Take the Friction Out

Earlier this week my partner, Brian Hirsch, and I had breakfast with Google's Advertising VP, Tim Armstrong.  This is the guy who spearheaded Google Adsense.   Meeting him reminded me my visits with Netscape execs in 1995 and Yahoo in 1996.   The ideas they espoused seemed at the time like man creating fire.  Ok, I am going overboard here.

But the coolest thing Tim said to us was something I have been thinking for a while, that I've had a hard time explaining to myself and others: to be really successful, startups need to take the friction out of their systems.  Even if they are growing at a nifty 50-120%/year, that ain't enough.  You'll get a great acquisition offer at some point if you keep growing at that pace, and a nice exit.  However, the real magic that few people talk about is what Google did to Yahoo and AOL.  Instead of continuing to compete with those 2 portals headon fighting for CPM based ads via an army of direct ad sale people, Google changed the game with AdSense.  The idea: how about automating the system and allowing both buyers and sellers to go online and bid on the space and searches they wanted.  Oh yeah, and then letting the entire website population do the same for their site.  Presto: no large direct ad force needed, and a frictionless profit machined like system a la Ebay was born. 

Smart startups have to think about how to take the friction out of their business model.  Primarily that means looking at your value stack, and figuring out a way to take human beings out of your process that slow things down.  The good news is that more and more customers hate dealing with people, as they are analog, slow, and imperfect.  Some other more mundane examples: Dell product ordering, Walmart procurement, Intel and Cisco fufillment, online travel services, grocery self-service lines, and on and on.  It will be painful.  It will hurt.  Jobs will be potentially be lost.  Management and board egos bruised because that's not what your competitors are doing or there is no market for that.  But the real lesson of Google's success is there is much to be gained from creating value and sharing it with your customer.   Instead of having the recurring nightmare of being run over by Google and acting like a deer in the headlights, you can do the running over.  Take the friction out of your system.