If you are a startup founder, you’ll want to bookmark this and refer back to it. It’s absolute gold.
-Michael Arrington

From vinyl to cassette to compact disc to mp3; the music industry is home to one of the most shape-shifting of delivery models in recent business history.  Music is a constantly evolving medium and has seen tremendous breakthroughs in the past two decades alone.  This transmutation of music embodiments has created a completely new landscape for artists and listeners to distribute/consume music.  Napster revealed just how disruptive this transformation had become, much to the dismay of many artists and record labels.  Perhaps the music industry wasn’t ready for such an open and “free” music platform.

It has been almost a decade since we witnessed the shutdown of this music phenomenon.  And while there have been many newcomers onto the music scene since that time, none have captured the attention of the masses quite like Spotify has.  Proclaimed by some as  “the Napster of today,”  Spotify’s philosophy is: instant, simple, and free.  I couldn’t think of 3 better words to describe an ideal music consumption service.  The Swedish startup has gained massive financial backing valuing the company at an estimated $250MM.  This massive figure is due in large part to the partnerships Spotify has secured with many major record labels, allowing the company to legally offer instant access to millions of tracks.

Oh, and did I mention that it’s not available in the US yet?  I have yet to experience Spotify myself and still I find it hard not to get excited for this service to hit the States.  Just as we witnessed tracks on a CD morph into files on a PC, we are now seeing the music’s next transformation: instant, on-demand music served up in the “cloud”.

Why is this significant?

I have always associated the progression of music (distribution) with Darwin’s theory of evolution and natural selection.    We don’t use cassette tapes now for a reason.  Cassettes simply could not survive in an environment shared with CD’s.   In enough time, the same will be said about our beloved mp3 players.

Storing music files locally and uploading them to an mp3 player will be crushed by streaming music on connected devices.  Why limit yourself to a hard drive of songs when you can have access to millions of tracks with no hard drive limitations?  This sort of evolutionary thinking is what has propelled Spotify into the limelight.  Below is a demonstration as to what’s to come in terms of music consumption:

It will be interesting to see how Apple responds with a Spotify competitor in iTunes, especially since they recently approved the Spotify iPhone App.

Is Spotify an “iTunes Killer”?  That isn’t clear just yet, but one thing is certain…they are music’s natural selection.

image via spotify vimeo channel

About a year ago, I wrote a post entitled “Changing the World vs. Making a Profit.” Below is an excerpt from the post:

There is one particular “fork in the road” that distinguishes one entrepreneur from another. It is the decision or strategy each entrepreneur consciously or sub-consciously makes when beginning their business venture. I like to call it the “World Changer vs. Profit Maker” debate. This debate essentially forces the entrepreneur to define their business venture. In other words: Is your business a “world changer” or a “profit maker”?

-via techsoomer.com (oct. ‘08)

I’ve always gravitated towards the world changer mentality.  When an entrepreneur is trying to change the world with their product, the amount of passion and dedication that he/she shows cannot be replicated anywhere else.  This is the type of attitude Zappos CEO Tony Hsieh alluded to in his conversation with Sara Lacy backstage at the TechCrunch50 conference (see video below).

We all know it’s not easy to change the world as a young, underfunded, resource-deficient startup.  Many young upstarts tend to chip away at a niche market because of this.  But it is those rare few that swing for the fences that inspire a community.

Take a look at AnyClip presenting at TechCrunch50 (video below).  The conviction that CEO, Aaron Cohen displays in his presentation is just awesome.  There is no question as to where AnyClip wants to go with their innovative platform.  This is great example of going big.

Early adopters are a critical component to any startup environment.  This particular demographic is unlike any that a company will face in the future.  It’s the early adopters who are first to interact with a company’s initial product or service.    It’s the early adopters who represent a company’s first fan or first critic.  It’s the early adopters who can open the eyes of the closed-minded entrepreneur.  It’s the early adopters who have the ability to drive a company into unforeseen directions.  It’s the early adopters who tell it like it is.  So what does it mean to be an early adopter?  Quite frankly — it means a lot.

For many technology enthusiasts, being an early adopter comes naturally.  This crowd eagerly jumps on beta releases, private invites, and all other forms of limited activation events — commonplace within the dot-com arena.  In an industry with so much transparency and so many options (the closest industry to being barrier free), it’s easy to see how powerful this group can be.  Twitter is a great example of how a group of early adopters transformed a fledgling company into super-stardom.  I doubt even the most ambitious Twitter founder could have predicted how the early adopting community would utilize the simple messaging platform.

Where Do Early Adopters Stand?

The early adopter crowd represent the gatekeepers between the firm and the “early public”.  Needless to say, a positive reaction at this stage in the game can only improve the firm’s strategic position.  However, the early adopter crowd seem to possess a powerful double-edged sword.  Along with boosting company and product awareness through praise, the early adopters can bring user adoption to a halt through negative rants and dismal product reviews.  Although representing only about 5% of the target audience, (according to my not-so-scientific math) this group’s influential capacity is off the charts.

Should Companies Cater to their Early Adopters?

Despite the massive influence that early adopters possess, I advocate against catering to them.  Instead, companies must focus their energy on constantly improving upon their core competencies (which is what every business should do).  It’s in the best interest of the company to utilize the early adopter crowd, taking advantage of real-world interaction and early customer dialogue.  For it’s this crowd who you must ultimately impress.  Without “the approval” from these dedicated customers, your company will likely remain hidden from the masses.  Since early adopters possess  a deep understanding of the marketplace, they know what type of offering a given company should be delivering.  Startups should listen to these smart consumers, but let me stress this one more time: never cater to any particular crowd — doing so will cause the firm to lose focus as well as their true identity.

Bad PR is Still Bad

There’s a misconception that there is no such thing as bad PR.  Maybe that’s true for a moment or two, but eventually, bad press will catch up to any company.  I cannot think of one impactful company who has made their name off of negative press.  Long-lasting, innovative firms are built from within, not through marketing budgets, advertising campaigns, or a few abusive headlines.  Entrepreneurs must keep this in mind at all times, especially throughout the infancy of their struggling startup ventures.

In case there were any contradictions or misunderstandings throughout the post, these three bullet points should summarize the fundamentals:

• The early adopter crowd is an important demographic in any upstart, however:
• Companies must learn to utilize this crowd instead of catering to them.
• Startups must always remember that success is produced internally, never externally.

Morten Lund offers up a super-refreshing outlook from a serial entrepreneur’s point of view.  A man who expresses so many awesome character traits, most notably:

• humility
• honesty
• transparency
• perseverance

The number of resources available today is simply unbelievable.  A constantly-shifting and evolving technological landscape has produced an environment that is tailor-made for any ambitious entrepreneur.  Tasks that once required the assistance of several individuals and cost hundreds of dollars, are now performed individually, and in most cases, free of charge.

We stand at the forefront of a D-I-Y (Do-It-Yourself) revolution.  We are seeing how innovative web services and powerful computing software are providing us with opportunities once thought impossible.  Music, entertainment, publishing — all turned upside down due to this shift.  This post isn’t really about how traditional media is dead, it’s more about you, and what you should be doing because of it.

I have talked about the jack of all trades vs. specialist debate before, and this may overlap with that discussion a bit.  I’m a firm believer in the benefits of wearing multiple hats and constantly looking to augment and add to one’s skill set.

No group of individuals have picked up on this behavior more so than the “Millennials” (a.k.a. Generation Y, or as I like to call them, “first-gen techsoomers“).  It is because of them that we now see:

• You don’t need to hire a record label
• You don’t need to hire a publishing company
• You don’t need to hire a PR firm
• You don’t need to hire an advertising agency

And why is this?  Because we have officially entered the D-I-Y era.  And what can we take away from this?…

If you can’t Do It Yourself, you’re Shit Out of Luck

Google is the undisputed king of the internet.  The word “Google” has now become synonymous with constant innovation and brilliant expansion.  Once a young upstart, the company has quickly evolved into a publicly traded powerhouse in less than a decade.  Google and their business mindset represent one that is truly ahead of its time.

Their “envelope-pushing” mentality has given the company some distinct advantages that most simply do not have.  They lie on top of the technology world, standing tall as the true thought leader in the industry.  Their employees are among the most selective and most prominent group of hires in today’s workforce while their company culture allows for an incredible amount of innovation.   Along with their numerous core competencies, I’ve noticed how Google tends to exhibit three particular strategic options: build, acquire, or steal.

In this post, I will discuss how Google has executed on these three different fronts, and what other companies can learn from their actions.

Option #1 — Build
Most recent examples: Google Chrome OS and Google Wave

Google is no stranger to the building process.  Google Chrome OS — a lightweight operating system, and Google Wave — a game-changing communications platform are ambitious feats to say the least.  Despite any concrete release dates, both are projected to disrupt the industry in big ways.

It’s impressive to consider such undertakings when you stop to realize that an operating system and communication platform, for example, are well beyond Google’s core online identity.  Google shows how existing businesses can deliver unique solutions to opportunities they may encounter as a business, even if those solutions may be outside the company’s “wheelhouse”.  Google reveals the importance of building on top existing businesses; and how doing so may result in attaining goals otherwise unattainable.

Option #2 — Acquire
Most recent example: Google Voice [acquired from] > GrandCentral

In addition to building unique products, Google is notorious for acquiring promising, young companies.  This tactic has proved successful in the past, becoming an extremely powerful and effective way for Google to increase their product base.  Most recently, Google’s acquisition of GrandCentral in 2006 will finally take shape as Google Voice (currently in beta).  With this $50mm acquisition, Google now looks to revolutionize phone management.

Acquiring companies is nothing new.  It is a proven strategy implemented by companies looking to make power moves.  Often times this presents a faster (and hopefully more cost-efficient) alternative from the ground-up building process mentioned above.  It’s also an amazing way to interact with a foreign company’s collaborative process and intellectual property.  Google has demonstrated that, at the correct price and time, acquisitions can propel one’s business to new heights.

Option #3 — Steal
Most recent example: Google Reader [features "stolen" from] > FriendFeed

Stealing is the final option I will discuss in this post.  Despite the negative connotation associated with this type of activity, stealing is nothing new, especially in the tech world.  Many businesses steal and Google is no exception.  Most recently, we have seen Google take more than a few cues from life-streaming service, FriendFeed.  Coincidentally, FriendFeed boasts a founding team comprised of ex-Googlers, which had many people asking the question: “Why doesn’t Google buy FriendFeed?”

Obviously Google saw an opportunity to enhance a product by incorporating some key features found in another web service.  Apparently these upgrades weren’t protected or unique enough to stop Google from implementing them on their own.  Whether you feel FriendFeed was ripped off or that Google acted intelligently, one thing is true: Google Reader has become better due to Google’s decision.  And that’s what ultimately matters — delivering the best to your customers.

But Google is a complete anomaly…

We are all aware of the fact that companies like Google don’t come around all the time.  Despite this truth, we can still learn a lot from such an innovative firm.  Google’s strategic actions and progressive thinking creates a nice blueprint for entrepreneurs and startup companies to follow.

Here are some lessons that every business can take away from the actions illustrated above:

• remain aware of your competition at all times
• prepare to take action against competition whenever necessary
• never become complacent, instead, look to constantly reinvent yourself
• act like a startup
• invest in startups
• push the envelope beyond traditonal wisdom
• don’t just solve problems, create solutions

Startup ventures are exciting, dynamic, and risky.  They require a balance between luck, skill, and timing.  Of all the essential elements regarding startup businesses, there is one particular element that remains paramount: the team members.

For many “financially-deficient” (aka bootstrapped) startups, choosing the correct team members/founders may be the most important decision the young company faces.  Despite this truth, it is all too common for startups to constuct their team with insufficient or unsuitable candidates.  This type of behavior is not just harmful, it’s potentially deadly for a young upstart business.

I see many startups invest most of their focus on things like: marketing strategies, business name / logo, and market position — before ever really considering the composition of their startup members.  The fundamental problem with this is simple: idea and strategies mean nothing with the wrong people in the driver seat.  It is critical to place the correct individuals in the correct positions in order to achieve maximum efficiency.  This becomes difficult as a startup begins developing ideas and executing particular strategies.

Here are a few aspects to consider when constructing your startup’s fouding team.

Is your friend the “right” choice? Friends are the easiest and most convenient individuals to bring aboard your startup venture.  Friendly conversation does not necessarily translate into smart business tactics, however.  Your friend may be a great person to bounce ideas off of, but not the right business partner.  Take advantage of your friend status and mentally project them into a startup role.  From all that you know about that person, think about a few scenarios:

• how well do they handle stressful situations?
• do they possess perseverance or do they stop at the first sign of hardship?
• are they trustworthy?
• how well do they communicate?
• how do they handle uncertainty or chaotic situations?
• what is their level of dedication or passion towards projects?

No money, no problem.  Lack of cash is often considered a major startup obstacle.  And while this may be true in most circumstances, it does provide an indirect benefit in the case of bringing aboard team members.  Startups with little to no working capital are fueled by one thing: passion.  Bringing aboard individuals with no promise of monetary compensation ensures that they are in it for all the right reasons.  You can worry about salary and payroll after you ship your first unit.

Previous entrepreneurs welcome.  There are certain intangibles one learns from operating inside the trenches of a startup company that cannot be learned anywhere else.  This is why you should always look to bring aboard previous entrepreneurs given the chance.  The company benefits greatly from the individuals’ prior startup experience and you gain a trusted business partner who understands the difficulty associated with launching a business venture.

The most important point to remember is this: your startup’s most valuable asset is its team members…so choose your partners wisely!  Remember that at the end of the day, you and your team are the ones putting the ideas and strategies in place.  It’s not enough to have an idea, you need the physical manpower to execute them effectively.  A founding team needs to have the right balance of intelligence, innovation, and drive.  In order to achieve the correct balance, your team members must share a common passion while working towards shared goals.

I saw a great affirmation of this belief when I came across a particular venture capital firm’s website, and noticed their portfolio companies.  True Ventures, an early stage tech venture firm, showcases their portfolio companies in a refreshing way.  If you notice, all of their investments are accompanied with a picture of the founding team.  Although it is just a picture, it establishes the old investment addage of: “We invest in individuals, not companies.”  This is something that we as entrepreneurs hear, but sometimes overlook.

Along with the rest of the world, the current economic downturn has gripped my full attention.  Despite many grim outlooks and predictions, I remain completely optimistic.  In many ways, I view the severe dip as the beginning of a completely new era.  Quite frankly, I find comfort in this notion…and so should you!

It is all too easy to get caught up in the familiar negative tones uttered by the masses.  We all know the type.  They instinctively regurgitate that all too common “recession speech” muttered by most of the TV news anchors.  Whether it be the astronomical rise in the unemployment rate, the ridiculous bailout figures, or even those human-Dow Jones ticker-types, who insist on griping over their recent losses in the market.

“Woe is Me” (in other words, “I’m Lame and My Thoughts Are Stale”)

As tempting as it is to add fuel to the “pessimism fire”, I advise you to resist at all costs.  My most common “extinguishing” technique comes from referencing the unmistakable Warren Buffett.  In an interview with CNBC, Mr. Buffett is asked about our current President and our economic future.  His response:

He is the right President. And incidentally, this is the right country. I mean, we’ve got the right President; we’ve got the right country. We’re gummed up at the moment, but this is the place to be. And this is the right time.
I wish I was 21 now instead of 78. The best days of America really do lie ahead. And President Obama is very, very smart. He’s got, I think, exactly the right goals. He’s articulate and he will be the right person to be the commander in chief in this economic crisis.
-Warren Buffett

Mr. Buffett’s words serve as an inspirational rallying cry…especially to those in the younger generation.  Obviously, the “Buffett Effect” is very powerful, and I would not expect anything but optimism from the brilliant billionaire.  But no matter if his speech is 100% genuine or slightly influenced by external factors (which I don’t believe is the case), it really doesn’t matter.  There is one, and only one way to look at our future…wide open.

The Four Stage Business Cycle

The traditional business cycle has always been explained in four self explanatory stages:

1. Infancy/Startup  << Guess what lies ahead
   
2. Growth
3. Maturity
4. Decline < Guess where we are

(Rinse and repeat)

If we were to pinpoint our current economy within this cycle…it’s no surprise where we would stand.  Repeating the cycle means that we are gearing up for a massive period of restructuring from the ground level.  As I alluded to in the beginning of the post, I believe this period of restructuring will undoubtedly usher in a new economic era.  An era led in large part by the younger generation (Gen Y).  Just as the industrial revolution bred tremendous innovation with interchangeable parts, automation, and manufacturing, we finally have the opportunity to incorporate our most recent revolution – the digital revolution — into our core business blueprint.

Take a quick glimpse at the current business landscape.  Many businesses established prior to the 90’s are simply at a technological disadvantage when compared to businesses created after this time period.  Obviously, this decade marks the commercialization of the internet, and what most would consider the beginning of the digital revolution.

And we are seeing the effects of being behind the times in nearly every economic sector.  Take the automobile and newspaper businesses, for example.  Both industries established in a time period well before the current digital revolution.  And just recently, we have all played witness to their massive blunders and inability to effectively utilize technological advances as well as embrace shifting consumer perspectives.

This Isn’t Your Father’s Business

Michael Malone, author of The Future Arrived Yesterday: The Rise of the Protean Corporation and What It Means for You, explains how the traditional business landscape has and will continue to change.  He stresses the fact that companies must become extremely fast moving, shape-shifting entities that  must embrace innovation and change.  He also explores the notion of “intrapreneurs,” that is, entrepreneurs who operate inside of a company’s infrastructure, and their positive impact on corporate innovation.  This is a philosophy made popular by many high-tech companies like Google.

Businesses are a living, breathing organism.  It’s time we started treating them as such.  So what other types of things can you expect?  Well, don’t be surprised to find a completely new business arena:

• where the phrase “too big to fail” no longer applies
• where businesses embrace transparency
• that is flatter, interconnected, and instantly globalized
• where smaller teams = greater agility = greater innovation
• where competition is as fierce as ever
• in which customers, clients, and users have a much louder voice
• where consistent reinvention is a must

So Who Will Lead This Charge?

The answer is very simple: it’s the entrepreneurs, it’s the startup junkies, it’s the innovators, it’s the non-conformists, it’s the contrarians…it’s YOU, the TECHSOOMERS.

Do yourself a favor and view the recession as one giant opportunity.  Instead of getting discouraged by the naysayers, thank them for creating one less competitor.  When things are good, it’s easy to stay optimistic.  It’s when the times are tough, capital is scarce, and the future uncertain when it becomes easy to give up.  Subsequently, it’s also in these particular times when you stand the best chance to shape the future.

Out with the old, in the with the new.

Web startups are anything but rare nowadays.  Technological advances continue to drive down startup costs to the point where nearly anyone can participate in the internet ecosystem.  As a result, online businesses are in a constant battle with one another, competing not necessarily for customers, but simply for eyeballs.  We are witnessing the battle for attention, and it has been met with massive criticism.

Many skeptics criticize a website that has millions of users and lacks a definitive business model.  What most of these skeptics fail to grasp is that web businesses, for the most part, are not the “conventional” business and should not be treated as so.  The web has simply created a different playing field where web services have to first prove themselves valuable and credible in order to retain a significant user base.  The revenue model comes second.

The Battle for Eyeballs

Startup web firms today face a TON of competition.  For the end user/customer, this is a great thing.  As users, we are able to utilize the most effective web tools at the lowest (most often free) cost possible.  For the companies themselves, this is really the start of the battle…the battle for eyeballs.

How do you separate yourself in a sea of competition?  How do you compete with the field for attention?  What do you offer that others don’t?  Why should anyone choose you?

Ultimately, it’s the web firms who effectively answer these critical questions that stand a good chance at winning the initial battle.  But again, this is just the beginning.  You have only gotten their attention.  The firms must now convert these eyeballs into regular users.

The Value of a User

With today’s maturing web, the business landscape has been altered in a big way.  A firm’s market is now global while the number of their competitors will continue to rise.  Effective marketing techniques have changed dramatically while customer satisfaction has become the fundamental ingredient for success.  To a large degree, this brand new internet ecosystem has democratized businesses, giving the consumer one powerful and influential voice.

Due to the shifting landscape, web firms are now forced to adopt a totally new set of values (as compared to traditional business at least).  Most importantly, firms must now understand and appreciate the power of a dedicated userbase.  Instead of focusing solely on monetization options, the internet ecosystem has taught businesses to focus first on maximizing user value.  Even if this results in operating at an initial loss!  We have seen this strategy employed by Facebook, Twitter, Google, and many others.

It’s very simple, the businesses who create the most value ultimately wins.  This has been true and will remain true in any business; past, present, or future.  What has changed, however, are the rules for achieving this result.

Businesses must never forget the value of a user.  Not only are they a statistic, they are your biggest asset and most powerful marketing tool.  It’s easy to get caught up in monetization, but without a proven community of users, why even bother?  Unless your an invested VC, web firms should be worrying about one thing, and one thing only: How can we maximize user value?