Twitter's Revenue Problem; The Right Way to Fail
BY Jason Del Rey
The Return of Steve Jobs? Apple is widelyexpected to show off new iPods this morning in San Francisco. The scuttlebutt has it that the new players will include a digital camera, but the real drama surrounds whether founder Steve Jobs, who received a secret liver transplant in the spring, will bring his unique brand of showmanship to the event. We're rooting for him.
Fred Wilson and Barack Obama on how to do failure right. Barack Obama inspired the next generation of risk-takers when he said, "You can't let failures define you--you have to let them teach you. You have to let them show you what to do differently next time." It took venture capitalist Fred Wilson a while to learn that, he writes. When he started investing, he worked so hard at avoiding losing money that he went almost a decade without a losing investment. But after the dot-com bust, his firm wrote off almost 20 investments from 2000 to 2002. "But when I look back on my career, it is not the successes that I think back on most. It is the failures, and particularly those two years when everything that could go wrong did go wrong," says Wilson. It was those lessons that he applied when he co-founded Union Square Ventures in 2003. Embracing failure is particularly American quality, he goes on to say. Where in other parts, failure means the end of a career, here it's a badge of honor. "When we meet with entrepreneurs, I'm always interested in their failures. And most people have them, you just have to dig a bit to find them. If someone has failed and taken the time to learn from it, I think that's a big positive," says Wilson, "It makes us even more excited to back them the next time."
Twitter's Revenue Dilemma. Why is it that some start-ups with almost no revenues are able to command valuations of hundreds of millions of dollars, while the rest are stuck adhering to the regular rules of business? It's about expectations, says Michael Arrington, the founder of TechCrunch, who has a new blog post on the "revenue dilemma"--or the paradoxical tendency of large companies to pay more for start-ups whose revenues are solely imaginary. "When you don't have revenue you can't be valued based on a multiple of revenues," he writes. "For most companies that means you probably won't be acquired. But if you happen to have invented something new and dominate the space (Hotmail with webmail, YouTube with online video), you can let the market speculate about your potential revenues and potential profits all day long." This is why, he says, Twitter has been so hesitant to start charging money for it's wildly popular services. Once you start making real money you can't go back to make-believe valuations. "Your valuation can actually go down once you turn on revenue," he writes.
Everything you know about motivating employees is wrong. Inspired Startup, a blog run by serial entrepreneur Andy Liu, has a thought-provoking video from the July 2009 TED Global conference in which author Daniel Pink demonstrates that the standard, incentive-based motivation techniques most companies use are probably hurting the performance of your business. It seems counter-intuitive, but Pink provides examples that show the carrot-and-stick method, rewarding strong performance and punishing lackluster efforts, actually is detrimental to a business's success. Instead, Pink argues that giving employees autonomy and the opportunity to excel at something are powerful motivators that actually deliver results.
The secret to Dogfish Head's latest craft brew? They spit in it. Dogfish Head founder Sam Calagione likes nothing more than reinterpreting ancient brewing methods and flavors for devoted fans of craft beer. The New York Times dining section chronicles his latest--and most extreme--attempt: Latin American corn beer called chicha, made using the authentic Peruvian method. The secret? Corn is milled and softened in the chicha maker's mouth. "Whether they understood the science of it, ancient brewers through trial and error learned that the natural enzymes in saliva would convert the starch in corn into sugar, so it would ferment," Calagione told The Times. He did acknowledge, "It may sound a little unsavory." In order to make 10 kegs of chicha, he tapped a team of historians, brewers, and an archaelogist to sit around chewing 20 pounds of purple Peruvian cord. Want to hear more about how Calagione applies similarly unorthodox methods to running his company? Well there was that time he found his son playing with toy dinosaurs in a puddle of beer.
Herbal moguls recover from tax evasion scandal. Despite the saying "there's no such thing as bad publicity," a major legal scandal can cut a business down--and quickly. But Sunrider International, the herbal products company headquartered in Torrance, California, has bounced back in a big way from the 1995 indictment of its top execs for tax evasion, the LA Times reports. The privately-held company now boasts annual revenue of $700 million. The founders attribute the change in their fortunes to learning from their mistakes and following more careful business practices, including how they label and market their herbs. For more legal snafus, see the ice cream entrepreneur who hit tax trouble and the pizza chain plagued by a high-profile arrest.
JASON DEL REY was a senior reporter covering technology, branding, and company culture for Inc. magazine. Before joining Inc., his work appeared in Newsday, The (Newark) Star-Ledger, and the Staten Island Advance, and on ESPN.com. He lives in New Jersey. @DelRey