Apple’s Churning Of The Gut

It’s the funny season in technology land. The holidays are over, the major technology trade shows are soon to pass, and thousands of tech writers have nothing to report. So we get stories like the Wall Street Journal quoting unnamed sources that say Apple halved their component orders for calendar Q1. I find the whole thing fishy (via Loren Brichter) and never personally made the connection that a decrease in parts meant a decrease in orders. John Gruber linked to a great Forbes article that could explain the situation.

Personally, I’m really bored with these stories. Unnamed sources say such-and-such, the blogosphere goes wild, some rise up to defend Apple while some rip it down. The stock price moves. Then everything returns to normal, waiting for the next big “story” to appear days or weeks or months later. Yawn.

What interests me more is why does this stuff keep happening in Apple’s name? No one comes out and says this crap about Samsung, Google, Nokia, RIM, Microsoft or any other big name in technology. It’s all Apple, all the time.

One possible answer is that Apple’s headlines are perfect link bait. Write something disparaging about Apple and everybody who follows technology clicks the link. Posts get written about it for weeks. The irony is that all the commentary keeps the story alive, drives more traffic to the original writer’s web site, which gets them to write more of this garbage. The second possible answer is that we thrive on building up companies (and people) then tearing them down. Apple was the underdog for so long and now that it is one of the biggest and most successful companies in the world, well, we can’t root for them anymore. A third is that the company is just that divisive. These have been talked about endlessly; none ring perfectly true to me. They all strike me as symptoms, not causes.

I have come to believe that the true cause is something bigger than all of this. I think the right answer is that Apple just fails to pass the gut test for most people. It’s an incredulous reaction to Apple’s success. Look, how is it even remotely possible that a company with such a small market share could really be doing so well? How can a company that had so little success, a company that survived by the skin of its teeth in the PC era, be one of the largest companies in the world now? How can a company with so few products be such a behemoth?

I honestly believe people read their gut and say it can’t be possible therefore it isn’t. Apple can’t be this successful. It’s not possible. And I know that because my gut tells me so.

I had lunch today with one of my old college professors and his attitude was almost “about time.” Apple had its day in the sun, it did well for a while, but it’s time for market realities to catch up to the company. Apple has been a fad for a decade now — since the iPod launched in 2001 — and it is time for it to fade into the sunset like some hokey 1950s western.

Which I think leads to the last unfathomable point that makes Apple’s case so gut-wrenching. There is no way, the gut tells folks, that Apple can continue growing at the current rate. There’s no way! But what the gut can’t fathom is that the markets Apple is playing in are so ridiculously large that there are only a handful of other things that play at that scale, and all of those are at the base level of Maslow’s Hierarchy of Needs. I mean how in the world is it possible that smartphones could play at a seven billion unit market scale? After all, everyone needs air, water and food. Not everyone needs a cell phone.

The gut can’t believe it. Reality, though, can be brutally hard on the gut.

The Small Things

When I was young people used to always say “don’t sweat the small stuff.” As I’ve gotten older, I’ve come to the conclusion that the only things I should sweat are the small things. After all, they are the only things I can control.

In the end I can’t control what happens to the country. I can only understand the issues, share my opinion when asked, and care deeply about my vote. In the end, the success of a product is so much bigger than just me. I can only sweat the details: the animations, the graphics, the interaction, the customer relationship. In the end, I can’t control how my daughters turn out as grown-ups. I can only teach them to mind their manners and make sure they do their homework and teach them what it means to put heart and soul into the things they care about.

I’d like to think that sweating a lot of details means I’ll have an impact on my world. But I don’t sweat that; just the details.

Happy holidays everyone. I’ll see you in the new year.

Startup Doesn’t Equal VC

Starting a business has nothing to do with VCs. Startups have everything to do with exploring a product that satisfies a group of underserved customers. Paul Graham wrote an incredibly good essay on the topic of coming up with startup ideas. He never talks about funding in the article. He talks about how to derive the ideas and determine whether any one idea is a good idea. In short, “Live in the future and then build what’s missing.”

This topic is very important to me, especially the part about funding and VCs. Venture capital is just one way of funding a business. So are loans, credit cards, side projects, full-time jobs, and getting customers to pay for stuff before they get the product. The myth that startup and VC is synonymous is propagated by the same people who have a vested interest in making the connection: VCs.

There is nothing wrong with a business that pays the bills. It is not a lifestyle business. It is fraught with the same risks as every other startup and every other company.

It is okay to build a small business. 99% of all companies in this country are small. There is nothing easy about paying the bills with a company you started from scratch. In fact I would argue that you can’t skip that step. Paying the bills from cash flow is the only way to really build a larger company.

And going after just 1% of US citizens is not thinking small. It is thinking big. 1% is 3.1 million people. At $10 per year that’s $31 million in revenue. There is nothing small about that, even if some people want you to think so.

The State of Civility

The primary problem with extreme political partisanship is not the yelling and fighting and general discourse it causes the country, although that is an issue. The primary problem is that the nature of political anger leaks into the rest of society in the same way divorcing parents impact their children. In short, subtly. Thus the vitriol with which we treat each other is a direct descendent of the vitriol with which our civic leaders treat each other.

In the second debate, this exchange took place between President Obama and Governor Romney:

ROMNEY: Production on private, on government, land…
OBAMA: Production is up.
ROMNEY: … is down.
OBAMA: No, it isn’t.
ROMNEY: Production on government land of oil is down 14 percent.
OBAMA: It’s just not true.
ROMNEY: It’s absolutely true.

As Bloomberg Businessweek pointed out (which is where I got the exchange), “It was Abbot & Costello for angry people.”

We are permeated by anger and discontent. It’s customers for wasting our time and government for making life harder and old people for soaking up all the best benefits and young people for being young people. (Get off my damn yard!)

This isn’t a new phenomena, after all. Partisanship was so severe in this country that at one time we split in half. Anger was so severe in this country a few years back that we burned cities and bombed buildings. In fact this country was founded on discontent so the idea of it permeating every facet of our lives should probably be unsurprising.

Personally, though, I’m tired of it. I’m cynical by nature so staying positive is not always easy. (When I was a teenager I used to tease my cousin mercilessly. My aunt asked me why I have to pick on him so badly. I responded, “Because he’s such an easy target.” It started early.)

There is something about having kids that makes a person re-evaluate everything he does and how he does it. In an effort to raise my two daughters in a world less severe then the one I exist in, I have attempted to tone down my cynicism, to focus on positive aspects of this world, and support those who do, too.

That’s why I refer to them as President Obama and Governor Romney. Whether I like the men or not, whether I vote for either of them or not, they still deserve the respect their offices deserve.

It’s not just politics. When Infinity Softworks receives support emails from customers we try to respond quickly and succinctly. Our customers deserve empathy and respect. When I get a random phone call from someone in the community looking for advise on her start-up, I try to meet. When I need to move a meeting I try to do it early and almost always by phone so it is clear that I’m respecting the other person’s time.

I hope that these simple acts are cumulative, that the more I do them the more impact it has on my associates, family and friends. When I started Infinity Softworks, I went to share my business plan with one of my favorite college professors. He read it and asked if we needed some money to help get us started, at which point he handed me a check for $10,000. I offered to repay it or give him a stake in the company. He said no need. Instead, he offered, someday do the favor for someone else.

I will continue trying to hold up my end of that bargain.

Start With Free, Or Start With Freemium?

The first thing most customers ask themselves is whether a product can solve their problem. The second thing most customers ask is what will it cost.

This second question poses a problem for freemium apps. It is fastest and easiest to get the free part of the product done first. It’s the part that people will try first, it’s the basis for the product. If people don’t use the free version, after all, they will never pay for the premium version. The problem though is that if we don’t set up the premium version right away then we never know if people will pay. So do we start with free and go freemium later, or do we start freemium from the beginning?

Assuming that time is our limiting factor [1], by focusing first on the free product it allows us to perfect and iterate on it specifically, making the best possible free product that attracts people to use it. With more users we can then query the free customers more easily to figure out which features are most important for the premium product.

It seems Glassboard took this approach. The company introduced its paid version long after having a free version. But this apparently caused customer confusion and concern. Brent Simmons, who helped found the company, said the following in a blog post:

It’s been hard to explain some of the text on the Glassboard home page:

Unlike Google, Facebook, and Twitter, we don’t mine your data to sell advertising. We don’t do ads.

You are our customer — not advertisers.

People would point out correctly that the app is free and we’re not asking for any money.

That kind of customer confusion is suboptimal and likely kept some customers from creating an account and trying the service.

On the other hand, we can release the free and paid version at the same time. In this case we can immediately start with a critical piece of data — will people pay? — in the very first group (cohort) of users. Evernote, I believe, took this approach. This, too, has problems. Again with time as the limiting factor, this means our development and testing attention is split between a longer and longer list of features. On top of that, figuring out where to draw the line between free and paid may take a number of conversations with users who have used the service, which we don’t have yet.

Maybe both are optimal positions and work best for different kinds of businesses. Clayton Christiansen, in The Innovator’s Solution (Amazon, Powell’s), talks about three different kinds of market disruption: new market, low-end and sustaining. New market disruption assumes we are competing against non-consumption; low-end assumes we are addressing a new market with a cheaper alternative; and sustaining assumes we are bringing a better product into an established market. [2]

The iPhone, as Horace Dediu would argue, is a new market disruption. At the time the iPhone shipped only 1% of all mobile phones were smartphones. The iPhone was intended to convert the 99%. Android, however, shipped as a low-end disruption. It was specifically intended to play the low-end counterpoint to Apple’s, RIM’s, Microsoft’s and Nokia’s higher priced offerings. I can’t think of a sustaining example in the mobile world [3], so I’ll go with the appeal of Netflix when it launched. Like Blockbuster but more convenient with a better selection.

For each of these business disruptors, it seems, maybe a different approach to freemium needs to be put into play. With a sustaining or low-end disruption, the basis for competition is well known. Customers inherently understand the product with a simple comparison. Android’s like iPhone but cheaper. Netflix is like Blockbuster but better. In these cases the customer inherently understands the product and just needs to be convinced to spend money on the alternative. Thus, having both free and paid at the beginning is optimal.

But new products require education, and when education is required the tricky part is getting anyone to even try the product. Getting any users, let alone paid ones, is the axis to optimize on. And thus, in this case, there is no need to worry about premium yet. Start with free first.

[1] This is from the old axiom about how you can’t optimize on all three axes — time, money and people — only on two. I believe almost all new products are limited by time. If you have funding then your time is limited by the amount of money you’ve raised and how long it can keep your team together. If the new product is developed out of revenues, then the time available to work on the product is limited since attention must be paid to the projects that pay the bills.

[2] Page 44

[3] Maybe the move from 3G to LTE but that’s pure technology.