Quote from Paul Graham (of Y Incubator) during the Google I/O conference:

“I’m very afraid of a world in which we are all Steve Jobs’ slaves,” Graham said. “If anything can save us, it might be Chrome.” When Costolo asked whether he would invest in a company building for the iPhone versus Google’s Android platform, Graham answered, “Of course iPhone. I’m talking about what I hope will set us free, not what will generate opportunities.”

A great talk by DHH (David Heinemeier Hansson from 37 Signals) on how to create a successful company:

It’s a refined version of his usual talk. Some basic points:

1. All companies start as small companies.

2. An MBAs teaches you to manage large organizations, the very thing you do not want when starting a company.

3. Focus on profits, not just revenue.

4. When it’s your money, and you are focused on making more, you make much better decisions.

5. VC money is evil. Don’t do it.

Looks like a lot of this is from their new book, Rework.

Since the rest of the web is still stuck in the mire of debating the success of the iPad launch, I thought I’d get ahead and issue some bold, baseless, predictions on its future.

The rollout will be successful. In 55 days, the debates about Flash and built-in cameras will have been exhausted, and everyone will be focused on the restricted availability and long lines at the Apple store. All engineered of course. There will be a new media blitz, with celebrity endorsements, ads, and buzz. Apple will have sold 4-5 million iPads by the end of 2010.

Business apps will be a sleeper hit. By rollout time, all essential iPhone apps would have been ported over to the iPad. The new crop of iPad-optimized apps that developers are cramming on over the next 2 months will take center stage. There will be a surprising number of new business applications, centered around communication and collaboration. You will be able to work with your existing PC documents with iWork or some OpenOffice port. The iPad will be better than a notebook for attending meetings (especially boring ones). By the end of the year, every collar-propping CEO will be sporting an iPad.

In 2011, Apple will launch the MacTouch line. Think of an iMac as an angled multi-touch surface. No more keyboard or mouse; A truly one-piece device. What could possibly be more elegant than that? The MacTouch OS will be based on OSX (OSXI?) and can run OSX apps, but it has a built-in iPad emulator, so it runs all native iPad software. It will also have new APIs that make it easy to port existing OSX apps (i.e. Photoshop) to the new multi-touch platform.

Thus will complete Apple’s dominance in multi-touch technology, with which they would have made some inroads into the business space.

* Disclaimer: I probably already own some Apple stock in some mutual fund, so you would be foolish to base any investment decisions just on this blog, or any other.

This is an awesome talk by Tina Seelig, the director of Stanford’s Technology Ventures program. It’s clear why she has this job. She’s super upbeat and offers a very pragmatic yet motivational view of entrepreneurship. Don’t let the actual title of the talk fool you – it’s really a good set of pointers on what it takes to be great.

In the talk, Tina covers some key points from her book, What I Wish I Knew When I Was 20, and shares some insightful videos of projects from her classes – which ask students to try to create as much value as they can given very limited “seed capital”, ranging from $5 to post-it notes, to rubber bands. The point is to look way beyond the apparent limitations and to get creative. Some of the results are pretty inspirational. Go check them out, I won’t spoil them here.

She also shares a clip from Vinod Khosla reminding us that every problem is an opportunity: No one will pay you to solve a non-problem. So look for big hairy problems to solve. This sounds like an obvious point, but one that most people miss.

She also shares a personal experience to highlight the importance of creating your own luck. Specifically on the value of building new relationships – there’s at least a million dollars waiting for you in every room of strangers. You just need to go look for it.

She also reminds us of the old chestnut: Fail early (and cheaply), fail often. If you aren’t failing at least some of the time, then you probably aren’t going far enough.

Another point I really like is: Don’t wait to be anointed. Most people are conditioned to wait for others to tell them what to do. When you get a job, you are really getting the keys to the building. You have the opportunity to figure out what needs to be done and just go do it. Personally, I think that over-emphasis on job titles has done a tremendous amount of harm in limiting the scope of people’s thinking and how far they are willing to stretch. It reminds me of the parable of the Elephant and the Rope. I see people obliviously stuck in their invisible boxes every day.

Tina’s last point in the talk is also one of the best: Never miss an opportunity to be fabulous. Most people have been conditioned by bad schooling to do the minimum necessary to get a passing grade. Clearly, this kind of attitude is never going to lead to great success in life. My take on this is that with so many people shooting to just get by, it’s relatively easy to excel simply by aiming a little higher. I really like this statement because it emphasizes our personal role in our own success – you will certainly strike out many times along the way, but if you focus on being great at every opportunity you get, you’ll have your fair share of home runs.

In the typical life-cycle of a product or industry, function always leads form. In the beginning, being able to do something new is itself the most important thing. That's where the value is. However, once that functionality growth reaches a peak, the value shifts, and form begins to matter more.

Early computers had masochistic user interfaces (just think about the origins of that term for a minute), but no one cared. They allowed you to do things you couldn't do before.

Nowadays, the ability to compute is a commodity. You don't need the fastest processor or the biggest hard drive anymore. It is the form, the aesthetic experience of using a computer that is the differentiator.

So it is with every industry, from cars to coffee.

Where is your industry on the Form-Function curve?

Whenever I walk into a coffee shop, I notice a disproportionately large number of MacBook vs. PC notebook users. Why are Apple MacBooks becoming so popular now? Because it's a superior product? Sure, they must be superior somehow, but in what way? They're easier to use right? Ok, that's arguable, but that alone can't account for a 50% markup over PCs. Clever marketing? Well, definitely, but how?

Apple's marketing has been very consistent and disciplined over the years. They have positioned their products to be talismans for creativity. People buy and use their MacBooks to proclaim "I'm a creative professional".

Talismans are far deeper and more powerful than being just a badge. Using a MacBook will actually make you feel more creative. The genius behind this style of marketing is that it fulfils a genuine need in people. We become more than willing partners in the illusion the marketing conjures up for us. We want it to work.

This effect is by no means confined to Apple. Blackberries make us feel more connected (and thus, important). The right Nike sneaker makes us feel more hip. Wearing a Patagonia t-shirt makes us feel more Earth friendly.

The thing is, these needs were there long before the products that target them came around. If Apple, or Nike didn't address them, someone else would.

What unfulfilled emotional needs do you see that your products could help fulfil?

These are the recent annual financial results of Microsoft (left) and Google (right). COGS, SG&A, and R&D expenditures are shown as a percentage of revenues for that year:

Notice something? Google's COGS (cost of goods sold) in 2008 are 40% of revenue, twice that of Microsoft. This is not surprising. Google needs to pay to keep all their servers powered up and for their bandwidth. Microsoft sells packaged software, and stamping CDs (or more likely licensing) is relatively cheap.

This difference will have a significant effect on Microsoft's bottom line if software services are indeed the future of the industry. As more of the company's revenues shift to services, net margins will shrink.

Microsoft is in a quandary: If they blindly try to copy Google's business model, they will grind down their profit margins. However, they can't ignore the shift to services. What they will need to do is to build a model that allows them to capture 20% higher margins in services compared to Google.

This (in theory) is achievable. If Microsoft were to offer equivalent product value in the form of services compared to packaged software, customers would save the equivalent costs of running their own data centers and IT departments. This should mean that they would be willing to pay a commensurately higher premium for Microsoft hosted services.

The real challenge is positioning. If Microsoft can successfully position their service offerings in comparison to existing packaged software products, the savings value should be clear. However, if Google or other competitors were to more quickly build offerings based on a lower-priced model (e.g. ad supported, or convince customers they can live with less functionality), Microsoft may be in a hard fight to get so-conditioned customers to pay a premium for their offerings.

While it's still anyone's game - hosted software from Google hasn't unseated Microsoft Office or Windows, yet - they have aggressively taken the lead in capturing mind (and market) share. Microsoft not only needs to respond, but they need to fundamentally change the game in order to win in the long term.

Seth Godin observes that some business are like an Albatross: They take a long time and the right conditions to take off, but once in flight they are very efficient. This includes many social networking businesses, which require a critical mass to form before experiencing explosive growth. However, even most "traditional" businesses work the same way. It takes time to build an accepted brand, a sales pipeline, or just the right product.

Traditionally, this gestation period requires a good deal of capital, patience, and almost blind faith; the familiar pattern of entrepreneurship. Contrast this with boot-strapped small businesses: Food service, small retail, personal services, freelance contract work, etc. These require relatively little time to ramp up, and have lower capital costs as a result. However, their potential and scale are limited. They can quickly get to a steady-state, but can't easily scale beyond that.

The question is how do you achieve the results of a scalable business with the limited resources of an individual?

I've been reading The Age Curve by Ken Gronbach which reminds us that age demographics has a huge, widespread impact on the market. We should especially look out for dips in the age curve, as these can mean a sudden and sustained drop in customers for products that are tied to a particular age segment (i.e. houses and motorcycles).

I took the liberty of grabbing the latest U.S. Census data and plotting out the current age curve:

You can see a distinct valley of Gen-X at around age 32 and the huge peak of the baby boomers at age 45. Behind Gen-X is Gen-Y, starting at around age 28.

If the thesis of the book is right, this means that:

1. Products targeting 42 year olds will see a 10-12 year slump.
2. Products targeting 55 year olds will see a 10-12 year boom.
3. Products targeting 30 year olds will see a 10-12 year boom.

In short: Middle-aged is out. Go for retirees or young new families.

When you create a new business, you get to determine some of the rules you play by. You get to pick what you compete on, what you compete for, and who you compete with. You, for the most part, pick who your team is, and what resources you start out with. If you are smart, you certainly would choose to compete on terms that are favorable given your relative strengths vs. your likely and potential competitors.

The same is true when it comes to your potential customers. When designing a new business, you essentially get to unilaterally craft the deal that is offered to them. This is a great advantage to have. While the deal needs to be acceptable to them, you have tremendous leeway in setting the terms. So set them in your favor!

From a negotiation perspective, your only limitation is your customer's BANTA (best alternative to negotiated agreement), i.e. the possible substitutes or alternatives to your product or solution. if you are delivering a product in a new or lightly competed space, then your customers' BANTA would not be very good, and you can milk it for all its worth. E.g. If you are the only player providing railroad or data services, you get to charge a king's random for it.