Picnik + Word Lens

From time to time I stumble upon a site or product that just blows my mind.

I’d like to share two of these which I found this week.

Picnik
Picnik is a cloud based photo editing service. Think of it as Photoshop in your web browser. Until now, image editing had to be done via a client based software application installed on a computer.

I can spend time explaining Picnik but you have to use it to understand how cool this tool is.

Picnik has a full API which enables you to integrate with it so you can include its powerful functionality within your own web applications. For example Flickr has integrated with Picnik and you can now edit your Flickr photos on the fly.

In fact, I used Picnik to edit the photo to the right. I took a screenshot of the Flickr actions menu, saved it and opened it in Picnik. In about 10 seconds I added the blue arrow, gave the image a drop shadow, saved it and uploaded it to my blog.

Picnik generates its revenue by charging for premium subscriptions:

  • 1 month: $4.95
  • 6 months: $19.95
  • 12 months: $24.95


Premium users get the following benefits:

  • More fonts and stickers
  • Advanced editing tools
  • Unlimited history
  • Unlimited connections
  • Priority feedback
  • Ad-free and full screen editing
  • Layering of images

I was not surprised when I read that the business had been acquired by Google in January 2010.

Have fun Picniking!

Word Lens
Word Lens is an iPhone app that translates languages in real time. Just watch this:

The internet can really help you be lazy… lazy? What I mean is that a group of three people can really help you write software that then millions can use and enjoy. Can three people answer the phone a million times?

Find the leverage in the world so you can be truly lazy.

Larry Page, CEO Google

Sometimes the best opportunities are right in front of your face

While running Lind Golf there were a number of businesses that I relied on to run my company successfully. I’m not talking about businesses that I supplied. I’m speaking of businesses who supplied me with critical services. They were our oxygen. Had any of them not been available to me for a month, even a day, sales or productivity would have been affected. On a monthly basis these businesses would appear on the company credit card statement whether I made one sale or one thousand sales. Together they formed the platform that enabled Lind Golf to exist and operate as a business.

When running a business you are exposed to information, products and services which are specific to your niche – and while you might not realise it, you are probably better informed about these companies than the best analysts on Wall St covering the stock. After all you are paying to use their products and services and you should be intimately familiar with what they offer and do well, and more importantly, what they don’t do well.  As a customer you can get a good feel for how attentive, aggressive, knowledgeable and innovate their business is.

What I have done is selected a few of the publicly traded companies whose products I used while building my business. What I want to show you is how they have performed over the last five years.

To put things into perspective as of Jan 20th, 2011 the NASDAQ has appreciated 17.62% across the prior 5 years.

Research In Motion (RIMM)
When I was selling golf clubs on eBay in 2005, I purchased a BlackBerry. I had to pay $30 a month on top of my phone bill to get my e-mails delivered to my handset. A friend of my owns a few Optus franchises (an Australian GSM carrier) and he told me that the money paid for BlackBerry access was mostly passed onto RIMM, with a small margin for the carrier. What I liked about RIMM is that they controlled the network – meaning every e-mail that was sent to my phone was routed through one of their servers in Canada. It was not an open network or peer-to-peer model. It was basically a client server model on which they owned the hardware and the software and were generating subscription revenue. Amazing. My BlackBerry quickly became a CrackBerry and was literally an extension of my right arm for a number of years (until I bought an iPhone 3Gs – although I believe BlackBerry is still a much better device for e-mail, the other features of the iPhone where enough for me to give up BlackBerry’s incredible e-mail capabilities).

Jan 2006: $22.14
Jan 2011: $63.28
5 year high –  June 2008: $144.56 or +526.34%
5 year gain/loss: +174.16%
Net profit margin (2010): 16.45% - This is very high for a hardware business and is because of their high margin subscription based revenue model. Nokia’s 2010 net profit margin is around 4%.

Two weeks after RIMM reached its all time high in June 2008, Apple released the iPhone 3G.

MasterCard (MA) and Visa (V)
As an online business we accept our payments by credit card. We use a merchant facility that is administered by our bank that enables us to accept payment from customers who have a Visa or MasterCard. We also have a merchant account with American Express. On every single sale that I make, I give away a portion of my revenue to one of these three businesses. Read that last sentence again and think about it. Am I the only one doing this? No! In the connected and flat world in which we live, business is increasingly becoming cashless. The only things I pay for these days with cash are meals and personal expenses. Everything else goes on my credit card. Even cash comes from an ATM with MasterCard and Visa controlling most of the worlds EFTPOS and ATM transactions as well. Why wouldnt you want to invest in a company that is taking up to 3% of revenue for doing basically nothing. The computer networks that process these cards are largely financed by the banks. Not only are they taking up to 3%, but they are charging up to 17% in interest! I’m pretty sure the banks would take most of the interest income on Visa and MasterCard however for American Express they run their own books so they are likely to pocket this income.

When I started Lind Golf I tried to find  MasterCard and Visa on Yahoo Finance! however at that time they were not listed. American Express was listed and has been for years. They are an old business and their growth spurt has already happened however while MasterCard and Visa had been around for a long time, their accessibility through capital markets was relatively new, so I added them to my watch list but didn’t have the balls to invest at at the time.

MasterCard

IPO’d in Jun 2006: $39 - closed first day at $46*
Jan 2011: $235.36
High since IPO: $273.22 or +586.96% (excluding dividends)
Gain/loss since IPO: +423.83% (excluding dividends)
Net profit margin (2009): 28.69%

They have also paid a 15c quarterly dividend without fail.

Visa

IPO’d in March 2008: $44 – Biggest US IPO over – closed first day at $56.50*
Jan 2011: $69.12
High since IPO: $96.59 or +50.10% (excluding dividends)
Gain/loss since IPO: +7.41% (excluding dividends)
Net profit margin (2010): 36.75% – this is higher than Google or Microsoft

LivePerson (LPSN)
LivePerson is a great example of a company that is not a mainstream brand and is largely unknown to companies outside of its specific niche (the e-commerce industry). It is much easier to identify value early on in businesses like these as they tend to fly under the radar. LivePerson provides a service that allows online retailers to chat with visitors on their website in real time. Every single month I pay LivePerson $200. I’ve done this since the day my website went live and the way I use their product has largely remained the same.

Imagine having a retail store where your customer service staff were unable to speak to their customers. The internet is exactly like this. You cannot engage customers because there is no direct line of communication other than the writing and images you see on the screen. LivePerson made it possible for website visitors to actually interact and communicate with a real life person, hence their name!  They were the pioneers of “Live Chat” and benefited from the first mover advantage. To their credit  they hung in and continued to develop their business even though their stock pretty much tracked sideways after the dotcom bust in 2001 and only began to gain moment again in 2003. Many copycats have spawned as a result. They are a subscription based service that generates its revenue by charging a per seat license fee similar to Salesforce.com.  I started using their software in 2007 however they had been listed on the NASDAQ since 2001.

Jan 2006: $5.79
Jan 2011: $11.68
High since IPO: $12.09 or +108.81%
Gain/loss since IPO: +101.73%
Net profit margin (2009): 8.87%

Google (GOOG)
Hindsight is 20/20 vision so and as clichéd as it might sound to talk about Google as an investment, the point here is that they were an input into Lind Golf’s success and like the other companies I’ve mentioned, they are one of the business that appeared on my credit card statement every single month. In fact they were one of our largest recurring expenses. I paid more money to Google than I did to any single employee. Our Google spend was also greater than our rent. Google is an online businesses lifeblood. Without Google there is no traffic and without traffic you don’t get visitors, leads and conversions. Over 90% of Google’s income comes from adwords. This is their rainmaker and since 2005 I have understood this part of their business intimately. I set up my own adwords account, monitored it and optimised it successfully. There is no other marketing tool in the world that can generate a return on investment as quickly, and as measurably as Google adwords can (Or could in 2005! It is way more competitive these days).

Jan 2006: $399.46
Jan 2011: $631.75
5 year high – June 2008: $711.25 or +78.25%
5 year gain/loss: +58.15%
Net profit margin (2010): 27.15%

Amazon (AMZN)
I want to illustrate a different point of view by showing you the financials of Amazon, being the poster child of e-commerce. Having a foot in the industry early mean’t I was aware of my competition before many others. I used them for ideas and inspiration. Fundamentally Amazon and Lind Golf are very similar businesses. We are both e-commerce players selling products online, so the market forces, economics and opportunities that were apparent to me while running Lind Golf would have been similar within Amazon. The difference of course was that Amazon had hundreds of thousands of additional skews and a team of people who are probably the smartest in the world at converting online visitors into buyers. If you are in an industry where your competitors or contemporaries are outshining you for whatever reason, or you have your ear to the ground and can understand why they might perform well in the future, then why not invest in them!  In this situation you would know more than the overall market does and be able to recognise future value far earlier. There are other listed business in the space that I was in. Companies like Callaway and Aldila are listed however the likelihood of these business generating substantial returns is much lower than the scalable web businesses mentioned above.

Jan 2006: $44.40
Jan 2011: $186.87
5 year high – June 2008: $186.87 or +320.88%
5 year gain/loss: +320.88%
Net profit margin (2009): 3.7%

How can you apply this?

  • Where does your business get its oxygen from?
  • Can you invest in these companies?
  • Are they on a growth trajectory?
  • Do your competitors have a great business too?
  • Has the market recognised and priced in the value that you have recognised?

Sometimes the best opportunities are right in front of your face.

Percentages Don’t Pay the Bills

I always hear people boasting about percentages.

  • We’ve gained X% market share on our competition
  • Order volume is up Y%
  • Revenue has increased X%
  • Inbound calls are up Y%

People who are constantly boasting about percentages often do so to make businesses sound better than they really are. It’s always easy to gloat about percentages, especially when you are coming off a low base. They latch onto positivity to boost morale or shift focus from the reality of the bottom line to sound more positive.

You almost never hear them talk about percentage increases of expenses and how much equity dilution, capital or VC money had to be consumed to make these percentage gains possible.

Turnover is vanity; profit, sanity; but cash is king and…

Percentages don’t pay the bills.

Sharing your new idea

At the moment I am toying with a new idea. Without saying too much, I want to create a tool that will hopefully make the marketing of e-commerce businesses a lot less painful.

I’m scratching my own itch here by solving a problem I had when I was running Lind Golf. Having said that, I am an example of one and what I classify as a problem may not be a problem for others. Before jumping into the deep end and hiring developers, I thought it would be wise to validate my thoughts and have decided to run a small survey that I will be personally sending to friends who are running e-commerce businesses. The data from this survey along with a few meetings should help determine whether or not there is an appetite for the software.

It’s human nature to be secretive about new ideas however I’m of the opinion that the more people you share your idea with, the more you are going to learn and the better your product will end up being.
 
Here are a few things I’ve realised along the way:
 
Ask potential customers what they think
After all, you are creating the product for them. It is also likely that they are focused on running their business and have no interest whatsoever in copying you. They will be more thrilled that you are addressing their needs more than anything and will be open to sharing their experiences with you which can be compared to your own.
 
People don’t care as much as you do
There are only two people who are having light bulb moments at 2am about your idea, you and your competition. You might think your idea is the best thing since sliced bread but the reality of the situation is that others are probably not as passionate as you are about it. This is great because it means you can speak openly with others without feeling threatened.
 
Ideas are just ideas
Without execution ideas are just ideas (and talk is cheap!). Turning a good idea into reality takes blood, sweat, tears and risk. A lot of ducks need to line up in order for someone to do what you’ve done and the further you get with your idea the more work will have to be done to catch up.
 
Just do it
Sometimes you just have to create your product. Steve Jobs was famously quoted saying:
It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.
People were pretty content with the MiniDisc and Discman until the iPod came along.
 
How do you validate your new ideas?
 

What next?

People have been asking me what I am going to do next. Well, I’ve done my dash with Lind Golf so now it’s time for a welcomed changed.

Being in the fortunate position of having choice means I can take my time and decide what I actually want to commit the next few years of my life toward. One of the big lessons I learned while building Lind Golf was how much of a commitment having a business is. If you want to do well in business you will need to have laser focus, and having laser focus means sacrificing other parts of your life for what you are trying to achieve. While you can never be sure that things will work out perfectly down the road, you don’t want to look back in 3 or 5 years time with nothing to show. Experience is great but it doesn’t pay the bills.

I’ve come up with a short checklist of the attributes I would like my next business to have:

  1. No Stock
    • No warehouse
    • No related insurances
    • No logistics costs
    • No manufacturing
    • No obsolescence
    • No wastage
  2. Software as a service industry, some great examples include:
  3. Annuity business
  4. I’d like my customers to sign up to a monthly subscription in return for an excellent service which helps to predict my cash flow.

  5. It should be a utility/productivity tool
  6. The service should be a utility that my clients cannot live without. It should be a business and not a feature, sustainable and not a fad. Utilities are less susceptible to changes in the economy compared to the services based around discretionary spend. You’ll always need your accounting package, but you might scale back on Facebook ads.It does need to be sexy – function over form. In 5 years time the service should still be required.

    While running Lind Golf we used many services like this. Every month you could be sure to see a credit card charge on my statement from LivePerson, MailChimp, Optus, eWay, Google Adwords, and our web hosting provider. Whether I did 1 sales or 1000 sales, these services were essential.

    Golf clubs are not a utility, they are a luxury. Before dad buys golf clubs he needs to pay insurance, school fee’s, put food on the table and keep the lights on.

  7. It should develop a strong dependency
  8. The longer a business uses a piece of software, the more dependent they become on it. They have to invest their time and money in training staff and integrating their infrastructure, and every day they add to the platform in one way or another. Think about your accounting software such as MYOB, or your email such as G-mail. As time goes on the difficulty of customers changing accounting packages or e-mail providers increases. Even better, if your tool can assist to increase sales revenue it will become heroin to your customers (like Google Adwords).

  9. It should not require critical mass
  10. How many times has a mate said to you “I have the best idea – lets build a business and when a million people are using it we can start advertising, then we will become rich and move to the Bahamas!?”. By the time you have a million people looking at your product you’ll probably have grandchildren – and you won’t look so great in your swimmers in the Bahamas. I’m a big advocate of ensuring a quick path to revenue. I want my business to generate revenue for every customer I sign up – and it should be an ongoing revenue stream. I might offer a 14 day trial, but if they like the service they will have to pay to keep using it.

  11. It should serve the long tail
  12. I want to serve the SMB sector. Small to medium businesses are the engine of our economy. Their requirements are also less critical than Enterprise customers. I don’t want to be selling radar systems to Qantas and having sleepless nights wondering whether planes full of people may or may not crash. Shit always happens in business and lets face it – if a business with 10 employees can’t access their CRM tool for a day or two, it is not going to make that much of a difference to their lives or the company. Serving the long tail also means that you’re creating a tool that does not need to be customised for each new user. If the user cannot customise it themselves for their own installation then it is not truly scalable.

  13. It must be truly scalable
  14. When I started Lind Golf I thought it was a scalable business. Our website was available 24/7 and we could ship worldwide from a central location. While this makes it easier to scale than a traditional bricks and mortar business,  it is not truly scalable. In my opinion a business is truly scalable if the inputs required to serve 1 customer or 1000 customers are the same. For example if I sold 1 golf club, it might take 5 minutes to build and pack it. If I sold 1000 golf clubs it would take 1000 x that. Assuming their servers are capable, MailChimp can sign up 1 user or 500,000 users without any additional inputs making it truly scalable. This can only occur in the business of software and web services. This is why Microsoft has $55bn in current assets and Google has $29bn in current assets. It is also why Facebook was able to grow their user-base at such a rapid pace. Margins in the software business increase as the user-base increases because R&D costs are amortized across more and more customers as time goes on while R&D costs only increase marginally compared to revenue increasing rapidly.

  15. It must be fun
  16. I had a lot of fun creating Lind Golf but over time it became less fun. As Steve Job’s says in his 2005 Stanford commencement speech:

    For the past 33 years, I have looked in the mirror every morning and asked myself, if today were the last day of my life, would I want to do what I am about to do today? And whenever the answer has been No for too many days in a row, I know I need to change something… -Steve Jobs

  17. I want to have a high level of creative input
  18. And I don’t me fancy colours and gradients in Photoshop. What I loved most about Lind Golf was working with creative people to develop the brand and the e-commerce platform. I like working with graphic designers and software engineers on features and usability issues. I loved releasing new features and waiting to see how my customers responded, them fixing and improving them. I want to create something rather than just resell someone else’s creation. I want to be the franchiser not the franchisee. There are costs and risk associated with developing something new but there are also big rewards if you make something useful that people enjoy using.

Why Andrew Mason turned away $6 billion dollars

When Andrew Mason turned down a $6 billion offer for his two year old business, he probably did so for good reason. Either Groupon is going to exit by an IPO for a larger sum, or Andrew believes the group buying story is in its infancy and wants to hang in for the ride.

I’m not a financial whizz so I’m not going to go into the sums and workout whether the valuation was fair – however from a fundamental point of view I think that Groupon has just scratched the surface.

This is why.

The Groupon business model is based around offering consumers heavily discounted offers in a specific location, while at the same time providing small businesses with a risk free method of marketing their services to local customers who happen to live in the area.

The sales operation is run from a centralised call centre in Chicago and sales staff are responsible for filling the deal pipeline in their allocated region. I assume they would be incentivised with commissions and bonuses too. For example Jane Smith might be responsible for selling deals to merchants in Los Angeles.

In Los Angeles Jane would have no problem finding businesses willing to post their services on Groupon. In fact there would be a massive over supply. This is of course a bottleneck for Groupon because they are having to turn away customers and prioritise between businesses who want to be featured.

For example, what if there is a business in Anaheim, and a business in Santa Monica who both want to be featured? These businesses are both in Los Angeles however they are a 50 minute drive apart from each other. They are both fighting for the same real-estate on Groupon even though the likelihood of a resident of Anaheim driving through frustrating traffic to Santa Monica to save $20-$30 is pretty slim.

The real value of Groupon can only going be unlocked if they increase their depth of offering by offering hyper-local coupon services. This would mean that customers in LA visiting the site from Santa Monica see deals that are in and around Santa Monica, while customers visiting the site from Anaheim see deals in and around Anaheim on the same day!

To do this they would have to segment regions in Los Angeles by ZIP code or suburb, then allocate sales people to each region. The problem here is that Groupon will have to hire a huge number of additional staff if they were to source deals at the hyper-local level country wide. This would not be a viable option because the gain in coupon sales from hyper-local offerings will not be greater than the cost of having additional sales staff. While the database for LA might be 1,000,000 customers, current being serviced by 1 person (Jane), the hyper-local model might require 20 sales people while the database will still be 1,000,000 customers.

Enter Google.

Google have nailed the hyper-local game. They are the masters of it. Is likely that their is a photo of your house, office and uncles farm saved on their servers somewhere.

They’ve driven cars down almost every road on this planet and indexed the results in Google street view. They changed the world when Google Maps was released and Google Earth blew everyones mind (even though that was the first and last time I ever used it). More than 90% of their revenue is generated through Google Adwords (paid search results – which helped get Lind Golf off the ground).

In fact, Google created Google Places for small service based businesses to list themselves. Try Googling “Day Spa Santa Monica”. The problem for Google however is that they have not figured out how to monetize these small businesses for which adwords is not an appropriate marketing tool. While the information they return to Google customers in search results is useful Google generates no revenue from this.

The Solution? Automation.

The solution is to automate Groupon. This is why I believe Google made a $6bn offer for the business – because they have millions of hyper-local business listings which they could use to unlock value. Google’s entire business is self serve, and they could easily make Groupon a self service model by offering the site as an advertising avenue for their Google Places customers. This would mean that a Spa in Anaheim can upload a deal to Groupon themselves. Subject to approval from head office, Groupon would feature it on their daily email and on their site, take a revenue cut and display a different deal in Santa Monica. Groupon will all of a sudden have thousands of additional regions that offer great deals at familiar establishments that are close-by and convenient for customers.

Automation is the only way that Groupon can achieve depth of offers, however when they do get to this point I believe their sales will increase significantly.

Perhaps Groupon know something we don’t and are banking on the results.

I’d have taken the cash.

G’day.

Being my first post I’d like to give you bit of a background as to my journey so far.

In 2005 I started selling golf clubs on eBay with an investment of $500 and an eBay account while I was studying at University. In 2007 I launched Lind Golf being one of three companies in the world, and the only company in Australia that allowed golfers to custom build their own equipment online.

By 2010 my team and I had sold ten’s of thousands of Lind Golf clubs directly to consumers via the web under a brand name that did not exist 4 years ago. In November 2010 the business was acquired by OO.com.au who are Australia’s #1 branded online department store.

I did this having never played a game of golf prior to starting the business (to this day I can count the number of times I’ve played golf on two hands – yes this is weird/ironic). I took out full page advertisements in golfers digest and other golf publications and set up a free call number that would divert to my bedroom in my parents house where I was living and working from at the time. I started getting calls from golfers around the country asking me for advice. I learn’t about the business of golf as the company grew. Reflecting back on Lind Golf, these were the best days by far. I was young, had no staff, worked from home, had a brand new business poised to take off, and not a single care in the world. I felt invincible.

My vision was to have a business that was completely automated where orders would come in and be shipped out of a third party logistics warehouse without my intervention. I wanted to be able to sit on a beach with my BlackBerry and make money while I tanned. Theoretically this was possible but reality kicked in pretty quickly (and I would have been bored). I needed staff, a warehouse and had customer service emails to attend to. Tim Ferris, try teaching a PA in Bangalore about kick-point trajectory and lie angles. It wasn’t going to happen.

In 6 months I had filled up my parents garage and two large storage facilities with stock. By 24 years of age I had 4 staff, a warehouse and a thriving business that was bootstrapped from the start without any outside investment. Lind Golf was founded at the brink of the GFC in the toughest period that the retail sector had experienced in many years within a highly competitive, performance based brand conscious market. Since we launched our unique business model, 4 of our competitors went bankrupt. Through determination and willpower I made sure the business was successful.

My passion lies in bringing ideas within the web and tech space to reality. Originally I wanted to build a technology company however while I was at Uni I was selling putters on eBay and it was paying the bar tab so what I ended up doing was building a technology business around the retailing of golf clubs and equipment. We used the internet to create a completely new way of retailing golf equipment that gave customers the ability to personalise their equipment and save money through our direct business model. We were the first golf brand in the world to offer custom bag embroidery, laser marking, wedge stamping and coloured club component customisation via the web.

I was inspired to start an internet business after reading The World Is Flat by Thomas Friedman.

Lind Golf was an amazing adventure and a journey in which a lot was learned. I hope to share some wisdom, experience and insights into business, marketing, the web, and more in my blog.