Tomasz Tunguz is partner at Redpoint. I write daily, data-driven blog posts about key questions facing startups. I co-authored the book, Winning with Data. Join more than 20,000 others receiving these blog posts by email.

Data isn’t a business model - it’s much more important

The throwaway line in pitches these days is “we’ll sell our data.” Most of the time, this notion is wrong.

Data is the most valuable outcome of building a successful product. It’s the insight, the secret, the keys to the kingdom. Don’t sell the keys to the kingdom.

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Data provides economies of scale and insights used to develop huge barriers to entry and it should be kept within an organization. Internal data use is the path to building a huge business.

For example, ...

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The Secret to SMB SaaS Distribution

SMB SaaS companies cannot afford to pay for distribution. At 2 to 4% conversion to paid rates and $5 to $10 monthly subscription fees, the breakeven CPC for these products on search is $0.40. The average Google click costs three times this and the iOS average cost-per-install is more than twice as expensive.

The most successful SMB SaaS companies (Zendesk, Expensify, Square) build communities to drive distribution. Those communities reinforce and build a brand. And the brand drives subsequent organic distribution.

Expensify and ZenDesk are two ...

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Must startup founders be charismatic?

Culturally, we tend to associate leadership with extroversion and attach less importance to judgment, vision and mettle. We prize leaders who are eager talkers over those who have something to say.

Must great leaders be gregarious?

Susan Cain wrote an OpEd this weekend in the Times containing the quote above. In Silicon Valley, the culture seems very much to embrace the idea of introverted leadership. One might even say the two kinds of leaders live in harmony.

On one hand, there are the garrulous Jobs, ...

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Mechanizing business development with social media

Last year, I set a goal of adding 100 followers each week starting at 2000. I crossed the 3500 follower mark on Twitter this week. I’ve fallen a bit behind that goal but I have a wonderful group of people who actively engage with me on Twitter who are interested in the same things I am.

As I’ve been cultivating this audience and community, I kept asking myself a question: who are most of these followers? Who retweets me? Who should I meet in person and build a deeper relationship ...

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Choosing market segments on customer profitability

When serving B2B customers, your pricing will be dictated by your customers' margins. The more money they make, the more they can pay for new technology.

Most businesses fund new initiatives including marketing and technology projects from profits. The more profits a company generates the greater their willingness to pay for services and ultimately the larger the market size for a startup.

Let’s compare the margins of grocery stores to restaurants to software companies to prove the point.

...

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Social network design and urban design

“Facebook has built the cities, they’ve built the town squares”

Dave Morin, founder of Path

Is building a social network is like building a city? I watched Urbanize, a documentary describing urban design and the affordances cities must make to cultivate vibrant communities. The words of urban designers echoed many of the challenges faced by networks as they grow.

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First, both must balance growth and community. Growing a city from 1M to 10M is like adding 900 semi-close ...

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Profitability and the IPO Market

It’s a common refrain that venture backed IPOs have struggled in the past decade. For a long time, I believed and wrote supporting arguments underscoring the idea that the principal causes of this decline were Sarbanes-Oxley costs, decreasing equity coverage and decimalization of exchanges. But that’s wrong.

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A paper published earlier this year uses statistics to debunk these hypotheses. In “Where have all the IPOs gone?”, a team of statisticians concludes small cap tech IPOs are struggling because today’s public candidates aren’t profitable when ...

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Using metrics to build communities

There is a Branch called Do platforms need to give users a number to optimize?

Most platforms do provide a number to optimize: Twitter followers, Facebook friends and so on. These metrics build liquidity in the platform as @satyap, @ev and @hunterwalk point out.

But there isn’t just one type of social metric. There are three. It’s important to distinguish the types of metrics a community can provide for users to optimize, because the community will rally around the metrics the community provides. The long term dynamics may not ...

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How the NYTimes avoided disruption

Over the weekend, I watched Page One, a documentary which chronicles the turmoil occurring within the New York Times in 2009 and 2010 when newspapers were going out of business all over the country. Many wondered if the Times would also file for bankruptcy.

Three confluent factors spelled imminent demise for the newspaper: the Internet cannibalized subscription revenue, advertising dollars evaporated and news distribution was in upheaval on account of Wikileaks, Twitter, and blogs. The scale of these shifts was enormous: advertising revenue had crashed to 1950 levels, eliminating ...

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Building auction pressure in financings

The most effective financing processes, like the most effective auctions, create scarcity. Of late, many founders have been triggering pre-emptive financing processes for their raises. This is my interpretation of their playbook.

Strategy

First, founders build credibility with investors. This can be done in many ways like cultivating a long term relationship with a handful of VCs or in less direct ways like brand building through social media and blogging. Founders have established credibility through referrals from people-in-common. And of course, business performance is the trump card. Walk in with ...

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Index


Type Grocery Restaurant Software
Name Safeway