Gennaro Cuofano's Blog, page 264
February 18, 2018
DuckDuckGo: This Is How Gabriel Weinberg Founded the Search Engine That Doesn’t Track You [Infographic Inside]
The story of DuckDuckGo is incredible for a few reasons. First, when Gabriel Weinberg started it back in 2008, it was a latecomer. In fact, at the time Google had already a market dominance. However, the story shows us that also when you’re the last to get into a market, if you identify the weaknesses of the dominant player, you can still create a company in a niche that a big player is not able to serve. In fact, Gabriel Weinberg identified three things he didn’t like about Google.
First, there was privacy. Indeed, many users – many others still don’t have a clue – today are educated enough to know that Google tracks your searches and pass that information to third party websites. At the time though it was not trivial.
Second, Gabriel Weinberg considered Google’s results – at times – too spammy. In fact, as Google got better and better at serving search results. It also started to use data gathered from its users to show those advertisings. That, according to Weinberg was not good for the user experience. Today many believe that a search engine needs to track searches to serve proper advertising. However, that is not what DuckDuckGo founder felt. In fact, he understood that he could sell advertising also if he didn’t track its users. Thus, advertising could be shown based on keywords and localization (if the user decided to be localized but not tracked). That is how DuckDuckGo works today. It serves ads based on keywords rather than search history and other factors from the user’s data.
A third aspect was based on instant answers. Gabriel Weinberg believed that users wanted to ask questions and get instant answers. Today we give it for granted as Google as well had developed natural language understanding. Thus, if you ask a question to Google you get an answer through the so-called “featured snippet.” At the time though this was not trivial at all. In fact, Gabriel Weinberg used instant answers as a pillar for its search engine.
The story of Gabriel Weinberg and its search engine, in conclusion, is compelling because it shows us:
you can still enter a market successfully even if you’re a latecomer
you can build a company over a niche the dominant player isn’t able to serve
by challenging what has become the status quo you can grow a new business
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February 17, 2018
How Amazon Makes Money: Amazon Business Model in a Nutshell
A business model is a crucial component of any company that wants to thrive in the long-run. In fact, many times the difference between a successful and a failing business – besides the product or service offered – is how value gets unlocked. The business model is the main driver of value. In fact, the business model can determine the difference between a monkey and a unicorn.
In start-up lingo, a unicorn is a company valued more than a billion dollars. Whatever you want to call that, any start-up wildest dream is to scale up fast and get there! There is a simple reason for that. If you get to a billion dollar valuation, the chances of survival will improve exponentially.
Of course, that is true in the context of North American venture capital market. Elsewhere numbers might be entirely different. One key factor in becoming a unicorn as you can imagine is about finding the right business model.
According to visualcapitalist.com, seven business models have higher odds to get into the unicorn circle:
1. Commission
2. Asset Sale
3. Subscription plans
4. Advertising
5. Usage Fees
6. Licensing
7. Rent/Lease
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Source: visualcapitalist.com
According to the same analysis, 87% of unicorns’ products are software, followed by hardware (7%).
For how much we love to believe that things can be easily classified. Organizations, like Amazon, have complex business models that are hybrid. Thus, rather than rely on a single type of model, they are dependent on the mixture of those models. The way those models interact is quite subtle, yet that is what really creates, unlocks and generates value in the long-term.
To truly understand the business model of Amazon, we can start from Jeff Bezos vision. Then move to its revenues, but then we have to dig a bit deeper to find out a few interesting facts.
Amazon according to Jeff Bezos’ vision
At times a great place to start to understand the business models of a startup it isn’t necessarily its financials but rather how the founder sees its baby. In fact, for any founder a la Jeff Bezos its company has been nurtured just like a baby. Of course, founders’ vision of their company can also be biased. In which case the perception of the company according to its founder and how the public perceives it might have a wide gap. However, it is a useful exercise to look at the shareholder’s letters if you want to understand the past, present, and future of any company.
From Jeff Bezos’ 2016 letter to shareholders, it seems clear that he has one metric in mind “Being on Day One!”
For Jeff Bezos, that means to avoid decline or extreme slow motion and push for more each day. As he put it:
Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.
He has four main metrics to assess whether his company is on Day One, or is falling toward Day Two:
1. Customer obsession,
You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.
2. Skeptical view of proxies,
As companies get larger and more complex, there’s a tendency to manage to proxies.
What does that mean?
A common example is process as proxy. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations…
…The process is not the thing. It’s always worth asking, do we own the process or does the process own us?
3 The eager adoption of external trends,
The outside world can push you into Day 2 if you won’t or can’t embrace powerful trends quickly. If you fight them, you’re probably fighting the future. Embrace them and you have a tailwind…
…We’re in the middle of an obvious one right now: machine learning and artificial intelligence.
4. High-velocity decision making.
Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions…
…First, never use a one-size-fits-all decision-making process…
…Second, most decisions should probably be made with somewhere around 70% of the information you wish you had…
Third, use the phrase “disagree and commit.” … “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?”
Putting it all together
Jeff Bezos offers a portrait of Amazon which is useful to understand its business model deeply. Frist, it all starts with Day One. Which, for me is a way for Amazon to keep a “start-up mindset” also if it has become a large organization. It means focusing on customers, therefore, experimenting new products lines, services or anything that might become “delightful” to the public. In fact, once Amazon does identify strong trends, rather than fight them it embraces them. One example is how nowadays Amazon is using AI and machine learning as main propellers for its business growth.
In other words, practically speaking this makes Amazon fluid. Thus, the Amazon of tomorrow might have a different face – but the same soal – compared to the Amazon of today.
How does Amazon work?
Amazon is a giant marketplace where each day billions of people find anything from the latest best selling book to things like Nicolas Cage pillowcase.
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According to the Similar Web estimates each day, only in US Amazon has over 2.7 billion visits. On average those people spend more than six minutes on the site and look at almost nine pages purchasing what they’re looking for.
That makes of Amazon the fourth most popular site in the US. The Amazon business model revolves around four main players:
Consumers
As Amazon states in its annual report:
We serve consumers through our retail websites and focus on selection, price, and convenience. We design our websites to enable hundreds of millions of unique products to be sold by us and by third parties across dozens of product categories. Customers access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo, and we develop and produce media content. We strive to offer our customers the lowest prices possible through low everyday product pricing and shipping offers, and to improve our operating efficiencies so that we can continue to lower prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service. In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on tens of millions of items, access to unlimited instant streaming of thousands of movies and TV episodes, and other benefits.
Sellers
We offer programs that enable sellers to grow their businesses, sell their products on our websites and their own branded websites, and fulfill orders through us. We are not the seller of record in these transactions. We earn fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for our seller programs.
Developers and enterprises
We serve developers and enterprises of all sizes, including start-ups, government agencies, and academic institutions, through our AWS segment, which offers a broad set of global compute, storage, database, and other service offerings.
Content creators
We serve authors and independent publishers with Kindle Direct Publishing, an online service that lets independent authors and publishers choose a 70% royalty option and make their books available in the Kindle Store, along with Amazon’s own publishing arm, Amazon Publishing. We also offer programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content.
An effective business model to work properly has to involve and generate value for several stakeholders. That applies to Amazon business model as well. In fact, when I get into Amazon marketplace as a consumer I can find anything across dozens of products categories. Among those, I can also buy Amazon products (like Kindle, and Echo), or subscribe to Prime (to get faster delivery and even access to an on-demand library of contents). Also, thanks to Amazon seller program the company earns fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination of those based on the transactions generated by the marketplace; Although AWS is a platform of its own. Nonetheless, it has a strategic role for Amazon. Last but not least, the KDP platform allows thousands of independent authors to publish their e-books and info-products. According to the plan in which the independent author enrolls into Amazon will earn anywhere from 30-70% of royalty fees from the sales.
Like all the other tech giants Amazon could create such a robust business model that it now works as the main engine for the dominance of the company in the next decade; As technology becomes more and more competitive business models lose effectiveness. However, a business model well-designed can make a company capture value for a long time!
How does Amazon make money?
It’s time to dive into the numbers to understand how the company works. When trying to understand a business model, the revenues are a good starting point. But it’s also important to look at other financial metrics to deeply understand what’s the real cash cow. In fact, it’s easy to be fooled to believe a company falls into a specific business model. However, numbers don’t lie. Where does Amazon stand?
According to the infographic, you can see that Amazon makes most of its revenues from the sales of products. However, those products sales also have high costs. Thus, the margins Amazon makes on them is thin. Instead, if we look at the operating income, you can see how this is fueled by the services, which comprise seller services, AWS, and subscriptions services.
In other words, by looking at the revenue, you might be fooled to think that Amazon is in the product business, just like Apple, yet there is a slight difference between the two companies!
Amazon vs. Apple
Like many things in business, so revenue generation seems to follow a power law. You try quite many things, but you end up with one reliable and sustainable source of income after all. Sometimes the differences in business models are subtle. Take Apple and Amazon. As they generate most of their revenues from “products” one might think they have the same business model.
However, with a more in-depth look your realize their model is entirely different. In fact, while Apple sells its iPhone at a high margin, Amazon sells its products at a thin margin (in fact, cost of sales for Amazon is almost as high as the revenue generated by its products).
In short, Amazon seems to use its products to ramp up its services revenues, which seems to be the real cash cow. However, if you look at revenues alone, you might be fooled to believe Amazon is in the “product” business.
Summary and Conclusions
Amazon is a tech giant. When it started back in the 1990s, it began as an online bookstore. Today Amazon is the store that sells anything imaginable. As its founder, Jeff Bezos has specified Amazon is a customer-centric company. However, it is clear that what made and makes Amazon so compelling is the business model it created that generates value for several players.
Consumers find products at a lower price and get it way faster. Sellers can find new market opportunities or decide not to carry any inventory. In fact, Amazon has its own fulfillment center that manages the inventories for sellers. Thus, that makes very easy for anyone willing to start an online business to start up with meager cost. Developers and enterprises can rely on AWS cloud services. Last but not least content creators can effectively monetize their info-products through programs like KDP.
Even though Amazon makes almost 70% of its revenues through products sales. It is also true that those revenues carry a high cost of sales. Therefore, margins are thin. Instead, the real cash cow for Amazon seems to be the service part, which comprises AWS, seller services, and subscriptions services. These segments have been growing in the last year, and I argue they will continue to grow in the future.
Amazon shows us a valuable lesson. For how much we like to categorize things under fixed, immutable categories and definitions. Often, a company to become a multi-billion enterprise has to create a hybrid business model that takes advantage of several models at once. From this kind of business, the model value gets unlocked for several players. When that happens anything is possible!
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February 12, 2018
11 Must Read Books for the Unconventional Businessman
He who loves practice without theory is like the sailor who boards ship without a rudder and compass and never knows where he may cast.
by Leonardo da Vinci
A quote is just a quote. However, I wanted to start this list with Leonardo da Vinci’s quote because it raises two important points. First, Leonardo da Vinci was not an entrepreneur, neither a businessman. However, as a Renaissance man, he was a polymath; someone who had profound understanding and expertise in several disciplines.
In this era where we go toward extensive specialization, it is vital to remember how important is to develop an understanding of several subjects. In fact, if you want to undertake a career in any field, specialization is for you.
Instead, if you’re going to become an entrepreneur you need to have an understanding of several disciplines at ones. That makes sense because as an entrepreneur you will also be managing people and projects that span across industries and disciplines. If you don’t develop a mindset of lifelong learning, it becomes quite hard to keep up with that.
Therefore, having Leonardo da Vinci’s attitude and mindset means just that. Being open to learning anything that can make you become a better businessperson. Also, this quote from Leonardo da Vinci emphasizes another crucial point. As entrepreneur or businessman, practice is crucial.
In fact, only from practice you can create, build and grow successful businesses. On the other hand, without study and the right amount of theory – as Leonard da Vinci points out – is like sailing without a rudder and compass not having an idea where to cast.
Therefore, theory, which I don’t mean as education, or academic degree but instead of understanding is crucial for any businessperson. That is why – I argue – it is essential to devote part of your daily routine to reading.
There are millions of books out there. Choosing the right one is very hard. I spend hours each year just to pick the right books. Among the books I’ve read that truly affected my thinking in the last years. The list below comprises the ones which shaped the most my understanding of business in an unconventional way.
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Skin in the Game: How Nassim Nicholas Taleb Can Change Your View of the World
When I was twenty, my hero was Alan Greenspan. I know you might think who in the world – at twenty years old – has such a hero. The point is that economists and central bankers are often portrayed by media as the ones that control the economic, therefore personal destiny, of billions of humans. No surprise then that young men want to become like those heroes. That is also why I’m not surprised to see young men, in their twenties, which have as the primary aspiration to become just like Alan Greenspan. Of course, the former president of the FED is the scapegoat used for the crisis of 2008. However, the system itself allows those people to make decisions that influence billions of people without paying the price for their errors.
I was awakened from this youth deception by the book series, Incerto, by Nassim Nicholas Taleb. His book, currently available in French (Jouer sa Peau) or Skin in The Game addresses a critical issue of modern society: how we address risk.
In fact, in Taleb’s words, modern bureaucracies have created a militia of interventionistas or men that make decisions for millions of people, but then don’t pay the price for their mistakes. In fact, the book moves around three central issues of modern societies.
First, the uncertainty of knowledge and how to filter the BS. Second, the symmetry in human affairs and why hidden conflicts of interests can be neutralized by having the person making the decision also paying for its errors. Third, and foremost, rationality in complex systems is much more bound to survival mechanisms, rather than intricate psychological patterns, like many modern “scientists” make us believe.
What are the main traits of those interventionistas?
First, they think static, not dynamic. When Alan Greenspan was moving the interest rates, he felt that his moves had a direct, clear and explainable cause-effect relationship on the whole economic system. Second, they think regarding low-dimension rather than high-dimensions. In other words, in a complex system, the cause-effect relationships are way more opaque than interventionistas tend to believe. That is because, in reality, there are hundreds of variables that can influence the cause-effect relationships (high-dimensional space). Instead, interventionistas think regarding a few variables (low-dimension space).
Why is this important at all?
In short, when dimensionality increases (more variables come into play) also the volume of the space increases exponentially. Therefore, the data that before was used to describe a phenomenon becomes sparse, thus worthless. In other words, it loses statistical significance. Almost like a dog chasing its tail, that data becomes useless, that is the “curse of dimensionality.” That is because the data needed grows exponentially with the dimensionality.
What’s the third trait of interventionistas?
That leads to a third point, they think in terms of actions, rather than interactions. In a complex system made of interactions, rather than actions, the behavior is nonlinear. In short, the same input can produce several outputs, based on the state and context.
How to get rid of those interventionistas?
Taleb mentions how in ancient Rome, less than a third of emperors died in their bed. In fact, most emperors when declaring war were also the first ones in line for the war. If the battle got lost, their paid with their lives. Yet that is not how modern society works. Today, those who make decisions aren’t those who take the risk neither the ones who pay for their mistakes.
Must-read:
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February 10, 2018
The Power of Google Business Model in a Nutshell
How much is a brand worth?Â
Putting a $ amount on a brand is very hard. For a financier, a brand is something valuable but not essential. In fact, a financial analyst would take a practical approach. For instance, by looking at assets on a balance sheet (like patents and trademarks) and computing the overall value of those. Yet this would neglect the value of the interactions between those “intellectual properties” and the minds and people tied to the business.
For an accountant that is just a headache. That is why accounting methods have neglected it for hundreds of years and still do. In fact, often it’s possible to put a $ amount on a brand only when a company gets sold. Whatever surplus is left after the sales, accountants put it under the umbrella of “goodwill.” Almost like someone trying to hide dust under the carpet; when there isn’t a better place where to dump that.Â
For an anthropologist, the brand is all that is. In fact, he would go on saying how the value of your business over time will be based on how hard you worked in persuading people believing in your company’s myth. The stronger the myth, the stronger the brand.Â
I like a holistic approach based on the one thing – I argue – that captures the value of a business in the long-run: its business model!
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The information at users’ fingertips
When Google went public in 2004, Larry Page and Sergey Brin put together a letter which clarified:
Sergey and I founded Google because we believed we could provide an important service to the world-instantly delivering relevant information on virtually any topic. Serving our end users is at the heart of what we do and remains our number one priority.
Our goal is to develop services that significantly improve the lives of as many people as possible. In pursuing this goal, we may do things that we believe have a positive impact on the world, even if the near term financial returns are not obvious. For example, we make our services as widely available as we can by supporting over 90 languages and by providing most services for free. Advertising is our principal source of revenue, and the ads we provide are relevant and useful rather than intrusive and annoying. We strive to provide users with great commercial information. (Source:Â abc.xyz)
Google has created the most powerful search engine that proved to be the most reliable alternative for users. In fact, each day billions of queries go through Google. People ask any question. From very practical questions like “how to tie a tie” to more existential ones like “why am I like this.” Users all around the world can rely on Google’s AI-powered algorithm to read and understand their queries.
Without that focus on providing a superior product, Google wouldn’t have become what it is today. However, that is the first part of the equation.
The long-term value is in the business model
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Source:Â visualcapitalist.com
We are often bound to believe – especially in tech – that is all about the product or service you offer. I want to show you why that is not the case.Â
Take Apple, 63% of its revenues come from the iPhone. Therefore, you might think that is what makes this company profitable in the long-run. That is an oversight. What makes Apple sustainable in the long-run it’s the hardware and software ecosystem it created around those products.Â
Take Google. You might think that since Google is the best search engine out there, that is why it makes 88% of its revenue from advertising. However, for how marvelous Google search algorithm is, what makes Google the tech giant that is today; is its business model.Â
AdWords and AdSense together create a win-win-win. Companies can sponsor their products for much cheaper, and track their results with no effort. Online publishers can easily monetize – something is better than nothing – their content. Users get relevant answers to any question they might have. A great product is a little part of the equation. The rest is about business modeling!Â
In fact, a business model is what helps companies capture value in the long-run. If you do not have a business model, you might not have a business.
Google PPC in a nutshell
Back in 1999, it was already clear that Google was the best search engine out there. It wasnât clear though how it was supposed to make money. In mid-1999 Page and Brin met Bill Gross, founder of GoTo.com search engine.
Gross had an idea. Rather than rely on the old advertising model based on CPM or cost per mille – in short, advertisers would get paid on the number of impressions of an ad. Gross thought of a new model, based on CPC or cost-per-click. A company would pay an advertisement only if a user found it so relevant to click.
At the time Page and Brin were still reluctant about using ads to monetize Google. Yet the company was burning cash, and by the year 2000 investors were getting nervous. When Page and Brin were approached again by Gross, which proposed to merge the two companies, Googleâs founders declined.Â
Why? Because they didnât want their search to be associated with a company that mixed paid advertising with organic results. Today Google generates over 88% from advertising, of which CPC is the primary driver.
In 2002 Gross sued Google for allegedly stealing its cost-per-click model.
Google AdSense in a nutshell
In 2003, Google‘s employee Paul Bouchet developed a feature that allowed the matching of words sent through Gmail with keywords bidden by advertisers. That generated ads profits with the CPC model.Â
Sergey Brin thought why not to apply this model to websites. That is how they kicked off AdSense. In short, Google for the first time allowed small businesses and blogs to generate ads revenue on their own. In return, Google got one-third of the revenue generated. As Danny Sullivan put it at the time on the USA Today “it basically turned the Web into a giant Google billboard.”
Therefore, any “Web property” was a good candidate to become a Google partner and generate profits for their content independently from advertising middlemen. What’s the take here? I believe two main ones.
First, a business model well designed can make a business go from zero to a billion, just like it did with Google. Second, at times when a company grows at the size of what Google is today, it’s hard to remember that back then it was a disruptive force that “democratized” the web, allowing small blogs and small businesses to make money online!
A win-win-win Business Model
AdWords and AdSense combined made Google among the most powerful tech companies in the world. Of course, Google managed to get there because it was backed by a great service, a search engine able to have you find any kind of information in a web made of billions of pages.
Yet, without such a powerful business model that search engine today wouldn’t exist. Also, most if not all Google existing applications (Google docs or Gmail to mention a few) wouldn’t exist if it wasn’t for the stream of revenues generated over the years by Google‘s business model.
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In other words, a well-designed business model has to create value for the stakeholders and not just for the shareholders. Google allows each day to billion people to find the answers they need. Businesses can enhance their revenues through AdWords by tracking their spending, conversion, and opportunities. Content creators can easily monetize their content by allowing Google to show targeted ads within their “web properties.”
That is how Google went from zero to over seven hundred billion of market capitalization!
Suggested reading:
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February 5, 2018
What Elon Musk Can Teach You About Unconventional PR
If you say “visionary entrepreneur” chances are you’ll think about Elon Musk. Even though he is a visionary, someone with unconventional ideas. Strangely he’s also very popular. Not kidding when I say that Elon Musk is a rock star!
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In fact, just to give you an idea of his popularity, I compared Mick Jagger to Elon Musk, and not surprisingly, Elon Musk is way more popular:
One week ago Elon Musk announced on Twitter that one of his ventures – The Boring Company – was producing flamethrowers for 500 bucks.
The Boring Company flamethrower guaranteed to liven up any party! https://t.co/n2FiZimJia
â Elon Musk (@elonmusk) January 28, 2018
One week after The Boring Company has made $10 million in revenue. That means in less than a week the company sold at least twenty thousand pieces! (by the way, they had finished all the supply they had in less than a week. Had they not set up a limit I wonder how much more they would have sold).Â
That is a tremendous result for something you don’t even know what to do with.
In fact, don’t ask Elon Musk what to do with that he might come up with some other crazy idea (he said to use that for the next Zombie invasion).Â
Elon Musk is the same person that can sell us Hyperloops, underground tunnels for cars, and houses on Mars. All those things don’t exist and most probably will not exist in the next ten-fifty years (or might never existence).
Yet he’s already sold them! In short, Elon Musk is the most exceptional salesperson of our time! He could sell ice to Eskimos and then help them to melt it with the flamethrowers he had sold them a moment before.Â
In fact, you might think what happened with the flamethrowers was by chance or accident. That is not the case. Just a few weeks before Elon Musk announced the sales of a “boring company” hat. He also came up with crazy giveaways:
Every 5000th buyer of our boringly boring hat will get a free hat signed by the delivery guy https://t.co/11TYEUSG4M
â Elon Musk (@elonmusk) December 3, 2017
Not long after, they had run out:
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We all have crazy ideas. But when we express them aloud we get “you’re crazy!” When Elon Musk does, he gets “you’re a genius!”Â
That is the difference between an average person and the most exceptional salesman in the world.Â
Peter Thiel, former PayPal CEO and author of Zero to One defined Elon Musk as a “sales grandmaster.”
What’s the secret of this man that can sell anything to anyone?
Elon Musk has a crazy successful track record
Like any great company, a great product is a baseline. The same applies to personal branding. But rather than a product you need a track record!
Before founding Tesla and SpaceX, Elon Musk was the co-founder of a financial service company called X.com. The company merged with Confinity to become later PayPal. When eBay acquired PayPal in 2001 Elon Musk was the largest shareholder. After PayPal, he founded SpaceX, Tesla, SolarCity and a few other ventures. Until in December 2016, he founded The Boring Company. The main aim of the last enterprise is to excavate and build tunnels way cheaper than it’s done today. In this way, alternative transportation systems can be developed.
The ventures that Elon Musk has been creating in the last years have all been wildly successful.
Tesla at the time of this writing is worth more than fifty billion:
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PayPal today is a company that has changed the payments system worldwide. SpaceX, which seemed an impossible venture is now worth over 300mln dollar from an initial investment from Elon Musk of about 100 million dollars.
Those are just the last ventures. In fact, as a teenager, Elon Musk seemed to have mastered the art of starting up successful businesses.
That is also why Elon Musk‘s brand is as strong as ever. That leads us to the next point.
A flamethrower from Musk? That’s like a limited album edition from Mick Jagger
Rather than companies, Elon Musk has been able to build cults. When you buy a Testa, you’re not buying an electric car you’re buying a credo that says “I’m just like a Hollywood Star or a Silicon Valley tycoon.”
Matt Damon in his 100% electric Tesla Roadster. pic.twitter.com/qPt3CeXzL2
â AutoSports Art (@AutoSportsArt) March 15, 2015
#suaju #share #media Sergey Brin Steps Out in Google Glass… And a Hot Pink Tesla Batmobile.. #google #internet http://t.co/4pILIn5ApR
â sMedia 2 sCommerce (@Media2Commerce) September 6, 2015
A Tesla car is as much about the unbeatable lithium-ion battery that it is about its coolness!
Elon Musk has achieved such wild success. Like King Midas has a golden touch. People expect that something that Elon Musk has put his eyes on will be worth at least 10x, if not 40x more!
In fact, when people rushed to buy flamethrowers from Elon Musk‘s “The Boring Company” they weren’t just a bunch of idiots, fooled by a scammer. Instead, they were smart speculators, purchasing a Picasso.
In fact, in less than a week, after buying a flamethrower for $500, they were getting sold on eBay for $20,000!
40x isn’t bad at all for a four-week investment that carried no risk (besides that of burning your own house).
But if people purchasing these merchandising are speculating, what about Elon Musk. What’s the meaning of it all? Is he freaking out?
Is Elon Musk freaking out or there’s more to it?
Thinking that Elon Musk is just having fun selling this stuff. Saying that he’s capitalizing on his brand;Â Or that he’s freaking out. It’s quite limiting. I believe there is more to it.
No doubt, he’s having fun,
When the zombie apocalypse happens, youâll be glad you bought a flamethrower. Works against hordes of the undead or your money back!
â Elon Musk (@elonmusk) January 28, 2018
No doubt he’s capitalizing on his brand. With the flamethrowers stunt, he’s made $10 million in revenues. But what’s that for?
I argue that Elon Musk is tapping into his brand to raise money for his new startup! What a better way to do that than using unconventional PR?
Elon Musk isn’t Iron Man but the king of Unconventional PR
When you create a startup, the most significant roadblock is about having enough funds to be able to make your ideas come true. Elon Musk knows that. With his new company, instead of bootstrapping it as he did in the past, I believe Elon Musk is using Unconventional PR to get it founded. Why not?
In fact, he had risked many times in the past to go out of business. Even if we take Tesla, which is worth over fifty billion dollars, the company still loses money.
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As Jim Chanos of Kynikos Associates put it:
Obviously, this is not being valued as a car company, it’s being valued on Musk … he’s the reason people own the stock
That is why he has taken a short position on the company, betting that soon Elon Musk will step out as a CEO.
If that is not enough Jim Chanos also continues:
If you wouldn’t be short a multi-billion-dollar loss-making enterprise in a cyclical business, with a leveraged balance sheet, questionable accounting, every executive leaving, run by a CEO with a questionable relationship with the truth, what would you be short? It sort of ticks all the boxes.
Source:Â cnbc.com
This is one side of the story. Also, this is coming from a person that put his on money betting on the failure of Tesla. In short, if Tesla stock goes to zero Jim Chanos will make a lot of money. It is also true that his opinion isn’t coming out of the blue. By looking at Tesla’s balance sheet, it’s clear that financially speaking things aren’t looking good.Â
However, this also raises another interesting point, how the heck is Tesla still alive?
Two reasons I believe.
First Tesla is as much of a company that of a non-profit organization. How? Tesla has pledged to let anyone use its patents:
Should Tesla ever transfer a Tesla patent to a third party, it will do so to a party that agrees, by means of a public declaration intended to be made on the subject, to provide the same protection place the same requirement on any subsequent transferee.
Source:Â tesla.com
That means, in theory, that all the patents Tesla is putting out there will be available to other companies to use. The bet of Elon Musk is that by having automakers come together, this will also lower up the cost of electric components of many times over, which in turn would make Tesla’s business model sustainable over time.
Therefore, besides the financials that is quite an unconventional choice, which makes Tesla different from any other car company. Where another corporation at this stage would have filed for bankruptcy that didn’t happen for Tesla. In some way, it’s hard to judge an unconventional company with conventional metrics.
It is also true that as CEO Musk has to be able to create a sustainable business model for the future. Will he be able to do that? Time will tell. With a company burning cash at the speed of light, for how cool that is; when the debt will be due, if none will be backing that up bankruptcy will be inevitable.
What’s the other reason for Tesla being alive? Of course, the answer is Elon Musk!
Will it last forever?
This is the question that looms in many heads when thinking about Elon Musk. In reality, I believe that is the wrong one. In fact, even if Elon Musk‘s ventures would go bust, his legacy would stay. In addition, he has skin in the game. In fact, he’s always put his money into any venture he’s created.
Thus, defining Elon Musk as a rock-star is also limiting. Popularity comes and goes. But when that is backed up by genius, unconventional thinking, and a natural ability to sales that is when no matter what happens your mark will be left to generations to come!
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How RankBrain Algorithm Affects SEO and What You Can Do About It
Itâs hard to realize how complex and sophisticated is Google search algorithm just because it works so marvelously well that it seems natural it does so. Yet before we got there, it took almost two decades. And that revolution was evident in 2015.
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In fact, that year futurist Ray Kurzweil arrived at Google, with one mission: make search engines understand human language. That is how he put it:
My mission at Google is to develop natural language understanding with a team and in collaboration with other researchers at Google. Search has moved beyond just finding keywords, but it still doesnât read all these billions of web pages and book pages for semantic content. If you write a blog post, youâve got something to say, youâre not just creating words and synonyms. Weâd like the computers to actually pick up on that semantic meaning. If that happens, and I believe that itâs feasible, people could ask more complex questions.
Source: Wired.com
From that quest, Google updated its algorithm in 2013, with Hummingbird and later on in 2015, AI (in the form of Natural Language Processing) became a major factor for search with RankBrain.
In other words, a few years back it didnât make any sense to ask questions to Google because it didnât know what to do with them. Today the scenario has changed substantially. We can test that right now:
When I type in Googleâs search box âmoon distance,â that is what I get:
You may think this is pure keyword matching, but it is not.
In fact, if I ask âHow far is the moon?â
I get the same answer:
Googleâs ability to understand language goes further. If I search âmoon distance in metersâ that is what I get:
In short, Google knows Iâm referring to the same thing and gives me the proper answer.
What does that mean for SEO? Is traditional SEO dead?
The old SEO says that if you want to be successful at ranking your site you got to have backlinks, keywords and optimize for those. Those basic tactics still work. Indeed, the backbone of the web got built upon backlinks.
In fact, in a Q&A with Andrey Lipattsev, a Search Quality Senior Strategist at Google, when asked what factors, together with RankBrain affected Googleâs rankings, he replied:
I can tell you what they are. It is content. And itâs links pointing to your site. (source: searchengineland.com )
Therefore, it was confirmed that the three major factors in Googleâs rankings are:
1 & 2: Links, Content (hard to say what comes first among the two)
3: RankBrain
How do you make your SEO strategy effective in an era where NLP-powered search algorithms can read human language independently from keywords?
First, this process is more like a transition. Therefore, even though keywords still matter they are becoming obsolete. When is this happening? Hard to say!
That will probably also depend on how fast voice search will take over, which will speed up the process as people will start interacting in natural language rather than keywords with those digital assistants.
What can you do then?
As made clear by Google itself there are a few things that still help it understand web pages. One of them is structured data. In fact, not by chance Google has inserted structured data in its Search Engine Optimization (SEO) Starter Guide by making clear that:
Proper structured data in your news, blog, and sports article page can enhance your appearance in Google Search results. Enhanced features include entry in a top stories carousel and rich result features such as headline text and larger-than-thumbnail images.
Source: Google Developers
This is crucial because this structured data also trigger voice commands ad Google specifies here:
By structuring your content according to this guide, your content may be automatically turned into an action on the Google Assistant.
Source: Google Developers
There are tremendous implications for that.
First, you canât think any more of SEO as single and isolated âtricksâ or tactics. That is something that great SEO experts already knew. But now this needs to be clear to everyone doing SEO today.
Second, with structured data; SEO, PASO and editorial strategy become the same thing. If you start building your content
Third, you need an entity-based content model based built upon a sort of barbel strategy. On the one hand, short, conversational and voice-ready content. On the other hand, long, detailed content. The short content will be used to address specific questions, to make it ready for voice search.
In short, that is how you make your SEO strategy holistic.
Summary and conclusions
We saw how Google changed in the last years. What was relevant just in 2015, it isn’t so anymore. Of course, old strategies might still work in the short term, but they’re slowly losing relevance. This means that a winning SEO strategy has to be more holistic and it has to take into account an entity-based content model built upon three pillars:
long-form content for the top of the funnel
short-form, conversational content for the bottom of the funnel
structured data to make that content better understood by search engines and voice-search ready
Those things together can help you reach the top of Google‘s search but most importantly get ready for voice search.
This kind of approach – the entity-based content model – has been developed together with the WordLift team for whom I’ve been involved as Business Developer. WordLift is a software that uses AI in the form of NLP to enhance on-page SEO and assist SEO experts to transition toward a future where RankBrain became a primary factor for Google’s search algorithm.
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How to Build a Great Business Plan According to Peter Thiel
According to Pether Thiel, former CEO of PayPal and founder of the software company, Palantir, there are seven questions to answer if you want to create a company that will go from Zero to One.
Those questions are critical to building a business which will be able to capture value in the long run. In fact, according to Peter Thiel the value of a business isn’t to go from 1 to n but to real value is to go from Zero to One. In short, build a company that creates new things, rather than building a business based on the existing “best practices,” which according to Peter Thiel leads to dead ends.
This framework of going from Zero to One can be summarised in seven questions to answer if you want to have a great business plan. In fact, you don’t need complicated Excel models or reasonings. You only need to address now these seven questions.
Indeed, that is how Peter Thiel puts it in Zero to One:
Whatever your industry, any great business plan must address every one of them.If you don’t have good answers to these questions, you’ll run into lots of “bad luck” and your business will fail. If you nail all seven you’ll master fortune and succeed.
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The Engineering Question
Can you create breakthrough technology instead of incremental improvements?Â
The Timing Question
Is now the right time to start your particular business?Â
The Monopoly Question
Are you starting with a big share of a small market?Â
The People Question
Do you have the right team?Â
The Distribution Question
Do you have a way to not just create but deliver your product?
The Durability Question
Will your market position be defensible 10 and 20 years into the future?Â
The Secret Question
Have you identified a unique opportunity that others don’t see?Â
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Suggested Resource:Â
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February 4, 2018
Jeff Bezos on Why Successful Companies Need to Stay in “Day One”
In the letter to shareholders for 2016, Jeff Bezos addressed an important topic. Something he had been thinking quite profoundly in the last two decades: Day 1.Â
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What is that and why is that so important?
Jeff Bezos starts the letter by saying:
âJeff, what does Day 2 look like?â
Thatâs a question I just got at our most recent all-hands meeting. Iâve been reminding people that itâs Day 1 for a couple of decades. I work in an Amazon building named Day 1, and when I moved buildings, I took the name with me. I spend time thinking about this topic.
âDay 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.â
To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.
Iâm interested in the question, how do you fend off Day 2? What are the techniques and tactics? How do you keep the vitality of Day 1, even inside a large organization?
Such a question canât have a simple answer. There will be many elements, multiple paths, and many traps. I donât know the whole answer, but I may know bits of it. Hereâs a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.
Let’s dive into each of those points, which made Jeff Bezos convinced that Day 1 is all that is about to build great businesses that stand the passing of time and shape the future.
True Customer Obsession
There are many ways to center a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more. But in my view, obsessive customer focus is by far the most protective of Day 1 vitality.
In fact, according to Jeff Bezos customers, even when they report being happy; in reality, they’re looking for something better. He mentions how customers didn’t know they wanted a prime membership until he created it.
As he specifies:
Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.
Resist Proxies
As companies get larger and more complex, thereâs a tendency to manage to proxies. This comes in many shapes and sizes, and itâs dangerous, subtle, and very Day 2.
In short, if you focus on the process you might end up losing sight of the outcome. The consequence is to confuse the process for the outcome itself.
In fact, as Jeff Bezos continues:
The process is not the thing. Itâs always worth asking, do we own the process or does the process own us? In a Day 2 company, you might find itâs the second.
Embrace External Trends
The outside world can push you into Day 2 if you wonât or canât embrace powerful trends quickly. If you fight them, youâre probably fighting the future. Embrace them and you have a tailwind.
In fact, according to Jeff Bezos, that is not hard to find large trends. What it’s hard – especially for large organizations – is to embrace those trends.
He mentions how Amazon has made of AI and machine learning an essential part of the company’s vision. He also suggests how this strategy is taking shape in a few products:
Amazon Lex (whatâs inside Alexa), Amazon Polly, and Amazon Rekognition remove the heavy lifting from natural language understanding, speech generation, and image analysis. They can be accessed with simple API calls â no machine learning expertise required. Watch this space. Much more to come.
High-Velocity Decision Making
Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions. Easy for start-ups and very challenging for large organizations. The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business â plus a high-velocity decision making environment is more fun too.Â
How to make the best of a high-velocity decision-making process?
First, never use a one-size-fits-all decision-making process
Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. (if you wait for 90% you’re too slow)
Third, use the phrase âdisagree and commit.â (not everyone might agree, but when a decision is taken over a direction, everyone should move with decision toward it!)
Fourth, recognize true misalignment issues early and escalate them immediately.
In short, for many entrepreneurs, building a successful business is about creating great products. For others, it’s all about designing sustainable business models. For Jeff Bezos, it’s all about Day 1!
You can read the whole letter here.
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February 2, 2018
Zero to One: Sales and Distribution Lessons from Peter Thiel
What is one of the greatest myth startuppers tend to believe?Â
That is that “if you have a great product it will sell itself!”Â
If you carry this kind of belief, you might be doomed to failure. That is not me saying that, but Peter Thiel, author of Zero to One and one of PayPal co-founders, part of the so-called PayPal mafia.Â
In this article, I want to show you why if you’re running a startup or thinking to set up one; you need to think about sales and distribution, right now!Â
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Selling is everywhere
Even though sales is everywhere, most people underrate its importance. Silicon Valley underrates it more than most
by Pether Thiel in Zero to One
Many startups live in a sort of duality conflict. The engineers think of sales and marketing as a sort of fraud. If your product is great why would you need to sell it? It will sell itself!
This kind of belief is wrong, as Peter Thiel explains in his book, Zero to One. In fact, although we love to believe that we’re all rational being. It is true that anyone, engineers comprised are influenced by subtle clues, which often are manufactured by salespeople and marketers to influence people’s behaviors.
None is immune to that. However, this duality, of product and distribution is what causes the most troubles to startups that are trying to scale up. In fact, if you have a great product but no distribution plan, then your startup might be doomed. The reverse doesn’t seem to be the case, according to Peter Thiel.
How do you create the distribution for your product?
There are a few strategies to undertake.
Make distribution part of your product
What nerds miss is that it takes hard work to make sales look easy
by Pether Thiel in Zero to One
Sometimes the sales process that works the best is the one hidden from the sight. One example that pops into my mind is Google. As Peter Thiel explains in Zero to One, the companies who win are those that can hide their monopoly. Google is the perfect example.
In fact, even though Google is a monopoly (it controls most of the search market) you will never hear the company admit that. Quite the opposite. Google will reframe the message in all the possible ways to make sure most people (especially governments and politicians) do not perceive them as a monopoly.
Therefore, capitalism isn’t about competition, but that is about monopoly. One crucial aspect that might confer a monopoly to a corporation is the business model. Think for a second about Google. That is the most significant ad network in the world. Even if over four billion queries each day go through it; a very few people realize how it works.
Comprised of two main networks, AdWords and AdSense, Google makes it easy for companies to track how much they spend on marketing, and for online publishers to monetize their content. Also, the more websites join the AdSense network; the easier will be for Google to monetize on the companies part of the AdWords network. The distribution model is perfect. That is why still in 2016, 88% of Google’s revenue came from advertising.
That is undeniable that Google has a robust search algorithm, one of the first able to offer great search results, compared to others. However, what made Google profitable isn’t that but the distribution model Brin and Page have created!
Find the sweet spot between marketing and complex sales
Poor sales rather than bad product is the most common cause of failure.
by Pether Thiel in Zero to One
According to Peter Thiel, there is a place where you want to be regarding distribution and sales.
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Source: Medium
In the startupper lingo, I showed a few metrics to focus on if you’re managing a startup. In fact, Peter Thiel emphasizes the importance of two critical parameters for making your business viable in the long run: CLV, CAC. CLV, short for Customer Lifetime Value is the economic value every single customer is bringing over throughout a relationship to your startup. For instance, if you sell software for $100 per month and on average your customers stay six months, your CLV is $600.
Common sense wants that if a customer on average brings $600 in total to your business, you have to spend way less to make it sustainable. Therefore, if you’re paying $650 for ads to bring one customer in, then your startup is doomed. That is why you need to look at the CAC, short for Customer Acquisition Cost, or how much it costs to bring in revenue from a customer.
According to Peter Thiel, your distribution model needs to be anywhere in the Marketing or Personal Sales their. In fact, if the distribution falls somewhere in the middle that is a dead zone. In fact, your CAC might be too high compared to the CLV. In short, you’ll spend too much to bring a customer in the door. That is how distributions‘ bottlenecks kill startups.
Start small and take advantage of the network effect
The most successful companies make the core progressionâto first dominate a specific niche and then scale to adjacent marketsâa part of their founding narrative.
by Pether Thiel in Zero to One
When you start scaling up a business, it makes sense to be laser focused. For instance, if you’re selling software for SEO, who’s this really for? If that is for web agencies, then you might want to target those few thousand web agencies that can grow your business. Once you start building on that niche, you can expand to the next thanks to the network effect.
In other words, those new customers coming in will also – for instance – find new applications for your product, thus improving its virality and growth. That is how you go from zero to one regarding distribution.
Distribution isn’t linear; it follows a power law!
We donât live in a normal world; we live under a power law.Â
by Peter Thiel in Zero to One
Many startuppers look for that sales number to grow consistently. They start to experiment too many ways to make a buck. However, a little growth can be deadly. In fact, as Peter Thiel points out finding your distribution channel might be way more powerful than trying many that work relatively.
Distribution, like many things in our world, follows a power law. When you found the distribution model that works for you stick with it until exponential growth starts to pick up!
Zero to One: Notes on Startups, or How to Build the Future
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