Babak Bagheri

I’ve been absent from these pages tending to other matters. One of these is now interesting enough to write about. So here it goes.

For the past year and few months, I’ve been conducting a real-life experiment in bootstrapping a business. The original impetus for the experiment, aside from wanting to make money of course, was Apple’s creation of the App Store. The App Store is a remarkable market place. It provides a structured environment where I thought the kind of startup experiments I had in mind could be carried out cheaply.

I wanted to see if a series of applications could be made at minimal cost to generate enough interest and revenue to become self-sustaining. This would be a very low-cost way to try out my ideas about the experimental way of bootstrapping a business. The business entity I set up, Mentiva LLC, has now created three applications that are available for sale at the App Store: Swoop, Galaxy Wars, and Doodle World. The first two are games, the last offers a combination of drawing and physics simulation. The sales and reviews of these apps have been less than stellar, but the patterns and lessons that emerge are very interesting and valuable.

Swoop

The first game, Swoop, was aimed at pushing the iPhone and iPod to their limits by creating a true 3D environment. This actually turned out to be fairly challenging given my self-imposed cost and time limits. The app was done in about 3 months by one person (yours truly) working on it off-and-on using the least expensive tools available. The out-of-pocket costs for the app were less than $2000. The experimental question was: would a true 3D simulation be enough to generate interest and sustain upgrades? I had my answer within a few days of releasing the app: No. It became clear that App Store customers were interested in other aspects of games. Pushing the devices to their limits with 3D simulations was actually a negative, not a positive attribute. I’ll expand on the lessons below, but one interesting point was that the object of the game itself, parachuting, did generate interest, as in “good idea, but…”

Galaxy Wars

The second game, Galaxy Wars, was aimed at using the multi-touch capabilities of the devices in an interesting way. I had never considered myself a “gamer,” but I had enjoyed games like Asteroids, so the next experimental question became: would a multi-touch game in the Asteroids genre generate enough interest? Galaxy Wars was created at an even lower out-of-pocket cost: a few hundred dollars for an additional second-generation iPod. The time to create it was also fairly short: about a month from idea to app. Again I had my market answer within a couple of days of the release: No. The multi-touch controls were unusual enough to actually turn people off instead of generating interest.

Doodle World

The third and most recent app is Doodle World. Here the question was: would an unusual combination of already-successful features generate interest? The two features I chose were “glow doodling” and physics simulations, both of which had been successful in existing apps. With Doodle World, a clear answer hasn’t emerged yet. There is one very negative review of a version of the app, but it says more about the approach than the specific market question.

Three experiments are not enough for sweeping generalization. But some patterns are emerging. I’ll expand on one of these that I think is most important: it’s challenging to carry out low-cost experiments in a commercial setting. This is true even in a very structured environment like the App Store.  The reasons have to do with the way we make purchasing decisions. We go into a transaction with a set of expectations about both what’s on offer and the seller. Low-cost experiments taint these expectations, they can “damage the brand” even if there is no brand yet. The challenge is to do just enough initially to pique interest and not damage the brand. To do this one needs to know the market well enough to push the right buttons and avoid pushing the wrong ones. But those are really the questions we want our experiments to answer, hence the challenge…

Yes, we are now officially in the oversharing age. You would think this would improve the quality of information we get; that the massive, and increasing, amounts of shared info would be useful. But it’s looking like the opposite is more likely. And again it’s because we’re all too human.

Old-School TV Infomercial

The coined term “infomercial” labels the issues well. The oversharing we see all around us can, and is, very easily subverted to become large-scale exchange of infomercials. Recently, I’ve found myself mistrusting almost all reviews that pose as “independent.” In the past, except in rare cases, advertising was easy to spot. But consider this: you’ll now have to wonder if your “friends” are actually giving you their honest opinions or are they just walking, talking ads. It can get even worse, your friend may just be parroting his friend who was sold by her friend.

There is no conspiracy here. This kind of subversion happens because we are human beings looking after our own positions in the attention-driven economy.

My guess is that in the not too distant future this insidious aspect of “sharing” will push folks to moderate or at least modulate the way they see easily shared information. The novelty will wear off and we’ll become social-info-savvy the same way we became ad-savvy. As this process gets under way, we’ll have to find new ways to get authentic information across. It’ll be harder because the level of trust will be lower.

I’ve already heard folks say that they only trust the very few people they have listed on their well-guarded FOAF lists. Let’s hope the backlash isn’t that dramatic, and the level of general trust doesn’t fall that low.

Why do we consider some products to have high quality? This is a simple-sounding but actually complex question. The common answer is to repeat the legalism about obscenity: I can’t define good quality, but I know it when I see it. That answer, of course, just begs the question, but there’s a kernel of truth in it. High quality is in large part assigned by a community, sometimes in fairly arbitrary ways.

During the 1990’s Toyota was in the process of establishing Lexus as a high-quality luxury brand. They had noticed that fit and finish (as the Detroit auto makers would have put it) were central to the American perception of quality in an automobile. They had in fact designed the Lexus to have just about the best fit and finish possible at the time. A famous TV commercial touted this attention to fit. In the commercial, a ball bearing rolls over the gaps between the car’s body parts to show how well and consistently they fit together.

Clearly, Toyota was right about the car-buying community’s views on quality; they had made other decisions about quality based on their observations that also hit the spot.

This social nature of judgments about quality means that abstract “six sigma” approaches to quality will likely be ineffective in isolation. One has to focus on what the target audience considers to be of high quality. Statistical measures should be based on these judgment, if it makes sense to use them at all. This is where the interactive web can help. The challenge there is, as mentioned here before, to cut through the large number of voices and be heard.

So what is your attention worth? In our attention-driven economy, this is a fairly fundamental question. For any product or service to do well, it has to attract attention. More and more, this attention has to be bought in one way or another. To make the right attention buying decisions, one has to have some notion of what attention is worth.

Eye (by Andrew James McNulty)

A few recent “market valuations” give fairly direct hints about the value of attention. The most recent valuation was the large investment, about $180 million, in a “social gaming” company. The company is private and secretive about revenues, but they do like to mention the size of their user base. Apparently, they have about 60 million “active” users. It’s hard to tell what percentage of the company this investment has bought. Let’s be generous and say 15%, that values the company at about $1.2 billion. So in this online social entertainment business, a pair of eyeballs is worth about 20 dollars. Another relevant piece of public information about this situation is that only 3% to 4% of this user base actually spends any money and the amounts being spent per month are small (less that three figures).

It would be interesting to push this exercise and guesstimate eyeball values for different kinds of businesses and contexts, especially how “engaged” the eyeballs are and how much the attached brains spend. But already it tells us something about how much it makes sense to spend on buying attention. If you can get 3% or so conversion and $20 or so per month in expenditure, it makes sense to spend a fair amount on acquiring those eyeballs. This is a little counter-intuitive given the current craze about “free viral and social” advertising. Of course, this bodes well for those who already have the eyeballs (ad inventory and distribution channels); if the trend holds, they can sell at a premium.

The “sales funnel” has been an important marketing concept. Together with market segmentation, it’s part of the common marketing diet. Interactive media give us pause about how valid these two classic concepts are. Is reaching customers still as simple as dividing the audience into appropriate segments, then sifting through the buckets over time to see who is willing to buy what?

There are, at least, new complications because of the new feedback loop of interactivity. Suspects, prospects and customers can talk back both to you and to others. So their interests and sales “responsiveness” are shaped by many more voices than before. The main effect is that the market buckets and funnels become leaky. A “qualified” prospect can become “unqualified” (and vice versa) because of a few “posts,” “comments” or even “tweets.” And changes like this reinforce each other because of the interactive feedback loop.

A Basic Feedback Loop

The upshot is that the entire buy/sell system becomes more volatile. A small whisper, if it triggers the right feedback loops, can have big consequences. What’s more, this sort of thing can happen almost silently. This is because the number of voices is becoming so large that  opinion feedback clusters can incubate without being noticed until they reach an audible threshold. A small-world network together with this kind of circular interaction can throw the usual segmentation and funnel calculations into disarray.

So what does this mean in practice? It means expecting and insisting on “planned outcomes” is becoming outdated. Instead we need dynamic arrangements that can react quickly in a volatile environment. The right kinds of reactions can dampen and steer the system. As usual, this is easier said than done.

Attention is a scarce commodity. This is strange given the fact that there are now over 6,000,000,000 of us humans on this planet. Surely, there should be a sizable audience for almost anything. Well, there is but not all that sizable. There are many reasons for this, but the core reason has to do with the limitations of the human brain. Yes, you read right; that magnificent instrument we all have in our skulls is limited. The important limitation here is our capacity to analyze and remember. We cannot possibly evaluate and recall the value of everything even a small fraction of humanity produces. So we rely on others’ judgments.

Small World Graph with Hubs

Not only do we rely on others’ evaluations, but we simplify even these second-hand judgements. The upshot of this human tendency is that we’ve created a world of “hubs” of attention. A very few people and groups, “hubs,” dominate our collective attention. Not only do the hubs dominate, but away from the hubs attention falls off exponentially.

In other words, points of attention form a “small world” graph with very big hubs. This power law of attention can be a boon for those who make up the hubs. So how do you become a hub? You’ve probably been given one answer by marketers: Niche Thyself. Basically, become a hub in a small group, then parlay that into becoming a bigger and bigger hub. The niche advice is probably the soundest one there is. But there are other things you can do.

Here’s a partial list:

• Do something stunning (good or bad doesn’t matter, but good is better).
• Do something encyclopedic (create a point of reference).
• Do something helpful (indispensable is even better).
• Connect others together (this is very popular these days).
• Ignore the hubs and go for the “long tail” (if you’re feeling clever).

You may want to make your own list along these lines.

Traction, be it sales or just attention or “eyeballs,” is a must-have in the entrepreneurial pursuit. Gaining enough interest in each step to be able to take the next one is essential.

So how do we get traction? For the answer we need to go back to psychology and the street savvy we’ve talked about. We should scan the social environment, with our “itch X-Rays,” routinely to detect itches that can be scratched. We should then use our social imagination to guess if solutions we find will stick. We should then do inexpensive experiments to see which of these guesses pan out.

Being able to do all this well is a challenge to say the least. So a good deal of mythology surrounds these abilities. We hear about the “guys with golden guts” whose every guess is right and can pick exactly the right people to get it all done. It would be nice if there were such heros, but in real life it’s usually persistence that wins. Some have even tried to quantify these abilities and claim to be able to tell you if you’ll succeed by comparing your background with historical data. There’s even a startup to do this kind of evaluation online! How’s that for itch scratching? Give us a little data and we’ll tell you if you’ll make it; yeah right.

Male Peacock (by Laurence Shan)

A lesson from the animal kingdom is worth keeping in mind. Evolution is the quintessential traction detector. What is the main lesson from evolution? Lots and lots and … lots of trials. Another important lesson is: call attention to yourself and what you’re doing. Don’t think that helps? Take a look at the male peacock.

Are experiments the only way to navigate the bootstrap process? Are there no rational shortcuts? The answer, as usual, is “yes, but.” The alternate or complementary approach is what I call “social imagination:” the ability to imagine the effect an enterprising act will have on a group. This is really an exercise in imagination, not calculation. We don’t have any formulas to compute what the effect of any act will be on a complex social environment. But we humans seem to be endowed with brains that can imagine various social outcomes in uncanny ways.

Adult-Born Neurons (Veronica Piatti et. al.)

Recently, there have been a number of publications and discussions about these human abilities. They all point out that our social imagination is related to the constituents of our brains and how they are wired, or, more accurately, continuously rewired.

Social imagination seems to be built into us in ways that we’re just beginning to understand. A very dramatic example of these abilities is attributed to the “mirror neuron system” of the brain. The system, discovered by accident in an Italian laboratory, allows us to copy the brain state of another person by mere observation.

Apparently, our abilities go beyond mirroring: we can play out scenarios of what people will think. There are, most likely, severe limitations here. I don’t believe we have social crystal balls built into our brains. It’s also most likely that people differ a great deal in their capacity for social imagination like they differ in every other capability.

To complement actual experiments, then, we’re well advised to carry out “thought experiments” to see what the possible outcomes may be. These imaginative musings should be guides for framing the actual experiments and hopefully they will increase the probability of success. As with all other mental abilities, social imagination will improve with practice; so the more we do this the better we’ll be. Hence the value of experience.

Omaha Beach June 6 1944

Establishing beachheads is not easy. To do it, we need to win over enough of the opinion leaders with a kind of offering that can attract a wider audience. A few things are must-haves: an offering that “scratches an itch” now, a way to reach the opinion leaders, few opposing distractions, and a way for the word to spread. Offerings that do all this aren’t exactly commonplace. In fact, the major part of an entrepreneur’s job is to find or create offerings of this kind in the right sequence to build a successful business.

So what we need is a Plan; didn’t the allies have one? Nah, just kidding. In fact, plans won’t help us with this at all. But a few things will: deep knowledge of the opinion leaders and their itches, ideas about how to scratch them, ability to be heard above background distractions, and a bit of luck.

To put crowd-psychological conjectures and insights to work, marketers have embraced a number of simple models.

The first model was developed for technology markets and is called the “Technology Adoption Model”. The model is based on the Technology Adoption Curve, a simple bell curve for the distribution of adopters of technology (or innovation in general).

Innovation Adoption Curve

This segmentation of innovation enthusiasts and luddites is presumably the same for all types of new gadgets, services, ideas, etc. Let’s take that for granted.

In his “Crossing the Chasm” book, Geoffrey Moore points out that the lines between the different segments, e.g. Early Adopters and Early Majority, are more like large gaps or even chasms. The upshot is that we need a plan of attack for capturing the attention of each new segment. The basic idea is a familiar military one: establish a beachhead, then expand the conquered territory.

A second famous marketing model or curve is useful in forming each plan of attack. This one is often called the “hype” curve and was introduced by the Gartner group.

Hype Curve

This categorization of attention or visibility across time is also presumably the same for all types of gadgets, services, ideas, etc. Let’s take that for granted.

An interesting question is: can we start or otherwise engineer this curve for each of the adoption segments above?

Note that if the Trough of Disillusionment falls below the horizontal axis, then attention and visibility are zero; one would presumably have to restart from scratch!