A Meaningful Life

I find myself this morning the NKOTB at the big annual Boston real estate "leadership" gathering thrown for the United Way. I came to be social, and did not expect to be inspired. So I was pleasantly surprised when I was--by keynote speaker Bill Cummings.



Bill Cummings is a guy who made hundreds of millions of dollars buying older buildings and land on the North Shore of Boston, fixing them up, and attracting business to them. Bill's organization has a reputation for fanatical efficiency and cost-control, making possible projects that others would not touch.

So it was interesting to hear him talk of how he has just given $50M to Tufts University for their vetrinary school, and, more dramatically, the fact that he is systematically transferring nearly all of the rest of his assets --something close to $1B, I think--to a foundation, which has a mission focusing largely on providing affordable housing for the elderly. What is going on here? What is the underlying economic process at work?

I would say that Bill Cummings is not just another rich guy giving some money to a cause.

Bill's coordination of the efforts of so many others -- and his ability to motivate them -- created jobs where there was none, converted scarey, blighted places to safe, productive ones, and, as should be the case, created excess economic value, what we call profit. This is all how it is supposed to work. But the fact that he plowed the majority of that excess economic value back in to the community to create more jobs and more needed services begins to feel like socialism--except that, when you think about it, it is really hypercapitalism, because it is Bill Cummings, not society, that is the one calling the shots about how is money is used.

This is how economic systems should work. Capitalism is a wonderful system. It is the best system we know. The reward for the winners is that they get to be Bill Cummings.

There are many people who lead meaningful lives, but for those of us in business, it is sometimes hard to see how what we do is "meaingful". Bill Cummings helped me see one way a businessman can lead a meaningful life. It was nice to see his wife and daughter there, clearly cheering him on. It seems he did not forget them along the way, either.

Why we should not race competitors to market

Business school teaches us that it is important to be 'first to market' and to get 'first mover advantage'. I believe this is good advice for many businesses, but in the world of launching new, innovative products or services, it is often wrong.

I will use the business that Plaxo is pursuing now (self-updating address books) to explore this topic.

The first player in that space to my knoweldge was Contact.com. Mitch Kapor (founder of Lotus) was on the Board, and, I believe, led the investment for Accel partners (a top VC). The VCs put at least $10M into it. At the time they launched, they basically had no competitors. What they did was to create a dedicated piece of software you would run on your PC that would manage your address book. It handled all the synching in the background for you so that the details for everyone in your address book were always up-to-date.

Overall it was a well-done app. It was free. It failed to get significant user adoption. The reason was that everyone wanted to have their contacts app be the same as their email app, and that Microsoft (and Notes, to some degree) owned that space. When Contact.com shut down, they still had no competitors. Mitch's comment to me later about why they may have failed was "What we were doing really was a 'feature', not a 'product'. What we were doing needed to be part of a complete product to work." What was needed was more insight into how users would respond to the product. Competition wasn't a factor.

A company called Peoplestreet, that I invested $2M of my fund's money in, launched the year after Contact.com shut down. It had the same basic idea as contact.com, but instead of a separate client, it worked inside all the major email/contact-management programs, like Outlook, Act, and Notes. It was also free. It did get user adoption--we had about 30,000 individual users--but more importantly, real organizations like Bank of America, Russell Reynolds, and others said "this will be important to my business". Bank of America invested $2M in the company, by way of underscoring that they believed this.

This company failed too. The underlying reason was that we couldn't find a way to get users to PAY for the service. In summary, we solved a problem that Contact.com had not, and encountered a second problem: a business-model issue. Although Peoplestreet nominally did have competitors (GoodContacts, Ants), I don't believe we ever 'lost' business to a competitor. The issues were, fundamentally, internal. Had Peoplestreet found a way to cast the product in a form that people were willing to pay for, it would be here today. If you believe that such a path existed for Peoplestreet, you can put the company's failure down to a lack of insight on the part of management and the Board (including yours truly). Like the example of Contact.com, one could argue that we should have been able to forsee this problem, before spending $6M to have it hit us in the face.

Today Plaxo is pursuing this SAME business, a few years later. It has a similar approach to Peoplestreet. They had the benefit of learning from Peoplestreet, I suppose, and their product is smoother and more refined than Peoplestreet. But to my knowledge they have not solved the basic problem of finding a way to get paid. They are now offering a paid version with 'premium customer support' and are trying to 'get into the enterprise'. I hope they succeed, but the bottom line, I think, is that they will have to take a significantly different approach than Peoplestreet, or they will fail. The challenge they are having is one that a bit of careful thought, or perhaps research into Peoplestreet's experience, would might have revealed early on. I think they have spent about $19M on this. I don't think competition has ever been a factor for Plaxo.

What is the moral of these stories?

It is critically important for us to work out the underlying usability and business model challenges that face a new, innovative product, prior to making major investments in it. Usually, the #1 reason companies don't do enough of this is rushing. They feel they must race competitors into 'the market', as though they knew that a market existed. Despite that fact that competition in the self-updating address book 'market' has never been a factor for any of the players seeking to create a product in that space, successive companies, each 2-3 years after the last, have rushed to bring their products to market, in each case spending their limited resources too quickly, and ultimately running out of cash.

The good news is that the enemy is within, so we know where to find him or her. The power to succeed or the responsibility for failure, at the end of the day, resides within the team, and its ability to evolve and shape its new, innovative concept.