Posted by Jeff Lu on March 23, 2010
I was talking to a VC associate in NYC around this time last year. He asked me about a few businesses or trends that I liked. The Kindle just recently released a month before and I had gotten my hands on it 2 months before that because a buddy of mine at Amazon was working on the project. I told him that I thought the Kindle really changed my perception of what mobile computing could be and would be an indicator for where mobile computing was headed (probably not as eloquently). He said he didn’t see it because he has so many device to carry around, the last thing he wants to do is carrying around another.
In 2009, Amazon sold somewhere around 550K Kindles and analysts predict that they will sell another 2 million units in 2010. The iPad sold 120K units the FIRST DAY of presale and is expected to sell a few million units this year. I’m excited to see what type of new applications will grow on these new mobile computing platforms and how the they will disrupt the current antiquated book publishing business model. I think that iPad like devices will be a huge opportunity for the gaming and advertising industries.
After Todd shot down the first trend I was passionate about, I mentioned Location Based Services (LBS). He said it was interesting and something that Firstmark looked into but thought it was still too nascent and didn’t see an investment opportunity there. A year later, I see foursquare making headlines with 500,000 users who collectively check in 300,000 times a day. I see companies like yelp and facebook entering this arena as well. I think mobile location based services will be HUGE in the future as mobile hardware catches up with what we would love to do with the software. I mean… I did blog about it a year ago.
It’s easy to say “I told you so” a year later so I’ll expand on my LBS thesis to go into what it will become next year. A year from now, we will see location based services move beyond twitter like updates and data collection to actual monetizing the user using performance marketing techniques we already use on the Internet.
One idea I have for converging LBS and performance marketing is to push location-based special offers from local vendors to consumers. Here’s the use case:
As a consumer, I download the app on my iphone and sign up to receive offers from food and beverage vendors (one could conceivably receive offers from retail vendors, auto services, beauty service, etc.). I can choose to receive pushed offers from within a distance… so for this example, within 5 blocks from my GPS location. Now on weekends, when I walk along Lincoln Road on South Beach, I can see which restaurants are offering the most attractive deals.
From the advertiser’s point of view, they can create an advertising account online and in real time push offers to highly targeted audiences to drive offline traffic and sales. A compelling example might be that from 3-5pm, I have to staff my restaurant as if it’s 11am-1pm but business is not as busy as during the lunch time rush. These employees represent a fixed cost that I could offset by placing an offer for the next 2 hours that will generate incremental sales for my restaurant. Advertisers could pay on a cost per “click” or cost per transaction basis. The proper allocation of advertising dollars to the platform might be tricky but it’s something that can be worked out with enough thought.
Google is already doing location-based PPC ads on their maps. I saw this when searching for the location of a retailer and saw the location for American Apparel along with my search results. I’m not saying that example will be exactly where mobile performance marketing will go but I use it as an example of what I think can be possible in the coming year as this category explodes.
*EDIT
I started this entry Sunday night. I swear I didn’t see this news till just now
Placecast, a platform for location-based marketing, just announced that it has added $3 million to its recent series B funding, bringing the round to a total of $8 million.The funds come from existing investors Quatrex Capital, ONSET Ventures, and Voyager Capital, and will be used to expand the company’s network.
Placecast’s service pushes offers from participating brands to users who venture close enough to a relevant retail outlet. The company’s clients include The North Face, SONIC Drive-in, and American Eagle.
Posted by Jeff Lu on March 16, 2010
Much of the noise I hear about healthcare reform has been on the insurance side. They might as well call it health insurance reform. The public is pointing to the profitability of insurance companies as an indicator that health insurance could and should be more affordable.
But just how profitable are these health insurance companies? Let’s take a look:
2009 Net Profit Margin of Healthcare Insurers
- Aetna: 3.7%
- Wellpoint: 7.3%
- Cigna: 7.1%
- United Health: 3.7%
- Humana: 3.4%
- Healthnet: -0.3%
- Healthspring: 5.0%
- Coventry Health Care: 2.3%
- Molina Healthcare: 0.8%
- United American Corp: 2.7%
- Unum Group: 8.4%
- Median: 3.7
Those margins look pretty modest to me. I think the problem with health care is a misalignment of incentives. The public needs to realize that health care is a business. When I go to the hospital with an ailment, the doctor is providing a service for me but I am not the customer. The party that pays for this service is the customer and in this case it would be my insurance company. The insurance company is not concerned with the quality of my care, they just pay the bill. If I’m unhappy with the quality of care, I’m out of luck.
So imagine a world where we didn’t have insurance (except only for the most extreme and unexpected medical cases). I would get paid 15-20% more since my employer won’t need to pay for my insurance. If I need an xray for a broken arm, I could go to the a yelp.com equivalent to look up the best doctor for my price point and the cheapest x-ray. Doctors would have to provide a value proposition (best mid-price or most affordable, etc.). The patient is the paying customer now, using John Smith’s almighty “invisible hand” (free market capitalism) to drive quality up and prices down.
This seems like a pipe dream and it probably is, but the first thing we need in our health care system is more transparency. How much does an xray cost? Does anyone know? Has anyone ever tried calling a hospital and asking them? I bet they won’t tell you. This is why I’m a fan of Ventana. It doesn’t do enough in my opinion but it’s a move in the right direction.
Ventana is developing a web application that provides consumers with unprecedented clarity around their healthcare costs, usage, coverage, and choices. Using proprietary technology, we enable provider and service unit-level price transparency, which is combined with consumer-specific benefit information to deliver clear, personalized estimates of out-of-pocket costs before receiving care. Layering in other information needed to evaluate provider alternatives, Ventana enables people to make smarter choices, lowering costs for both employers and employees. Ventana is currently in pilot with several visionary companies in the U.S.
Posted by Jeff Lu on March 11, 2010
So it’s been 8 months since I left the world of investment banking for the world of operating a real business. I now manage the Affiliate business development team for HealthCare.com. We run a PPC ad network for health and life insurance advertisers. I do miss the world of finance from time to time, but 99% of the time, working at a startup has been so much more fun and rewarding for me. Here are some of the difference:
Having a Scoreboard
As an analyst, I used to find out how well I was doing my job during reviews, which occurred only twice a year. I would receive a score a score (1-3 or 1-5, I forget) on a number of key skillsets/characteristics. This would be backed up by some anecdotal data points (both good and bad) from the senior bankers. As you might imagine, there’s a lot of subjectivity when it comes to your review and imbetween reviews, the perception of your performance is not always transparent.
As a manager of a division, I have a daily scoreboard. I know how much money we are making the company every hour, day, week and month. We have monthly revenue goals to hit. Beyond those metrics, we have other supporting metrics to measure such as how many leads we are contacting, how many opportunities are we converting, etc. There is rarely any doubt regarding how well we are performing and it’s not subjective. Every member of the team has their own business development style and the only thing that matters is performance.
When I first started, our division’s P&L was in the red and having this daily scoreboard put tremendous pressure on me. Banking was a lot of pressure in that you had a lot to get done sometimes and felt like there weren’t enough hours in the day to get it done. The pressure I felt at HC.com was different. I felt like we had to perform and the whole company was depending on it. It was a hard adjustment but now that we are killing it, it’s exhilarating and an hourly, daily, monthly source or pride.
Becoming a Ninja (vs. Being a Robot)
To be a good investment banking analyst, one needs to become very good at following directions and perfect a few tasks/projects that you will have to perform thousands of times during the program. When you start, there are other analysts, a year senior to you, who can show you the ropes and you just follow their model for success.
When I started here, there was no model for success. Howard Yeh, then VP of Corporate Development was promptly promoted to COO and my principle responsibility was to take over the responsibility of recruiting new affiliates and managing other business development team members. Howard had some ideas on what might work but he didn’t have a proven model yet either. We worked as a team to come up with new ad products that would enable us to partner with different affiliates in various capacities. It was and still continues to be a struggle at times but the freedom and responsibility can be hugely rewarding.
The reason why I used the word “ninja” to describe my role is because I’ve heard it used a lot among startup communities when people talk about the type of people they want to hire or work with. I think it’s relevant for our team because we were giving a mission to accomplish: to hit certain revenue goals. We were given the tools/weapons to accomplish this but we weren’t told which ones to use or how to go about accomplishing our mission. It took a lot phone calls, emails and product iterations to get to our current growth profile. Being a ninja means figuring out a way to get results.
Hiring and Working with Ninjas
Hiring and managing other people was something I was least prepared to do when entering this job and it’s still a skill set with which I struggle. When I was an analyst, I was the bottom of the totem pole. The only other people I had the opportunity to manage were analysts junior to me, who I could pass on the work I didn’t want to do.
When I first started at HC.com, I still had an analyst mentality. I wanted to run half a dozen weekly reports that would analyze the affiliates we signed, the affiliates we had to implement, the delta in our revenues by affiliates, what the reason for this delta was, etc. This took up half of my day every Friday. I also wanted to review emails that the other business development managers were sending, and periodically be on calls with them. Basically, I was spending a lot of time micro-managing and not trusting the people I was working with, but sometimes it was necessary to make sure we were performing.
We recently moved a colleague from the SEO department to my department and I’ve realized the importance of hiring the right people. She reminds me of Mark Pincus’ interview with the NYTimes, where Mark challenges each of employees to be a CEO of something. Julia has really taken the initiative to learn as much as she can about how to become an effective recruiter of affiliates and has really become our CEO of recruiting medicare and life insurance affiliates. I’m really proud of the work she’s done for us and it will turn into a lot of revenue for us very soon. Her contribution moves beyond just making money for us; the fact that I don’t have to micro-manage her makes my life easier.
Not having other ninjas working for you takes time away from tasks that you should be focused on. It diminishes your ability to be the CEO of your responsibilities.
Before moving on, I wanted to share something that I’ve learned from Julia. Being fearless and aggressive when pursuing affiliates. Here are some highlighted examples of some successful emails (emails that elicit positive responses) she’s sent that I would have never sent:
1.) Subj: I think I haven’t heard from you on this..
Email Copy: Hi, just a quick follow-up to see if you received my email last week, I want to make sure it didn’t end up in your junk/spam folder.
Responses vary =) from “your email got into spam” to “I was on a vacation and just got back to office”, etc.
2.) Subj.: do you own this domain?
Email Copy: Hi Jason, do you still own this domain – domain name?
They usually respond very quickly, confirming that they own it. And I try to respond immediately till they are warm.
3) Subj.: did you implement the codes?
Works very well with the guys who sign and do not implement immediately.
4) Killer Email: Use with caution
Hi ____,
I don’t want to be annoying, I called and emailed several times to discuss the potential partnership, are you too busy to respond or simply not interested?
If for some reason you don’t think we are a good fit for you, are you okay with telling us No?
I would be most grateful if you would say NO as early as possible so we are not wasting each others time =)
Thanks,
Julia
Limited Resources
“Resources” can refer to a lot of things when talking about business. It could refer to capital, the available time of people who work for you, your own available time. For the purposes of this section, when talking about “resources” I’m referring to time.
As an investment banking analyst, you are the resource and you’re a near limitless resource. All possible financial models, analysis, presentations, graphs, charts, etc. are deemed necessary to win and service the client. If the resource hits a “limit” as in, there’s not 25 hrs in the day, your associate (1 level above analyst) who is staffed on the deal will be forced to help out. Sometimes, investment banking felt like a series of sprints and with each spring, a late night or an all-nighter.
Going from being the resource to having resources has been a nice change, however there has been a culture adjustment. I had to learn that not everything that we could do to sign and service an affiliate was necessary. I used to bend over backwards to sign and keep every affiliate but I eventually learned a valuable lesson that I’ve read from Steve Blank‘s blog and book before. The majority of the revenue (for us probably 80%) will come from a small percentage of your customers (~10 affiliates). Small affiliates have been just as hard and time consuming to sign but they are usually more of a pain in the ass to service. I now spend 90% of my energy and resources on a larger opportunities who can really move the needle for us.
Having limited resources has helped me prioritize tasks against the revenue potential. It’s helped our team stay focused on opportunities that will help us get to our goals. It has even helped us prioritize our internal development queue as we invest in our platform.
Posted by Jeff Lu on March 9, 2010
I created this blog on wordpress as a platform to share my passion: early stage technology companies, and I encouraged my friends to do the same. They started blogging with Tumblr about their passion: music, fashion, and art.
Now I always envied how stylish their blogs looked but I was happy with what I have on wordpress and I invested a lot of time in the learning curve. However, yesterday I was feeling spontaneous and wanted to start blogging about music that I like. I was going to do some research on how to add a SoundCloud widget onto my WordPress but I thought this would be a perfect chance for me to check out Tumblr.
My God, was it easy to set up. It was so easy to set up that I accidentally set up 2 domains and couldn’t be bothered to figure out how to delete one of them since I was at work. The domains are www.jeffreylu.tumblr.com and www.jefflu.tumblr.com and I can’t decide which one I want to keep yet because both of them have music content on it already. Admittedly, the design isn’t great right now but it literally took me 5 minutes to set up both sites.
To me, Tumblr is like a cross between WordPress and Twitter. It takes me less than a minute to load songs and videos up. I have to give the Tumblr team credit in building a product that’s both extremely stylish and relatively customizable but extremely intuitive and easy to use. The combination of style and function makes it a very sticky product. It’s been 2 days and I think I made over over 10 posts already. Even their landing pages are awesome. I try to keep these lessons in mind when creating landing pages and calls to action for consumers.
Anyways, I learned this morning from one of Tumblr’s investors that they hit a few major milestones this past month, one being 1 billion page views. I wrote in an earlier entry, questioning whether a company should focus on building great products first without a business model and try to scale, or build a product with a proven business model and then try to scale. Tumblr and Twitter are examples where if you focus on scale and succeed, you are inevitably going to hit a home run.
Congrats to hitting these milestones
*Edit* I had an after-thought in terms of monetization. Why doesn’t Tumblr add a “buy” function to their music player and partner with a vendor like Amazon or iTunes? Just a thought.
Posted by Jeff Lu on March 8, 2010
Congratulations to Jon Sposato, Darrin Massena, Mike Harrington and the rest of the Picnik team! Google announced the acquisition of the company last Monday (3/1). Picnik, the online photo editing service, is based in Seattle and was one of the last clients I worked with at my former employer, Cascadia Capital.
Some impressive stats on Picnik at the time of acquisition:
- Over a billion images have been edited on the site
- No institutional capital, bootstrapped with $1M of total funds raised
- Feb 2010 Unique Visitors: 16.8M, Feb 2009 Unique Visitors: 8.8M
- Profitable since we started working with them last year around March or April
When I met the team last year, I was struck by how the personality of the team really shone through the product. Jon is incredibly stylish and his background prior to Picnik was with Microsoft, managing the only team that was allowed to work off-site of the main campuses in a hip office in Pike’s Place Market. Jon, Darrin and Mike’s background has been with game development and consumer facing applications. This definitely explains why Picnik is so fun and damn easy to use.
I really love this article from TechFlash, reporting on the email that spawned Picnik. It’s a very thorough and well thought out business plan but an email like this is probably sent thousands of times a day. It’s extraordinary to see the execution of that plan and finally the fruition of all the years of blood sweat and tears manifest itself in the form of a successful exit.
