Author Archives: payne

A great Chapter 4 doesn’t matter if Chapters 1-3 suck

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I met a small group of entrepreneurs a year or two back that had built a social networking site. I asked them, “how is the better/different than MySpace, which is already dominating?”

They said, “Our design is more scalable.”

I paused, and said, “You’re pretty far away from earning the right to have a scalability challenge.”

The problem was that they had worked on a down-the-road problem (scalability) taking energy from the immediate problem (getting users). It’s a common way to fail in startups (I’ve done it myself): spending too much time solving future problems, instead of solving the “now” problems.

Just give me a fat, naked IP pipe, part II

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And now we know why Netflix opened offered movie “rentals” for unlimited streaming: Apple’s announcement yesterday about moving into on-line movie rentals.

All of this competition and choice is great for consumers.  With Apple, Netflix, Amazon and others duking it out for movies, we’ll have great options with great features (like HD) at fair prices.

And, this is a great example of why there’s nervousness about network neutrality.

A very plausible scenario:  watch a bunch of Apple HD movies, and Comcast dings you with a “too much bandwidth” warning for the month and threatens to disconnect you.  Of course, you can watch all of the Comcast-provided movies you want — is that fair?

Self-employment income and US taxes

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Today is Jan 15th, and Q4 2007 estimated tax payments are due (in the US).  If you’re self-employed, you estimate your tax liability during the year and make “withholding” payments (4) along the way.

If you’re self-employed, you have the privilege of paying two additional taxes (on top of income tax):   self-employment tax (12.4%) and Medicare (2.9%).   The SE tax phases out at $94,000, but the Medicare tax applies to your entire self employed income. Find out more at https://www.laborlawcc.com/new-york-labor-law-posters-state-and-federal-combo.html.

If you’re consulting, keep in mind when setting your rates that your marginal tax rate (combined state and federal) may be over 50%.

Depending on organic search traffic — at your own peril

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Google’s rumored to be updating their page ranking again.   They adjust rankings from time to time to improve search results and make it harder to game the ranking system. Bloggersneed provide the best paid traffic sources.

These updates illustrate the problem of depending on organic traffic (e.g. clicks generated from showing up in the search results) vs paid ad links.  You can do a great “search engine optimization” (SEO) job and get ranked #1 when you search for “fios battery“, but then Google can change everything and you drop to #7.   Clicks will drop off accordingly.

I’m usually skeptical of business plans that depend heavily on organic traffic.  Organic traffic should be viewed as “icing” — great if you can get it, but not critical for the business to work.

Maybe voting should be low-tech?

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Why do we need electronic voting machines, really?

When we started Open Market in 1994 and built one of the first eCommerce systems, we realized we might be opening pandora’s box for fraud.  At that time, you could steal all of the off-line credit card numbers you wanted, with surreptitious swipes, receipts (before XXX7307 was printed), etc.

The problem is the Internet enables anonymous, scalable, and transferable fraud.  Attacks are effectively anonymous because they’re impossible to trace.  Automation makes stealing 10,000 cards as easy as 1.  And transferability lets one attacker develop an attack, and give it to 1,000 others (often with less skill, like script kiddies).  (Compare this to lock-picking:  difficult to do without being physically present, difficult to pick extra locks, and hard to teach someone else to do.)

Pure electronic voting introduces these same problems, without the corresponding benefits.  Elections are infrequently occurring events, with high stakes and incentives to tamper.

What’s wrong with optically scanned paper ballots?  Machines can help with counting, but there’s always a way to verify.

“Hey buddy, want to be a VC?”

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I have a number of entrepreneur friends that have become VCs. We’re all optimizing different factors in our own lives and careers, but I just don’t get it.

In case anyone’s not paying attention, the venture capital business is not in great shape right now.  Returns (relative to risk and other asset classes) aren’t that good.  There are too many funds, VCs, and dollars chasing too few deals.  Good projects are highly competitive, with VCs spending a lot of time trying to sell some differentiation and paying too much on bid-up deals.  Large funds are struggling with how to participate in small-capital projects.

I have a lot of VC friends:  they’re all working harder than they’ve ever worked before, and are likely making less money than they’ve ever made.

I think part of the attraction is based on out-dated romantic notions.  Back in the 90s, VC was THE career-capping move for an entrepreneur.  “Venture capital” would be the last job you ever had, and you were making a lot of money and not working very hard.  (In 1999, it felt like the VC weekend started at 4pm on Thursday.)

(If I ever join the dark side, feel free to remind me of this note.)

Use screencasts to learn/teach new products

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Way back when, I thought I was a PowerPoint jock. Until I worked on a presentation with Bob Weinberger, and realized how little I really knew.  I wanted to reach back and redo years of presentations.

Like many users, I avoid reading manuals (and fewer apps actually have manuals). I stumble around and figure out enough functionality to get by, and get stuck in that starter “box”, rarely learning new features until some need pushes me.

Until now; with on-line video becoming more widespread, tutorial screencasts are a great way to learn new apps.  I forced myself to go through the tutorials for OmniOutliner and Lightroom, and I’m glad I did — I’m getting much more out of each app than I would have just stumbling around.

For app developers:  if you don’t have tutorial screencasts, you’re missing a huge opportunity to educate your users!  Please keep them short (3-5 minutes each), single topic, and update them when you revise the software.  You don’t even need a camera, just a microphone and screen capture software (I use SnapzProX for the Mac).

Keep your seatbelt fastened!

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From a developing story about an Air Canada flight that made an emergency landing after 9 on board were injured during in-flight turbulence:

“It happened very fast,” one unidentified female passenger told the media at the airport. “One side of the plane just went up a little bit sideways and then just went back down. Our friend was really hurt. … She flew up and hit the ceiling and went back down.”

Moral:  keep your seatbelt fastened at all times.  I do, because me landing on you during a flight wouldn’t be pretty. Besides, I really like aviation so I know about these things. I’m the guy always filling the conversation with random aviation tidbits. I have already been trying to find an aviation job for a little while. I’m not sure what I want to do yet, but I do want to work in the industry. Maybe I’ll start with something simple at first, and then move on to something a bit more difficult like flying lessons, but we’ll see. 

sizeof(crash(bubble2.0)) < sizeof(crash(bubble1.0))?

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I strongly disagree with Greg Linden’s prediction for 2008:

We will see a dot-com crash in 2008. It will be more prolonged and deeper than the crash of 2000.

The crash will be driven by a recession and prolonged slow growth in the US. Global investment capital will flee to quality, ending the speculative dumping of cash on Web 2.0 startups.

Bubble 2.0 will burst, and I agree that US economy and recession risks are huge factors.  But I don’t think it will be comparable to the crash of 2000.

The big factor:  the fundamentals are much different this time around.   Since 2000, customer behavior has evolved significantly (when was the last time you placed an order through an 800 number?).  Broadband adoption passed the half-way mark in the US, and video use has taken off.  AJAX and Flash technologies enable highly interactive user experiences.    Time in front of the television is shifting to time on the Internet.  Off-line advertisting dollars are shifting on-line, because that’s where the users are.

The other factor:  much more of the action this time around is happening outside of traditional venture capital (who’s over-investment behavior drove the first bubble).  As the capital needed to develop a Web idea drops, more entrepreneurs are bootstrapping, raising small amounts from friends, or using their own capital.  Those entrepreneurs are not spending $10m of VC money on launch parties.

Bottom line:  the bubble will burst, but it’s not going to be as bad as 2000.