See the original on Flickr.

See the original photo here on Flickr.

One of the most important concepts in lead generation is the supply curve. If you’ve ever taken macroeconomics, you know what I’m talking about. Here’s an example supply curve:

If you look at the chart, you’ll realize it is nothing more than a scale rank ordering of lead generation initiatives by unit acquisition cost. I had to create this one manually because Excel doesn’t offer this as a chart type. Apparently Mr. Excel offers a VBA supply curve chart maker, but I’m writing this on my Mac Pro so that’s not an option.

Creating the online lead generation supply curve

How do you create a supply curve for lead generation? Well, first you have to start with the data. Here’s the sample data used to create the above chart:

Enter your initiatives into Excel, with unit cost and results. Then order by unit cost. The chart is just an arrangement of blocks of initiatives laid out from lowest unit cost to highest unit cost. The height of each block represents the unit cost of acquiring a conversion. The width of each block is the quantity of conversions acquiring using that method.

Using the online lead generation supply curve

What good is an supply curve for online lead generation? Well, it tells us a lot of things in a very simple to digest manner. Here are a few key insights:

• The total area of each block represents total spending for an initiative
• The height of each block tells us the efficiency of each initiative
• Duh: Wide flat boxes = good. Tall thin boxes = bad.
• The distance from the vertical axis to a given point on the horizontal axis is a total dollar amount spent
• We can set a moving forward budget by setting a limit along the horizontal axis (anything to the right is over-budget)
• We can set a maximum conversion cost by setting a limit along the vertical axis (anything above is too expensive)

Whenever I’m working through a lead generation strategy, this is one of the key views I use to determine how to allocate resources and create moving forward budgets. Also, by tracking the evolution of supply charts you can learn a great deal about evolutions in the efficacy of your online marketing efforts. Perhaps I’ll cover how to derive some of those insights into another post.

Protection allows much more complex applications to run with lower risk of crashing or affecting other applications. I don’t know about you, but I haven’t had too many problems with this yet. But I guess Google thinks (probably rightly so) that it’s going to be an issue as applications move to the cloud.

By owning its own browser, Google can have much more influence on which features are built into browsers. I think it’s only a matter of time before Firefox and the other browsers include protected memory. And Chrome’s emphasis on fast javascript rendering is definitely creating a bit of a (great) arms race in that regard.

All of this dovetails with Google’s strategy of pushing toward browser based applications. Their Google Apps just came out of beta, and are making a good run at the enterprise… even threatening Outlook (long term). Google’s strategy is simple, and probably inexorable. They can provide high quality solutions for free because they make money from ancillary sources, e.g., advertising.

Meanwhile, Microsoft is building Office 2010 to include web-based versions of Word, Excel, etc. However, MS Office will cost money, and over time the feature discrepancies are likely to narrow. There’s also the issue of fundamental focus: Microsoft just doesn’t really seem to get it. Or at least they’re deeply afflicted with the innovator’s dilemma.

One way to look at this is fat client versus thin client. One complaint I have about Windows is that it has gotten very “fat.” Google’s Chrome OS is much thinner, but it’s not a true “thin client.” Google Chrome is based on a Linux kernel, but it’s ultra simplified. It sounds like just enough of Linux to run a web browser and little more. Instead of the heavy, feature-rich nature of Windows, Google is betting that users want fast, easy, and (mostly) free applications on the web.

So, are we all going to be using Chrome OS by this time next year? My guess is no. It will be popular, particularly on low-end netbooks. But there are 4 major limiting factors that I see:

BANDWIDTH:

Our network infrastructure renders certain applications (such as video) very hard to manipulate efficiently through a browser application. I don’t think video, image, or audio intensive applications are going to the web any time soon (at least for professional purposes). Maybe if we could improve our network to the levels they have in Japan, things will be different.

LATENCY:

When I click, how quickly does the server know it? And how quickly can it get the proper response back? Desktop apps still have browser apps beat when it comes to responsiveness. I’m an incredibly impatient user, and I brook no defiance from my (always too slow) computer. I think a lot of others users feel the same. When will this be fixed? I don’t know. Rich media interfaces can be optimized to reduce latency, but until we fundamentally improve the network infrastructure we will be dealing with this issue.

BROWSER LIMITATIONS:

Browsers have limitations in terms of the interfaces they can support, and security restrictions. Rich media solutions such as Flash can help interface a lot, but there are still issues remaining. Javascript is still too slow for highly complex interfaces. Big Flex apps still take too long to download. Of course, this is all improving rapidly, and I don’t think it will be a limiting factor for much longer.

USER HABITS:

Computer users are habituated to local applications. In particular, I think we are used to local storage. If Chrome OS permits only remote storage, users may be reluctant to use it. And until a broader array of web applications are available, many users may put off switching to Chrome OS for everyday computing.

Conclusion

I think many people will desire a Chrome OS – in addition to a desktop. A highly portable device dedicated to surfing the web? I want one. My iPhone is great, but it is just too small and too slow. I think the upcoming Crunchtablet will tap into this need. I want one, but only in addition to my desktop. For now.

Enrique spoke first, giving a flawlessly articulated explanation of the roots of ubicom and how it impacts our daily lives. Tim (in his usual thoughtful manner), put ubicom into perspective, threading it into his investment theses. Tough acts to follow!

Regardless, I had a great time on the panel. Tim and I had a funny back-and forth about how we approach deals during pitches. I said that I think of Maslowe’s Hierarchy of Needs when I learn about new companies. In my opinion, companies that solve higher level problems (belonging, esteem, self-actualization) create more value creation potential (from an investor’s standpoint). Meanwhile, companies that solve more basic challenges are commodities with lower margins. Even when the economic buyer of a good is a corporation, the decision makers are humans with needs to belong, etc.

Tim explained that he thinks of the Seven Deadly Sins, instead. If a product doesn’t appeal to lust, gluttony, greed, sloth, wrath, envy, or pride… it probably won’t resonate in the market. It’s sort of the dark side of my Maslowe approach, but I like it. I told him I was going to steal his idea. He, being the great guy that he is, just smiled and said okay.

In any case, here is my quick summary of the panel’s thoughts about ubiquitous computing:

• Ubiquitous computing is about computers accommodating people, allowing us to use computing devices on our own terms
• Many people are not even aware of the ubiquity of computing devices, or their pace of advancement in our lives
• The lack of human friendly interfaces and form factors is a limiting factor… but present great opportunities for growth

In some ways, that makes sense. Different products may appeal to different users. The more specific your goal with a brand, the more likely you can make it resonate with certain customers.

But there are reasons why most tech startups should create a single company brand, and avoid creating product sub-brands.

Money. It is expensive to build a brand. It is more expensive to build multiple brands. Unless you are serving such a diverse set of customers that you can’t build a crossover brand, you should stick with one brand. And if you can’t build a crossover brand due to divergent customer needs, you might consider re-thinking your strategy.

Focus. It also takes focus to build a brand. You need to expose customers to the a brand multiple times before it “clicks”. Seeing too many brands on a website is just confusing. Besides, if they see multiple brands… which one do they tell their friends about? Building a startup is hard enough without borrowing trouble. Managing and encouraging multiple brands sounds like a colossal headache. I would rather be focused on building one brand really well.

Rapid pace of change. Tech companies change rapidly. Brands should be (mostly) immutable because you don’t want customers confused about what you stand for. A well positioned company should base its brand around a set of core competencies / assets that remain mostly consistent over time. Products may change, but the central brand should not. Products evolve quickly, and so building an effective brand around a startup product can be really difficult.

You’ll note that most automobile manufacturers use rather stark names for their products. I used to have a BMW M3 (loved that car, by the way). That product involves three brands: “BMW”, “M” and “3″. The BMW brand is almost immutable.

Over time there has been evolution, but it’s still basically the “ultimate driving machine.” You can get BMW’s in a bunch of sizes (1, 3, 5, 6, and 7), but they all share certain attributes. If you’re really cool like me (insert laughter), you can even get a “M”otorsports version. Over time, the products change, but the brand remains the same.

Most consumer goods manufacturers use the opposite strategy. Proctor & Gamble uses the “house of brands” strategy, nurturing billion dollar brands such as “Tide”, “Pampers”, and “Gillette.” P&G spends considerable dollars every year building each brand. Each brand has its own unique flavor and history, and most consumers have no idea (and no care) that P&G makes the product. This is important, because who wants to buy diapers and razors from the same company?

Savvy tech companies like Amazon recognize the importance of the master brand. Amazon’s new cloud services have names like “S3″ and “EC2.” Meanwhile, Amazon is branching out a bit with the “Kindle,” presumably because they feel that it targets a substantially different audience. It’s also likely they are concerned about emphasizing the tethered nature of the product… it really only supports books purchased on Amazon.

In any case, my advice is to create a strong brand for the company itself, and let the product brands play second fiddle. As your company matures, you may want to branch out into sub-brands, but by then you probably won’t be a startup any more.

When I started my first company in 1994, my only business plan was to make the $600 minimum monthly payment on my credit card for startup expenses. A brilliant and reasoned plan, I know.

When, in the first month, I brought in $25,000 I thought I hit the lottery (aside from the splitting headache from lack of sleep). Things only improved from there (except for the lack of sleep part). Very quickly I had 20 employees. Still, I had never stopped to figure out what I was doing, or more importantly what I wanted out of it.

It is easy to say that you want to build a successful company. It’s harder to say exactly why. In retrospect, much of what I did in those first two years was to build my own ego. I hate to admit it, but it’s true.

It was not until I had my first significant failure that I took pause to collect my thoughts. In 1996 I founded The Virtual Market, one of the first dynamically generated e-commerce sites on the Internet. It won all sorts of technology awards, and was really fancy. And it lost me over $500,000 cash. It almost took down my other company, although we pulled through and paid off the creditors.

It was then that I realized I was looking inward, not outward. I was thinking of myself and how I could increase my own importance. Inevitably, I failed to understand the market and made decisions that did not create value for the company. Because of my early success, I thought I knew everything.

Why is this so important? Because so many entrepreneurs are building ego instead of building value. If that is what you want, go for it. I just won’t be joining in. I’m into building value.

Of course, building ego and building value can be closely intertwined. Money is often the measuring stick of self-evaluation. Therefore, it’s really easy to be fooled about what you’re really up to.

How can you tell when an entrepreneur is building ego? It shows up in his need for control, his irrational valuation expectations, his failure to focus on market needs, and in many other ways. If the word “legacy” is appealing to you, then you might want to stop and think twice about what you’re focusing on.

When I consider doing business with people, one of the first things I try to assess is whether the executive team is building value or building ego.

I prefer working with people who are building value. They are more rational. They tend to be more fun to spend time with. And it’s much easier to work with them to build even greater value together.

Ego builders, on the other hand, are hard to work with. I feel like I’m having to manage them to get them focused on value creation. It’s not much fun, and it’s very hard to create a mutually beneficial relationship with them.

Like I said, there is nothing intrinsically wrong with building ego. It’s just that I’m into building value, and that is the sort of people I prefer to have around.

It is easy to set up a single-server web application, or even to separate the major tiers onto separate servers. But when it comes to scaling out to more servers, particularly more database servers, life gets difficult. You face data concurrency issues, latency challenges, failover needs, and backup requirements. Solving each of these is complex, time-consuming, and often expensive.

None of this is conducive to building the next big Internet startup. Solving the scaling issue is a necessary evil… for now. In my opinion, whoever fixes it will make a heap of money. It’s a commodity problem. Someone ought to fix it.

The cloud computing services (such as AWS and now Google AppEngine) are the first steps towards effortless scalability, but they leave a lot to be desired. With a combination of EC2 and S3, you can build a very credible Linux (or even Windows with emulation) solution that can scale with reasonable ease and cost efficiency. However, you still have to bake your own solution for load balancing, database clustering, and server provisioning. Amazon’s SimpleDB is not a great database alternative (it’s not really a database in my opinion), and has some limitations (eventual consistency, data type limitation) that require a substantial layer of custom code to serve the needs of most applications.

I want a better solution. I suppose the market is heading for it, but just in case, I’m going to whine until I get it. I want effortless scalability.

What is effortless scalability? I build my application on my local machine. Once it’s working, I upload it to the cloud, assign it a URL, and I’m done. I get 100 visitors, I pay a bit. I get 10 million visitors, no problem (although I pay a lot more). Some key requirements:

• No server requisitioning… computing resources are allocated automatically as needed
• Built-in database scaling, without the limitations of SimpleDB
• Automated load balancing, with configurable settings for picky developers
• Automated data storage that looks like a file system to me (think cPanel like you would see in a shared hosting environment)
• Flexible stack support (check out CohesiveFT for an example of how that might work)
• Automatic failover

Amazon Web Services is a good start. A highly scalable relational database in the cloud would be a great next step. Or at least a cloud datastore that more closely approximates the capabilities of a relational database, and abstracts away the complexities from the developer.

Some will argue that one of the things that makes Amazon Web Services so powerful is its very simplicity. Complexity abstracted away from the developer will inevitably accrue to the cloud. That is likely true, although from an allocation of resources standpoint, it makes more sense than requiring developers to solve the same problem over and over.

Solutions such as Media Temple only chip away at the problem, for example offering dedicated MySQL containers as their database scaling solution. How can that support a heavy duty site?

Anyway, someone please turn application scaling into a click of a button. I’ll be happy to pay for it.

[Disclosure: I have a relationship with CohesiveFT mentioned in the post through my role at OCA Ventures, a venture firm that has an investment in the company.]

“A platform that is technically flawed but has a good business model will always beat a platform that is elegant but has a poor business model.”

In principle, I agree with him, but his choice of language and approach to the issue suggest that technology comes first. As he says “A platform (subject) … has a … business model (object).” I don’t mean to sound like a third-grade English teacher, but this is an important distinction. Platforms don’t have business models (or at least they shouldn’t). Business models have platforms.

For the past 14 years I have been managing teams of very capable engineers. I myself do a lot of the software design, and for some projects, the coding. It is very easy to think technology first, because that is often the way things are built. Engineers naturally want to make their software elegant.

But elegant architectures do not necessarily make money. And there is real danger that by starting to plan or build the technology before nailing down the business issues, you’ll build the wrong thing. Of course, given today’s frantic and competitive technology markets, the technology and the strategy usually evolve concurrently. The problem is that the during such concurrent development, the technology is often the most concrete thing you have. It is easy to relegate the business strategy and consumer needs to a secondary role.

The “technology first” attitude is at the heart of more startup failures than I could ever list. Never let the engineers (the crazy people) run the startup (the asylum).

But what can we do to minimize the risk that the technology takes on a greater importance than the business objectives? Here are some suggestions:

• Start every technology meeting with a review of the current business objectives. This will help remind your team of where they’re really trying to head.
• Challenge your team to explain why their technology decisions are the best choice to achieve your business goals. Never let them build the technology “right” unless they can persuasively articulate how that plays into your business needs.
• Use business milestones to motivate your technology team rather than development milestones. Don’t reward them for the release of version 2, but rather for acquiring 3,000 new users on version 2. That will make them think more like a consumer when they’re developing, and will force them to work with marketing to get the job done rather than just passing it off and saying “good luck.”
• Stress the importance of maintainability and flexibility in their software design. They will be tempted to go for scalability and stability instead. Remind them that until we have settled on what we need to build, work on scalability and stability is wasted. Maintainable, flexible code can evolve as we determine our business needs. Once that is set, we can focus on locking down performance.
• Contextual design interviews are key. It’s very easy for engineers to lose track of what customers actually need/want unless they actually see it. It still amazes me sometimes how stupid users can be (like I can be sometimes when using a new product I’m not really paying attention to). Accommodating their (our) ignorance is critical for a good product.

[Fellow engineers, fear not. Some day I'll write a post about the ignorance of non-engineer managers ignoring the technology realities, and pushing out a product that is not ready, and will never be any good.]

Readers, do you have any other suggestions about how to ensure business objectives remain paramount?

Therefore, network size is key to a successful social web venture. More users and content than your competitors means more consumer value, which in turn creates a snowball growth effect.

But when should you start monetizing your traffic? Critics suggest that many startups wait too long to start monetizing. However, until we find revenue models that do not reduce consumer value, the wisest strategy is to hold off monetizing your traffic at least until you reach an inflection point (e.g., second derivative hits zero).

Most revenue models, such as advertising, reduce consumer value. Metacafe, which has long had relatively intrusive ads, launched nearly two years before YouTube, but continues to trail far behind the market leaders.

When a site starts monetizing its traffic, it reduces consumer value, which can give your competition an advantage. Therefore, sites should delay monetizing until they reach the point of diminishing growth… as they come closer to their long-term stable size. This suggests that the larger the potential market for a site, the longer you should wait to monetize.

Once you get big enough (like YouTube), you may have the breathing room to capture some of the user value without reducing your net value proposition below that of the competition.

Heavy.com has done a great job of monetizing traffic without hurting consumer value too much. Of course, the best solution would be to monetize while increasing consumer value. Brickfish.com is doing a fantastic job of that by melding user generated content and revenue generation into one unit [disclaimer - I have performed consulting services for BrickFish in the past].

Do you have any comments, or ideas are for monetizing while enhancing consumer value?

Note: This article derives from a paper I co-authored in 2007, “Understanding Key Success Factors for Social Web Ventures”.