EarlyStageVC

Two Crunchie Nominees -- Very Cool!

As the Web 2.0 has become enamored with all things social media, I have increasingly lost interest in investing in the next Facebook clone.  So imagine my surprise this morning as I saw the Crunchies nominees.  My companies, Radar Networks (a.k.a. Twine) and Riya.com (a.k.a Like) are two of the five companies nominated in the category of Best technology / innovation / achievement. 

A few years ago when I decided to return to Web investing, I made a decision that I would invest in companies that had real technological advantage.  This is more capital intensive than lots of web investments and has a longer gestation, but I figured it would pay off in differentiation and, hopefully, a better user experience. 

These companies are not without their challenges.  The change at Riya as is moved from photo classification to e-commerce has been well chronicled by Munjal.  I am happy to say that the business is doing extremely well.  The daily graphs I get on CTRs, Revenue, and Revenue/Visit  all been consistently up and to the right on a monthly basis, all year long.  Congratulations Team -- a better user experience is paying off, literally.

Twine is the still gated-beta application from Radar Networks.  I have been using Twine for about 2 months now.   I can say the promise of better information management by the use of semantics is definitely there. We still have a long way to go.  The platform is very fast and very reliable, now we are tuning features to improve the workflow. Being a gated app, I doubt we have chance to  win the Crunchie Award at Twine, even if every beta user voted.  I guess it truly is "just an honor to be nominated."

There is no guarantee that this technology-focused investment strategy will really pay off in great venture returns.  That remains to be seen. But this is still nice.

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Well, earthmine won.

Initial Experience with Twine

Today Nova Spivack has taken the covers off of Twine and he will demonstrate it today at the Web 2.0 conference.  My prior post on knowledge networks was an attempt to lay the predicate for the concept of Twine as a knowledge network.  So I'll now make this more concrete to explain how I have been using Twine to build my own knowledge network during our initial alpha period.

Knowledge networking is what we VCs do in real life.  I am constantly asking

• "Whom do we know that knows about this" 
• "Didn't we talk to someone a year ago who knew something about this?" 
• "Isn't company X a likely customer of company Y and what do we know about companies X and Y"
• "Didn't [partner z] do a reference check that referred to this new technology some time ago?"

Like everyone, we make heavy use of the web, often sending to each other the  things we have found that might be of long-term interest or relevant to a current project. Within the partnership we communicate largely through email and then we meet every Monday to sync our activities and processes.  Organizational memory is largely in our heads.

My use of Twine is trivially easy.  I use two 'on-ramps'.  One is that I bcc: my Twine account with all my emails.  (I also set up some rules in my inbox to forward copies of certain emails to Twine as well, but my email rules are not as smart and extensive as Twine.)  The other on-ramp is I use the Twine bookmarklet as I browse with Firefox.   These two methods capture pretty everything I  consume in my business life.

As the emails come into Twine, Twine enriches the email to find companies, people, and places in the body. These enriched links connect to other content I have captured as well as Wikipedia and other sources.   So now I have a thread I can follow of what else I know, read, or can find that is relevant to answer the questions above.   This is less critical in the moment than it is  days or weeks after I  receive the new information.

I do the same thing as I browse.  When I find something of interest, I can immediately "bookmark" it into Twine and associate it with the things that I track in Twine.  (I have a personal account and am a member of several Twine  groups, including the Radar Networks Board of Directors group.  Other members of the group see the same information I have place into the group's Twine account. 

This is the real power of Twine.  All the information I have been accumulating has been intelligent interconnected as a personal semantic web of knowledge.  That mimics my own ability to recall what I know.  I don't find this that interesting, yet, because my use of Twine is relatively recent.  Ten years from now, my long term recall of what I knew today will be greatly diminished, unless I use Twine.  More immediately, everyone in my groups (Crosslink Capital, Radar Networks, etc.) benefits from attaching their knowledge networks to mine.  This really allows us to create a group diligence process that represents and leverages everything we, as a firm, know.  It means I know can truly leverage the knowledge and relationships my partners accumulate. The enrichment means we all get more than we put in as we use the product.  This basic process of structure knowledge capture and sharing is nearly universal in business, from major account sales processes to product design collaborations.  We all know that email is fundamentally broken as knowledge capture, retention, and sharing tool.

There is a lot in Twine I don't use, to be honest.  Photos, videos, and threaded discussions are all part of the application.  I don't need this, today, though perhaps in the future.  And there is a lot I'd still like to see in the application, including support for  meeting creation and calendaring synchronization.

The challenge with Twine is discovering all the consumer and business use cases and bubbling them to the top.  But for a terminal early adopter, I have to say it's really going to become an important enhancement to the way I communicate and accumulate what I know (and who I know.)

This is going to be a slower rollout than most web applications.  There is a lot we don't yet know about how to best package it as well as people's usage patterns.  The computing machinery behind the curtain is substantial.  So we still have a lot to do to understand some mundane but essential things like what it costs to support a user.  So please be patient.  The private beta is likely to last quite a long time until we get this right.  We are rapidly learning to live by Thoreau's guidance to simplify, simplify, simplify.

BBC & Mashups - What Would Karl Do?

About two weeks before my last post on Teqlo, I got an email from a producer at the BBC.  They wanted to talk about Teqlo.  (Actually they wanted to talk about Radar Networks, but stealth companies don't make for compelling telly, as they say across "the pond.") Josh Dilworth at Porter Novelli PR (Radar's firm) was kind enough to suggest they talk to me about Teqlo. The Porter Novelli team did an amazing job of getting feature stories on Radar in Business 2.0 and BusinessWeek.

Quandry... Can't talk about the new Teqlo positioning, gotta stay with the "mashups are cool and we do 'em" positioning. What to do? No time to consult the leading ethicist of our time - Karl Rove. Had to make the call on my own.

As a mentor of mine once said. "the Plan doesn't change until the Plan changes."  Notwithstanding the last post, we have not officially announced a new direction; so we are still officially going the same old direction until we go in a new direction.

The result?  BBC Video Link Love.

Here's a pointer to the web page for the show Click that was about Twitter, Teqlo, and other cool stuff.  Here's a pointer to the full 22 minutes of video (Teqlo is at about 10:00 minutes in).

And here's five minutes of me talking about the emotional range of fear, greed, love and loathing that make early stage investing so much fun.

The Teqlo Adventure

Few VCs admit to their misfires, though misses are more common in this business than hits.  One of the reasons I write this blog is to add some transparency to an all too opaque business of private equity.  It has been a while since I talked about Teqlo.com here.  Some of you may be aware there have been some changes recently. Others may have been to the web site recently and said “huh?” or, more precisely, ‘WTF?”

I figure the only authentic thing to do is to talk about this again, even when it is in an ambiguous period of re-birth.  This ugly period is a re-tooling of the premise of the business to give it more clarity of purpose.  It’s not fun being in the sausage phase.

First, let me admit we went down a mashup rat hole. We have a general technology for snapping together web services.  "Because they can" is an insufficient answer to "why do people want to create mashups?"  We failed to commit to solve a specific problem for a specific market, preferring instead the broad appeal of generality.  This has changed. 

No one led us down this rat hole.  We led ourselves.   When we realized we had to make a radical shift, we had to reignite the fire with limited fuel.  We made personnel changes because the fuel demanded it, not to penalize or blame anyone.  So we did the right thing.  We cut, refocused, questioned everything, and sharpened our edge. 

The first thing we did was toss out any pretense of solving everyone’s problem.  There is an old proverb that I just invented for this situation --  “The boiling of the ocean begins with a single puddle.”  We had to define our puddle.  So we did.

A friend of mine told me a few weeks ago that Snapfish is driven by a product team that thinks a hypothetical mom named Emily is their user.  Their design mantra is What Would Emily Want?  We went out and defined our Emily. 

The next thing we did was develop a hypothesis of the ways in which web application integration would please that Emily i.e., what is her pain?  What is she trying to do? What web services does she use to do it? And how does she cope with using 3-5 discrete web applications to get something done?    What  does she do now?  Then we went out and talked to a small army of Emilys. Arrgh!  This will strike everyone as obvious and necessary.  It is. And we hadn’t done it before because we were too busy building.

Along the way we re-learned something. Name your user.  Ask her what she wants; she will tell you, and often she will surprise you.  So we did and they did. One clear consequence is that you will see more emphasis on a configurable application, not a bucket o'widgets that snap together.  Leading with "it's so easy to build what you want" is like making a diet fun – it is still a diet, no matter how much more fun it is. You only do it when you must.

So now the Company is heads down executing what we think is a re-jiggering of the basic components.  We are packaging to solve a problem - not all problems.  Nor are we packaging to provide “examples” of how you can use Teqlo to solve a problem.  Nope.  We have picked a customer, listened to what they want, and are hacking away to get to market.

We now have an Emily in mind, a clear sense of who our natural distribution partners are, what’s in it for them, and how this little puddle becomes a pond and then a lake.  We dream of an ocean, but are navigating the puddle.

I'll tell you this much about the new direction - Web-based workflow.  Teqlo is ideal for making a pre-packaged process made from web applications and stitching them together to get something done.  There is no market for Cut-and-Paste, but Cut-and-Paste is the wow factor in Microsoft Office. There is no market for reconfiguring web applications, but reconfiguration is the wow factor in workflow for specific problems.  Without giving away the punch line, I'll point out that workflow is what's missing from the world of on-demand software.

The site itself has not changed.  It is still as confusing as it ever was.  That is not important, yet.  Over the next few [weeks] [months] the site will begin to molt.  We will shed the mashup cocoon and emerge as very different butterfly. (We may even re-brand the site to clarify what this new application is.) This butterfly will not offer you the universal promise of integration of all web applications. This butterfly will promise a specific user community a way to meaningfully improve the way they use the Web in their daily lives.  And if we do our jobs well, it will also be clear how we make money, not an insignificant question.

Of course, it might still be wrong, but that's the adventure in adventure capital.

Flattery Will Get You Nowhere

I haven’t posted something new in quite a while.  There are lots of reasons, not the least of which is that I try to comment on patterns I see which have not entered the general discourse about startups.  This one is about the seduction of the startup CEO – a pattern of distraction I see all too often.

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Startups are the stem cells of our economy.  They represent the hope and possibility of something new, invigorating, and transformational.  Startups are new ideas, often self-selected with leaders who see a few moves ahead from the rest of us.  At least that is the hope.

It often feels like the scarcest resource in a startup is money.  It is not.  Time is scarcer.  You can raise more money, but you cannot raise more time.   

New companies are interesting precisely because they are new.  If you’ve been doing this early stage stuff for while, you begin to recognize that there are certain life forms that get their nourishment from the new.  The most obvious are venture capitalists themselves.  We VCs all harbor the secret fantasy of finding the next big thing before anyone else recognizes it, even the new company itself. 

Nearly as obvious are Established Companies – the putative ‘partners’ of the new company. This comes in several forms – the line of business meeting, the business development meeting, and the corporate venturing meeting.  They, too, are driven by a discovery fantasy.  They are looking to discover growth DNA to graft.

All this attention is seductive for the new CEO.  The new CEO has the fantasy closing the single transaction that instantly transforms the new Company from obscurity to dominance.  You can hear this hope in the treatment of institutions as individuals.  “We had a good meeting with Bank of America.” “We just got an inquiry from Toyota.”  “Far West Ventures wants to meet with us.”

One of the most common mistakes small companies make is mistaking “opportunities” for opportunities. Most of the time these “opportunities” are distractions that drain energy, resources, and most of all, time.  People don’t talk to institutions. They talk to people.  When you have a “good meeting” with a potential partner, you really had a meeting with people in an organization. 

These people have their own agenda, only a portion of which is institutional.  A large part of it is personal.  I can’t tell you how many times I have seen a new company take two or three meetings with someone from a big company, only to culminate in a conversation in which the big company person uses the new relationship to disclose that s/he is leaving and looking to join a company like yours.

Another frequent outcome is the set of “good meetings” that lead to the “no, thank you” result.  Usually these are result of a process of discovery and education engaged in by the inquirer and the new company respectively.  The inquiry begins with a sense of genuine but diffuse excitement about “your space.”  Eventually as you spend time with them, the inquirers are bit more educated about they do want and a lot now more educated about what they don’t want. They don’t want companies like you.  This is equally true of companies and investors.  You are worse off than you started. You have spent precious time and you have educated one more resourceful and intentioned group about your market and the strategic contours of the opportunities within.  No good can come of this.

But not all “opportunities” are illusory.  Some are real and truly transformational.  What I try to get my companies to do is apply basic sales skills to this question of partnering and inbound opportunity management.  The undisciplined salesperson will chase every inbound inquiry in the hope of finding the “bluebird.”  The disciplined one will ask qualifying questions of the inquirer.

• Why are you interested in this sector?
• How does this fit into the core business or business strategy?
• Is there a line of business directly impacted by this sector?
• Does the line of business have an objective in this sector for the coming year?
• Is there a specific budget or program associated with this sector?
• Who is responsible for this sector?
• What kinds of companies/products are you looking to evaluate or partner with?
• What other companies/products have you considered?
• What were your conclusions about those other alternatives (likes/dislikes)?
• Is there a timeline or desired time goal for building a relationship with someone in the sector?

These questions may seem too direct to pose to an inquirer.  After all, you are small and they are big. They have the power in the conversation, or so it seems.  But if they have a well-formed interest, they will be all too happy to share these data with you to move the conversation along rapidly.  If they don’t, they are looking for an education.

Save your time. This is not the Academy Awards.  It is not an honor just to be nominated. It may be flattering to be called; but many are called, and few are chosen.  And this flattery will get you nowhere, fast.

Measuring Success

My previous post was a semi-theoretical statement about how to view the need to fund the continuous experimentation of consumer services.  Last week I was on a panel at Pillsbury Winthrop regarding Web 2.0.   Continuing my point about the need for continuous iteration, I made the point that it is absolutely essential to instrument your business to learn the fine grain details of what is really driving your business. 

I thought I'd share with you just a hint of what I mean.  Each day I, and every other Board member at Riya, get an email containing over 50 operating metrics of Like.com.   Some of them are obvious, like Daily Uniques, Number of Clicks, etc.  Others are not so obvious, and reflect our daily success at coaxing users to help us build the business.  Each of these metrics ties to decisions the team is making about traffic sourcing, user experience, product features, products being compared etc.

One of the cooler things in the daily stats are the SKU analyses we see.  Among all the other stats, we get to see the daily zeigeist of fashion and what's selling.  We literally get pictures with associated links for the top selling SKUs.  My last mail with the SKU report had the following products as top sellers:

About a month ago I actually bought a pair of "Von Zipper" sunglasses that came to me in my daily traffic report.  (Invest $5.5M you still pay retail!)

This fanatacism about continuous measurement and transparent communication is not something the Board imposed, nor even asked for.  I remember this was the thing that most impressed me about Munjal the first time I met him five years ago. Then he whipped out an excel spreadsheet with every operating parameter of his prior business and showed me how he and the team were moving up, one day at a time.

There are a lot of ways to grow the top line.  You can spend your way to revenue (and oblivion) - the strategy formerly known as "get big, fast."  There is only one way to grow the bottom line - make the business algebra actually work. Today Riya is using the organic traffic to see how changes improve monetization, repeat usage, etc. The business is in "fine-tune" mode.  Every change improves the lifetime value of every user and the marginal profit contribution of every dollar to be spent on marketing.  We haven't poured gasoline in the engine to accelerate the traffic.  We are tuning the user experience as measured by the economics of the business.  Of all the graphs and images I get every day, this one is the best because it shows our users are voting with their mice.  What's not to Like? 

When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind: it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the state of science
- Lord Kelvin

...and these days, consumer internet is definitely a science.

Fail Fast, Fail Often

There was an article last week in the Wall Street Journal talking about an apparent change in the entrepreneurship/VC funding model.  Riya, Meebo, and others were cited as poster children for the new restraint.  The core idea was that entrepreneurs are taking advantage of the availability of capital to fund for long periods, often several years, rather than the traditional 12-18 months.  So why does this make sense? Why raise a bucket of money when a thimbleful will do?

The classic venture model has been to fund to milestones 12-18 months out.  In consumer web services, there are only two meaningful milestones --  (1) are you getting a lot of users and (2) have you figured out how to make money?  We use other metrics in other sectors (like management, product, etc.)  as proxies for real economic progress.  We also use them because (we believe) they would have residual value in an asset sale or merger. 

None of this is true in consumer web services. You're either hot or not. Second place generally sucks.

The problem is that it is hard for entrepreneurs and VCs to know a priori if something is going to be a hit. The only way to know is to try, and trying takes time and money.  So here's the real rationale for what it makes sense for these companies to raise "a lot of money" and not blow it.  They have to run lots of experiments.

By now we are all well-acquainted with the observation that software is cheaper than ever to produce.  But that is only half the story.  The other half is that it takes several iterations -- several trials -- to hit it big.   

Imagine you have a low-burn consumer internet company and you think you can do your next build for $2M (offshore, open source, etc.)  Imagine further that there is a 1 in 20 chance that you could be the next [insert fantasy outcome here]. Angels are lining up with $2M in hand.  VCs are waving $5-20M checks at you.  Everyone says this is a $10M pre-money company and you own 50% today.

Assume you have a 5% chance of Being Big on the $2M raise, and a 95% chance of nothing.  The chance of Being Big if you raise $4M is 9.75% (1-.95*.95).  This is because you can iterate twice at 5% probability each.  The chance of Being Big after raising $20M is 40.1%.

Of course, each $2M has a dilution to you as the Founder. As the graph below illustrates for this hypothetical example, the risk-adjusted ownership (diluted ownership x probability of success) increases as you raise more money.  (This conclusion is not universally true in all situations.)   

The key to this thinking is to resist the temptation to spend like a lottery winner. Raising the big VC round isn't winning the lottery; it is the purchase of a deck of weekly lottery tickets. 

This is how Munjal Shah described the move to Riya 2.0 in the WSJ article.  It was the realization that the first experiment, while a success by many measures, wasn't enough of a success relative to other options.

The larger-than-expected VC rounds in consumer internet deals are perfectly rational outcomes, for the entrepreneurs who understand the trials of consumer marketing.  Failure is baked into the calculus of the opportunity.  The key is to fail fast.  Set metrics ahead of time and be decisive. Because time is money -- literally.

Entrepreneurs who practice this discipline are just doing what VCs do every day.  Venture Capital is a hits business, too.  Companies often fail.  Time is money here, too.  Failure is part of the process.  We, too, are looking to fail fast and expect to fail often.  That's why funds are getting bigger, too.

SDForum Panel on Semantic Web - UPDATED (AGAIN)

POST-MORTEM
This was a really great experience.  I want to thank the participants and especially the audience.  The audience was incredibly involved and insightful, making the whole meeting more of a directed conversation than a symposium.  I was really impressed with the caliber of thinking in the room. 

Several people missed the URL I gave for my introduction presentation; so here it is.  Also, if anyone is interested in joining a cutting-edge consumer semantic web company, I'd encourage you to look into Radar Networks.  Radar is going to launch in the next few months and is actively looking for experienced Java developers and systems management experts, and people with experience marketing consumer web services.  I'm biased, but I think Radar is doing some of the most interesting work I have seen building commercial semantic web applications.

This is just a quickie. I have been asked to moderate an Emerging Tech Panel at SDForum on Semantic Web applications and technologies next Wednesday, January 10.   I am not sure what we can expect, but it should be interesting, given all the hoopla after the Web 2.0 conference about Web 3.0 and the eternal where do we go from here question that haunts the Valley.

The first 100,000 attendees get a lifetime free subscription to this blog (my lifetime, not theirs).

UPDATE
Panelists will include two new additions.  Alain Rappaport, CEO of Medstory, will join us, as will Ramana Rao, founder and former CTO of Inxight Software.  Both are experienced entrepreneurs. Alain was a founder of Neuron Data Systems, a leading software tools company in the 1980s and 1990s. Medstory is a semantic search engine. Inxight is a XEROX PARC spinout that is the current market leader in semantic analysis tools, used by nearly every major technology company building search applications today (except one).

• Where: Cubberley Community Center, 4000 Middlefield Road, Palo Alto, Room H-1
• When: Wednesday, January 10, 2007
• 7:00 Registration, Pizza, networking, and small-talk
• 7:20 Introduction and announcements
• 7:30 - 9:00 Presentations
   

How to Double Your Valuation

That got your attention, didn’t it?  Maybe I learned something from all those enlargement offers in my email after all.

Now, let’s get down to business.  I re-learned something last week.  Focus sells.  Duh.  I'll be specific.  Last week I saw two remarkably different pitches, both from companies with great technology.  One sold the generality of what they could do, telling a Big Story.  The other told a Focused Story about an existing customer base they were going to serve better. .They explicitly avoided  in the pitch any mention of where else their technology might apply.  That was the voice over in the conversation around the pitch. All other things were equal  -- limited management team, pre-launch, working alpha. 

I struggled with the Big Story Company, befuddled about who would really use this.  I jumped out of my chair (metaphorically) to chase the Focused Story, because I could envision so many more uses beyond the first beachhead market.  VCs are great at imagining a big Future, but most of us want an anchored Present.  The Big Story Company was hoping for a valuation $10M pre-money.  The Focused Story already had a term sheet at $20M when we met.

There is an enormous temptation in startups to think and talk expansively about a long-term vision centered on the technology of the Company.  That vision often includes the word enable as in we will enable … That’s your first clue.  Enable is one of those value-halving words.  So are Discover, Context, Create, and Build. All those words really say, The proof of value is left to someone else. That applies equally to the valuation. The proof of value is left to someone else because we can't articulate it. 

Companies started by technologists routinely fall into this trap. (I mean both business and engineering technofiles, BTW)  They don’t start with the intent of solving a specific problem. They start with the intention of “leveraging” a specific technology.  The fact that the technology is a piece of many potential futures seduces the team to think they have a big opportunity.  It is uncomfortable for the team to commit to a market because they don’t know the end user.  There are two solutions to this. Turn inward and build technology, or turn outward and recruit people who do understand the solution.  It is dilutive, but if it doubles your value, you can’t afford not to do it. 

Years ago I was on the board of a company that had phenomenal technology for building predictive models from text or data.  The team had identified potential applications in CRM,  online advertising, search, database marketing, customer support, and others.  The CTO referred to the product as a bolt-on brain, because it made many existing applications much smarter.  The problem was that the technology was 10% of any given solution, even though it was the piece that differentiated the rest of the system. Capturing the other 90% required domain expertise not present in the team.  The Company never went deep, straddling several potential markets.  They were eventually acquired for the team and tech, not for the book of business it created.  It was an unsatisfying outcome for nearly everyone.  It was positive, but vastly under the potential.

So how do you double your valuation?  Pick one application; serve one type of customer and be in that business.  Show how you can conquer a specific set of competitors by virtue of the technology, but don’t be in the technology business.  If you can persuade your investors that the first beachhead is attainable and interesting, you will get credit for subsequent applications and the big, horizontal play. Tell a story that shows you understand who your customer is, how to get to them, and why they will buy or use your product/service. Show how powerful the technology and team are, but stay on message about the focus.  Let us imagine the Future.

• Don’t enable – solve
• Don’t provide context – provide conclusions
• Don’t ask customers to build – ask them to use

Technology is raw material.  Create finished goods.

Enhance your value with this Vi@gr@ for startup companies. Your partners will love you for it.

A Special Interest in Targeting the Blogosphere

One of the more interesting aspects of being a VC is the seeing the change in the entrepreneurial zeitgeist as it flows through our deal funnel. Startup activity is a form of collective consciousness.  I am repeatedly surprised by the co-occurrence of similar ideas from startup teams who have no connection to each other.   

This vantage point also provides a perspective on the go to market process as seen by entrepreneurs.  I’d like to discuss one pattern I have seen played out repeatedly over the past year.  It is summarized in the following exchange:

VC: So tell me, what’s your go to market strategy?
Entrepreneur: We are going to target bloggers, because they are early adopters.

I have heard this from prospective business partners as well as my own portfolio companies.

• This was an insightful answer in 2003. 
• It was an adequate first step in early 2005.
• But it is meaningless in 2007.

Today there are over 57M blogs (including spam). That makes the blogosphere the 24th largest country in the world, ahead of South Korea and only slightly behind France, the U.K., and Italy.

Consider the following substitution:

VC: So tell me, what’s your go to market strategy?
Entrepreneur: We are going to target [the entire population of South Korea – every man, woman, and child] because they are early adopters.

That’s not a target; that’s a universe. The only person who should be taken seriously when they say targeting a population of 57M is Kim Jong-Il.   Everyone else needs more focus. So let me offer a way to focus the answer. The target is the pivotal fraction of that universe that is critical in achieving your goals.  Even if it’s 0.1% of the blogosphere, that’s still 114,000 bloggers!

What is really a target in the context of this go-to-market question? A target has at least the following properties:

• - It is relatively homogenous in its perception of and response to Newco’s product (that’s why it’s a target and not a set of targets)
• - It is addressable by a limited number of actionable sales or marketing decisions (that’s why you can focus on them)
• - It offers some strategic or operational advantage over alternative choices (they are the most relevant population.)

How should we think about bloggers in this context?  Are they the media? Are they customers? Perhaps.  But bloggers are also just another form of indirect distribution.  They are the value-added resellers of the 21st Century, taking a widget here and a gadget there, to differentiate what they have to offer to their ‘customers.’ Your challenge is to be that widget or gadget in their blog – to have them integrate you into their online product.

So how will you define, attract, motivate and retain your online channel?  That’s the question that is running through my head when I hear “target the blogosphere.”

Fortunately, value-added reselling is a time-honored method of building a business.  There are even some parallels from the recent past. Return with us now to the thrilling days of yesteryear.  There used to be interesting organizations called software companies and, they, too, used indirect distribution.  They roamed the earth freely, devouring budgets with abandon, until the comet hit in the year 2000.  We can learn lessons about successful methods of indirect distribution from the fossilized records they left for us.

Lesson One:
Match the channel with the product. Understand what skills, motivations, reputation, resources, and reach a reseller must have to deliver your product to their customer.
Webspeak: Segment the blogosphere and profile your intended community.

Lesson Two:
Segmentation only matters if you can actually figure out how to attract, qualify, recruit the right partners.
Webspeak: Know how to find these people on the Web; what they read, what search terms they use, etc.

Lesson Three:
Try to get adopted by some existing network of resellers, rather than build your own.
Webspeak: Find existing communities of interest or purpose.

Lesson Four:
Indirect distributors don’t do missionary work for you.  They piggyback on your initial success and amplify it.   
Webspeak:  Use guerilla efforts to lead to (what usually only in retrospect appears to have become) viral marketing or network effects, i.e. success.

Lesson Five:
Give the channel a real ROI.  Demonstrate how they can achieve their goals through you. 
Webspeak: Affiliates.

A lot of the Web 2.0 conversation (and the echo) is about democratization and access.  It is mostly applied to content and media.  Perhaps a more important consequence is that it is the democratization of distribution.  As we have learned all too well, small, homogeneous, and motivated communities called special interest groups can drive democracies.

What’s your go-to-market? How will you find your special interest group in the democratized world of online distribution?