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Tuesday, May 17, 2011

What “The Social Network” can teach us about building a successful business - Published in the Santa Barbara News Press in March of 2011

I recently watched The Social Network—the movie about Facebook and how it was built as a website and founded as a company.  Yes I know.  It came out back in October of last year, so I am a bit behind.  Being behind is the whole point of this week’s column really.  The movie was both a critical and commercial success.  Something like 96% of all critics who reviewed it rated it positively (261 reviews with an average score of 9 out of 10).  I thought it was brilliantly written and highly entertaining.  Beyond its entertainment value, however, I tried to understand what exactly Zuckerberg did that was unique to Facebook, and that made it so successful when so many other social networking sites were mediocre at best.

Before I discuss all of the things Zuckerberg did that were instrumental in building a $50 billion+ company, I did want to say that when I watched the film, it made me feel like an idiot.  The idea for Facebook is so simple, so basic, that someone should have thought of it or something very similar, a long time before Mark Zuckerberg entered his dorm room at Harvard College for the first time.  He was born in 1984, the year I graduated from high school.  I’m sure I am not alone in feeling like I missed many opportunities throughout the internet boom.  With that said, Zuckerberg is a true genius (he earned a perfect 1,600 on his SATs), and was a computer programming prodigy as well.  You will notice I am just saying this to make myself feel better.  It seems to work well.

For those of you who haven’t seen the movie or don’t know the Facebook story, basically Mark Zuckerberg started the company while he was attending Harvard.  He wrote all of the code, along with a friend, in his dorm room between classes.  It started as a Harvard-only social networking site—you had to be a Harvard student to access the site.  He soon expanded the site to include Stanford, Dartmouth, Boston University and other top schools, and then eventually opened it to everyone on the planet. 

Just about everyone involved in making the movie or who was portrayed in the movie state that it is more fiction than reality, but I think the basic facts about how the company was built are pretty accurate.  Zuckerberg is portrayed as a loner, and frankly as a really insecure jerk.  From what I have read about him, he is neither of those things.  He is outgoing, very social, and is actively involved in many charities and organizations.  But, the movie is highly entertaining.

The exclusivity component was a key attribute of Facebook, which started with the Harvard-only aspect of the site, and was continued through to today—you have to be asked to join someone’s network before you can access their information, etc.  Zuckerberg immediately understood the importance of making the site exclusive, and this was a key reason why Facebook grew so rapidly. 

I think the underlying thing that drove Zuckerberg to build the site in the first place was his desire to meet girls.  Perhaps the simplest, most basic reason Facebook works is because people want to meet other people, and they want to know what everyone is doing, who they are seeing, where they go, who their friends are, etc.  In other words, human beings are naturally really nosey.  This aspect of Facebook was not lost on Ryan Seacrest; et al.—the creators of all of those reality shows that are so popular today.

Probably the most important driver for immediate acceptance and lightening fast subscriber growth for Facebook was and is that it is free.  If we are to believe the movie, Zuckerberg and the other founder, Eduardo Saverin, argued a lot about selling advertising on the site when it was very new.  Zuckerberg, again according to the movie, resisted the urge to make money from the site right away, and this undoubtedly contributed to its popularity.  Had they tried to monetize it early, or if they had sold it to Google or Microsoft, and those companies, in turn, had tried to monetize it by selling ad space, etc., Facebook might very well have failed or become un-cool. 

Google has actually used this same strategy, preferring to offer many applications for free to draw traffic to various areas of their site, and then they have been able to successfully monetize these new areas by selling advertising, etc.  Facebook has continued to use the free access to content strategy, inviting programmers to build applications within Facebook.  In 2007, Zuckerberg announced Facebook Platform, which is a development platform for programmers to create social applications within Facebook. Within weeks, many applications had been built and some already had millions of users. It has grown to more than 800,000 developers from all over the world.  Also in 2007, Zuckerberg announced a new social advertising system called Beacon, which enabled people to share information with their Facebook friends based on their browsing activities on other sites. In 2008, Zuckerberg announced Facebook Connect, a version of Facebook Platform for users. 

Some of these applications and site features have been more successful than others, but what they have in common is that they were all offered free of charge for Facebook members. 

The success of Facebook and other sites, such as Groupon, a “deal of the day” site, and so many others, proves that Internet-based businesses are every bit as viable as brick and mortar companies, and increasingly, in many cases, more compelling.  Timing, as they say, is everything.  In the case of Facebook, it certainly wasn’t just timing, or just any one thing, but good timing certainly contributed to the success of Facebook. 

Zuckerberg was able to launch Facebook at a time when the Internet was gaining broad acceptance, not just in the U.S. but in many developed countries around the world.  At the same time, the Internet was still very early in its development, when it was much more difficult to build even the simplest of websites.  These days anyone can use a free template (another service provided by Google, as well as many other web-based companies) to create a new website, with no programming skills required.  This was certainly not the case when Zuckerberg built Facebook.  Had he waited, it is highly likely that someone else would have beaten him to the punch.

One thing that Zuckerberg had working in his favor was that he wasn’t really trying to build a business, or to make money.  He just wanted to build a website that allowed people to interact and connect, mainly so he could meet girls.  Too often as entrepreneurs, we need to generate immediate profits from our business endeavors, which puts heavy pressure on cash flows and often results in the business failing before it has a real chance to succeed.  One of the things I run into often, when writing business plans for clients, if this very problem – the business owner has high monthly expenses and needs to draw a sizable salary from the business, from day-one.  Banks don’t really like this and usually won’t lend money to someone in this position.  Further, it is really difficult to make the financial model for a company make good sense, when there is a significant draw on cash flows from high salary requirements.

To summarize, what we can take away from Zuckerberg’s success with Facebook is that there are certain critical factors that many business ideas share that significantly contribute to the potential for success for the business.  It is usually the right combination of these critical factors, along with a lot of hard work, good timing and a little luck that makes the difference between success and failure, and even between success and mediocrity.  By studying successful business ventures I have learned much over the years.  I still haven’t found my own Facebook, but I am always looking and I believe it is still out there waiting for me to discover it and make it my own.  Your Facebook is out there too.  It’s up to you to find it and make it happen!

1 comment:

  1. Yeah I agree that FB ads add extreme value to the business marketing strategy. But it is necessary that you hire expert services. If anyone here wants to increase the sales through FB ads then I would highly recommend facebook ads management Los Angeles service to everyone out there. .

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