Mar 25
2010
A Chicken and Pig are making breakfast together. The Chicken lays eggs and makes fried eggs. The pig cuts its belly and makes bacon.
The question is, who’s more committed to making breakfast?
Some might say that the Chicken is more committed because it’s contributing its future generation. Others might say that the pig is more committed because it’s contributing its own body. On other hand, a chicken can always lay more eggs. The pig also has a pretty big belly. The argument can go both ways and it’s an interesting way to discover and discuss people’s values.
The story can also be used to illustrate the differences between US and Korea Entrepreneurs.
When it comes to starting technology companies, US Entrepreneurs are Chickens. They typically start multiple companies with the mindset that their companies are like their offspring. They grow their companies by bringing in the right team and then move on when the company has outgrown them.
On the other hand, Korean Entrepreneurs are like Pigs. It’s rare to see serial entrepreneurs. They usually have the mindset that the company is an extension of themselves. They tend to focus on ownership and have difficulties in transitioning control to the right people who can take their companies to the next level.
These are generalizations and there are always exceptions but it’s interesting to analyze why there are such differences between the US and Korea. One interesting area to examine is the risk and reward profiles. Entrepreneurship is a risky endeavor but many people don’t realize the stark differences between the US and Korea.
In the US, Entrepreneurs typically invest some of their own money, but the majority of their initial investment is in sweat equity and opportunity costs. This is offset by various exit options that can potentially result in significant returns on their investment.
Even if their companies fail, investors value their experience and are willing to give them multiple opportunities to prove themselves. They also have the option of returning to the corporate world since employers value their entrepreneurial spirit and experience.
In Korea, it’s a different story. Entrepreneurs put up most of the seed funding themselves or through close friends and relatives. There are exit options but they are limited and the returns are much lower.
However, if the company doesn’t succeed, the opportunity cost and consequences are pretty dramatic when compared to the US.
In the US, the opportunity cost is what they could have earned in the corporate world. It’s also possible to get a new job or even return to your old job and start climbing the corporate ladder again. They might have missed out on a promotion but it’s usually offset by the experience they gained as an entrepreneur.
In Korea, it’s difficult for entrepreneurs to find corporate jobs if their company does not succeed. The cultural expectation is that careers should be a straight diagonal line headed upwards. Career trajectories with peaks and valleys are seen as a failing and basically put you at a significant disadvantage in finding employment and climbing the corporate ladder.
In other words, the opportunity cost for Korean entrepreneurs is their entire stable corporate career.
It gets even worse when you factor in the venture funding environment. In the US, Venture Capital firms trust Entrepreneurs with large sums of money based on their due diligence and background checks. In Korea, many institutional investors require collateral to secure their investments. What you have is essentially venture lending instead of venture investment.
Essentially Korea Entrepreneurs ends up personally taking on the liabilities and debt obligations of their companies. It’s not uncommon to see founders go bankrupt and end up with debt obligations that follow them for the rest of their lives.
Given these risk and reward profiles, it’s not surprising to see differences between Korean and US Entrepreneurs. Chickens can continue to lay and share their eggs but Pigs who cut out their bellies don’t have that luxury nor mentality. It’s hard to let go when you have invested and risked so much of yourself.
As a corollary, it’s interesting to note that there are quite a lot of successful Korean Entrepreneurs who have some really interesting stories that are quite different from US Entrepreneurs.
The US has lots of success stories that follow a similar pattern. Founders assemble the right team with the right pedigree and receive funding from top tier VC’s who help them launch their business. They then get bought out by a large company that pays a huge premium to leverage their innovation and market momentum, even when they have questionable business models and limited revenues.
In Korea, Entrepreneurs face significant business, social, and cultural challenges and their paths to success tend to be more diverse and interesting. Unfortunately, many of them shy away from sharing their experience and wisdom to help the next generation of Entrepreneurs. Some of this is due to cultural reasons but some of it is understandable given what one has to go through to succeed as an Entrepreneur in Korea.
It’s a shame really. Hearing about Chickens laying eggs again and again is fun. However, we all might be able to learn a lot more about by hearing from Pigs who were willing to risk everything just to make breakfast.
Sep 10
2004
This pattern of innovators (usually startups) creating a market and then attracting followers (usually larger companies) is something that we all see again and again in the technology space. The billion dollar question for Netflix is, can it survive and continue to lead the market?
I personally think they can. However, I don’t think they are going to compete effectively through better execution. The DVD rentals-by-mail market is quickly going to move to a commodity market with the introduction of the superior pricing power, distribution network, and retail presence of a WalMart or Blockbuster. The only way Netflix is going to compete with the 800 lb gorillas is to change the playing field.
The best way of changing the playing field is to innovate to provide a compelling value proposition that significantly differentiates you from your competition. There has been a lot of buzz around recent rumors that Netflix and TiVo will enter into a partnership to allow customers to download Netflix movies onto their TiVo devices over a broadband connection. There are issues around licensing and distribution rights that need to be worked out, but if both companies can make the deal happen, it could be an important innovation that completely changes the playing field for both companies and their competitors. With such a deal, Netflix would now be a pioneer in the DVD rentals-by-internet space, whereas Blockbuster and Walmart would still be stuck in the DVD rentals-by-mail space.
Although the internet delivery of movies is exciting, I do not think that the real future and long term success of Netflix lies with their fulfillment technology. As a consumer, the convenience of receiving movies by mail or over the internet is compelling, but at the end of the day, the value is time and cost savings since I don’t have to drive to the video store and wait in line. Don’t get me wrong, saving time is not a trivial thing since we all lead busy lives.
However, what I find even more compelling about Netflix is the ability to track new DVD releases and maintain a growing list of movies that I would like to see. I can even add and track movies that have not been released in theatres or on DVD. Netflix can then provide automatic management of new DVD releases into my viewing list on a schedule that I can adjust. On top of that, Netflix provides recommendations and reviews from critics as well as the Netflix community. The net effect is that I now have a relationship with Netflix where Netflix is my personal “movie concierge” or “movie butler”. By providing these personalized services, Netflix is enhancing my overall movie watching experience by ensuring that I see more quality movies that align with my interests and tastes. This value is something that allows Netflix to maintain a premium over other companies that solely focus on delivery efficiency, as well as ensure stickiness that increases switching costs for customers.
The sad thing is that I don’t think Netflix quite gets the “relationship” aspect of their business. The website really hasn’t change very much since its launch and the interface and services it provides for managing your viewing preferences arepretty primitive. They have also discouraged third parties from writing applications that provide a better user experience. On the other hand, TiVo is one company that understands how TiVo enriches the viewing experience by helping people manage their viewing schedule and preferences. TiVo closely monitors the usage patterns of their customers and it is reflected in their superior user interface. I wish Netflix would do the same since that's where they can add value above and beyond what a Blockbuster or Walmart.
Both Netflix and TiVo have done a great job of attracting the early adopters who have become evangelists for their service. Maybe the TiVo-Netflix partnership/merger will go through and we’ll see positive changes from a breeding of the two corporate cultures. Given how many hours the average American spends watching TV and DVD’s, I’m sure we’ll all benefit.
Jun 08
2004
Scott Sassa is an interesting choice to run a company like Friendster. I think it makes sense because internet companies are essentially becoming media companies. AOL was one of the first internet companies that went through this transformation and now they're part of a big media conglomerate. With the hiring of Terry Semel, Yahoo is also going through the transformation into a media company dependent on advertising and subscription revenue, just like network television and cable TV.
It seems that as internet companies mature, their business models are becoming more and more like their old-world counterparts. Therefore, it makes sense to recruit executives who have experience in running businesses driven by advertising and subscription revenue. Technology innovation is still important, but if the majority of your revenue is coming from advertisers who want to target your audience, the primary focus should be on tweaking business models and growing your audience to attract advertisers. That's why major media companies are run by people with a background in business rather than creative types.
Friendster has had its share of technology challenges, but the future success of Friendster is not going to be determined by the response time or the reliability of their website. What is going to drive Friendster's success is their ability to grow their audience while providing sticky services that keep them coming back. Once you have the demographics of this captive audience, the advertising money will follow. Friendster has the audience and the demographics, what they need to do now is figure out the sticky services.
Of course, who else is better at figuring out sticky services than traditional media executives? Given the television viewing habits of millions of people who religiously follow TV shows such as 'The West Wing' and 'Law and Order', I think Scott Sassa just might be the person for the job.
Jun 01
2004
One of the reasons cited for Sony's exit from the handheld PDA market is that the handheld PDA market is not a growth market. You could also make the argument that the handheld PDA space was never Sony's core competence.
Sony's core competence is in media and entertainment devices, and handheld PDA's are really productivity enhancing devices. Even though Sony was responsible for many innovations on the Palm OS platform such as MP3 playback and the jog dial interface, they never really understood how the future of PDA's is in all-in-one productivity, messaging, imaging, and voice communication devices.
To understand the future of handheld devices, you only have to look in the gadget bags of technology savvy early adopters. To understand where things are headed in the short term, you should look at what business people are carrying to meet their mobile productivity needs. For business users, the mobile devices are laptops, PDA's, BlackBerry devices and cellphones. Early adoptors will have all of these devices and more such as Flash memory storage devices, MP3 players, digital cameras, digital camcorders, handheld gaming devices, GPS receivers, etc.
The irony here is that Sony has products that cover most of the devices that you typically see inside people's gadget bags. Nobody likes carrying multiple gadgets that all work independently with incompatible communication across devices. People want convergence where you can see your schedule, find directions to get to a meeting, capture meeting notes and diagrams to archive and share via emails and blogs, and also entertain themselves during breaks. It doesn't have to be a single device that does everything, but it should be a few devices that are able to seamlessly interact with each other. If Sony had understood that the future of handheld PDA's lies in the convergence of these devices and was able to translate this understanding into market leadership and innovation, things could have turned out very differently. Handheld PDA's would be a growing and thriving segment driven by the upgrade of outdated PDA devices and Sony would not be exiting the handheld market.
The one company that seems to understand where handheld PDA's are going is PalmOne. More specifically, it's the Handspring team inside PalmOne that is responsible for the Treo 600. The Treo 600 is the beginning of convergence done right. If PalmOne can resolve the manufacturing issues around the Treo 600 and allow the Treo team to continue to innovate, they have the opportunity to singlehandedly jump start the growth of stagnant handheld PDA market. Let's hope they don't turn out to be another Sony...
Aug 31
2003
With a provocative title that invokes the "midlife crisis" metaphor, Microsoft is definitely trying to respond to recent stories around Microsoft's change in compensation from stock options to restricted stock grants as an indicator that Microsoft and IT in general is reaching maturity. It's clear from the article that the reporters had access to Microsoft executives who now get to tell their side of the story. They make some good points about all the growth areas such as "Integration Innovation" and the 20-30% growth in the mid-market space. However, it's going to take some time before these businesses can make significant contributions to the $32 Billion in revenue, which is mostly comprised of Microsoft franchise products such as Windows and Office. Unless there is real innovation that creates a new highly profitable franchise, I really don't see much growth for Microsoft.
Another interesting point in the article is the change in which Microsoft compensates senior managers. Their previous plan was based on sales and profits but now it's going to be based on customer satisfaction. The other company that has a similar model is Siebel with their 100% customer referenceability and satisfaction, but we all know what's happening to Siebel right now. Also, a lot of their customer satisfaction survey results seem to have been hyped up on their website (see article on Nucleus Research in Business2.0).
Despite the negative aspects of a fuzzy measure and potential abuse of customer satisfaction surveys, I think it's the right direction for Microsoft. If you're maturing as a company and market, and if you're the dominant player, making sure that you maintain and continue to cross sell/upsell into your existing customer base becomes critical for continued success. IBM was able to use this strategy successfully to recover from their missteps to evolve and grow their business. The difference is that IBM always had good relationships with their customers and a culture that reinforced long term relationships. Microsoft never had this culture so it will be interesting to see how quickly they can adapt to the new order. Changing compensation is the first step to driving changes in behavior so I think they're on the right path. Like so many things in business, it's now all up to their execution.
Jul 27
2003
It's a fair point given that the majority of Microsoft's revenue and more importantly, profits, come from the Office suite and Windows. You have to wonder what Microsoft would be like if you took these two products away. Like the decline of mainframes, the PC is going to be phased out sooner or later. If PC's morph into specialized devices (eg. smart phones, PDAs), you could end up with devices that do not require a general purpose operating system like Windows, which could lead to a significantly smaller revenue stream from Windows. Word processors and spreadsheets are already at the point where the majority of the functionality is unused by most people. What is going to keep people upgrading to the latest and greatest version of Office?
Now with $49 Billion in cash, Microsof still has time to figure out how they will continue to generate increasing revenues and profits in a post-PC world. It's kinda like the challenge that Arab countries must face with their oil driven economy. The money is flowing now, thanks to oil, but you know it's going to stop flowing one day. What happens when the world switches to hydrogen fuel or some other alternate power source that doesn't rely on fossil fuels?
Mar 30
2003
If you look at the background of both executives, they both have great credentials with successful stints at respected companies. Michael H. Jordan was the CEO of CBS, CFO of Pepsi, and President and CEO of Pepsi Worldwide Foods. Toby Lenk was the VP Corporate Strategy of Planning at Walt Disney. However, like many executives during the bubble era, both executives had unsuccessful stints at bubble era companies. Toby Lenk was the CEO of eToys which ended up being sold at a fire sale prices after an accumulated deficit of $430 Million in just three years. Michael H. Jordan was the Chairman of Luminant which eventually ended up going bankrupt after following an unsuccessful strategy of acquiring Internet consulting firms.
The interesting thing is how both The Gap Inc. and EDS are handling the background of these two executives. In the case of Toby Lenk, they're playing up his experience in online retailing, and essentially giving him another chance to learn from his failures at eToys. In the case of EDS, they're not hiding Michael H. Jordan's background at Luminant, but they are minimizing his involvement at Luminant. I can understand why they're downplaying his role at Luminant, given EDS's role in outsourcing and advising companies.
However, I think it's healthy to have an executive who has seem his/her share of ups and downs in their career. After all, companies go through periods of highs and lows, and you want an executive who has seen both and can therefore manage through the good times and bad times. The important thing is whether they're able to learn from their past mistakes and allow their companies to benefit from their painful mistakes. For the sake of The Gap and EDS's investors, let's hope that they have both learned something from their stint at bubble era companies and are able to lead their companies through these turbulent times.
Mar 10
2003
I never worked with Benioff when I was at Oracle, but I do believe that he was responsible for such stellar Oracle products like PowerBuilder and PowerObjects. Interestingly enough, the article doesn't mention these two highly visible failures at Oracle. As someone who actually tried using PowerBuilder and PowerObjects, and even worse, trying to get Partners to use these products, I can say that it wasn't Oracle's finest hour. Regardless of his history at Oracle, Benioff is getting a lot of attention at Salesforce.com, even from respected industry analysts such as Chuck Phillips from Morgan Stanley.
The funny thing about Salesforce.com is that it seems to be stuck in a time warp, partying like it's still 1999. I can't think of many startups that are spending $100K to rent out PacBell park and blowing $600K in product launches. Either Benioff must be doing some very right, or he's using Salesforce.com's status as a private company to generate buzz (a four letter word nowadays) without substance. Given Benioff's history, I wouldn't be surprised if he's doing a little bit of both. Whatever he is doing, I hope he keeps doing it, because I really would like to see companies such as Salesforce.com succeed and prove that the ASP subscription model for enterprise software can be successful.
Feb 23
2003
I think it's still too early to pass judgment on Sun. There is a segment of Sun's business that will be threatened by the Intel/Windows/Linux contingent, but that segment is going to be a commodity market. I do agree with the article in predicting that Dell will rule this segment, with its efficiency in manufacturing and distribution. However, I personally feel that there's going to be a segment of the market that will never go with the Intel/Windows/Linux model. Running a website is one thing, but if you're running data and processing intensive mission critical applications, going with the many Intel servers model is going to cause you more headaches in manageability and uptime than a centralized cluster of high end servers from Sun.
The article does raise an interesting question around Sun's ability to continue to innovate to differentiate themselves in the market. Gregory Papadopoulos (Sun CTO) mentions that if you consider the hardware and operating system segment to be a mature market, Sun has a bad business model, given its $2 Billion annual R&D budget. I tend to agree with Gregory that the hardware and operating system is still an immature industry, especially when you compaire it to the IBM mainframe world. Even Sun admits that it looks to mainframes for inspiration when designing high end Unix servers. I believe that there still is room for a significant amount of innovation and therefore an opportunity for Sun to take the lead and grab market share from both the low end and the high end.
So, is Sun down for the count? We'll have to see. Given the many lives that Sun has had over the years, I wouldn't be surprised if they survive and thrive again.