The Role of UI/UX in the Big Data Revolution

This week’s Strata Conference was a truly magical event for those immersed in the world of Big Data. Congratulations to Tim O’Reilly, Gina Blaber and the rest of the O’Reilly team for throwing a fantastic event. It was great to be a part of it and I’m looking forward to being deeply involved in the next edition, New York style. It also afforded myself and the IA Ventures team the opportunity of spending quality time with our fellow data geek-masters (and mistresses) such as Hilary Mason, Mike Driscoll, Drew Conway, Bradford Stephens, Flip Kromer and others with whom we consumed many fine (and not so fine) beverages and eats. Such an assemblage of brain power and personality is seldom observed in nature, but Strata had it in spades.

When reflecting back on the conference, the hallway meetings and late-night conversations, one feature of my myriad mind-bending explorations emerged: the importance of interface design and user experience in helping display the power and value of sophisticated Big Data technologies and analytics. This theme also emerged in a discussion I had with Mac Slocum of O’Reilly. I find that I never learn so much about what is going on inside my head as when I write or am interviewed, as being forced to let stream-of-consciousness flow minimizes the effect of preconceived notions and biases.

So much of Strata and, in fact, the dialogue around Big Data in general is focused on hard-core technologies, bleeding-edge analytics, data manipulation and consumption via APIs. The truth is, however, that much of the complexity and depth of Big Data analysis only comes to life and becomes actionable when presented in a clear and intuitive manner. This places a huge premium on start-ups with awesome UI/UX skills. And when I started to reflect on the IA Ventures portfolio - BankSimple, BillGuard, Kinetic Global, Metamarkets, PlaceIQ, Recorded Future, Sulia and TraceVector - almost all of our investments have an essential focus on interface design and user experience to extract value from extremely complex data-driven architectures. In my talk with Mac I used the example of BankSimple as a firm with a core focus on UI/UX - so much so, in fact, that the company really grew out of the question “What do consumers really want and how can we optimize their retail banking experience on mobile devices?” and developed an architecture and set of business processes to deliver on this value proposition. But such thinking isn’t merely the province of B2C; it also applies to those selling to the enterprise. Metamarkets ingests terabytes of publisher data in real-time and performs sophisticated analysis to provide them with powerful, actionable information that impacts inventory pricing decisions. The importance of the design and usefulness of the Metamarkets dashboard can’t be overstated; several large, global publishers are dependent upon this information, and it is Metamarkets job to make it readily consumable, easy to understand and immediately actionable. Without a great interface, the power of massive data and valuable analytics wouldn’t be nearly as profound.

Another interesting feature of these Big Data companies is their mixed DNA: world-class hackers and data scientists together with data visualization and user experience experts. Clearly these worlds overlap; many a great visualization guru is a top-flight data scientist. It’s just that getting these multiple personalities and skill sets to work together in a seamless manner to drive value to the client, whether they be consumer or business, is no mean feat. But these companies have been able to instill the importance of “customer first” within their organizations, forcing the intersection of real-time actionable information with a great user experience in perfect harmony. Now THIS is a Big Data revolution: giving the props not only to the data engineers but to the data depicters. Algos are great, but a picture is worth a thousand words.

This line of thinking has been reinforced in a book I read recently, A Whole New Mind by Daniel Pink. The essence of his thesis: right-brain (conceptual) thinking will become increasingly important to the West where much of the left-brain (analytical) tasks are being commoditized and outsourced to Asia. Most great data scientists I know are a synthesis of right and left-brain attributes: super powerful analytical minds but with a rich creative streak that extends into elegant code, unusual and insightful analytics and highly effective visualizations of complex data sets. And I believe the market has spoken. Great UI/UX people are in high demand, as are the most creative and efficient coders and data hackers. And these people aren’t 2x or 3x better than the merely good: they are 50x or 100x more valuable. Supply and demand are massively out of whack, and I fully expect this to continue unless our educational system moves away from rote memorization into critical thinking and celebration of orthogonal ways of looking at problems. Time will tell, but the role of the US in the Big Data revolution may well depend on it.

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Taking Control

Every day, whether in mainstream media, blogs, Quora or the like, there are myriad stories and questions relating to problems created by others. Bubbles, storm clouds, and other atmospheric disturbances are all the talk, as well as issues of ethics and fairness in dealings among institutional investors, angel investors and entrepreneurs. What I am here to tell you is the following: It is just noise. Most of it doesn’t matter and is beyond your control. What does matter is focusing on the stuff you can control, namely your strategy, plan, and the way you comport yourself in business and in life. These are not shallow, squishy words, and I’m dead serious. Take control of all aspects of your life. Because if you become distracted by the intentions and behaviors of others, you might end up doing stuff you’ll regret and lose focus of your original mission and goals. Be true to yourself and good things will happen. Even in failure.

This is never quite as clear as it is in the entrepreneur-angel investor-venture capitalist dance. Entrepreneurs are naturally wary of investors of all stripes. Angel investors are often scornful of venture capitalists. Venture investors sometimes act in ways that feel against the best interests of entrepreneurs and investors. Finger-pointing abound. So much time is spent worrying about “bad VC behavior” that something essential is lost in the shuffle - namely, the entrepreneur’s ability to simply say no. If an entrepreneur is unhappy with a particular venture partner, then network to one who is likely to be a better fit from a different firm. And, by the way, multiple discussions should be going along in tandem - partners from multiple firms, angel investors, etc. - to maximize optionality during the fund-raising process. The entrepreneur should be taking control of their own destiny, and not ceding control to another party or complaining about the rules of engagement. The dance is pretty straight-forward if you make it so, which means being crystal clear as to your goals, preferences and time-lines. If your parameters are unrealistic the market will tell you so and it is incumbent upon you to adjust. But once the adjustment is made, re-take control of the process.

Investors should act in the same manner. For instance, in my opinion, there is way too much squawking about valuation. For those who think valuation doesn’t matter, no problem. But for those who believe valuation is an important factor in the seed stage investment decision, the sharp rise in early-stage round pricing is causing consternation and angst. “YCombinator is driving up prices” or “the influx of super angel capital is causing deals to get overheated” are common refrains. My take: who cares. If deal pricing gets out of whack relative to what you believe is fair, simply walk away. Nobody is holding a gun to your head to invest in a particular company. Might you feel badly if you pass due to valuation and the company becomes super successful? Of course; but this kind of disappointment is part and parcel of being an early stage investor. Remorse around deals done and lost is part of an investors’ DNA. It would be far worse to stray from your mission and discipline and to start doing deals that feel uncomfortable, because more likely than not it will be a mistake for you to have invested in deals outside your zone. “This time it’s different” and juicy rationalizations like that will only get you into trouble. So, as with entrepreneurs, it is incumbent upon investors to take control of their destiny and not make excuses for seemingly irrational market conditions. Stay on the sidelines. Wait until the right deal comes along. Don’t force it. But by all means, don’t whine about the actions of others. They’ll self-destruct in their own good time, and those who have remained disciplined throughout will be there to pick up the pieces and to benefit from a corrected market.

It is so easy to feel un-empowered and to blame your lot on the actions of others. That is a natural, but unproductive, response to adversity and complexity. Clarity of thoughts, beliefs and actions are what will ultimately set you free and create the conditions for success. In a flattening, hyper-competitive world knowing what your utility function looks like is more important than ever before. Take control of your destiny - you are more powerful than you think.

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Turning Ideas into Companies

For years I have been giving those with good ideas (I won’t call them entrepreneurs because they haven’t necessarily decided to drop everything to pursue their dream) the following advice: share, listen, revise, share, listen, revise, rinse, repeat…

I have often found that wannabe entrepreneurs are frequently obsessed with issues of confidentiality, which renders discussions awkward and generally a waste of time. “What if somebody steals my idea?” is a common refrain. Well, let’s put it this way: somebody with this mind-set NEVER gets funded, so there should be no concern about anybody stealing anything. For first-time entrepreneurs (and I’d argue second-time entrepreneurs and beyond), crowd-sourcing the refinement of your idea and plan is what will help make it a reality.

An idea is simply that: an idea. It isn’t a company. It isn’t an execution plan. It isn’t staffed by great people to help drive design, development and monetization. So many inexperienced to-be entrepreneurs are over-focused on the idea without the essential understanding that EXECUTION is what makes ideas come to life. Execution is what drives happy customers and enables them to be monetized. And if you are inexperienced in how this transformation process works, you’d better get a group of smart people on your side to help you or your idea will amount to nothing, regardless of its potential.

This was my answer to the following question on Quora: I have a billion-dollar business idea; which investors should I speak with?

I think you need to approach the problem as any start-up entrepreneur would. Use your networks to get to a group of respected, high-integrity individuals in the angel and venture investing communities, get feedback and begin refining your plan. If you are hung up about confidentiality, forget it. You will get nowhere. The way to address confidentiality concerns is by speaking to good people. High quality angels and VCs don’t rip off others ideas. In my 6+ years of investing I’ve never seen it happen - once. Whether this happens outside my circles I have no idea, but I can say that professional investors respect confidentiality and really try hard add value, regardless of whether or not investment is in the cards. 

So to answer the question: it is not about firms, it is about people. Network to the high quality angels and VCs in your orbit (or the orbit of those in your network), plainly lay out the idea and the plan, collect feedback and begin to sketch out a more detailed execution framework. There is no more valuable process for turning an idea into a company than speaking to lots and lots of smart people about it. Every time you hear yourself talk about it and incorporate feedback from your previous conversations you get better and better, both at pitching and at really understanding what it will take to execute your plan. There is no substitute for this; no way of short-circuiting the time and effort it takes. This process is healthy, necessary and what will give your vision the best chance of being realized.

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The Challenge of Being Google

Yet again, a question on Quora was the inspiration for this post. The question: What are the key challenges and risks Google currently faces? The answer: read on.

Google is most directly threatened by scale. Every other problem is derivative - lack of focus, monopolistic behavior and heightened government scrutiny, challenges to recruiting as its stock becomes less of an “entrepreneurial currency” are the big ones. These problems certainly aren’t unique to Google, and are largely a function of moving from a small, highly nimble technology-driven organization to one characterized by layers of management, a mind-bendingly complex infrastructure and huge challenges related to attraction and retention of human capital. Some of the perils of success: a real estate footprint akin to a large REIT; a staff numbering in the tens of thousands, requiring an hr and recruiting apparatus similar to a global search firm; infrastructure requirements that have put it squarely in the power business; and a compensation scheme more heavily weighted towards cash and large restricted stock grants than significant option grants with the promise of 100x returns (and, most importantly, where employees can actually have a demonstrable and material impact on company-wide outcomes).

This is a movie we’ve seen many times before. Xerox. Kodak. And more recently Intel and Microsoft. Diversification seldom works, unless it is in closely related areas that can truly leverage the core IP and culture of the firm. But the standard corporate response to fears of slowing growth is to enter new businesses, make acquisitions and attempt to seed growth in other ways. It is hard to stay laser-focused, acknowledge the harsh truth of the math that monthly double-digit growth cannot continue forever and to give a bunch of cash back to shareholders. because in our markets, paying out cash is akin to giving up the promise of that growth-stock luster. Why pay 40x earnings for a business that can no longer deploy its cash to that end? Maybe we should only be paying 20x. Shifting from growth to value is the death-knell for many a high flier, and regardless of the corporate financing logic (and investing discipline) associated with dividending out excess cash, entrenched managements are loathe to do this. They’d rather invest in risky projects, hoover up other companies and spin stories of continued greatness that strain the belief of any self-respecting analyst. But buy the stories the analysts do - all the time.

One need look no further than Microsoft to see the risks associated with this approach. It could have created a substantial dividend 20 years ago to return excess cash to shareholders in a predictable and clearly communicated way. Rather, they wanted to try and time the stock market and mitigate the dilutive impact of employee stock option exercises by using both cash and derivative purchases of stock. This created a lumpy and often ill-timed series of buybacks that didn’t serve shareholders well. Further, they invested far afield, buying large but non-control positions in companies such as AT&T, Comcast and Nextel. They also went on a $30 billion+ home & entertainment spending frenzy, creating enormous losses in the tens of billions of dollars which may or may not pay off down the road, but the riskiness of lack of synergy of the strategy cannot be overstated. How much has Microsoft squandered by attempting to preserve its growth stock appearance? $100 billion? More? The amounts involved are staggering.

Without question Google (and Microsoft, for that matter) have squadrons of some of the brightest people on the planet. But as the stock becomes less of a draw and the distance between a new engineering hire and the CEO widens, exactly who are the brainiacs joining these companies? The kind with entrepreneurial verve that are looking to code 100 hours a week to find answers with the promise of changing the world, or those for whom academia is the other principal option but who want to both make more money and to be in a more dynamic, market-driven environment than chilling around a college quad? Door #2, anybody? Those with the drive to open door #1 are NOT going to Microsoft any more, and I’d posit fewer and fewer are choosing Google as well. Why do you think Google has been sucking up start-ups before they ripen? Answer: it’s merely a form of recruiting. Buy a company, get a group of entrepreneurial, high-performing technical talent. This kind of behavior isn’t sustainable, however, as once non-competes run out those same people who originally opened door #1 are back opening it once again, outside the company. This is reflective of the growth cycle of any company: slow ramp up, rapid growth, inflection point, slowing growth, slow ramp up…

Can this dynamic be conquered? No company - or entity, for that matter - has really figured it out. A few ideas: keeping laser focus on core IP and extensible ideas; breaking the company into groups of no more than 150 people; coming up with compensation schemes that more closely mirror start-up economics within each of these groups; religiously returning cash to shareholders rather than spending it on ill-fated and disruptive acquisitions. This is a generational problem that warrants additional research thought, but let’s be clear: The perils of scale represents THE SINGLE BIGGEST THREAT TO GOOGLE’S SUCCESS NOW AND IN THE FUTURE.

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How much money should you raise?

Clearly, there is no one right answer. It depends upon the entrepreneur, his/her experience starting companies, the nature of the business, the target market, whether it is a technology or a business model play, the financing environment, and other variables.

If it is possible to get to market with a salable product and demonstrate real traction, then by all means bootstrap and only raise money if you need to do so to accelerate growth - financing for sales, account management, operations, etc. When this happens it is a rare and beautiful thing; keep the lion’s share of equity for yourself - because you can. The relative value-add of any investor in this circumstance is marginal if you know how to grow and scale a business. If not, getting a good investor or investors behind you can be extremely helpful and potentially life-changing.

In most other circumstances, where a pure bootstrap approach won’t get you there, raising enough to prove or invalidate your hypothesis is key. This generally means raising 18-24 months of operating capital, inclusive of cushion necessary to raise the next round if you have, in fact, proved the value of the idea. I generally like to budget six months for the fund-raising process. Reality is that entrepreneurs are almost always fund raising (or making similar contacts), so the six months is generally in light of a “running start” and permits enough time to process multiple term sheets and documenting the investment.

For those who think that speaking to VCs is a waste of time, they are wrong. It is only a waste of time if you go in without a clear plan and a set of clear asks; in my experience, good venture investors (and there are many) are only too happy to make connections to potential recruits and business development opportunities if they feel you are solid and that your idea is worthwhile. Plus, there is no substitute for pitching. Speaking to lots of different investors teaches you a lot about your business, and can often result in valuable ideas that can materially impact the road-map.

As a general matter, I recommend that entrepreneurs work to “keep the bar low” in early financing rounds. This preserves maximum optionality for exit and for raising from the investor of your choice in the subsequent round. If early rounds are either raised too expensively or too much capital is taken early on, it substantially increases execution risk both due to lofty expectations (“You raise at a $9mm pre and have only gotten this far…?”) or barriers to exit (if you raise $5mm on a $10mm pre from an institution early on, that $25mm exit is off the table, which could be the best decision for the entrepreneur). When the business model is validated, traction is strong and capital is needed to ramp growth into a fertile market opportunity, then by all means go for it and raise a bunch of capital at a high valuation. But just be aware of the implications for exit. There is an implicit pact between entrepreneur and venture investor that taking big dollars to aggressively ramp means not settling for the “just ok” exit. If the entrepreneur isn’t ready to sign up for this dynamic then they shouldn’t be raising that much capital at that high a valuation, otherwise they are being unfair both to themselves and their funding partners.

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