Facebook is here to stay

An interesting thing about being plugged into the startup world is the frequency with which one sees “new ideas”. Many of them, alas, are just old ideas being rebranded or old ideas that the person proposing them is not aware of.

Facebook’s widely documented travails, with legislators inquiring into Facebook’s role in the 2016 US Presidential elections – and possibly more – on both sides of the Atlantic, mean there is once again a swell of entrepreneurs clamouring to make a “new Facebook”. Within just the last week, one tweeted he wanted to make a privacy-first, open source Facebook. Another in a closed founders’ group described a portfolio company, which is a combination of “Facebook and Gmail.. no spying, no ads, secure social platform, where you own the content and the network .. no fake users, ever”.

Which reminded me of another interesting thing about being an old hand on the web: we know what hasn’t worked, exactly why it didn’t work, and all that it may take to make it work.

Anyone remember Diaspora? It was founded on three principles: decentralisation, freedom, and privacy. But as social networks go, how many people do you know who use Diaspora? I admit I know none.

Then there was ‘Ello, which I am somehow still on, though yet to figure out how it adds any value to my life. May be I am in the minority. There are and have been others such as Path (uh!), Google+, MySpace, and Peach (ok, I admit ignorance).

Successful ones include Whatsapp, which is embroiled in its own version of “fake news” controversy (link may require registration) in the world’s largest democracy. Others are Slack, with its purpose built groups, and Quora, the knowledge community with over a 100 million users.

But none has yet matched Facebook’s near-total control of the conversations among the global user base of connected, mobile, literate people.

An early adopter, I was on SixDegrees.com somewhere around 1997. Many people discussing these networks have not heard about it though a Wikipedia page exists, as it should, for the super early mover in the social networking space. My observations through the years say that we all want privacy, no-ads, control over who sees our content, no fake names or bots, anonymity when we want to overshare or share stuff we should not be sharing, ability to join or leave groups, ability to engage safely, and the freedom to take our data when we leave. However few of us really know what it takes to build something like that. Fewer still know what it takes of us to ensure all of that on the platforms we use.

Let’s take the privacy and control pitch. Facebook has excellent, granular privacy controls. I should know. I operate my Facebook like a walled garden. To work it, however, you have to be alert to how your life is organised, make appropriate lists, and then be diligent about controlling who sees what out of your shared material. As I have written elsewhere, user motivation to figure out your product is a huge – and unhelpful – design assumption. The product and the UI need to be simple to use and easy to figure out.

Google+ made much noise about making privacy and control simpler and easier but Google really did not succeed at converting a sizeable chunk of its Gmail user base into Google+ users. This highlights the importance of switching costs and network effects in building a successful social network.

Then there is that bugbear of fake names, bots, and anonymity. Quora is by far and away my favourite community since 2010. It started off well. With a “real names” policy. That is how so many of us participate and write there with our real identities. Monitoring and policing real identities is a job and a half. There is a reporting feature, which active users, Top Writers, former moderators, and topic gnomes use heavily. It is difficult for users to keep on reporting if they keep seeing the reported users come back with changed names, or bots and sock puppets returning with a vengeance to vandalise content. It reduces the SNR on the website and can damage the culture of the community rapidly. It takes lots of people. Or machines. To keep bots, fake names, and anonymous usage under control. Oh, and real names mean nothing. On LinkedIn, people use real names and their employer names and yet there is open and inbox harassment, racist remarks, trashy comments on people’s posts.

Which brings me to the problem of “using the web while <insert minority type here>”. Did I say Quora is my favourite community on the web? But I am asocial as hell there. Others cannot comment on my content, nor can they message me. How did that come about? I was enticed to Quora by the purpose of sharing information and learning. At one point, there was a massive growth through influx of users, who did not understand or care about community policies, brought their own cultural artifacts and assumptions, and had a considerable impact on the experience in the community. I was quick and preemptive in battening down the hatches but others continue to suffer – Muslims, Jews, black people both Afro-Caribbean and African American, LGBTQIA persons, and women in general. This is a problem that no social network has licked yet though noises are often made in this regard.

In 2015, Facebook spent a reported $2.5Bn on capex including data centres and other infrastructure. LinkedIn is owned by Microsoft which has almost $90Bn in cash, Whatsapp is owned by deep-pocketed Facebook, Quora is a unicorn valuated at around $1.8Bn. The point is that even if the perfect product is created, and somehow users can be enticed to switch in huge numbers, creating and running a social network at scale is expensive business. One must not forget that users are used to “free”, so promises such as “no ads”, no data mining etc will lead to inevitable questions about the monetisation model.

All this can be summarised as “barriers to entry” in the social networking space.

And yet, every other day, there is an aspiration to create a new social network.

Back to Facebook then. With over 1 Bn users, Facebook is no longer a “social network”. Especially if information — fake or otherwise, and I am including Whatsapp’s challenges in this — is the stock-in-trade, Facebook fits the classical definition of “utilities” and, at the moment, it is also a natural monopoly. It is not a public utility. If, however, its externalities are anything to go by, including its impact on democracy and the information asymmetry created by its machine learning algorithms, it needs to be regulated. Those arguments have been made repeatedly over the last few years. One of my favourite commentators, danah boyd, wrote about it in 2010.

So how might Facebook be regulated? And will that reduce or increase the “barriers to entry” for new networks?

One of the best models of utilities regulation is the British one where regulation is seen as a second choice to a well functioning market. It focuses on consumer choice, competition, and forward-looking incentive regulation. Forward-looking what?

There lies the rub. None of us is paying for using Facebook. In fact, if pricing were introduced at this point, there will be an almighty uproar because, to many, it is like an “essential product” now.

If no consumer is paying to use Facebook, is it really a “market”?

As definitions go, we are in uncharted waters.

More importantly, how will regulating ensure or improve consumer choice or competition?

It is structural barriers, and consumer behaviour challenges, not Facebook, that prevent alternative social networks from achieving the same roaring success it has achieved.

In other words, unless regulators break Facebook up perhaps into consumer and business networks or force Facebook to shut down, or Facebook boldly starts charging fees, eroding its user base and reducing its own power, or an earth shattering paradigm emerges in economics and business regulation, Facebook is here to stay.

It may be forced to become more transparent, and build better governance like other listed entities. But it is here to stay.

 

How to prepare for wild success

This article is the final one in the Startup Series on FirstPost’s Tech2 section and first appeared on September the 11th, 2017.

Even if the widely accepted statistic “8 out of 10 startups fail” is wrong, it is true that a vast proportion of startups are likelier to fail than to succeed. As a result of hearing about it often, somewhere in our subconscious, we are perhaps better prepared for failing than we are for wild success, both the road to it and handling it.

But wild success can come to founders, and often does.

Many things go into the making of a successful business. The founder brings an idea, strategic focus, extreme discipline, execution abilities, ability to hire, inspire and retain people, integrity, and bus loads of luck. Luck is, of course, a funny thing because it cannot be “modelled” or otherwise made into a 2×2 matrix for others to emulate. Luck can be anything from being in the right place at the right time to having the right networks but also having the courage to call on people, uncommon resilience, finding a match between own risk appetite and the actual risk involved, and many other factors. It is also worth remembering that on the way to big success, most founders have given up control of the company.

But what does success look like? IPO? Millions in the bank? Including myself as a former founder, few founders spend time visualising what they will consider “success”. So external metrics often rule.

So the first tip to prepare for success — visualise it.

What does success mean to you? What is its form? What does it bring? What impact will it have on you?

Amongst good things, success may bring wealth and opportunity, and with it, the opportunity to use wealth to do more good or multiply the wealth itself. Wealth can buy material comfort, and offer greater choices in daily life.

On the flip side, success can bring loss of control and, sometimes, of privacy. While building the business, many founders rightly seek publicity for the venture. The scrutiny can expand into their personal lives, something very few are prepared for. Fewer still are ready for the loss of control and the demands on their limited time success can bring. The humbler ones, who have not let success go to their heads, can ironically suffer more. A successful founder in Delhi, who is a friend, is often unable to take any time to relax in one of his oldest hang-outs. I joked with him once that I saw him there and wanted to say hello, but he looked like he was in a business meeting. He sighed and said, “Please, Shefaly, next time, come and rescue me, because all people want from me now is venture funding, and please let’s not even mention the sycophancy I get.” Oops! Another founder in London told me how she was baffled by constantly being asked to “collaborate” or invited to events, by people who had never given her time of day during her hardest slog. I asked if she realised they were trying to borrow her brand equity and her social capital to advance their aims. She had not, and was surprised by the realisation.

The second tip to prepare for success — now that you feel less beholden to others than you were, be prepared to exercise much greater discretion than before.

The visualisation also helps generate options for the inevitable question, “Now what?”, especially if you as a founder are not engaged any longer in an executive capacity with what you created, and sometimes even if you are.

This is the last column in the series. We end with Rudyard Kipling’s “If”, wisdom that is good throughout the founding journey:

If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:

If you can dream—and not make dreams your master;
If you can think—and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools:

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,
Or walk with Kings—nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!

 

“I failed. Now what?”

This article is the twenty-first, and the penultimate, in the Startup Series on FirstPost’s Tech2 section and first appeared on August the 21st, 2017.

“I failed. Now what?” Whenever I hear these words, the first thing I do is remind the founder: People don’t fail or succeed, ventures do.

A “failed” venture can mean various things e.g. the venture fails to reach key milestones on a projected timeline, the venture runs out of money before raising money, founders fall out and some or more want to call it quits, the venture is going bankrupt, the venture needs to be wound down.

In some of these scenarios, there are ways to “exit” a failing venture depending on the founders and the agreement between them. Those of you, who have been regular readers of this column, will remember I advise often that founders engage and pay competent lawyers.

If some or more of the founders are leaving, a robust shareholding rights agreement would have outlined in advance what happens to the shares of those founders who are leaving, whether they can retain them or sell them, and the restrictions on selling them including who has the right of first refusal. If such a framework is not in place, the process of negotiation can be long drawn and worsen the pain of all concerned.

If the venture’s prospects are unclear and if the venture has some assets including intangibles such as a brand, trademarks, designs or other intellectual property, one could look for a buyer for those assets. If the business has run out of cash or is barely surviving, this is unlikely to be a good option especially since the process is costly and potentially long drawn.

If all else fails, winding down the company is always an option. It is better to have gone into battle and gotten scarred then to have sat on the sidelines, worse, on the fence, and never have experienced the horrors and lessons of war. The issues of ownership of intangible assets will still need a resolution either between the founders or otherwise.

No matter what route is taken, founders are bound to feel the pain. Failed ventures hurt. And then they hurt again. But many founders go on to build other ventures after a failure. Some, who may still be hurting, are driven by just trying to prove to themselves that they can do more, achieve more. A few go on to learn lessons and build big successes. Yet others choose other career paths altogether.

To that extent, failed ventures are useful things. They provide the opportunity for a lot more reflection and embody a lot more learning for founders than successful ventures do. In my experience and observation, learning from failure is a form of success on which further success — and indeed new kinds of failures — can be built.

Before embarking on a new venture, it helps to take some time to review the lessons from the experience of failure. I also advise — and practise myself — an exercise in gratitude. Yes, as a founder of a now-failed venture, you may have a broken heart, but you still have your smarts, your body, your ability to work hard, and now, some freshly baked wisdom. Taking a pause to reflect on what one has versus what one has lost reframes the experience and helps the process of moving on. Taking a short break, if one can afford it, also helps.

It helps to remember that apparent successes can also essentially be failures. It was after a massive victory in a war, in which an unspecified number of men were killed, that Ashoka realised his Pyrrhic victory was not worth it. He won the war but the cost was massive, to humanity, to the cause of political unity. His ‘success’ wasn’t a success after all. He took note of the “transaction cost” and did not deem it a success after the fact. Following this realisation, he sought and turned to Buddhism. That decision meaningfully altered the course of South Asian history.

Founder conflict: disagreement on fund raising

This article is the nineteenth in the Startup Series on FirstPost’s Tech2 section and first appeared on July the 12th, 2017.

Is there such a thing as disagreement among founders on fund raising? Isn’t external fund raising seen as some kind of marker of validation for startups, one that sets them on the growth path like a rocket ship?

Yes, I know you are incredulous.

But it happens.

Founders can and do disagree on the idea of external fund raising, on the timing, on terms, on some combination of these.

First, the idea of external capital. In his research, Stanford’s Professor Noam Wasserman has found that most founders give up management control long before their companies have an IPO. The process of letting go of control to maximise financial gain, he found, is not easy. He asks: do you want to be “rich” (less control but maximum financial gain) or do you want to be “king” (all control but less than potential financial gain)? These two aims are often at odds with each other. It is important to understand and agree on the vision for the startup, but also on how each founder visualises the path to get there.

Can doing due diligence before agreeing to be cofounders help us with the dilemma in the future? May be.

How can you assess whether you are talking to a “rich” or a “king” type potential cofounder? Look at their past decisions! Even though past behaviour may not be a guarantee of future decisions or performance. How did they choose investors, employees, team mates? What kind of relationships have they built and with what kind of people? Did they make different decisions when they were in control versus when they were given an order?

Doing all this helps, but the revealed preference when push comes to shove may be quite different. That is where conflicts arise, and as conflicts go, this one is pretty fundamental to the direction a startup will take. The founder who wants to be “king” may not want external funding, which means the startup may have to rely on organic, often slower, growth. The founder who wants to be “rich” would want to get on with the job of raising capital, and will have to be the one to recognise signals that warn him or her of the challenges ahead.

Second, some founders may disagree on when to raise funds. Fund raising can take anywhere from 6 months to a year. Founders, who disagree on timing, may also not recognise that fund raising takes time and that the company may run out of money before they succeed at raising. This can be a challenge to the existence of the business. Founders need to start discussing and working on the fund raising much earlier than they think they will want the money.

Third, some founders may disagree on terms on which to accept money. Since no investor worth taking money from will fund an unincorporated company, this is something founders can and should have addressed at the time of forming the company.

The question of resolving disagreements amongst founders would have been addressed in a good shareholder rights agreement. Including the scenario, where there is an impasse or a deadlock on a material action such as fund raising. Remember how I have harped through this column series on about paying a competent lawyer? This is another reason why. A good lawyer would have had experience of conflict and conflict resolution between founders, and should have advised you on its probability.

If there is no shareholder rights agreement in place, then like much else, it is a matter of negotiation. That means the outcome cannot be predicted.

Finally, what if you come to the fund raise, and one of the founders wants out? Should the other founders try to talk him or her into staying, or should they let him or her go? This can be tricky. The founder, who wants out, may be tired, fed up, no longer interested. The feelings can be fleeting or they may have made up their mind. Find out which it is. Make a call on whether it is a distraction you can afford right now. Whatever it is, your shareholding rights agreement should have addressed this scenario. When someone wants to go, let them go. As long as the rest of you are on the same page, you have a finite chance of making something of your startup and your vision.

Founder Conflict: the troublesome star in the team

This article is the eighteenth in the Startup Series on FirstPost’s Tech2 section and first appeared on June the 19th, 2017.

Both business and sport celebrate stars. In sport, especially football, star performers are often traded for huge sums of money, without regard to the fact that football is a team sport. The history of player trading shows that too many “stars” fail, when placed in the context of another team than their last one that let them shine. Startups are a team sport too, and founder conflict can sometimes arise from one “star” disrupting the team.

In an earlier column, I had written about a founder and her challenges with the technology lead. She had given the tech lead co-founder status and given him a considerable chunk of equity. Much conflict later, she had to part ways with him. That did not come without a lot of legal trouble and negotiation. The delay in resolving the conflict also derailed some of her timelines.

Are stars, especially uncooperative, uncollaborative and egotistic ones, worth it in a startup founding team? And what happens when you, as a co-founder, find yourself wasting altogether too much time on resolving team conflict due to a disruptive “star”?

Such conflict, if repeated or persistent, obviously does not bode well for the long term future of the startup. It is therefore best addressed when it first arises because if it is not nipped in the bud, you might find yourself expending too much energy on non-value generating activities rather than on core business issues.

Most people however do not relish confrontation, leave alone interfering in conflict and resolving it. So how can one approach this unwitting role of being a “peacemaker”?

As a first step, give yourself some time out. Separate yourself from the situation and take time to think clearly about the long term and ask these questions: Who in the team has a good attitude about working long term in a rapidly changing environment; who brings their competence to the work; whose ego hampers their delivery even though they may be competent; who is likely to be a better ambassador for the company in its growth years some time down the line; whom can you see yourself speaking and working with everyday for the next foreseeable future. These are deceptively simple questions with meaningful answers that bring clarity. In exploring all this, do not just go with your rational mind e.g. thinking the “star” may be irreplaceable or very expensive to replace. Pay heed to your feelings and your gut feeling e.g. does the “star” make you uncomfortable enough to avoid him or her altogether?

Consider the implications of breaking a relationship now on not-very-friendly terms. Can it bring you or your startup reputational damage? Will the break hurt a friendship? Will it shut doors to potential customers and investors for you? How will you protect yourself and the startup from the fallout?

Further, calmly assess the complete cost – legal, time, money – of getting rid of the “star” or indeed people that are conflicting with the start. Does the person have equity? Did the person do a lot of sweat equity work? What legal protections did you put in place for the business? If the person is a shareholder, what is your written and/ or implicit agreement? If you have been reading this column series, you will know we have discussed these issues in various columns and the importance of thinking of these challenges right when forming the startup and creating founder agreements.

Assess also the cost of replacing the person or persons now or later in time. This cost should not just be monetary but also the cost of delays, lost motivation, the risk of others quitting because they cannot bear to work with the troublesome star. The non-monetary costs are not quantifiable but could make or break your startup.

Last but not the least, remind yourself why you are creating the startup. I have often helped concerned founders visualise the possibility of a shattered vision if the bad situation persists. It is remarkably effective in spurring them out of paralysis and into effective and immediate action.

Once you have built a clear picture of the present and the future — with or without the “star” — you will be able to make a decision that is justifiable, fair, and, above all, taken in the best interest of the business and not just to pander to egos at war.