young entrepreneurs should focus on building B2C companies since they lack the deep industry experience needed to build successful B2B companies.

Allow me to explain my thinking.  Young people in their 20′s trying to start a business-to-business face an uphill battle for several reasons:

1)  Identifying Opportunities is Hard
The best companies are started by people solving their own problems — or so goes the classic logic.  But for young entrepreneurs without any deep industry experience, there aren’t any obvious problem for them to solve.

2) Building the Right Product is Hard
When you haven’t experienced the pain point you’re solving, you don’t truly understand customer needs.   You can try to put yourself in their shoes, listen closely to their problems, and design a solution.  But ultimately, it’s tough to get product-market fit from the position of an outside observer.  A related issue: anytime you’re solving someone else’s problem, staying motivated becomes tough.  Will focusing on the pot of gold at the end of the rainbow sustain the necessary passion to succeed?

3)  Sales, Marketing, and Business Development are Hard
Without industry experience, you won’t have the personal relationships to get your food in the door and close deals and you won’t know the right distribution channels.  You’ll struggle to craft your marketing message in a language that speaks to your customer’s needs.  Furthermore, you won’t have existing relationships with the other players in the industry which could be your partners.

Your Responses

Here’s a few of the fantastic responses I’ve already gotten in response to “entrepreneurs in their 20s should focus on B2C products since they lack any true ‘industry’ experience needed to build B2B products”:

Start With What You Know?

So what do most young B2B entrepreneurs do? Many start with what they know…local! The business on the corner seems like a good place to start.  And of course the market is now flooded with these hyperlocal advertising ideas — “a text message couponing solution for restaurants”  (see my earlier post on that subject).

I can’t think of too many young entrepreneurs that have successfully started B2B ventures.  In fact, the only person that comes to mind is Darren Herman.  Most young entrepreneurs stick to B2C, creating slightly better products to expose undiscovered product opportunities (Tumblr, Box.net Facebook, and Plancast come to mind).  Are there tons of unsexy B2B ventures from young entrepreneurs that have simply flown under the radar?

Your turn: what’s a 20-something to do?

I’m done talking — now it’s your turn.  Any young successful B2B entrepreneurs flying under the radar?  How did you do it?

Investors/VCs — do you find most B2B companies started by someone with deep experience in that industry?  Are there outliers?  How much industry experience is typical.  Weeks?  Years?  Enough to rule out 20-somethings?

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“More expensive and less functional.”

That was the recommendation I had for a friend’s startup. Why? The free version of the company’s product works too damn well.

You’ve probably heard of Freemium. There’s also Previum and a dozen other variations I’m sure. The exact differences aren’t really worth getting into because at the core is this: Something’s gotta break. And someone’s gotta pay to fix it.

But breaking a product is harder than it sounds. Products can break to different degrees and along many different dimensions. Time is one such dimension. With trial software, the user is given a few weeks to use the product.  If they like it, they continue using it. Rdio gave users three days to try it out. Balslamiq gives seven days. Basecamp gives 30 days. As you can see the degree of this breakage varies widely.

Another related dimension is usage in which the product breaks after being used a certain number of times. Or when a certain amount of use is reached. For example, Pandora breaks after 40 hours of usage in a month.

But most products are broken along some feature dimension. AirVideo converted me into a paying user in (a ridiculously fast) five minutes by making the product so broken that it demonstrated that the technology worked and was awesome, but I couldn’t browse all my videos making the product essentially unusable. And sometimes products are entirely broken, which is to say they exist entirely behind a paywall. Many dating websites continue to operate like this.

There’s a dizzying number of  dimensions in which most products can break. It’s limited only by a product’s feature set, a product’s complexity and your creativity. Most products are simultaneously broken along several different dimensions, to varying degrees of breakage, and at different pay points.

Building a product that’s correctly broken requires a strong product sense and a willingness to experiment and charge money. Limit the free version too much and you lose users which could potentially be great sources of word of mouth marketing. Give too much away, and you’re cannibalizing your own products and shooting yourself in the foot. It’s a fine balancing act for sure!

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When a VC friend asked which young NYC startups I find exciting, I sent him a list of pre-funded companies that I’ve been watching. Afterwards I started writing them into a blog post. Well, I should have pressed publish sooner because as the post sat unfinished for the last week, several have since been funded! I’m including them anyway. Good times!

Here’s my short list of NYC startups I’m keeping my eye on:

JumpPost

Apartment hunting is broken.  JumpPost could be the fix.

JumpPost gives apartment hunters ‘first dibs’ on the best apartments. How do they get the best apartments?  JumpPost pays apartment dwellers $500 to add a listing to the site several months ahead of their actual move out date.  Sometimes it pays to plan ahead.

Jordan and his team is onto something big and they’ve already generated some good press (getting paid $500 for doing nothing is especially buzzable!).  I imagine they’ll need some product pivots before JumpPost truly takes off, but this one’s got potential. Personally I would add a social layer to the product and emulate AirBnB which has made finding places to stay fun, easy, and safe.  JumpPost can potentially bring that same user experience to apartment hunting.

SinglePlatform

SinglePlatform gives bars and restaurants a centralized tool to easily update multiple social media profiles: Facebook, Twitter, Yelp, Citysearch, Myspace, and their own website. It’s the same core concept as Postling, except SinglePlatform seems to be executing better.  The founder, Wiley Cerilli, spent the last 10 years running sales at SeamlessWeb so the company clearly understands the market they’re serving — a point that becomes immediately clear browsing their site: “One of the most frequent phone calls to establishments is regarding what games they are playing. SinglePlatform allows you to select which TV packages and team affiliations you have and then posts those games automatically.”

SinglePlatform also seem to be quite good at selling their product at a comfortable price: $450 for a year.  That upfront payment (versus a monthly fee) should help the young company with cash flow issues and also make paying commissioned sales staff easier.  This six month old company seems to be quietly staffing up - LinkedIn already shows 11 employees.  Their aggressive sales force is hitting the pavement hard and closing deals left and right and the product is already being embraced by their customers.  And to top it off, the company is profitable.  This ones gonna be big…

ChallengePost

ChallengePost is a self-described “marketplace for challenges.”  Essentially, ChallengePost is home to dozens of competitions such as NYC’s BigApps which gave $20,000 to developers who built the best mobile apps using NYC datasets. Creative challenges help organizations harness the creativity of the masses to solve tough problems and generate ideas.  It’s a powerful concept that will increasingly become the norm among large organizations struggling to be innovative (also check out Hypios).  Recently, ChallengePost was named the official challenge platform of the US Government.

UPDATE: Sharp-eyed Danny Moon points out that in June 2009, ChallengePost raised an angel round of $500,000.

Kickstarter

Kickstarter is a funding platform for artists, designers, filmmakers, musicians etc. Essentially, it helps people raise funding to accomplish cool things.  Kickstarter handles the headache of accepting donations and also drives eyeballs to your project.  It also imposes some business logic to the process:  like a Groupon deal, buyers (donors) are only charged if the project raises the target amount of money. And fundraisers can associate rewards for different donation tiers (ie T-shirt if you donate $50)

Kickstarter benefitted from the PR buzz stirred up by Diaspora, an attempt by four NYU students to build a private decentralized Facebook.  In Diaspora’s efforts to raise $10,000 on the Kickstarter site, they unintentionally found themselves with $200,000 of donations - effectively an angel round of financing.

Yipit

Yipit makes it easy to find the best deals in your city.  Local daily deals sites like Groupon are hot right now.  But there are literally hundreds of them. Who wants to subscribe to a hundred email newsletters?! Yipit sits above them all, aggregating the fragmented marketplace into a single customized daily deal newsletter with the categories the user wishes to receive.  This puts Yipit in a position to charge a referral/lead-gen fee for each sale it drives to the deal sites. Brilliant.

UPDATE: On June 30, Yipit raised $1.3M.

Other honorable mentions:

-Shoutworthy: A social recommendation system built on Facebook. Think Linkedin’s recommendation tool.  Now imagine a much better version!

-TopGuest: A loyalty reward system built on top of foursquare/gowalla etc.  Formerly known as UDorse.

-Endor.se: A way to find talented freelancers, gauge availability, and built a portfolio of people whose work you endorse.

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The book’s title caught my eye instantly.  ”Visual Literacy”  Intriguing.  I took it home, and over the next few days, I learned just how blind I was to the art of visual communication. Completely illiterate.

The book begins with exercises: “By using four black squares of the same dimension, create a graphic image that best expresses the meanings of each of the following words:

order

increase

bold

congested

tension

playful

I gave it my best shot and then flipped the page, revealing sample answers from students at New York’s School of Visual Arts. Suddenly I realized just how illiterate I was.

I’ve since appreciated design more.  To further explore the importance of graphic design and visual communications, I dug up a few Exit Strategy NYC graphics.  I show our initial design attempts (done by yours truly).  At heart I’m a science/tech geek, so I’ll explain my inherently scientific thought process.  And then I show how a professional designer approached the same problem.

Exit Strategy Fans: enjoy this behind the scenes look!

Train Illustration.  How I approached the problem: Exit Strategy NYC shows subway riders which train door to use.  So each door needs an ‘on’ or ‘off’ state.  The MTA’s trains can be 10 cars, with 4 doors in each car.  That means 40 doors in a train.  We want the train to run vertically on the iPhone screen which is 460px high (it’s 480px minus 20px used by the time/battery/service strip at the top).  So dividing 460px by 40 doors means each door gets about 11px of space to indicate on or off.  With padding, there’s probably 5px of height for each door and 5px in between the doors.

Where I got stuck: 5px for a door isn’t large enough to stand out, even if it’s red and a few extra pixels wide.

How a graphic designer solved it: By making the train have a ‘slant’ to the side which increased the swatch of the door, allowing the red color to ‘pop’.  Also she made it 3D and beautiful.

Splash screen.  How I approached the problem: We wanted to communicate subway transit combined with the notion of exiting quickly. Inspired by an ‘exit’ sign, I attempted to overlay a transit like system on top of it. It’s hideous.

Where I got stuck: Everywhere! How could we possibly communicate something as intangible as “Which is the correct train door?” while keeping a transit theme.  Time to call in an expert.

How a graphic designer solved it: Sheer brilliance.  The zig-zag of the colored lines communicates subway lines.  These lines dump out at a subway door.  The ‘correct’ door is open with a silhouette of a running guy.  An arrow helps indicate that this is the right door. The entire image is done with bright and bold colors.

So if you’re wondering whether you really *need* that graphic designer — always lean towards ‘yes.’  They’ll bring a perspective to the product and the messaging that will pay for itself many times over.

Readers — have any embarrassing early design of your products you wish to share?

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Wow.  It’s easy to see that the Facebook app usage on the iPhone platform trumps all the others.  From what I’ve gathered talking to other cross-platform mobile developers, these results are generally in line (at least for free applications):  Blackberry generally has half the install base of iPhone, and Android and all the others continue to lag far behind. Let’s look at another free app: Foursquare, which shared their platform breakdown via a tweet.

Android has an impressive showing, which could make sense given the application’s early adoption by techie types. Unlike Facebook, it hasn’t (yet) gained mainstream adoption. The differences across platforms become even more stark when we focus on paid apps. Here’s what the breakdown looks like for Exit Strategy NYC:

So those you have it — a few potential reasons for the differences.  At the end of the day I believe small developers are best advised to put their energy into developing for the Apple platform. Building products for the other platforms probably doesn’t make sense at present time unless you have a game-changing mobile vision for a product that’ll take years to complete and needs the openness that Android provides.  Or if you’re a startup showing traction that relies on a strong network effect to take over the world (ie Foursquare). Or if you’re a big company with tons of cash to build out your branded app — like Facebook, which tries to have versions available for every phone possible!  But gosh, I’d hate to be that engineer locked in a basement building for all six users of the Sony q7d3m1p$9!&9b7u64gph model phone.

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As they laid out the extensive feature set they envisioned and the millions of dollars in venture capital they were hoping to raise to build this product, I was struck by an interesting realization: the concept of a Minimal Viable Product (MVP) is actually quite counterintuitive. Don’t you want your product to be as awesome as possible? Features are good, so how could fewer be better?

Manhattan is full of gorgeous skyscrapers. No self-respecting person walks around thinking to themselves “Gosh, if I were going to build a skyscraper, I’d want mine to look like shit.” That just doesn’t happen! Instead, we have a natural tendency to want to ‘one up’ the status quo: “I’m going to build a skyscraper out of gold!”

But in software, version 1.0 of your product should look like shit! Reid Hoffman, founder of LinkedIn famously said: “If you’re not embarrassed by the first version of your product, you’ve launched too late.”

The heart of the issue is that very few of these minimal viable products exist in the real world. Why? They rarely stick around! Customer feedback quickly drives additional improvements and features. Soon, memories of the mediocre original product completely fade away!  How many of us realize that the original iPhone didn’t have apps?! It wasn’t until July 2008, an entire year after the iPhone debuted, that the app store launched.  But today we only see the final product.

In a world of beautiful skyscrapers and impressive technologies, thinking small seems futile. But in this economic environment, a minimal viable product is more than just a nice concept. It’s a requirement.

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apps should allow users to achieve key goals with as few finger taps as possible.

Exit Strategy NYC’s extremely simple interface asks only three key pieces of information:
1) What subway line are you riding? (tap the line’s icon)
2) What subway station are you going to? (tap the station)
3) What is your direction of travel? (tap ‘uptown’ or ‘downtown’)

The app then shows the platform diagram for this station. Three taps — that’s it! In and out in fewer than ten seconds. Compare this to the Tube Exits interface design (Tube Exits is the London equivalent of Exit Strategy NYC.) The user has to tap over a dozen times just to get the same information!

One of my favorite apps, Foursquare, took a step backwards in their latest update. Previously you could check in with two taps: once on the venue, and once on the ‘check-in’ button. Easy Peasy. But the latest update added an additional step after the ‘check in’ button. This change added no functionality, only friction.

If you’ve ever played the Settlers of Catan iPhone app, you’ve seen another worst case scenario. Users must tap a tiny “Continue” button every time the next player’s turn comes up. It’s unnecessary and it’s frustrating.

Using an app with poor tap economy is like trying to run a marathon in the ocean. You exert much more effort and get nowhere fast. There’s too much friction. Tapping is mentally taxing, especially when it lands users on an entirely new screen. The user must review this new screen, then figure out which elements are interactive, then decide which one will help achieve their goal, and then tap again! Each additional screen/tap shoves one more roadblock between the user and their end goal.

The best services let users do more by doing less. This makes users feel powerful. Have you ever used Amazon’s one-click checkout to place an order? If not, please try it. It’s thrilling to use! Similarly, Griffin’s iTalk app features a giant ‘record’ button that feels magical. With a single tap, the user can start recording because the app picks smart defaults and stays out of the way.

The only time having an extra tap makes sense is when the alternative is worse: a cluttered user interface. Good UIs balance which elements are shown and which are hidden. Consider Facebook’s decision to add the grid button in the upper left corner:

Economy [of taps] is always a motivating factor, but the grid adds an extra tap [because you need to press the grid button] versus the full-time tab bar. This was a compromise I felt was necessary. There’s always that balance between screen clutter–adding tabs–and the number of taps.

-Joe Hewitt Quoted in Chris Dannen’s iPhone Design – Award Winning Projects

At the heart of many apps is a single core goal that your users hope to achieve — repeatedly. For Exit Strategy NYC it’s retrieving information. For iTalk it’s recording audio. For Foursquare it’s checking in. For Amazon it’s purchasing items. Don’t make your users run in the ocean. Remove as much friction as possible. Let them fly in the sky! The quicker the user can perform their goal, the better they feel about themselves. And the better your product makes them feel, the more they’ll fall in love.

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…staring at my iPhone, the city right outside the window suddenly had voice, personality, opinion. Notes started pouring in, bite-size songs of praise about people and places…”

Minh Uong/The New York Times

I love it! What a perfect description of that magical moment many of us have experienced — when you suddenly ‘get’ hyperlocal and realize that these nerdy webpages and mobile apps can literally change the way you interact with your own neighborhood, transforming the cement jungle into a friendly playground ripe for exploration.  The author elaborates on the feeling:

“…crack doors open that might otherwise be passed by, giving personality and accessibility to the surrounding blocks. To walk through the city eyeing your Foursquare tips is to realize just how little of it you ordinarily see.”

My moment of awe came during a visit to San Francisco in 2007. With my WAP enabled phone in hand, I walked down the street googling the names of every restaurant I passed — my obsessive-compulsive way of picking a good one.  A website called Yelp.com consistently popped up at the top of the google searches, and although I had never heard of it, I found their information and reviews extremely valuable.  I suddenly realized the power of this technology: I could get more insight about a restaurant by Googling it than stepping foot inside.

Back in New York, I graduated college and waved goodbye to Morningside Heights and moved into to a completely new neighborhood:  Hells Kitchen.  Again, I suddenly I found myself overwhelmed with choice!  I distinctly remember running cost-calculations in my head: “How much it would cost to try out every single restaurant on 9th Avenue?”  The answer?  Too much.

And here’s where Yelp really shined.  Yelp was my insider guide for my new neighborhood.   I could literally zoom into a city-block and see every single business on the block listed — alongside details, reviews, and tips.  Suddenly I had a way to learn about those ‘off the beaten track’ spots. Empire Tea and Coffee?  If it weren’t for Yelp, I’d have overlooked one of the best coffee places in the city.

Why are hyperlocal services so powerful?  Because there’s a high personal relevancy to the information they offer.   Steven Berlin Johnson (author and co-founder of outside.in) sums it up well:

Say you’ve got a particularly nasty pothole on your street that you’ve been scraping the undercarriage of your car against for a year. When the town or city finally decides to fix the pothole, that event is genuinely news in your world.

It’s news in your world and only your world!  By the way, If you’re not already getting a daily everyblock.com newsletter, you should sign up.  The information you’ll learn is incredible.

Perhaps what’s most exciting is that existing news sites and reviews guides are just scratching the surface of what’s possible with hyperlocal information.  Friend-finders like Foursquare, Gowalla and Loopt are finally starting to take off. But cool startups are working on defining whole new hyperlocal categories too: Deals, Nightlife, and even Casual Encounters!

In the deals category for example, Spotter by Yipit uses the foursquare API to find deals at the places you visit!  The result is an incredible daily deal newsletter that’s custom-tailored to where you live, work, and hang out. In a different category, Buzzd and Citysense are trying to track nightlife activity and tell you what’s ‘hot’ around you.  And let’s not forget Grindr, an iPhone app which facilitate sexual encounters between gay men.  The service has over 500,000 users and on a given day 30% log on.  Incredible traction.

Hyperlocal has finally come of age.  And seeing it go mainstream is going to be really fun.

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The most basic principle of business is that profit is revenue minus costs.  Try considering all fixed costs as a rate — especially a daily or hourly rate — and then look around you.  You’ll find you have more insight into existing businesses or the potential of new ventures to succeed. 

And you’ll find that some business ideas simply don’t make sense.

Don’t plan on building a business by selling a product for $2 that takes an hour of time to produce unless you’re superhuman and don’t need sleep.

Don’t franchise a mobile RV arcade for “between $89,000 and $200,000″ a year which can fetch “$300 to $350 for a two-hour party appearance” without carefully considering the math — that you’ll need to book somewhere between 250 to 650 clients just to break even on your initial upfront investment.  I don’t know too many kids who have birthday parties on Monday nights..and there’s only so many hours in a weekend and only 52 weekends in a year.  You’re might be paying off these costs for eternity…and the high tech games will certainly have become stale by then.

And please don’t build an SMS mobile coupon company on an assumption that you’ll get a salesperson to hit up every local business selling your $10 service (so cheap that nobody will say no!).  As mentioned in my article about SMS coupons, an entry level salesperson earning $50,000 a year is a cost of $1000 a week or $200 a day or $25 an hour.  Make sure a sales person would earn more than they would cost.  If the numbers don’t work, your business won’t work.

But wait!  It’s not all gloom and doom. Thinking in terms of daily sales can actually be really inspiring for a first time entrepreneur:

If you’re quitting a job to start your own company, consider what it will take in daily earnings to replace your salary.  Better yet, consider how much you honestly need to be ramen profitable.

Most recent college graduates in NYC working a full time job are probably earning somewhere between $35,000 – $80,000 depending on industry and skill set.  Consider that $100/day for 365 days is $36,500 annually.  This is a livable wage for most scrappy 20-somethings (assuming you don’t have a family to support and you’re not drowning in school debt).  Consider that $200/day is a rather comfortable annual salary of $73,000.  (And yes, these numbers are based on working 7 days a week.  And they don’t take into account the unpaid time you’ll put into an initial product launch.)

If you need inspiration to get started, never forget just how ‘small’ a start can be: just get to $100 a day.  Consider it milestone number one for your first entrepreneurial venture.  Let’s say you have a product idea that you think would sell for $20 with a 50% margin.  Ask yourself: “Can I sell 10 per day?”  Consider that again: 10 per day.  Consider that there’s six billion people in the world,  is it really so hard to find 10 customers each day?  Or if you’re working with a partner, 20 customers?

So consider David Heinemeier Hansson’s amazing advice (that I have echoed above) and stop thinking about your next billion dollar startup.  I believe first time entrepreneurs (of which I am one myself) should start small.  Go for the lowest bar of success: the $100/day idea.  Once you’ve conquered that, go for the $100,000 idea, then the million dollar idea, then the billion dollar idea.  Along the way you’ll meet fantastic people, gain skills and confidence, and maybe even have some fun.

Now if only my 2c could be put towards rent…

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Apple’s app store taught me that living in New York City is expensive.  How expensive? $1.25 an hour.

Consider that the rent for my (rather modest) Brooklyn apartment is roughly $900 a month including utilities.  There are roughly 30 days in each month, so $900 / 30 days means I’m paying $30 a day and $30 spread across 24 hours in each day means I pay $1.25 an hour.  Ouch.  Suddenly $2.25 per subway ride doesn’t seem all that bad…

Most people I tell about Exit Strategy NYC ask “How much did it sell?”  They phrase the question in past tense.  This is fine for fad-like novelty apps.  But for utility apps like Exit Strategy NYC the question is best phrased in the present tense: “How much does your app sell?” (Marco Arment refers to these types as two different app stores).  Selling apps in the app store is an on-going business.

Apple’s app store has changed the way I look at the world. iPhone app sales figures are available each morning for the prior day.  As a result, I’ve gotten in the habit of checking app sales first thing each day.  But more importantly, I now view the world around me differently: it’s all about rates.

In the manufacturing world, the question is whether a product can be sold at a price and volume high enough to cover production costs.  But many businesses sell products which are almost pure profit.  I’m not just talking about software or service businesses.  Consider your local coffee shop, bar, or video rental shop.  The items they sell are almost entirely profit.  In these cases, the more useful question to ask is can they sell *fast enough*?

The phrase ‘Burn Rate’ is typically applied to pre-revenue startups calculating how long the business can survive (ie their ‘runway’).  But the concept is applicable to all businesses and individuals: Is money coming in faster than it’s draining?  Simply put, is the bathtub filling? Or draining? (the photo is a metaphor by the way…not a picture of my $1.25/hour apartment)

Is that cool new coffee shop in your neighborhood going to succeed?  Consider all the costs as rates.  If their rent is approximately $3000 a month, that’s $100/day.  If they have two full time employees, tack on another $100/day for each.  The owner should make at least $100/day to make the business worth running. So that’s an on-going cost of $400/day.

If the main product being sold is a $2 cup of tea, unless 200 people pass through the doors each day, don’t count on that business staying around too long.

Let’s break that down further.  If the shop is open 10 hours each day, that’s 20 customers an hour.  Or one purchase every three minutes. They better start upselling those croissants real fast..

There are a number of businesses in my neighborhood (specifically places on Atlantic Avenue in Boerum Hill) that I’m afraid won’t exist much longer.  Consider the perpetually empty video store.  If rentals are $4 and it’s a one man business, he’s going to have to cover $200/day to stay afloat assuming he’s willing to work 7 days/week.  Is he doing 50 video rentals a day? It certainly doesn’t look like it.

Businesses aren’t the only thing that should be analyzed this way.  Break anything down into a micro-rate and it really makes you think about ‘value’. I pay roughly $90/month for my AT&T iPhone service, which comes to $3 a day.  Do I get more than $3 of value and enjoyment out of my iPhone each day?  Absolutely. Similarly, my gym costs about $75 each month.  Does considering my gym subscription as a $2.50 daily expense motivate me to get my money’s worth (almost) every day?  Absolutely.

[Continue to part 2]

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