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Jonathan Andrew Wolter

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Success in Web 2.0 – Notes from Paypal cofounder Max Levchin and YouTube cofounder Jawed Karim

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Reading time: 6 – 9 minutes

I went to the ACM Reflections Projections conference this weekend. There were top speakers, including the co-founder of Paypal, Max Levchin and the co-founder of YouTube, Jawed Karim. Here are some highlights from their talks.

Max Levchin: co-founder of Paypal.com and current CEO of slide.com

Millionaire Before Graduation: Entrepreneurship in the Post-Post-Bubble Internet

ACM Conference 2

Speaking to an audience of undergrad and graduate students at UIUC, Max stressed if you’re an entrepreneur:

“You should start a company right now.”

But what is an entrepreneur? And what if I don’t have an idea yet?

“An entrepreneur is someone who desperately wants to start companies. He or she doesn’t even care what they are about, or which one.”

The important thing is starting. Max says you’ll never get it right the first time. So start now. Fail a few times while you are young. Paypal was Max’s fifth company. He started his first in his Junior year in college, and every one that wasn’t successful taught him what had to change for the next time.

When you start, the idea is cheap. It’s okay to be mostly interested in starting the company. Some people say in starting a company it is 90% hard work. No, says Levchin:

  • 40% is hard work.
  • 50% is having a great team

When you start a business, start it on the web. Why?

  • It’s really cheap
  • You get really fast feedback

However, don’t start selling something to enterprises. Enterprise sales cycles are slow, expensive, and require loads of salespeople. (You don’t want salespeople on your team early on either. Just tech people.) Make things work, and satisfy your direct-to-consumer audience.

Once you’re up, you need to record metrics on everything. Obsess over all of your data. You’ll discover the pages people actually use is different from what you expected them to use. Iterate. Bring what people use to the front. If you’re still in school, take lots of stat classes. It makes the metrics easier.

Remember you will fail.

Failure is your true test. It’s really good to fail in the beginning… If failing anytime is good: now is best. [So get to work and take risks so you'll fail, so you'll learn, so you'll succeed!]

Tenacity is number one. You must be willing to fail 10 times for success in the 11th.

When you’re succeeding and you need to monetize, Levchin has three strategies:

  1. Advertising – with Google Adsense, and other ad networks
  2. Premium Subscriptions – this is tough though if your competition has these too, and you end up competing on price
  3. Memberships – monthly, yearly, etc.

Jawed Karim: co-founder of YouTube and current masters student at Stanford

YouTube: From Concept to Hypergrowth

ACM Conference 3
Jawed is the 2004 UIUC CS graduate who, after a 5 year tour at Paypal, co-founded YouTube. 19 months after launch, YouTube is one of the most-visited sites on the web.

  • More than 100 million videos are served daily.
  • A new video is uploaded every second
  • The average user spends 30 minutes on YouTube per day

Prior to YouTube, what did video sharing look like? FTP uploads to a private website [or peer to peer] was the best way to share a video. People without websites and technical savy couldn’t share. Downloaders would have to download the full file, have the right codecs, and finally be able to view the clips. Discovering other related videos was not easy, and there was no way to post comments about a video you enjoyed. In 2004 the “Bit Torrent effect” emerged, which was scalable – but it lacked social aspects, simplicity, and was mostly for hard core geeks.

In 2005 Jawed and friends decided to create some sort of video sharing app inspired by Flickr and hot or not.

On Feb 14, 2005, work began.
ACM Conference 1

We launched the site with a bunch of “stupid videos” … except no one one used it but ourselves. We pitched it to our friends. We wrote to all the Wired reporters (no replies). We talked to lots of VC’s (they didn’t call back.)

By May 2005, it was very frustrating. 50-60 videos were uploaded. They had an idea:

We posted an ad to the San Francisco Craigslist asking for girls to post videos to YouTube. If we thought they were attractive, and they posted 10 videos, we would send them $100 via Paypal.

No girls responded.

In June 2005 YouTube got revamped. “Related Videos” was added, to make the site more sticky. And instead of Jawed and co-founders spamming all their friends, they added a button “Email a friend” so the visitors could do that for them. Everything was changed to encourage user interaction. Make people want to spend more time on the site.

August 2005, YouTube gets Slashdotted. Things started taking off from here. The community did things they never expected. People would leave video responses to other people’s videos. So they created the Video Responses product. Pretty soon they had $3.5 Million in capital from Sequoya, and then you all know about the Google acquisition.

One lesson Jawed pushed home was:

Just because experts reject an idea does not mean it is a bad idea! In certain areas, there are no experts.

If you’re out there creating innovation, you may be the expert.

As we look for the next big thing, Karim suggests it will explode from newly emerging secondary technologies. Start a company that will make something that was previously difficult, easy.

And expect failure. Jawed worked on numorous other projects that failed, before hitting big with YouTube including a geographic aware IM client that grew to about 50,000 users before he pulled the plug. An interesting article about him, as the silent YouTube partner, may be found here.

Update 10/28/2006: A video of Jawed’s presentation is now on YouTube, watch it below:

Written by Jonathan

October 22nd, 2006 at 2:58 am

Posted in Uncategorized, online business

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Liz Ann Sonders’ points to less rosey economic news

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Reading time: 2 – 4 minutes

In a recent commentary article on Charles Schwab, Liz Ann Sonders recently pointed to signs of an impending recession. We’re experiencing an oil price shock, inverted yield curves, and a real estate slump. Three things that, while inconclusive, are not particularly desirable.
Recession Warning Signals

First, the oil price phenomenon:

“Since the late 1990s, oil prices have gone up from $10 to $76 per barrel! With OPEC effectively flat-out producing, the U.S. producing a record low percentage of its own consumption, pipeline problems in Alaska and our imports coming from increasingly unstable regions, a major drop in prices is unlikely. Add the effect of rising interest rates and rising medical expenses, and consumers are now spending 55% of their disposable personal income on “essential” non-discretionary consumption, an all-time record. The massive infusion of liquidity by the Federal Reserve, via 46-year record low interest rates earlier this decade, had been the tailwind offsetting the headwind of rising oil prices.”

So maybe the liquidity we saw in recent years will evaporate. Interest rates are rising, and if home equity stops flowing, consumer spending won’t be able to keep buoying up the economy. Consumers are important too. They account for close to two-thirds of our GDP.

Combine tightening consumer budgets with recent indicators of inverted yield curves. Inverted yield curves occur when longer-term interest rates are lower than shorter-term rates. Historically, these have preceded recessions. Especially a special one where the Fed inverts the curve by raising the fed funds rate above the 10-year Treasury yield. The Fed did this in June. Since the ’70s this happened 6 times and in every case the economy shortly therafter (or already) was in a recession.

“One of the well-watched models for recession predictability [the inverted yields thing I mentioned - JAW] now shows the odds of a recession at greater than 25% based on the degree of inversion (as of Aug. 11) between the 10-year Treasury bond and the 3-month Treasury bill, presently at -0.10 percentage points.”

Past Recession Patterns
Regarding housing, mortgage application volume was down nearly 30% year-over-year as of July 28th. Housing starts? They were down 11% from a year ago. Existing and new home sales? Yes, down too: 9% and 11%, respectively. One could hastily conclude people aren’t opening mortgages with the increasing rates. Or maybe Americans are too greedy and want too much for their homes, so buyers are more scarce. Perhaps. The inventory of unsold homes was up close to 40%.

The impending doom Ms. Sonders predicts, may or may not materialize. Regardless, I want your articles or predictions of the current economy. Please leave a comment below, just click the “comments” link.

Written by Jonathan

September 24th, 2006 at 2:53 am

Posted in Uncategorized

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Microfinance to alleviate global poverty through capitalism?

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Reading time: 3 – 4 minutes

Microfinance in developing nations holds the promise of eradicating poverty through capitalism. Does it work? What is microfinance? Here’s a (biased) video emphasizing microfinance’s benefits.

Mike Murray of Unitus Co-Founder and discusses his initial misconception of the poor in developing countries:

“I thought the poor in developing countries probably lacked work ethic, they didn’t try hard enough. You know if they would just put their shoulder to the wheel, and try a little harder, and maybe wake up a little earlier, and just go for it like we do here in America. Then they’d have a better life. Well shame on me, these people work incredibly hard. They have to, because if they don’t their babies starve and people die. Their life stops! There is no safety net to catch them if they fall.”

Lorene Arey, President of the Clara Fund claims the poor lack opportunity. As opposed to drive or opportunity.

Mana Otero, President and CEO of ACCION International claims there are millions of poor people around the world who have no lack to financial services.

Financial services? Like IRA’s or maybe the new Roth 401(k)? No financial services like loans at reasonable market rates or banks to save their capital.

Enter Microfinance: a method for the poor to help themselves. It came about first in the 1970’s, by giving the poorest people of the world credit. Yup just like mortgages or those credit cards with beefy interest rates that can eat up a person’s income… the power of credit can allow business development in the developing world. Microfinance is explicitly not a gift. It is a loan, repayable at market rates.

Initially organizations would make loans from US$50 to US$150. Recipients would use the loan to buy capital in a small business, then pay it back with interest. It actually works. Today, not in 20 years. Take venture capital and marry it to poverty, you’ll be surprised at the result.

Most surprisingly (if you’re new to microfinance), the repayment rates are exceptionally high (95%). And most of the loans are made to women. They are found to be more responsible with the money, and investing profits from their business into their families. If this interests you, watch at least the first 5 minutes of the video. This video is only 14 minutes.

Has anyone visited a UNITUS funded business? This video is a pitch for their services, anyone have critical reviews on microfinance? Let’s bring about a balanced, critical analysis of this topic. Thanks for finding this link from Ryan, here.

Eric has funded someone through Kiva’s peer-to-peer microlending program. Anyone else?

Unitus is a global microfinance accelerator that acts as a social venture capital investor for the microfinance industry. Unitus identifies the highest-potential microfinance institutions (MFIs) in developing countries and helps accelerate their growth through capital investments and capacity-building consulting, thus empowering them to help exponentially more poor people worldwide. In doing so, Unitus aims to demonstrate that MFIs can be run as profitable, large-scale, poverty-focused businesses with links to local capital markets. As of October 2005, Unitus had seven MFI partners worldwide serving more than 504,000 poor clients.

Written by Jonathan

September 19th, 2006 at 2:49 am

Posted in Uncategorized

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Recent home sales, by the numbers… an imminent housing slump?

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Reading time: 1 – 2 minutes

While reading IBD I found the following visualization of the housing market. Yet another sign of the housing market slowing.


Recent home sales, by the numbers

The IBD article said:

Many economists stop short of predicting a wholesale housing bust. The Fed’s policymakers said they believed the “gradual cooling of the housing market” would help slow the economy and allow inflation pressures to moderate.

The Fed’s cease-fire on rate hikes came after various reports showed the housing boom is definitely over. Sales of new homes and existing homes have been falling. Though median prices are still rising, gains have been the smallest in years.

A record level of unsold homes is expected to exert even greater pressure on prices in coming months.

The concern is that the sizable inventory glut could worsen as millions of Americans with adjustable rate mortgages, taken out when interest rates were at four-decade lows, suddenly find they can’t meet new higher monthly payments.

Written by Jonathan

September 12th, 2006 at 2:52 am

Posted in Uncategorized

Yahoo Hack Day was tremendous (+videos)

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Reading time: 4 – 6 minutes

I went to Yahoo Hack Day a few weeks back.
Imagine:

  • 400 people from all over the world
  • camping out at Yahoo’s headquarters
  • going to a day full of seminars
  • hacking on a project for 24 hours
  • a private concert by Beck.

What I best enjoyed is 80% of the people I met were either working for a startup, or they just started their own. It won’t be long before I’ll chase after that dream too. I am insatiably drawn to the excitement, pressure, and flow you achieve working in small teams, on real projects, with real clients… and wondering if you’ll miss payroll or strike it big.

Here are videos from some of the sessions:

1) YUI Front End developer, Matt Sweeny explores the philosophy of frontend engineering architecture for modern web browsers. Web 2.0: Getting it right the second time.

2)Ian Lamb presents ten tools and skills needed by hackers who want to take full advantage of the emerging ecosystem of open APIs and web services. The New Hackers Toolkit.

And no, I didn’t quite make it with the camping outside in tents… I really wanted to, honest! I packed my ultra lightweight North Face my dad used to bike accross the country. Although it looks like I made it a little too lightweight. I forgot tent stakes and poles. So I slept under a copy machine.

Yahoo Hack Day 05

Written by Jonathan

September 9th, 2006 at 2:54 am

Posted in Uncategorized