When Priced for Perfection, Startups Not Given Room for Error

While I maintain the meme of a "billion dollar startup" is a myth, there's a clear reality that some early stage and often pre-revenue, companies are quite publicly obtaining historically high valuations. These big bets by angels and venture capitalists are made with the expectation their investments will pay off, and masterfully well.

Sometimes they do, but often, they don't, and the gap between initial expectations and reality can put incredible pressure on the funded company - not just from those who put money in, but from a closely watching press, and users who want to be part of something exciting.

When a private company sees incredible media visibility, and scores a fast-ramping, highly active customer base, it's usually assumed similarly climbing revenue isn't far behind. For game changers like Facebook and Twitter, who commanded sky high valuations privately before earning them publicly, this made sense. But for companies who are seen to have missed expectations, the descent in public perception and media love can be fast and steep - forcing pivots and other odd behavior  that can be somewhat puzzling to the outside world.

Hey, Didn't You Use to Be Cool?

Image via Dreamstime

This awkward stage is where you see one time shoo-ins for the next big thing, including names like Foursquare, Path, Fab.com and even Square - who now have many people scratching their heads. Instead of talk of near-term IPOs and exceptional user adoption, you see things like Foursquare taking on debt financing and spinning up new apps that bear little resemblance to the much loved 1.0,  Path taking money from an Indonesian VC most people in the Valley have never heard of, Fab.com enduring many rounds of layoffs and Square also taking on debt financing after a rocky year. None of those moves are what I'd bet their founders were hoping for just two or so years ago - when they were rumored to be turning down acquisition offers and debating preferred ticker symbols.

These mega-hyped startups aren't "too big to fail", but they just might be "too big to pivot", and expectations are so stratospheric, that anything less than perfection is perceived as failure.

My Own Experience With a Priced to Perfection Startup

If you allow for a little self-indulgence, I experienced this very thing at BlueArc early in my career, at the end of the first dot com bubble, when next generation storage companies seemed poised to take advantage of unprecedented data growth, and quite possibly unseat market behemoths like Sun Microsystems, EMC and NetApp. In May of 2001, we raised a stunning $72 million round, for 20% of the company, valuing us at about $360 million. Adjusting for inflation and the sky-high valuations of today, that's probably comparable to being valued above a billion now.

The New York Times Coverage from May 2001

Our $360 million valuation was based largely on promise. We had exceptional technology, smart leadership and a good customer pipeline - or so we thought. But we didn't even have revenue yet. And over the next few years, as things didn't go perfectly, we saw the CEO replaced more than once, and later funding rounds forced employees to accept reverse stock splits - first at a whopping 550 to 1 exchange, and later, at a 40 to one exchange. This made my 15,000 options I'd gained when joining the company essentially worthless, and there wasn't a week that went by when we weren't confronted with press inquiries or rumors on the street that we were about to go out of business. (See: How My Stock Got Reverse Split 22,000 to One)

While the company was eventually sold (and not for pennies) to Hitachi Data Systems in 2011, the decade-long road, executive turnover and significant rounds of layoffs weren't anything like those first investors had hoped. The people behind funding our Series A, B and C rounds were largely absent in later raises, as was practically the entire management team. Our customer base also was radically different, as were the market players, with peers like 3Par and Isilon seeing significant success (and larger exits). While we didn't crash and burn as naysayers thought we might, we were victims of our own predicted fast route to success.

So What's the Solution?

There are multiple views to raising and using venture funds. Some would argue to raise only what you need to get you to the next stage, to reduce dilution, maintain control, and lessen demands from outside influencers. Others would say to get as much funding as you can, to provide a long runway, allowing for tinkering and learning what works best. Others still say to raise about 18 months worth.

By taking the big money at big valuations, you're essentially asking for the spotlight, and if things take longer than expected, or aren't as dramatic a success as expected, people's patience grows thin, and the gap between reality and expectations can take a toll. It seems the biggest complaints about these awkward companies who were once youthful darlings isn't that they don't provide a good service now, but that they're not what we expected. After all, you can still get great tips on Foursquare, buy interesting products on Fab.com, take payments on Square and share your moments with friends on Path. But doing so in 2014 feels a little different than it did in 2011, when you were the start of something new.

In some cases, the startups (if that's what they are) are victims of their own rapid rise to success and visibility. If they had instead raised less money, at lower valuations, and not milked the hype machine for what it was worth, they'd be given the benefit of a longer road to success. What I'm seeing now is that we expect them to grow up fast - and if they don't hit it big, we're on to the next thing. But industry interrupters like Google, Amazon, Twitter, Facebook and their equivalents don't come around all too often, and they have become household names in large part because they are the unicorns - the exception to the rule, and not the rule itself.

Just like individual investors can get caught up in fast-rising markets, and find themselves buying at the peak of the market, their funds trapped as value of their owned stock decreases, so too can company executives and employees, with underwater options, or VC partners holding underperforming funds. After a while, you just want to make something out of that investment, just to see some kind of return. And when that pressure finally reaches a tipping point, it gets really uncomfortable. If priced at perfection, there's really no pleasant alternative to just getting it all right.

Disclosures: I work at Google, which partners with and competes with many of the companies mentioned here. No bias intended. I spent 8 1/2 years at BlueArc, and we also occasionally competed with or partnered with the many storage companies mentioned. I did get a check as a common stock holder of BlueArc shares when HDS finally bought them in 2011, but I certainly wish it had been bigger.

Pictures, Or It Didn't Happen on Mobile

Foursquare made waves two weeks ago with the launch of their newest application, which more broadly emphasized recommendations, discovery and tips from friends than the original use of the app - a simple checkin, alongside the race for badges and mayorship as you traveled from place to place. Some sites called it the death of the checkin altogether, not wanting to miss an opportunity to be sensational.

But the application's refresh did more than take the focus of all my minor comings and goings. It made photos an even greater part of the experience, putting pressure on me, more than ever before, to include something visibly pleasing as part of the checkin. With the upgrade, Foursquare joins many other leading social apps that have rallied around photos as a major part of their approach to mobile.

Images from my Path and those from a friend.

Instagram's recent sale to Facebook for a gaudy $1 billion thrust them into the spotlight, as the photo sharing app had users preferring its emotion-grabbing images and filters to the standard fare seen on the largest social networks. Given Instagram's iOS-only approach during its early period, I'd never gravitated toward using it, but many embraced its simplicity - the presentation of photos, and encouragement of light social signals for friends to react.

In some ways, this is similar to the Path app, which initially made waves for going mobile only, and focusing on a 50-friend limit, when other networks let you friend freely into the thousands and tens of thousands. Their push for an intimate network, making every share a selective one, where you can see who has liked a moment, or even just seen it, puts more focus on the user to share something meaningful and personal, instead of the mundane.

Now that Path's on Android, and with people I respect, like Shak Khan (formerly of Spotify) and Dylan Casey (formerly a colleague at Google) on board, I've been using the app a lot more, even if it's just as a simple way to send high quality photos to Foursquare. It's been fun to tap into the casual photos and moments from those friends on Path and see things from their view, in color.

Now I Feel Guilty If I Check In Without a Photo, Even At Home

Of course, like Path, selective sharing has been a hallmark of Google+ since the network's launch a year ago. The idea of getting the opportunity to share the right content to the right people at the right time, parallel to that of how you share offline, has struck a chord for privacy-seeking individuals, families and groups. But it's also been a good showcase for photographers who want to bring the images to the world. Prominent camera slingers like Thomas Hawk and Trey Ratcliff had gained followings in the millions, and there was even a  conference in San Francisco for the Google+ Photographers community at the end of May.

On mobile, as many noted, the refresh of the Google+ app, first on iOS and quickly following on Android, made photos take center stage. Like Instagram, Path and Foursquare, the mobile app displays photos to the full width of one's screen, letting the images do the talking. While Google+ also is home for lengthy comment threads, and longer text-centric posts, if there is an image available to display in the post, it gets the headline, and everything else is below the fold.

Google+'s Mobile App Delivers Full Bleed Photos and Full Color

The move toward photo-centric experiences in social mobile apps is one that reflects a few things - that smartphones are increasingly capable of taking high quality images, but also having improved displays to bring pictures to life, that wireless download speeds can handle the increased demands of a photo-centric experience, unlike the days of WAP and text-only mobile sites, and that users love it when updates from friends come to life.

Facebook Also Pushes Large Images In Its Mobile App

Google's Chrome browser was famously named as a reverse expression of its qualities. Chrome referred to all the borders and features that surrounded the app's content. Chrome took them away, for the most part, going to the edges and trying to put the emphasis on the pixels inside the browser window. These apps, including Facebook, on the news feed and individual timelines, are doing the same - putting photos in the center of the experience, and encouraging lightweight social actions.

As many people are turning to social interactions with micro-updates and away from lengthy text-centric blogs, something beyond incredible prose has to catch one's attention, and it's becoming photos - from memes to LOLCats, Instagram, Path, Foursquare or others, you can see how the photos on mobile really have become as powerful as a thousand words.

Disclosures: I am a Google employee, and have worked closely with the team focused on Google+ Mobile. One can assume that in some way Facebook, Path, Foursquare, Instagram and others could compete with various aspects of Google's different products.

Path Planning Photo Imports for Historical Memories

On Friday, I participated in a panel at SXSW discussing the rising world of mobile photo sharing, specifically addressing two approaches - mass broadcast of photos through sites like Twitter and Facebook, or limited sharing, such as that espoused by Path, who famously has limited sharing to your self-selected network of 50 people. During our panel, Danny Trinh of Path let slip that the company is planning a feature that will let you tap existing photo sharing accounts you may have, and import them into your Path, making the service a better and more full account of your event history.

In our discussion, Trinh doubled down on the service's limited sharing approach, advocating the select network more accurately reflected human nature, best exemplified by the famous Dunbar's Number (150) which shows humans typically interact with a smaller number of close friends, rather than blasting out to thousands of loosely connected followers. For Path, the magic number isn't even 150 or 50, but 15 - fifteen amazing connections upon whom you could call to ask for help if you were in the hospital, for example, he said.

Trinh spoke to how sharing photos with a select group of people sets up memories - and how scrolling back even a few weeks of photos brings back the feelings of the event where the photos were taken. With this in mind, combined with the service's relative newness, he said the company was investigating the option to let users import photos from external photo sharing sites (assuming Flickr and Facebook are top of the list) to extend these memories within Path itself, even if Path was not the original source. The idea could possibly be like MemoLane, where one could scroll right to left to go back in time and see one's prior history.

During the panel, Trinh also spoke to the company's design philosophy, saying features often would make it to the very edge of code release only to be pulled at the last minute because they weren't quite perfect. He also promised Android support was planned in the near future, and speculated the company might eventually move into including video as part of one's Path. But if you're expecting Path to open up outright, don't hold your breath.

Cooliris Launches Group Photo Sharing, Raises $9.6M

The convergence of two major trends in the world of social - intimate hand-selected social networks and mobile photo sharing have converged on Cooliris, the Palo Alto-based company best known for its 3D Wall application, and the geniuses behind my personal favorite Gallery application for Android. In the crosshairs of this intersection, the company today is announcing LiveShare 1.2, a new group sharing photo stream service, and in parallel, the addition of nearly $10 million in series C funding from existing investors, including Silicon Valley legend Kleiner Perkins Caufield & Byers.

In the same frothy environment that has pushed peers like Instagram, Path and PicPlz to significant levels of visibility and in some cases valuation, Cooliris has delivered an application that lets users create photo streams on the fly, share them with any number of friends, including the option to make them fully public, and enable others to take action on your photos.


   Starting With LiveShare, Creating a Stream and Adding Friends

While there are dozens of photo sites and applications out there, I've long felt a big gap has not been met in unifying the ability to support groups and events for shared experiences. If one has a hashtag at an event where everybody, including strangers, can participate, then why not also deliver a shared photo stream for all who took place in an event? Cooliris' new LiveShare capabiltiies make this a reality as you can view public streams, search for stream titles, or ingeniously scan your local area for streams nearby.


   This Social Media Panel Photo Stream Has Multiple Contributors

Even if you are starting cold on LiveShare, the application asks you to select whether you want to see pubic streams from Music, Sports, Film, Festival or Nightlife. Select all of them to get the entire gamut of updates from friends and strangers in your area. Find a stream nearby, and you can give the location a tap to reveal photos in that stream, complete with relative time of the pictures to show recency.


   Checking Cooliris Streams Nearby and Setting Filters

Unsurprisingly, LiveShare brings with it a like feature, as do most top social apps these days. Spot photos in your friends' streams or public streams that catch your eye? Simply hit the Thumbs Up button and provide positive feedback. Alternatively, you can share the item or flag it for being inappropriate - standard moderation tools for apps of this type.


   Checking Out Public Streams and Liking Cool Photos

The most powerful delivery from the application isn't the fun stuff, like the fancy geolocation features and sharp photo quality, but instead that core value of multiple people posting to the same stream. Instead of having to wade through many different friends' streams to find all the photos of an event, all the friends can share to the same event, and retain record of authorship, so you don't have to worry you're giving away your art.

The $9.6 million in series C funding follows $15.5 million in series B funding from April of 2009 and $3 million in series A funding back in July of 2007, according to CrunchBase. In aggregate, the company has raised just over $28 million.

Does an Invisible Path Draw Intrigue or Fatigue?

As most tech insiders know, one of the more anticipated stealth startups, Path, unveiled itself to the world last night. Founded by respected Valley names with pedigrees from Facebook and Napster, and funded by a long, yet elite, list of active angel investors, the service launched on iPhones, presenting the concept of sharing photos with a smaller network of one's closest friends. This concept, a more intimate social circle, runs contrary to the "bigger, better, more" mentality of today's leading Web services, and has some appeal to those inundated by off-topic connections from friends on the periphery.

While the knee-jerk reaction to something like Path is to ask "why?", as in "why do we need yet another simple photo sharing service?", it's often the trivial and mundane concepts which get traction. The initial response of "why?" led to Twitter and Foursquare and so on, as the more intellectual pursuits that were noteworthy challenges had less success getting steam. I may want to find more places to learn and be challenged, but there's obviously a huge market for the casual and simple.

Path Photos from Drew and Robert

Path is notable for its limits. 50 people. If you hit 51, you drop somebody in the list, and from what I've read, they know about it. The concept of exclusivity drives intrigue - as people want to know if you really are BFF with those people you thought you were. But also limited, at least on day one? The platform. Path is an iPhone only service, and you can't even run the application on the very latest iPod Touch, let alone Android.

"The problem this app is trying to solve: we have too many friends (on Facebook) and as a result we miss key moments we should share with some of the people who are closest to us."
-- Om Malik

I made a personal decision to switch to Android away from iPhone, and bought an iPod Touch to test apps, like Path, that were made for the iOS platform. 9 times out of 10, that's not an issue. But Path, for whatever reason, detects if the device is an iPhone, and won't sync otherwise. So if you thought the service was limited in terms of scope or in terms of numbers, the limited platform ensures scarcity. The question becomes, as scarcity continues, will it drive demand, or annoyance?

Path Won't Go on My iPod, So I'm Out of the Game for Now

I like the guys behind Path. I think they've made great products together. I like the guys who I have seen already sharing their photos with me, as I teasingly have a read-only version of the service from the Web. But so far, I will have to be shown even more before I am a full believer. This looks like a test once and check in on occasionally type of app. There is definitely a hole out there for an intimate network of your closest friends. I just don't know if photo sharing is that start, and don't know if it will have value for me once it hits a platform I use.

For smart folks who get Path, see:
   Drew Olanoff: The “Intimate Social” Revolution
   Om Malik: On A Path To Nowhere