Are Business Models, Values Not Tested?

In a post made some months back, Seth Godin talks of the culture of testing at Netflix. According to Seth, Netflix tests everything, except for three things: their business model, their culture, and the change in business model by switching from postal delivery to online delivery. According to Seth these could not be tested.

Is it really true that these cannot be tested?

It is true that these cannot be tested like DVD cases. (Netflix tested 200 of those before deciding on the design.) Yes, they cannot be tested in-house, on a test-bench. But they are tested - and have to be tested - in the market place. Values too are a result of testing in the market place of life.  And like all testing these too involve time and costs.

All start-ups are based on memes that the founders bring with them. Values are memes. Business models too are memes. Memes like genes, are subject to Darwinian testing.

Netflix's early story gives an idea of the memes that led to the initial business model.

It is, I think, safe to assume that Netflix's values are largely based on what the founders had experienced, and seen, and absorbed, at other companies. These were the result of "testing" in their earlier work life. It is also safe to assume that these values are put to the test every day at Netflix. If the values are practiced they are reinforced, otherwise they mutate, or die.

The Facebook Effect: Some Lessons for Startups

Note: The page numbers mentioned below are for the Virgin Books edition available here in India.

Innovation
Facebook was certainly not the first social networking site. There was (and still is) Orkut. There was Friendster. There was (and still is) MySpace. It definitely was not technology.

I believe the key component of the innovation was to spot a social need of students at Harvard. A need that was not addressed by other social sites. The other components of the innovation were:

• Identity had to be true. You had to be who you said you were. This was validated by the college email-id.
• It had nothing to do with meeting people. You online network was the same as your off-line network.

Open Source
Development could be done from a college dorm because open source platforms were used. The major cost was the cost of servers. I suspect Facebook continues to use open source platforms. No point building revenues for Oracle and Microsoft:-) Microsoft did at one time offer to buy Facebook. If that would have happened, I suppose they would have switched to Windows Server.

Lesson: FOSS provides a good platform for entrepreneurs. But be aware, that, "... while the software might have been free, it was not simple to operate." (pg38). Software wallahs wanting to use FOSS must be ready to invest time, or have already invested time, in learning the internals of the tools. It is an investment worth making.
 
Vision & Values
At one stage someone proposed to introduce an additional mouse click so that an additional ad could be shown. This was not acceptable to Zuckerberg as he was "fanatically devoted to making his service easy to use".  Throughout the book there are numerous such examples. Though advertisers provide revenue, it is the users and their links that are the real assets of Facebook.

Lesson: Revenue, like costs, are constraints, they should not be the objective function.

Sustainable Growth
Pg 57-58:
"Every time the database was upgraded or the server array reconfigured, Zuckerberg tried to do it in a way that could accommodate ten times more users than TheFacebook had at that moment."

And again:
"So if the systems were acting up, capacity was at the max,or they couldn't yet afford new servers, they'd simply wait before launching at the next school. This was a rare asset at an underfinanced Web start-up. It allowed TheFacebook to grow methodically ..."

Lesson: Uncontrolled growth is a cancer. It can kill. Never let growth destroy the quality of the customer experience.

Growing after Assuring Demand
Pg 140: "By keeping the gates closed and only opening at schools once there was proven demand, Zuckerberg and Moskovitz, the expansion guru, ensured that when TheFacebook did open, usage would explode."

Lesson: Test your hypotheses about the market. 

Not Cool
Being cool can get early adopters. But for Crossing the Chasm, and then to get Inside the Tornado, and then to become a platform, you need to be perceived differently, and do things differently. And all along you need to consistently evolve your vision. The book is a study in how Zuckerberg did it.


Work Place Silence
Pg 49: "When they sat at their laptops .... it was eerily quiet. That is because when they did talk to one another, they did over instant messaging, even when they were sitting next to one another." (emphasis is mine)

Again:
Pg 137: "One employee a few years older who sat about six feet from Zuckerberg in those days received an IM from the boss. "Hey," it read. It was the first time he had gotten such a message. So, seeking to be convivial, this guy stood up from his chair, turned to Zuckerberg, and said out loud in a friendly voice "Hey!" Zuckerberg continued staring blankly at his screen."

Comment: The workplace atmosphere should be that of a good college library. Not that of a canteen. This is more so for start-ups as they should not be spending money on private offices.

And Finally
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