Tuesday, July 17, 2007

The "Magic Eye" in Business

Chaos—that unwieldy absence of order that haunts inventors, the creative-minded, and the entrepreneur in all of us—may be the very foundation of success. I am speaking of chaos, as in the spaghetti on the wall, where all the noodles converge to create a path, a miraculous mess, but substance nonetheless. In that mess, ideas intersect to make new business models or innovative solutions, at times birthing mistakes and at other times, lending new form to long standing businesses. Inside chaos the essence of innovation lives and breathes.

Every so often the creative chaos of the mind coalesces, preparing the way for sustained profitability around a new business model. In the nineties, Internet portals like Yahoo! and AltaVista positioned themselves to compete in the search market, but also offered directories, ads, news articles, and more. A young startup company, named Google, took what both Yahoo! and AltaVista had created, then turned it on its head. Google offered instead of more content—a minimalistic page, and instead of advertisements —whitespace. Only after Google had successfully tailored their search engine technology over years, did it branch into offering news, calendars, webmaster tools, and more. By first offering less (and doing that right), Google became the most lucrative Internet business in history.

Google’s business model has proven to be successful, as their search engine currently accounts for 63% of all internet searches, according to HitWise. Like Google, the utility of both PayPal and eBay was initially questioned, but ultimately embraced. How many thought similarly about PayPal or eBay? Like many successful entrepreneurs, we need to peer into the crossroads of ideas, seeing where they intersect, then take control of where they lead our businesses.

Think of chaos as a “Magic Eye” poster, or an autostereogram which is a 3D image buried in a 2D pattern, painted by consumers, businesses, technology, and emerging trends. The jumbled pixels in the poster obfuscate even the most ardent observers. But, if you relax just enough, allow your eyes to un-focus, a picture begins to take shape. The resulting picture may outline a new and innovative business idea.

Many businesses believe consumers want price cuts as a solution, like cheaper software, when, in reality, an innovative solution may infuse more profits into their bottom line. Imagine if eBay had only offered an e-commerce site with lower prices, rather than being innovative and creating an auction site for users to sell wares. What if Google had cluttered their pages, displayed obtrusive ads, and ultimately mimicked every other site at the time? They may not have stamped their brand into the minds of millions. It takes innovation to capture the imagination of consumers.

In the same way eBay cleared many garages of junk, and Google saved us hours of surfing the web to find a resource, the next big idea may solve a relatively small problem. The solution to a common problem can become a massive success overnight. The young coders from PayPal, who started YouTube, can attest to the frenzy created when a business offers an immediate solution. In a time when video was first becoming commonplace on the web, YouTube offered free hosting for user generated content. A HitWise study from May of 2006 showed that YouTube traffic was up 160% in a three month time period (March 2006 to May 2006), moving the site to the top 50 sites on the Internet. This happened only a year from their inception. This type of leaps-and-bounds success can be attributed to the risks they took. In order to host a site that had user uploaded and viewable content, they also had to have servers to handle the load and bandwidth to broadcast these large files to an audience numbered in the millions. YouTube’s bandwidth expense per month elevated from $900,000 to $1.5 million, by most estimates. Of course, we know about the buyout by Google, but many do not know the amount of money invested to keep YouTube online long enough to be purchased.

With innovation, there will always be risk involved. A business idea may take the breath away from complete strangers at the coffee shop but, when dealing with the global marketplace timing means just as much as potential. For instance, Pets.com failed in 2000 before ever fetching a profit. An internet business failure can be caused by a combination of market climate and consumer apathy or something as simple as poor site construction.

An idea can only be as good as its execution. A cumbersome website, faulty product/service, or other missteps can hinder a good idea. The crux of a successful introduction into the marketplace relies on timing, sound marketing of the product or service, and a solution that opens customer’s minds to a new way of doing something old or creating something new. Chaos in business can be briefly muted, absorbed, and altered by a solution that comes from the ether. As an entrepreneur, chaos may be the cluttered avenue of information for a particular service industry or the immediate need for a new product. By allowing imagination to lead where intellect cannot travel, an entrepreneur must believe in the possibilities generated by that imagination, nurture those possibilities, and make those possibilities a reality.


Gerald Seegars said...

I just read an article about Under Armour in Barrons or Fortune and the writer expressed some concern about the P/E of UA and alluded that he thought the stock was overpriced based upon it sales and earnings. I think the price of UA has increased substantially this year and there was concern that there is not to much pop left in it.

Curious to hear what you think this stock will do in next year assuming that sales growth continues at 2007 pace in 2008.

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