dubious.biz(ness)

I learned some really great lessons from from a sales manager we hired a long time ago at Internet Presenter/Intelliwire, Scott. Scott was a crazy guy, full of stories about a place that at that time I had never been to: England. Scott was among other things one of the best liars I’ve ever met, not because I ever caught him in a lie, he was way too good to be caught. But because he was so smooth, so greasy, so starchy-pressed and gold-adorned, you knew he had to be lying. Anyway, he told me and Chase that he was the first Domino’s pizza franchisee in the UK. Many other stories accompanied this one. They could have all been true, they could have all been lies, you never could tell.

Scott gave me a great rule of thumb for sales, one that I still try to teach sales people to this day: every person costs $100,000. People won’t give you their revenue figures, particularly not if you’re trying to sell them something, but they will tell you how many employees they’ve got. 10 employees means one million in revenue per year or you’re in the hole. This rule needs a bit of adjustment given the industry but if they work in a cubicle and have a computer, they’ll cost $100,000 each. I have seen the balance sheets of lots of companies and have rarely found this to be true. You may need adjustments for this, but this has more to do with environment, if you’re in California, every employee costs about $150k instead of $100k.

Now that you know how much their operating overhead is, you can estimate their profit. You can tell the profit by two things: the staff stress level and the fit and finish of the office. For most places: if the low-level staff is stressed and the mid-level staff (line managers) are fairly calm, they’re making money, if the front line is care-free and the mid-level is freaked, they’re probably in the red. Finally, you can tell where they’re getting capital from by the finish of the office. Nice offices either mean investor money (which means who the hell knows what’s going on) or an established company. Crappy furniture that was bought on a series of twenty Office Depot shopping sprees means that they’re spending their revenue, which means that they’re self-funded, which means they probably know how well they’re doing. In general it is better to do business with companies with crappy furniture than nice furniture. Unless they’re lawyers, doctors, or furniture sellers.

So what you come away with is a nice way of guessing costs: employees * $100k, and you have a good way of knowing whether they’re meeting those costs or not. If they’re meeting the costs, sell on features. If they’re not, sell on the value. You always have a value case and a feature case to sell.

Another rule, one that I added myself, is the value of an employee. Sure every employee adds a different value, and some are more valuable than others. But as a measure of efficiency, employee value matters. Making a lot of money from a few employees implies that you’re costs are lower and you’re more efficient. This is not economics, but in practice I think it works. Here’s some great examples to prove me right: Google makes $1.85 million per employee (a difficult measure given google’s continuous growth). IBM makes only $256k per employee, not very efficient considering they’re both in knowledge work. Microsoft makes $647k. Apple makes a much more impressive $1.09 million. That has a lot to do with why people think that Google is worth more than IBM (or worth a triple P/E ratio). Maybe I should coin the term E/P ratio, or earnings / person.

Facebook, on the other hand, has a pretty craptastic E/P ratio, despite it’s hype. So do most startups. So maybe E/P is not the way to go for everything but when you’re knocking on doors and trying to do the big pitch, you take what you can get.

Finally, I can talk about it. I didn’t want to do anything naughty and I sort of wanted it to be a big surprise, but today the application that I designed while I was working at Google finally launched: Google News for Facebook. Feature-wise, it’s in beta. That means that I expect there to be more functionality added at some point in the future. Being in “beta” is a standard spot for a product at Google. But more than being a “beta” Google News for Facebook is a bona fide experiment. This means something significantly different: it means that Google is testing the waters of a new idea. Many things that Google does lead forward from 20% projects, these 20% projects are themselves experiments and many of them live inside Google for some time incubating. Unfortunately you can’t incubate a project on Facebook, you have to release it.

So release it we did. I am unfortunately outside the Google bubble so I have no idea what the adoption numbers are, I know as much as you do, which is not much. I expect a reasonable launch, I don’t think it’s a killer app, but then most things aren’t, so I don’t expect millions of users. What I do hope for is a reasonable base so that Google News can develop an amazing app fleshing out all the features we discussed.

I cannot claim to have made the app. That honor goes to the GNews team, and they really did an amazing job. Building a Facebook app is supposed to be easy, but when it’s Google, it isn’t easy. I also didn’t get to do a lot of the launch prep, I didn’t get to hear the feedback from everyone who reviews things at Google, something that I’m extremely disappointed with because I’d love to hear their feedback.

What I did, in large part, was design and define the app. And to have an idea that started in my head, that developed on the screen in to a non-function set of screenshots, and then suddenly see it implemented and fully fleshed out is amazing so exciting. And I know this is perverse, but it’s really nice that other people care. I know they only care because it says Google, but it’s still nice to do something in the Internet that doesn’t go straight in to the vacuum (like these blog posts).

Thank god that my blog is not a pundit blog and it’s not read by thousands. Because then I couldn’t tell you about how excited I am. It would sound like navel gazing if the average joe read it. However, as far as I can tell, only people who know me read this blog, and if that’s not true, leave a comment, because I’d be curious to know if someone else finds anything I say interesting.

Anyway please add the app, give me some feedback and tell me what you think, I hope that it’s amazingly useful and you love it, but if you don’t find it either of those, I really want to know what you think because as I said at the top, it’s both beta and an experiment.

I got looking through my blog post drafts (there are about 20) and saw this one. I think it’s particularly poignant as it’s been more than a year that Docs and Spreadsheets have been out as well as calendar. Both are wins for Google, becoming reasonably well adopted in a short period of time.

To be clear, this is before I worked for Google and as such has no potential for special insight. It is however interesting to see how Microsoft has behaved since the launch. They are indeed responding to the threat with their behemoth Office team launching “Office Live Workspace”. Sounds dumb, but appears to provide at least the sharing functionality of Docs and Spreadsheets (what happened to Groove anyway?).

This is really more of a post so that when it happens I can say I told ya so. Google has recently made two moves that make it quite clear they have no qualms with taking on Microsoft: they bought up the best looking and best acting web-based word processor, writely and they unveiled their new calendar. It’s obvious to anyone that these products in combination with gmail have some serious overlap with the Office suite, and arguably the rest of the Office suite is useless (spreadsheets have some utility, but not really). What is clear is that Google is sending a message to Redmond: your marketshare is not safe.

The paradigm of using the web for your wordprocessor is not new, people have been writing emails more than documents for a long time. Writely is just a prettied up text editor for printed documents. Frankly Outlook has looked long in the tooth forever and damn near any innovation in email/calendaring is welcome. But what Google is really trying to do is push Microsoft into a reactive position. Google knows that if Microsoft’s key revenue bases are threatened, they will go back to the drawing board and innovate the hell out of them and come up with a new, nice, competitive product (and one that may even be web based).

But Google could care less about calendaring and word processing. There’s little utility in either in terms of ad revenue: calendaring data is interesting but there isn’t enough context, and in word processing there is plenty of context but too much time is spent on the same single document for there to be sufficient eyeballs and ad rotations. And clearly they are moving in to established markets with products that aren’t unique in most aspects, but could be low-end disruptions.

This disruptive potential is exactly what Google is leveraging. Microsoft knows the potential of such disruptive ideas and will move quickly to protect itself with wise strategy. It has suffered disruptions before and knows well how to handle them (Netscape, Java). The difference is that Microsoft’s attempt to create web-based services, due to its business model, is profit free. The organization’s limitation is that it is based on profit from software, and there is no organizational motivation (despite all the managerial foresight) to beat Google.

On the other hand, Google is moving from the low end disruption in two ways. First it is basing each new product on its existing low-end model and applying and refining its formula to new markets, strengthening its organization and its ability to innovate. Second every service it innovates is designed as a “beta”. The development swan song of beta is that it literally doesn’t have to be good, but the business case for it is that it is almost guaranteed not to fail because by definition. This lowers the initial captial, human, cash, and most importantly organizational. The organizational capital required to start a new project at a software profit driven organization like Microsoft is immense, but at an ad revenue driven organization provides very few barriers to innovative betas with could turn out to be duds or lifetime R&D projects.

So while Microsoft pours buckets of cash into live.com and MSN, two ventures that are still unsurprisingly worthless, what will Google do to capitalize on its opportunity to punch Microsoft in the gut? Harder to say. Google clearly sees the Walmart model of owning the production chain as being useful, as its moves into dark fiber and shipping container datacenter, but that is really waist-trimming albeit extremely innovative waist-trimming. My only idea:

Ohhh a cliffhanger isn’t it? It does in fact end right there. It was probably brilliant. Too bad it’s lost to the sands of time. Or is it…