Monday, October 18, 2010

the Social Network, Startups among other things

I watched "the Social Network", the Facebook movie, two weeks ago. It was a movie of particular interests to our generation because so many of us are hopelessly addicted to Facebook, especially since coming back to b-school. In addition, one of the characters, Divya Narendra (the partner of the Winklevoss brothers), is currently a JD/MBA student here at Kellogg. You can read an interview of him regarding this movie here.

The movie was executed beautifully and funny at the same time. It triggered a lot of discussion afterwards among my friends about how to successfully assemble a team to execute an idea. To me the biggest lesson learned was that it was crucial for a start-up team to have a trusted developer who has vested interest in the product and company. It is true that during the product development stage, you desperately need developer talent and sometimes you just don't have that talent in your circle. That's why you hire outside help, and unfortunately that put you in the risk of hiring the next Zuckerberg. You can certainly have them sign legal document, but as a starving entrepreneur, you probably don't really have the money and time to protect your idea with a wall of legal documents.

One of the recent trends that I have seen startups do (especially startups coming out of business school) is that they outsource development work to India and maintain "long distance relationship" throughout the product development and even post product launch period. I consider this even a worse idea than hiring outside developers, especially for products that are targeted for the US market. Just talk to anyone who have experience working with outsourced companies, then you will know why.

The bottom line is, developers are crucial for tech start-ups. They are the one that hold the biggest "added value" (what you bring to the table), to use the jargon I just learned in business strategy class. And rapid turn-around and proto typing is key (hence, outsourcing to India doesn't work).

One solution to this developer power problem is actually at the source of the idea. Use Divya Narendra as an example, the idea of Harvard Connection was copied because it was a replicable and simple idea. You only really need one good developer to copy an idea like Harvard Connection. Divya's latest venture, SumZero, is an online platform for hedge fund, mutual fund and private equity analysts to share propriety information. And that, is something that requires domain knowledge, and something that is hard to copy. It serves a smaller community and has a niche market. Therefore, the developer next door who is a computer geek probably would not really be interested in copying this site. I would say Divya had really applied his lesson learned from the failure of Harvard Connection.

On the topic of protecting your ideas. I also want to share another school of thought. We just had a guest speaker for my Operations class today. Sunil Hirani, the founder of Creditex (acquired by ICE for over $500 million) spoke to us about Process Innovation and Entrepreneurship. What I took away from his talk is that ideas are best shared. In reality, once you talked to the first customer, your idea is out anyway, so you might as well talk to as many people as possible, to hopefully 1) attract the best people to your team; 2) to refine your idea. I am definitely a strong supporter of idea sharing. After all, most successful entrepreneurs will tell you that "execution is more important than ideas". But I think what I said about "easily replicable ideas" vs. "niche ideas" still hold true here. In the end, Mr. Hirani's venture is a financial service company rather than another social network site.


8 comments:

  1. hey DC , glad to see you back on the blogging world! Welcome :)
    I'm curious to learn more about your reason behind saying, "(hence, outsourcing to India doesn't work)". Is this conclusion specifically related to products catered to U.S. customers only such as a fantasy NFL gaming website. Obviously an Indian developer's knowledge would be limited, but when it comes to social network or domain specific applications, a qualified Indian developer aided by his source in the US would be as good as someone sitting in the US and writing the code....what do you think? I don't have any first hand or second hand experiences that might contradict this, if you do I'd love to learn about them.
    Thanks,
    Dreamer

    ReplyDelete
  2. Zuckerberg is portrayed as a kniving genius that betrayed his only friend. He seems a little more normal and well-adjusted in real life, but still seems very awkward. The movie was really intriguing, and is one of the best movies of the year so far.

    ReplyDelete
  3. @The Dreamer - I agree with DC that outsourcing development for a web/software/tech startup doesn't work. I don't think even hiring a developer nearby is a good idea.

    The main reason in my mind is that for a web/software startup to succeed, the developer needs to dedicate their LIFE to the project. Only having a developer on your founding team will really achieve this. They have to really believe in and be dedicated to the idea. They also have to have enough skin in the game to call BS on ideas that don't make sense technically.

    ReplyDelete
  4. On your last paragraph abt idea sharing,
    'Nothing is more dangerous than an idea when it is the only one you have' - Emile Chartier :)
    Welcome back to blogging!

    ReplyDelete
  5. Hey Dreamer,

    I think Anonymous said it nicely about the issue. Startup is a very different beast, it requires enormous amount of dedication from the developer and a hired employee sometimes just doesn't cut it. And having the developer located in a different country just make it worst. Think about the communication, think about the test market, think about the turn around time and response time. Startup is about rapid prototyping and constant improvement of the prototype, and having someone located in a different side of the globe doing the development work for you just is not fast enough. I've actually heard story about people using the outsourcing model not being able to move fast enough and lost 1st to market position.

    hope that clarifies my point, but, if you ever heard about success of the outsourcing model in startup world, let me know! I am always interested in a different opinion :)

    ReplyDelete
  6. @DC and Anon. - thanks for sharing ur perspective :)

    ReplyDelete
    Replies
    1. the commerce and arts graduates cannot figure out a way to go forward and the doctors despite working 12-14 hours envy the neighbors who seem to making more money through their investments MBA Admission 2012

      Delete