus & iteration.

Do you have examples of fresh approaches to problems that have come by reasoning from first principles? If so, I'd love to hear about them.

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Thu, 14 Nov 2013 22:40:21 +0000 http://danielodio.com/reasoning-from-first-principles-a-framework-for-disruptive-innovation