Tuesday, February 28, 2006

Cozying up.

The Valley: Networking

Before social networking software, the real world: Thickets of relationships keep Silicon Valley on the competitive edge.

January 30, 2006 Issue

Silicon Valley is full of people like Drew Lanza. A Stanford University graduate, engineer, serial entrepreneur, and now venture capitalist, the 49-year-old Atherton, California, native seems to know everybody in the hollow of land between the eastern foothills of the Santa Cruz mountains and the San Francisco Bay.

He helped hook up Bandel Carano, a venture capitalist with Oak Investment Partners, with Rick Aversano, a seasoned startup executive. The former funded the latter’s business idea, which became Qtera, an optical-networking company bought by Nortel Networks scarcely two years later for $3.25 billion.

Similar stories abound in Silicon Valley, which still soaks up more than a third of all venture capital in the United States and incubates more startups than any other region. The narrow stretch of land between San Francisco and San Jose has given birth to some of the biggest names in technology, from Hewlett-Packard to Intel to Oracle to Apple Computer to Sun Microsystems, many of which spawned startups of their own.

Intertwined with Technology

The area is not only full of young technology companies, it’s also replete with people who, like Mr. Lanza, act as catalysts, connecting those who need money, employees, managers, accountants, lawyers, and business partners with the people and companies most likely to fit the bill.

As old hands know, their connections, coupled with the rapid-fire job-hopping and furious pace of information exchange that characterizes the valley, are key to the region’s economic success and its dominance in creating innovative technology companies. And that’s on top of a culture that lionizes entrepreneurs.

It’s not just a matter of knowing venture capitalists knowing other venture capitalists, it’s knowing the whole cross-section of players—engineers, lawyers, accountants, researchers, and CEOs of often dozens of companies.

“It’s one of the hidden secrets of the success of Silicon Valley,” says Heidi Roizen, a managing director at Mobius Venture Capital in Palo Alto.

“The fabric of our whole community is so intertwined with technology and entrepreneurship and innovation,” she says. “The valley is so steeply concentrated in technology jobs that you get to know people from competing companies because you go to the same church or your kids play on the same soccer team or you live next door to each other.”

Mr. Lanza, for instance, grew up down the street from Bill Edwards, one of the Valley’s earliest venture capitalists, and Tim Draper, who became a third-generation VC in 1985 when he started his own firm 27 years after his grandfather founded the first VC firm on the West Coast.

“I always lived within three miles of Stanford,” says Mr. Lanza, a partner at Menlo Park-based Morgenthaler Ventures. “I can specifically relate a couple of times when deals have been a combination of someone from the technology arena and someone I knew in high school.”

The Alumni Advantage

Some of the most economically relevant ties in the region are those forged by technophiles who worked together at the same company.

Example: PayPal co-founder Max Levchin, who left the online-payments company after it went public and then was sold to eBay in 2002, formed his own business incubator, MRL Ventures, which has already sparked at least three startups. He runs one, an online photo-sharing service called Slide, and another, online networking and reviews site Yelp, is run by former PayPal engineering vice president Jeremy Stoppelman (See Q&A: Jeremy Stoppelman).

“It’s become quite a strong alumni network,” says Mr. Stoppelman, who notes that Mr. Levchin himself provided the company’s initial financing as well as introductions to venture capitalists before Wellesley, Massachusetts-based Bessemer Venture Partners invested $5 million in November.

Mr. Stoppelman got help hiring engineers and preparing his venture-funding proposal from Keith Rabois, another former PayPal employee who is now an executive at social-networking site LinkedIn. He also used his connections from PayPal days with LinkedIn CEO Reid Hoffman and newly minted venture capitalist Peter Thiel to cement relationships with venture capitalists.

“The better connected you are in the valley’s social network the easier it is to get things done,” says Mr. Stoppelman.

That’s one reason so many startups accept venture funding. CafePress, a Foster City, California-based online marketplace for customized products such as T-shirts and coffee mugs, was already profitable in early 2005 when Sequoia Capital made an investment, according to vice president of product development Mehdi Maghsoodnia.

But more important than the money was having partner Doug Leone on the firm’s board, he says. “When we want to approach a potential business partner, the first thing we do is ask our board members,” says Mr. Maghsoodnia, explaining how introductions are arranged.

As CafePress grew, executives needed advice on designing a data processing system for larger volumes of orders. Another Sequoia partner provided just the introduction they needed. That was to online shoe retailer Zappos.com, which willingly shared its expertise, according to Mr. Maghsoodnia.

Fostering Entrepreneurial Experimentation

Venture capital firms often become crucial nodes between companies, since many of their partners have worked at technology companies, and have not only the technical and operating expertise to grasp what pioneering startups are doing and where they fit in the marketplace, but also the relationships with other engineers and programmers and executives who can be useful to their portfolio companies, according to academic researchers.

“The advantage of the kinds of networks [Silicon Valley] has and the overlay between industrial and legal and venture capital and university networks, where all those networks feed into one another—that’s fairly unique,” says Mark Granovetter, a Stanford sociologist spearheading a research project aimed at tracking and mapping the relationships between key players in Silicon Valley. “Regions that don’t have all this reciprocity back and forth find it difficult to stay at the cutting edge.”

Many other regions—including the Boston area, Silicon Valley’s biggest U.S. competitor—are dominated by “insular, secretive, inward-looking firms, universities, banks, and research institutions that hinder the social networking and open information exchange that support multiple entrepreneurial experiments in Silicon Valley,” says AnnaLee Saxenian, a professor at the University of California, Berkeley, and author of Regional Advantage, an examination of the differences between Boston and Silicon Valley.

Ms. Saxenian quotes one Silicon Valley entrepreneur saying he “got commitments for $2.5 million in 20 minutes from three people over lunch who saw me write the business plan on the back of a napkin. They believed in me. In Boston, you can’t do that. It’s much more formal.”

Not everyone agrees that such speedy decisions are restricted to Silicon Valley, though. “That’s silly hogwash,” says David Skok, a general partner at Matrix Partners in Waltham, Massachusetts, the heart of Boston’s technology corridor. “We fund people here very, very quickly.”

In the fall of 2004, he says, Matrix pumped $5.2 million into Veveo.tv, a company aiming to deliver television to consumers over broadband connections, and $4.25 million into Aylus Networks, a developer of technology that would enable the delivery of video over wireless communications equipment.

“They were situations where we had a person we knew and respected highly, and they came in and explained they wanted to start a new business in a general area, and we liked the general area enough to say, ‘We’ll back you,’” says Mr. Skok.

The VC Honor Code

Still, dense networks accelerate decision-making in Silicon Valley, where venture capitalists say they can vet entrepreneurs, check whether there’s a market for their business ideas, and even find potential customers with a series of phone calls to the right people.

“People do all these favors for one another and provide all this information for one another in ways that are priceless,” says Mr. Granovetter. “If you tried to buy that information, you couldn’t.”

The process allows venture capitalists to move quickly, backing a company right when the market calls for it—a huge advantage in a world of constant change.

Trust is the other component. “There’s a code of honor among venture capitalists,” says Ms. Roizen. “If you know something bad about somebody you don’t let a friend put a bunch of money into that person.”

The connections forged in a small community reinforce that network of trust. “There’s no substitute for personal contact,” she adds. “The strength of knowing someone because your kids are on the same soccer team is different than what you get through business relationships.”

And in Silicon Valley, that kind of trust keeps getting repaid—many times and millions of dollars over.

Sunday, February 26, 2006

Benjamin Franklin's 13 virtues.

1. Temperance: Eat not to dullness and drink not to elevation.

2. Silence: Speak not but what may benefit others or yourself. Avoid trifling conversation.

3. Order: Let all your things have their places. Let each part of your business have its time.

4. Resolution: Resolve to perform what you ought. Perform without fail what you resolve.

5. Frugality: Make no expense but to do good to others or yourself: i.e. Waste nothing.

6. Industry: Lose no time. Be always employed in something useful. Cut off all unnecessary actions.

7. Sincerity: Use no hurtful deceit. Think innocently and justly; and, if you speak, speak accordingly.

8. Justice: Wrong none, by doing injuries or omitting the benefits that are your duty.

9. Moderation: Avoid extremes. Forebear resenting injuries so much as you think they deserve.

10. Cleanliness: Tolerate no uncleanness in body, clothes or habitation.

11. Chastity: Rarely use venery but for health or offspring; Never to dullness, weakness, or the injury of your own or another's peace or reputation.

12. Tranquility: Be not disturbed at trifles, or at accidents common or unavoidable.

13. Humility: Imitate Jesus and Socrates.

convergence of advertising and content

we talked about this trend a few years back as the inevitable consequence of tivo. product placements in "content" shows have mushroomed. what has lagged, but is still inevitable, is ads that essentially become content (funny or very informative). lastly, the fact that product placements can be digitally placed after content is filmed suggests that it can be targeted, post-hoc manipulated, and disconnected as a separate asset from the content itself.




By Steve GormanSun Feb 26, 12:03 PM ET

A breakthrough in television advertising debuted without fanfare last spring as a brand-name box of crackers appeared on the CBS sitcom "Yes, Dear" for about 20 seconds, seen but hardly noticed by millions of viewers.

Unbeknownst to them, the image of Kellogg's Club Crackers had been digitally painted onto the top of a coffee table after the scene was filmed, launching the latest advance in a growing marketing practice known in the industry as product placement but derided by critics as "stealth advertising."

The "Yes, Dear" episode in April 2005 marked the first commercial use of a patent-pending innovation dubbed Digital Brand Integration, or DBI, developed by New York-based Marathon Ventures, and grew out of an unprecedented marketing deal with CBS (NYSE:CBSA - news).

Since then, CBS has used the technology to plug brands such as StarKist Tuna and Chevrolet on several other shows, including the hit police drama "CSI: Crime Scene Investigation" and new sitcom "How I Met Your Mother."

David Brenner, founder and president of Marathon, said his company expects to unveil a new pact soon with the Fox network, a unit of News Corp. Ltd. (NYSE:NWS - news)

Blending brand names and products into television shows, as opposed to traditional ads that run during commercial breaks, has gained greater currency in recent years as the industry faces the rising popularity of TiVo and other devices that let viewers skip commercials.

But some industry experts suggest that product placement -- digital or otherwise -- has limited value in delivering a commercial message.

Hollywood producers and writers also have raised concerns about their work being turned into virtual infomercials, and consumer activists have fretted about blurring the line between entertainment content and advertising.

CBS executives declined to comment.

UPDATING TECHNOLOGY

The electronic insertion of Club Crackers into an episode of "Yes, Dear" was not the first instance of a TV show being digitally altered to superimpose brand-name images.

The technology, pioneered by a New Jersey-based outfit called Princeton Video Image, has been a part of U.S. network sports broadcasts for nearly a decade.

Virtual product placement in scripted prime-time series dates back to a non-paid experiment conducted on the UPN network in March 1999, when images of several brands, including Coca-Cola and Blockbuster video, were digitally spliced into an episode of the now-defunct drama "Seven Days."

Back then, network executives voiced skepticism about widespread use of the technology in scripted prime-time programs. Part of what was missing was a system that allowed the networks to easily market placement spots to advertisers.

Brenner said his system puts computer-generated brand integration on the same business footing as traditional TV ads by giving networks control over an "inventory" of placement opportunities they can sell on a routine basis.

It also improves the speed and ease with which brand and product images can be inserted in post-production. Brand images can thus be altered or replaced when the show goes into reruns and off-network syndication.

"We have created a system that allows everybody involved to make more money," Brenner told Reuters in an interview.

The key component in his DBI system is a process for cataloging each frame of video in a given TV episode to build a list of precise scenes and positions offering advertisers the best natural fit for their products. The idea is for digitally inserted images to be visible but not overly conspicuous.

STRIKING A BALANCE

"Although we want the product to be noticed, we don't ever want it to intrude on the creative process or the creative dynamic of the show," Brenner said.

Experts say striking that balance poses one of the greatest challenges to product placement.

"Simply placing a can of something, or a box of Wheaties on a table in the background ... I'm not sure if that builds brand preference or brand loyalty, or if consumers, quite honestly, realize it's there," said David Cohen, interactive media director at advertising agency Universal McCann.

Conversely, Cohen said, "The moment it starts reeking of overt product placement ... is when it starts losing its effectiveness and its appeal."

Stacey Lynn Koerner, executive vice president for research at ad-buying agency Initiative, said much depends on how the placement is used.

"If the brand is striving to be considered as hip or on the cutting edge, and it is placed contextually in an environment with a very cool, hip character, repetitively ... there may be some value in that," she said.

Product placement has taken off in recent years as media companies seek to confront the growing challenge posed by digital video recorders (DVRs), led by TiVo Inc. (Nasdaq:TIVO - news), which threaten to unravel the 50-year-old business model of commercial television.

According to Nielsen Media Research, network placements in prime time last year numbered 108,261, up more than 30 percent from 2004. The trend has been most pronounced on reality series such as NBC's "The Apprentice." (NYSE:GE - news)

Telling off.

Quantity of calls is inversely related to quality of design.

---

Your Call Should Be Important to Us, but It's Not.

By WILLIAM C. TAYLOR

PAUL M. ENGLISH never imagined that a pet peeve would become such a cause célèbre. For more than four years, Mr. English, a veteran technologist and serial entrepreneur, has maintained a blog on which he shares everything from his favorite chocolate cake recipe to the best management advice he's received.

But last summer, fed up with too many aggravating run-ins with awful customer service, Mr. English posted a blog entry that reverberated around the world: a "cheat sheet" that explained how to break through automated interactive voice-response systems at a handful of companies and speak to a human being. He named the companies and published their codes for reaching an operator — codes that they did not share with the public.

The reaction was overwhelming. Visitors to the blog began contributing their own code-breaking secrets and spreading the word. The consumer affairs specialist for The Boston Globe wrote about Mr. English, who is now the chief technical officer of Kayak.com, a travel search engine he helped to found, and gave his online cheat sheet mainstream attention. That led to appearances on MSNBC, NPR and the BBC, an article in People magazine — and more than one million visitors to the blog in January alone.

So, this month, Mr. English transformed his righteous indignation into a full-blown crusade. He started Get Human, which he calls a grass-roots movement to "change the face of customer service." The accompanying Web site, www.gethuman.com, sets out principles for the right ways for companies to interact with customers, encourages visitors to rate their experiences (the site is to issue a monthly best-and-worst list), and publishes many more secret codes unearthed by members of the movement. As of last week, the ever-expanding cheat sheet offered cut-through-the-automation tips for nearly 400 companies.

"I'm not anticomputer," Mr. English explained over lunch near his office in suburban Boston. "I've been a programmer for more than 20 years. I'm not anticapitalist. I'm on my fifth start-up. But I am anti-arrogance. Why do the executives who run these call centers think they can decide when I deserve to speak to a human being and when I don't?"

The Get Human cheat sheet makes for entertaining — and mystifying — reading. Want to reach an operator at a certain major bank? Just press 0#0#0#0#0#0#. Want to reach an agent at a big dental insurance company? Press 00000, wait through a message, select language, 4, 0. Want to reach a human at a leading consumer electronics retailer? Press 111## and wait through three prompts asking for your home phone number.

It would be funny if it weren't so depressing — and such bad business. Countless chief executives pledge to improve their company's products and services by listening to the "voice of the customer." Memo to the corner office: Answer the phone! How can companies listen to their customers if those customers have such a hard time reaching a human being when they call?

The obvious defense is that it's prohibitively expensive to offer the personal touch to millions of curious, confused, angry (or even enthusiastic) callers. The trouble is, companies tend to be better at cutting costs than at identifying missed opportunities.

Richard Shapiro is president of the Center for Client Retention in Springfield, N.J., a business that dials out to customers who have dialed in to toll-free call centers and asks them to evaluate their experiences. He argues that customers who interact with human beings are more likely than other callers to volunteer useful information, try out a new product and come away with a strong sense of loyalty — positive outcomes that are eliminated by excessive automation.

"You create more value through a dialogue with a live agent," Mr. Shapiro said. "A call is an opportunity to build a relationship, to encourage customers to stay with the brand. There can be a real return on this investment."

It's a point that too many cost-conscious companies seem willing to overlook. In an era of fierce competition, when customers have more choices than ever, the toughest business challenge isn't to keep expenses down. It's to keep loyalty high. Anything that a company does to make its products and services a little more engaging, a little less ordinary, can pay big dividends. Anything like, say, answering the phone.

Commerce Bancorp, the service-crazed retail bank based in Cherry Hill, N.J., has generated big returns by injecting a playful spirit into a notoriously bland business. Its 375 branches, including 47 in New York City, organize street fairs and celebrations to promote an entertaining mood. The locations also feature colorful change-counting machines and upbeat employees, who every Friday are decked out in red, often to hilarious effect. The company calls its strategy "retailtainment" — and it applies as much to its call center as it does to its branches in Chinatown or on Broadway.

"Traditional banking is low cost, low service, low growth," said Dennis M. DiFlorio, president for retail banking and operations at Commerce. "It's like the electric company; everybody needs one and they're all terrible. We've built a brand on service, convenience and fun. Our call center is not a necessary evil. It's an integral part of the brand. Every call is an opportunity to reinforce to the customer that they made a good decision by banking with us."

Forget automation or outsourcing to India. At the Commerce call center in Mount Laurel, N.J., 630 employees abide by a strict code of neatness — "no sweat pants, no slippers, no junk on the desks," Mr. DiFlorio cracked — and they, too, wear red on Friday, even though customers can't see them.

Incoming calls are routed easily and directly to agents, who are encouraged not just to inform but also to maintain the same friendly and informal spirit of the branches. "We try to create as much buzz as we can in our call center," Mr. DiFlorio said, "so we can create smiles on the customers who call."

To be sure, few companies can summon the everyday exuberance of Commerce Bank. But there is another cost-effective strategy for enhancing the human element: make the company so easy to do business with that fewer customers call with problems, which frees resources to meet the needs of those who do call.

"The reason people are dialing the 1-800 number is that they're having a bad experience in some other channel," said Mark Hurst, founder and president of Creative Good, a consulting firm that advises companies on how to improve the customer experience. He is amazed, he said, at how difficult it remains on most Web sites for customers to do little things like revise an order or track a shipment. "If e-commerce were much, much simpler," he said, "a huge percentage of these calls would never be made."

JIM KELLY, chief customer service officer at ING Direct, the online bank with 3.5 million customers and deposits of nearly $40 billion, takes the case for simplicity a step further. ING Direct keeps its entire product line simple. It offers a small number of easy-to-understand products such as savings accounts, certificates of deposit and no-frills mortgages. The savings programs entail no annual fees or account minimums.

As a result, the average ING Direct customer calls the bank only 1.6 times a year. The calls that do come in are answered by full-time employees who don't rely on scripted answers and don't work under strict time limits.

"The key word for us is simplicity," Mr. Kelly said. "If you eliminate service charges and hidden fees, you eliminate most of the problems and complaints. Then the only reason for people to call is to do business. And those are calls you're eager to take."

That sort of thinking is music to Paul English's ears — although most days, his ears are ringing with outrage from aspiring consumer activists eager to join Get Human. "There's a little 'rage against the machine' to this, but there's a business message as well," Mr. English said. "I want companies to wake up and ask themselves, 'How did we ever let it get this bad?' "

William C. Taylor is a co-founder and founding editor of Fast Company magazine. He lives in Wellesley, Mass.

Copyright 2006 The New York Times Company