All,

So I thought I’d share the details of the funding meeting I had today–the good, the bad, and the ugly.  First some context.

This all started when I realized that I really shouldn’t put any more money into SetJam.  I’d already put in twice as much as I had planned, and I remembered (from playing poker in Vegas!) that one of the biggest mistakes players make is to forget the concept of “sunken costs”.  This economic principle says that even if you have a million dollars invested in something, if it is cheaper to throw that thing away and do something else entirely, you should do so.

It’s very hard for humans to do this.  Coders will continue to code in a direction they know is wrong, just because they’ve already put SO much time into it they can’t bear to throw it away.  Designers do this, so do investors.  I realized that I was susceptible to this with SetJam, so I made the decision that if I couldn’t get outside money in, it probably wasn’t worth the investment.

I went to the Chairman of the New York Angels to get advice as to the proper path forward.  I thought the rational choice was to try to raise enough money to validate SetJam to the next round of financing.  This is the $100k I wrote about earlier.  I also convinced him we should get together a small group of angels we both know, try to get them interested, and hope that a few of them would contribute $25k.  He agreed.

We decided the best time would be after the regular monthly meeting for the New York Angels.  2 days before that meeting though, one of the normal presenters had to drop out.  We both decided that it made sense to go ahead and take their spot and present to the whole group.  That meeting was this morning.

The first thing I noticed when I arrived is that the New York Angels were FAR fewer than they used to be.  It used to be a group of 75–I saw maybe 30 people there.  It was pretty clear that the economic disaster of the past year had taken its toll.  There was lots of talk about recruitingnew members and for existing members to remember that they were there to actually write checks occasionally.  Not a very auspicious beginning.

Typically the process works like this.  5 companies present, and are then asked to leave the room.  The angels talk about problems with each of them.  Interested investors then raise their hands, the names are collected, and if there is enough interest a “due diligence” session takes place a couple of weeks later, where the investors ask the “hard” questions and hopefully you get a few to invest.  Actually getting the investment done often takes months.

As you know, we don’t really have that kind of time, and I really didn’t want to be tied up raising money right now.  Not to mention, at this stage, we may very well have a hard time answering the “hard” questions.  I did a different kind of presentation.  I tried to sell them on “us” instead of “it”.  “It”, SetJam, is a little hard to sell right now.  “Us”, SetJam is something I can really believe in.

I really tried hard to sell us.  It was more like a old country revival meeting than an investor presentation.  I ended the presentation by saying that David and I were going to be doing an “impromptu” due diligence session after the meeting and that anyone interested should join us.  I said we wanted to close things up then and there, so people should come ready to invest.

I was the last company to present, and we were all ushered out of the room.  During that time, all of us entrepreneur kind of hang out talking, not really sure what we are waiting for.  After about 45 minutes, angels started filtering out of the room.  It’s an awkward time because you’re not sure what to do besides watch them come out.

After a few minutes, David, the Chairman of the New York Angels, poked his head out and asked me to come back into the room.  This is very unusual.  Of course, you can always fantasize that everyone was so blown away by your presentation that the only problem is that you need more investment.  I’ve learned that fantasies are just that though.

Sometimes they aren’t though.  As I walked in, there were still about 12 angels in the room milling about.  David said that the $100k would be no problem, but that everyone agreed I need to raise more money.  This is a very good thing to walk into.

After conferring with about 5 of the angels though, it was clear that though everyone thought SetJam should raise more money, that raising more money would meaning spending three months trying to pull a round together.  Then someone had a rather unprecedented idea.  Since there were about 15 angels who were interested, why not have everyone commit $5-10k on the spot with NO due diligence, and then deal with the bigger round later.

Everyone thought that was just a swell idea.  One of the angels just started calling around to the other angels in the room–”Bob, you willing to commit $5k on the spot for SetJam?”  “Phil, how about you?”  One by one all of the angels agreed.  The angel who’d led the rally collected names and amounts.  The total was somewhere around $100k, but David felt that there was more money around from people who had left already.  He agreed to tally this all up and to cap it at $200k for now.

A few take aways:

1. There were no “checks”, so it’s possible everyone will regain their sanity once they get home and we will raise nothing.
2. We likely will raise our $100k and possibly more.
3. We now have about 10-20 very wealthy and very connected people who are (or soon will be) financially involved with SetJam.

The biggest takeaway is this though:  This team earned that investment.  If it weren’t for everyone working on SetJam because they care about working with great people to build something of real value more than just taking home a paycheck, this would never happen.  People believe in that kind of commitment and are willing to back it.  You all are the reason we’re going to get a chance to make SetJam into something real.  Congratulations!

Next step… making SetJam great!  Now how are we going to do that?

rj

Ryan Janssen
CEO, SetJam

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Since this can get a little complicated fast, I’ve created a simple diagram I can reference:

The Remote Interface

The first component of the New TV Stack is the “Remote Interface”.  It’s the thing you actually hold in your hands to control your TV experience.  The first set of Remote Interfaces belong to the dedicated “TV Boxes”–those companies like Boxee, Roku, and Tivo that make a box specifically designed to bring online-TV to your home over your existing broadband connection.  Each of these TV Boxes has their own proprietary remote.

Roku’s is the simplest:

Tivo’s is the most like a traditional remote:

And Boxee has added a (much needed) keyboard to theirs:

The next Remote Interface is Apple’s.  They’ve been pushing the iPhone (or iPod) “Remote” app as the default remote for their TV experience.  It’s tightly integrated into Front Row, which we’ll discuss more when we get to software.

The TV manufacturers who have built in Wi-Fi provide a standard remote; whereas, the “Open” or Internet platform uses a keyboard with a built in mouse or track pad.  My favorite (and what I use) is the Di Novo Mini (works for Macs and PCs):

I’ve also included the “Tablet” with a question mark.  This is part prediction and part wish, but I believe a tablet is the BEST remote interface for the TV.  If the tablet would mirror EXACTLY what’s on your TV screen, and enable you to manipulate those elements locally (while turning into a full keyboard with a simple touch), I believe it could finally be the the Remote Interface that finally makes the Internet fully usable on the TV.

Hardware

The next component of the New TV Stack is the hardware that enables you to connect your broadband Internet connection to your TV.  Not surprisingly, the dedicated “TV Boxes” each have their own box.  Tivo’s is the most versatile, as it acts as a DVR as well as an Internet connected device.  Roku’s looks like a traditional set-top box, and the Boxee Box looks like a half submerged cube (arty, but of dubious practical value):

Apple has the Apple TV.  The Apple TV is essentially a cheap mac that’s restricted to the “Front Row” interface, which I’ll discuss more when I get to software.

Most of the Internet-enabled TVs have built-in Wi-Fi.  This seems like a good idea at first, but hardware gets out of date MUCH faster than screens, so I’d hate to have to upgrade my TV every 2 years!

The Open or Internet platform just uses a regular old PC or Mac that hooks to your TV through VGA or DVI to HDMI.  There are a number of PCs designed to fit normally in the living room (I use a Mac Mini), and they have the obvious advantage of being upgradable, just like computers have always been.

Software

The software that controls your New TV experience is perhaps the most important piece of the stack in my opinion, and really separates the platforms.  Each of the dedicated TV Boxes has their own proprietary software.  Boxee’s is the most open and easiest to develop for, followed by Roku, and then Tivo.

I’m not a huge fan of any of them for two reasons.  First, unlike the web browser (my development platform of choice), they control too much of the UI experience.  It’s very hard to develop any kind of new interface because all the key functions are controlled by their software.  Second, I don’t want to have to build three versions of my app.  The Internet has solved this problem basically, and I don’t like it being reintroduced just because I’m moving to a larger screen.

Apple’s Front-Row is a pretty nice interface, but it suffers critically because they control what apps are on it.  I can’t see a closed platform ever winning in this space:

The TV manufacturers generally use Yahoo’s “Connected TV” platform.  Technically it is open to application development, but we’ve only heard nightmares about how hard it is.  They did release a new version of the platform at CES, so it might be easier now.  Regardless, it is yet another platform we would have to develop for.

The Open platform of course just uses a web browser or the OS of the PC you choose (Windows or Mac).  This has the obvious advantage of bringing the power of all your favorite Internet or desktop apps to your TV immediately.  Some people ding it because these apps aren’t designed specifically for the “lean back” experience, but as I said earlier, I really believe this problem will be solved at the Remote Interface level–maybe with the new Mac Tablet!

Discovery

The dedicated TV Boxes each have their own discovery software.  They are in general, pretty poor in my experience–particularly since they are limited to the content that has been developed for their platform.  Some independent app makers have ported their discovery apps to these platforms, but they have to adhere to the TV Boxes often rigid UI and so end-up feeling a bit like a Franken-app.

Apple’s Front-Row is beautiful (with heavy use of “cover-flow”), but it’s also ill-suited for the massive amount of content available over the Internet.  Of course, since you can’t access that content on your Apple TV, I guess you don’t really need to worry about it!

The discovery tools for Wi-Fi enabled TVs, as you can only imagine, are horrific.  These are the geniuses who’ve made it take 15 clicks to change the aspect ratio on your TV for years, so you can only imagine the tortures they’ve invented to enable you to discover their limited online offerings.

Obviously, I’m HUGELY biased toward the Open platform when it comes to discovery, but let’s face it, the Internet has been designed to navigate nearly limitless content for about a decade now.  Surprisingly, Google (or YouTube) aren’t the best sites for discovery (except for short-form, user-generated content).  SetJam and our competitor Clicker both deliver significantly better experiences for premium content (with SetJam focused exclusively on premium content).

As I’ve detailed elsewhere, SetJam focuses on our “Time-to-Watch” metric, which measures how quickly we get you to your show.  Because of this, it feels much more like a light tool (think Google) designed specifically for TV.  Clicker is really building an entertainment portal, so when you search there, you are much more likely to stay there (think Yahoo!).

(Upcoming SetJam TV listing page shown above)

Content

Content is of course the end of the New TV Stack, and what we really care about.  All of the platforms are limited by what the content providers will make available online, but that content-base is continually widening (about 90% of current TV shows are available and most movies come out about the same time as the DVD is released).

Some are available for Free with commercials, but the vast majority (about 80%) are only available to purchase (on Amazon or iTunes) or through a subscription (Netflix, Comcast, or Epix).  The subscription model is gaining the most momentum, and at SetJam, we’ll be integrating 7 new subscription services this spring alone.

The dedicated TV Boxes with proprietary software are all limited to the degree that they’ve been able to integrate online content sources (Boxee has the widest content, since its platform is the easiest to build on).  Apple TV is the most restricted (because of all the platforms, they are the only ones who sell content and therefore have interests to protect).  The Wi-Fi enabled TVs are limited by their difficult development environments, big company reaction times, and poor discovery software.

The good old Internet, of course has the widest range of content available.  The biggest problem is that there is so much to watch, discovery become a problem.  The good news is that the Internet is the most open of all the platforms, so the development of discovery apps is moving quickly.  We here at SetJam, along with dozens of other companies, will continue to work at this problem in the coming years.

Conclusion

Which New TV Stack will eventually win is an open question right now.  Likely there will be many winners, as different people will gravitate to different experiences.  Those who want an old-fashioned remote experience will probably buy one of the dedicated TV Boxes, an Apple TV, or take advantage of the new capabilities of their existing Set-top boxes.  Those people who don’t want to buy any hardware will probably use whatever their TV gives them.  Those who are slightly more technical and want the broadest content, will likely hookup a PC to their TVs.

One thing though is for sure–TV will never be the same, and from what I’ve seen to date, consumers will have more choices and more power over their TV experience. That’s something we can all appreciate!

The Economics of New Media

Classic new media companies attempt to use the instant, world-wide distribution of the Internet to build a massive audience with very little investment.  The main product categories include content, tools, marketplaces, and communities, with tools and communities taking the lead in version 2.0.  The most popular business models include advertising, affiliate marketing, and the “freemium”.  Interestingly, each of these business models require about the same economics of scale to really “hit”.  I’ve included some back of the envelope numbers below for three of the most popular:

Advertising
Page Views/Visit    3
Ads/Page    3
Ad Views/Visit    9
Value/View ($3 CPM)    $0.003
Revenue/Visit    $0.027

Freemium
Purchases/Visit    0.25%
Premium Price    $10
Revenue/Visit    $0.025

Affiliate
Purchases/Visit    0.25%
Cost/Purchase    $100
Partner Revenue/Visit    $0.25
Affiliate Fee    10.00%
Your Revenue/Visit    $0.025

Obviously the Freemium and Affiliate models depend on how efficiently you can convert visitors into purchasers and the purchase price of the final product, but these conversion rates and prices are pretty typical.  So the question this all raises is, if New Media companies typically generate less than $.05/visit, what kind of numbers are we looking at for a rational exit (which is the ultimate goal of the VC backed game that I’m specifically dealing with here)?

Well let’s assume that we’re going to take $1 million in investment and that we want a $10 million exit for a 10X return.  Real companies are typically acquired for 1X annual revenues (obviously this depends on the margins of the business and on the growth prospects), but 1X is a good number to use as a benchmark.  That means we’ll be needing to bring in $10 million in revenues to justify our $10 million acquisition price.  If we run the numbers, this gives us the following:

Traffic Requirements
Revenue/Visit    $0.05
Needed Revenue    $10,000,000
Needed Visits/Year    200,000,000

We can get these visits in a lot of different ways.  We could have 1 million dedicated users who come to our site almost daily or we could have half the population of the US come to our site once a year (or we could be Facebook and have have the population of US come to our site every day!).  Either way, anyone who’s ever done this can tell you that these numbers are VERY challenging to achieve.  To see just how hard, let’s put our $1 million to work:

Stretching Your Marketing $
Needed Visits/Year    200,000,000
Investment $1 Million    $1,000,000
Marketing Investment 10%    $100,000
Spend/Visit    $0.0005
Vists Required/$1 of Maketing    2000
Real Marketing Cost/New Visit    $0.25
# Unpaid Visits Needed/Paid Visit    500

So what do these numbers mean?  Well, if you’re getting a $1 million investment, your investors will allow you to spend about 10% of that on marketing.  That gives us $100,000 to generate 200 million visits or about $0.0005 to spend on each visit.  Since that number’s a little hard to grasp, I show that we need to get about 2000 visits for every marketing dollar we spend.  No matter how you’re “buying” your visits, you’re not going to get them for much cheaper at that scale than $0.25/visit.  This means that every visit you buy will somehow have to generate 500 unpaid visits.

There are only three ways this happens: loyalty, “going viral”, or “going Google”.  Loyalty would work if 100% of your first time visitors started using your site every day, “going viral” would work if 100% of your visitors got 500 friends to visit once, and “going Google” would work if whatever you’re offering ranks on the first page for a huge number of very valuable search terms.  More likely, it would be a combination of the three.  Consider how staggering these numbers are though–especially when you consider that the % of visitors who EVER return to a site is usually around 15%, the % of visitors who convince someone else to come is significantly lower than that, and how competitive ranking in Google’s search results is.

Entrepreneurial Risk

Given the scale you must achieve and how little money you’ll have to achieve it, you can see why investors require to see phenomenal user adaption rates before they will invest in a new media company.  How can you, the lowly entrepreneur, ever hope to build something so valuable that it can demonstrate this kind of growth–BEFORE you even get an investment to build your product?  The fact is that it takes something AMAZING to demonstrate these kind of user acquisition costs.  Which brings me to my next point, entrepreneurial risk.

It is impossible to build something valuable and defensible enough to achieve the kind of growth investors will expect to see without spending $100,000.  Does that sound like a lot of money?  Thank your lucky stars it’s not 1998 or it would have cost 50 times as much.  In spite of the persistent rumors that software is “easy and cheap” to build these days, it is in fact never easy and only relatively cheap.  If you’re a hacker and have a bunch of buddies in the industry, you may not have to pay that $100,000 in cash, but you will certainly pay for it in opportunity costs and spent good-will.

So how long does it take to get into a position to take that shot?  If you’re really young and have the actual coding skills, you can take your shot right out of school.  Be warned though, you’ll be going against savvy vets like me, and we will crush you.  Like I said, building great software (nonetheless a business based on that software) is REALLY hard.  Believe me, you learn a thing or two after doing it for decade.  I would swat the young me aside without even noticing him on my way to the hoop.

Of course, getting older and savvier has it’s own costs–often in the form of a family.  I can’t just take a year off to pursue something new without saving up for the occasion.  By my reckoning, it takes about 4 years for a full entrepreneurial cycle if you’re really going for a big hit–spend a year building, a year failing, a year recovering, and a year saving (if you succeed the path is a year building, a year succeeding, a year turning it into a business, and a year serving your acquirer).

Either way, the risks to the entrepreneur are huge.  Unlike VCs, we don’t get to cherry-pick companies that have already started to show traction, we don’t get to start with other people’s money, and we don’t get to spread our bets across dozens of companies.  We start from nothing but an idea, have to take all the early stage risk ourselves, and get ONE bet every four years.

The Smart Entrepreneur: Small is the New Big

So why do we do it?  Most of the entrepreneurs I talk to do it because it’s the only thing they know how to do.  If you’ve spent your whole life building software and the organizations that support it, it’s pretty hard to take (or even get) a job as a VP of Who Gives a Shit.  So what’s a smart entrepreneur to do?  I see a clear trend with the smart entrepreneurs I know: going small to go big.

Essentially there are three components to this new model: spend nothing, go niche, revenue first.  Spending nothing means getting yourself to a point of validation on as little as possible.  Jon Steinburg, the EIR at Polaris told us at the incubator that he restricts the budget for every new site he builds to $500.  I often suggest entrepreneurs validate their numbers using Google Adwords and a fake site before investing any money.  Just have an image of a site with one real button (the one you need people to click) and see how many click it.  If it converts, move forward.  If not, re-evaluate.

Going niche means not trying to take on a huge market (like online TV for example!)  How about trying to be the best coat hook site on the Internet?  David Wurtz has a great article called “Smart People Should Do Stupid Stuff” where he talks about how he abandoned his trying to commercialize Ferromagnetic fluid to start selling TV Wall Mounts.  His point and mine is that by focusing your brains and your energy on a smaller, less sexy market, you RADICALLY improve your chances of success.

“Revenue first” is the last thing I’ll say, but it should be the first thing EVERY entrepreneur does.  Building something cool that no one is willing to pay for and hoping to squeeze out $.03 a page view is not a path to riches.  Here’s an idea for you: build/sell something people care enough to pay cash for.  It’s an old simple business plan, but it’s worked for thousands of years!

I know this whole post is a little outrageous coming from me.  I’ve put $100,000 into SetJam hoping to squeeze pennies from a pageview.  What can I say though, if you’re Kobe Bryant, you gotta play in the NBA!  Of course, I’m as likely to blow a knee as the next guy, and I promise if it happens this time, you’re looking at the new best coat hook salesman in the world!

We talked about a lot of things, but the one thing that he did almost unconsciously was to immediately focus on SetJam’s relationship to Clicker.  I wasn’t thrilled about this.  In spite of having written a somewhat panicky post the day they launched, I prefer to think about my users rather than my competitors.  Why should I define SetJam in relationship to another company?

The thing that Brian understood that I didn’t is that I didn’t really have a choice.  Rarely do two companies with such similar objectives launch in a brand-new market at exactly the same time.  He knew that anyone who was covering this space would need a clear way to explain how we were different.  My first post on this set the David vs. Goliath story in motion, but that’s really about the difference between SetJam and Clicker the companies.  What Brian was pushing me to define was difference between SetJam and Clicker the products.

I’ve come up with lot’s of ideas, but yesterday something happened that made defining the difference a lot easier–I invited 2,000 people in to check out SetJam.  Wow… if you’re trying to understand how to describe your product, listen to your users!  Many of the people who tried out SetJam had also tried Clicker.  Much to my relief, many people wrote and told me that they liked SetJam much better–whew!  There were others though, who seemed less convinced.  I spent a lot of time with this second group, and in the process came to understand the real difference between SetJam and Clicker–SetJam is a tool, Clicker is a portal.

Once you understand this, everything else about our two sites makes perfect sense.  Start with the users.  The people who liked SetJam better were like me–they knew what they wanted to watch and just needed a tool that gave them the easiest, fastest way to watch it.  The people who found SetJam lacking were coming with no real objective–they were looking for a place to hang out, a place to browse, a place to entertain them.  It’s like the difference between the way my wife and I shop for clothes.  I’ll go to a giant department store, spend 30 minutes, and have my entire fall wardrobe.  She’ll spend the entire afternoon in SoHo and come back with a skirt.

Next look at design.  The people who liked SetJam described it as “quick, clean, and SIMPLE”–just like a tool should be.  The people who were looking to be entertained thought it was “plain and boring”.  The clearest design indicator of the tool vs. destination difference is how we present shows.  SetJam provides three simple links for each show based on the three business models around content (Free, Buy, or Subscribe).  You click, and we send you to the site just like Google.  Clicker tries to frame everything.  They want you to feel like you’re watching it there.  They want you to hang out.

Features followed the same division.  One of the SetJam fans wrote, “You’re giving users what they want, not inundating them with useless features.”  Yeah… exactly!  Other people, however, complained that we were missing “browsing” and “categories”.  I don’t have the time or desire to post comments to any site, but if you’re looking for a place to post your favorite quote from last week’s episode of “30 Rock”, Clicker’s the place to do it.

You can even see the tool vs. portal distinction in SetJam’s focus on premium content, like TV shows and Movies.  Tools are about efficiency and we didn’t want to complicate SetJam with all the UGC garbage from YouTube.  We spent our time filtering OUT that stuff and going deep into the premium content (SetJam currently has 10 times the number of movies and TV episodes Clicker has).  Clicker went the “YouTube with a pretty face” route.  They want you to be able to find anything video (the suggested searches on their homepage are terms like “Health Reform”, “Windows 7″, “Thanksgiving Recipes”, “Fort Hood”, and “Droid”).

I guess now that I understand the differences this way, I can’t really say which approach is better, but I’m really grateful to Brian for helping me define that difference.  Not only does it help me explain SetJam better, but it helps me focus on what we’re great at.  I like being a tool builder.  I like obsessing about how to shave a quarter second off of our “Time-to-Watch” metric that defines how long it takes to actually watch your show.  The simple, fast tools on the internet are what I value most, and I’m excited to build the best TV tool out there.

If you’d like to checkout our search engine for TV shows and movies, sign-up for our private preview at www.setjam.com.  Although we started with search, we think it’s just the first step toward a new kind of TV that is personal, interactive, and social, and we need you to help us define the future of TV.  Rest assured though–whatever we build, it will be “quick, clean, and simple”–and it will only have the stuff you tell us you NEED!

One word on why I’m doing this.  Partly, it’s my belief in openness and sharing.  I think we’re all in this “thing” together–call it technology, entrepreneurship, life, whatever.  I owe a great deal to this most open of platforms, the internet, and if I can help you make it better, the better for all of us.  I’m also doing this out of self-interest though.  I don’t have the marketing power of Google (or any of our competitors).  By giving up the goods, I expect you to:

1. Use SetJam.
2. Tell your friends, your family, the guy you buy coffee from–EVERYONE to use it too.
3. Tell us how to make it better.  We know it’s broken, but we’re too close to it to see HOW it’s broken.  We need you to take the time to let us know.

Okay.  To begin with I’m going to start with 3 of those platitudinous rules, because they apply to all startups.  After that, I promise to get into the secret details (with video examples!) that are specific to how we built a better search engine than Google.

Step 1: Don’t try to beat Google. Try to solve a problem.  We weren’t TRYING to build a search engine.  We were just trying to watch TV shows and movies online.  If we would have started out with the goal “I’m going to beat Google at search”, I think we would have failed.  That’s because we would have made our search TOO much like Google.  We would have seen all the amazing details they do that make web search great and we would have ineluctably copied them.  Since we were focused on solving a real world problem though, we were able to take a completely different approach.

Step 2: Don’t be afraid. I would have never tried to build a search engine because search engines are really “hard-core” technology that operate through “secret algorithms” and cost billions of dollars to make.  Not true.  Search is just like any other technology problem.  The funniest thing to me is that I was so terrified of search, that I didn’t even realize what we’d built until I tried to explain it to other people.  I would use phrases like “TV guide for the web”, “A concierge for online video”, “Your DVR for online TV”.  No one had a clue what I was talking about.  I’d then try to explain it with “Just add your favorite shows, and we’ll bring you the best links, perfectly organized”  I kept thinking, if only there were some easy way to explain a magic text box that brings you the best links.  I kid you not.

Step 3: Get your product out there and listen. We put SetJam out into the wild well before it was usable.  We did this because I really wanted to see our mistakes early.  My initial vision for SetJam was a way to build a TV queue (much like you do with a DVR) and then to bring you the best links to watch your shows.  The problem with this is that to build a queue, we need to know who you are, which means registering–blech!  To mitigate this issue, we used Facebook Connect to remember who you are instead of making you create another account.  Instead of mitigating the issue, however, it exacerbated it.  Not only did we get complaints that we were forcing people to authenticate before seeing any results, we were forcing them to authenticate through Facebook so we could spam their friends!

These problems seem obvious now, but when you’re in the heat of the product battle, you miss obvious things.  We KNEW our results were amazing, so we never thought that anyone would need PROOF before starting to build a queue.  Why not save the step of having to manually add the search results?  We KNEW we were using Facebook to PROTECT our users from creating another account and we KNEW we would never write anything to their News Feeds unless they told us to.  Our users had been burned before though, and they didn’t trust us yet.  If we hadn’t gotten SetJam out and listened, we’d probably lose most of our visitors BEFORE they could even see what we’d built.

That’s it for the platitudes.  Now let’s get into the secret details.  For most of these, I’m switching over to video mode, so I can show you what I’m talking about.

Step 4: Focus your corpus. Oh shit… the secrets are in Latin!  Don’t worry, this is just search engine jargon.  Your search “corpus” is the body of information you’re trying to search against.  If you’re a small team with limited resources, I do not think you’re going to beat Google at searching the entire internet.  By focusing on a smaller (yet still REALLY important body of information, like TV shows and movies), you can do things they can’t though.  Check out the video:

Click here to view the embedded video.

Step 5: Index what Google doesn’t. Google doesn’t index all the data in the world.  In fact this may surprise you, but Google doesn’t even index the MAJORITY of the data in the world.  That’s because MOST of the data in the world is locked up behind password protected sites or not even networked.  Bring that information to your search and you’ve gone a LONG way to beating Google.  Check out the video:

Click here to view the embedded video.

Step 6: Cut out the clutter. One of the biggest problems we face as humans today is that there is just TOO much information.  This means that getting the MOST information (by indexing things Google doesn’t) is just the beginning.  Your next step is to get rid of the stuff that doesn’t matter.  Check out the video:

Click here to view the embedded video.

Step 7: Organize your results for a purpose. Google has no specific purpose.  Because of this, it organizes its search results in a very generic way.  If you’ve followed step 1 and started by trying to solve a real problem, you can organize your results in a way that serves that SPECIFIC purpose.  Check out the video:

Click here to view the embedded video.

Step 8: Prove the negative. Okay.  I can’t BELIEVE I’m giving this one up because this is some secret mojo that makes SetJam great.  Basically this rule means that sometimes it’s just as valuable to show what is NOT available as it is to show what IS available.  You all OWE me for this one.  Check out the video:

Click here to view the embedded video.

Step 9: Keep it simple. This rule is straight out of Google’s handbook, but it bears repeating because if you do NOT follow it, Google will kick your ass.  I know you want cool feature X,Y,Z, but let me just tell you that your users will not get it.  Never underestimate how complicated and confusing new software is to your average person.  If you can do one thing and do it in a way that people actually get, you are WAY ahead of 99% of your competition.  Check out the video:

Click here to view the embedded video.

Step 10: Test Driven Development. This last rule is not one that I can really explain in a video, but it is absolutely critical if you want to beat Google at search.  Here’s a scenario you’ve probably never considered unless you’ve tried to build a search engine.  You’ve just finished your prototype and you’re looking at your results.  You type in a result that gives you bad information.  You figure out the problem and change your code to fix that problem.  How do you know that you didn’t just ruin the results for the 9 million OTHER things you index?  Ah-ha… you don’t unless you’ve been building unit tests and data integrity tests all along the way.  Without these tools you will be in a never-ending cycle of fixing problems while simultaneously causing them elsewhere.  If you haven’t been a believer in test driven development before, you better GET that religion before you try to become a search company.

That’s it.  10 steps to do the impossible.  Now get out there and start making the world better.  Before you do though, signup for our private preview at www.setjam.com.  To be fair SetJam still has a LOT of issues.  We’re still battling dupes, merged series, and missing links.  We still don’t index half of what we want to.  Despite all this, SetJam is still the easiest way to find and watch full-length TV shows and movies online, and with your help, it will only get better!

Last Wednesday, a week before we had to launch, I didn’t know if we’d be able to.  At that point, SetJam was completely unusable.  We’d done a release just 3 weeks before that I was really happy with.  It was pretty stable and good enough that I could record a demo to apply to some conferences.  On Wednesday our data was a mess.

SetJam indexes every TV show and Movie ever made and makes it really easy for our users to build a queue of their favorite shows.  The magic of SetJam rests on two data layers: one contains the name of every Movie, TV show, and TV episode ever made that’s been scrubbed and massaged so we can pretty much tell what it will be called on any site in the world (none of which are consistent) and the other contains all the metadata that we’ve collected and cleaned from those sites–most importantly, the links that enable you to view nearly any show instantly.

Our goal was to get our primary index of episodes to near 100% accuracy and to get our metadata and links to 90% accuracy in time for private beta.  On Wednesday morning neither dataset was working.  I’d add a show like “Family Guy” and I’d see three copies of each episode, each with their own name.  Our link accuracy tests were showing most of our sources near 50%.  I REALLY laid the pressure on my team.  How could a site that was basically done 3 weeks ago have fallen into this state?

My team responded to the pressure and worked until about 1am on Thursday morning.  We don’t have offices yet, and we’re not even in the same city, so most of my guys were working at a cafe while being bombarded with Russian blues (whatever that might be), while I was trying to help out through Campfire (our group chat app).  The end result was that our data was in worse shape than it had been in the morning.

I could tell my team was defeated.  Whereas in the morning they’d protested my claims that we would have to cancel launch, they were now glumly acquiescent.  Now it was my turn to be the optimist.  I told them that I was sorry for pushing so hard.  I told them that overcoming these moments were what made any startup great.  I told them to go home and get some sleep.

I staid up and went back to the basics.  I went through all of our sources of data and reset their priorities to their original base lines.  I wrote a note to my team apologizing for pushing them too hard the night before, asking them forget the deadlines and to start working methodically again like engineers have to.  I went out and had a beer with some fellow startup guys here in NYC.

By noon the next day our data was back.  My guys had found a django bug that had been the source of a lot of the original problems.  With fresh eyes, clean data, and their amazing unit testing suite, they’d brought us back from the brink.  On Friday, I actually left work a little early feeling pretty good about where we were.  I even asked a couple of my friends to take a look at the system.  While I was walking from dinner to a movie with my wife the emails started coming in.  My friends were not impressed.

I got emails like, “I’d love to check it out, but it’s not really stable enough for me to use”.  There were reports of adding shows and having them disappear, of getting logged out and logged in randomly, of a generally unusable piece of shit.  Needless to say, I didn’t really enjoy the movie.  When I came home I tried to reproduce the bugs, but couldn’t really.  I didn’t understand what was happening, but I blamed most of the problems on a known problem between Facebook Connect (which we use for authentication) and Safari.

The next morning I had no problems reproducing the bugs.  There was clearly something wrong with authentication.  I thought about what I knew.  The system was fine in the afternoon.  Then it was a disaster.  Late that night, it was fine.  The next morning it was broken again.  Our code hadn’t changed.  Then I remembered a blip of consciousness right before I left the day before about how Tech Crunch had announced that Facebook had made it as easy as 123 to add Connect to your site.  I thought that the article had probably overloaded Facebook’s Connect servers.  I thought their changes to make it easy might have made our site, which had done it the old-fashioned way, unusable.

I still don’t know the answer.  My team and I were up until 4 in the morning on Saturday still trying to figure it out.  We woke up and worked all Sunday.  We completely gutted our FB connect implementation.  We hacked around the Safari issue.  We got it to a point where it was stable again, or Facebook did.  We’ll never really know.  We were all exhausted and our launch was two days away.

Monday I lost one of my engineers who had gotten sick over the weekend.  My business cards I’d gotten over-nighted so I could actually have something to hand out on Tuesday were lost in UPS.  The presentation the next day was beginning to weigh on me.  I was so anxious that I made myself sick–like vomiting sick.

It wasn’t that day or the presentation.  It wasn’t even the weekend before, or the week before that when a company backed by $8 million dollars had launched in direct competition to us.  It was my whole life.  I’ve been an entrepreneur since I dropped out of graduate school nearly 13 years ago.  I’ve built amazing teams and businesses just to see them wiped out by events beyond my control (like the dot-com crash).  I’ve struggled through times of unemployment and self-doubt.  I’ve built businesses and had them fail because I didn’t understand markets.

I’ve put $50,000 into SetJam so far, and I’ll probably have to put in $50,000 more before I can hope to take in some outside money.  I’ve had to spend the last 4 years saving while I built an amazing company for someone else just to have a chance to take this shot on my own again.  I’ve got a wife and a baby girl and our life savings is riding on a company that, even if I execute perfectly, has a less than 50% chance of succeeding.  Launching this product meant a lot.

I never prepare for presentations.  I was a gifted public speaker when I was younger and have always been able to step in front of an audience, completely unprepared, with no fear.  I’d done a presentation about Angelsoft.net to the New York Tech Meetup the year before though, and I’d blown it.  It rattled me a little, so I actually prepared for Tuesday night.  I actually prepared a lot.

Jun Simmons, whom I’d worked with at Angelsoft and now again at SetJam, and I had been through the demo dozens of times.  We had it down pat.  We were in our offices an hour before we had to be at the meetup and we thought we’d go over it a couple of more times.  The third to last time we went through it, for the first time ever, it failed.  We had this cool thing where we showed off our Oauth integration with Netflix and it failed.  We got some error that we’d never seen before.  We tried it again and it worked.  We tried it again and it failed.

I wrote my team, but there was very little they could do.  I wrote Netflix (who has been an AMAZING partner), but didn’t know if they’d even see the email.  We were late and we had to go.  There is no internet access at the New York Tech Meetup except on stage.  I wouldn’t be able to test our software again until I was presenting.  I couldn’t even get good enough reception on my mobile to connect to Campfire to see if anyone had figured anything out.

So there I was standing on stage in front of 700 of my peers.  I’d spent the last two days preparing for the presentation.  I’d spent the last week getting our software ready to show.  I’d spent the last 4 months and my life savings to build a company.  I’d spent the last decade trying and failing and learning and saving to get this chance, and I had about a 50% of getting up on stage and having everything I’d worked for blow up in my face.

That’s my life.  That’s the life of an entrepreneur.  Sometimes I wonder why I do it, but deep down I know I don’t have a choice.  It’s my dream to make things work just a little better.  It’s my dream to build a “rational economic sanctuary”-–a place where smart people can do what they are best at in the service of something they care about without having to worry about the day-to-day vicissitudes of the economic forces that surround us all.  If SetJam fails, people will point to my mistakes.  If SetJam succeeds, they will say I’m lucky.  In both cases, they will be right.

We’re releasing our software today to some of our beta testers.  If you’d like to join their ranks and help us define the future of TV, you can sign up at www.setjam.com.  And if you’d like to see how our presentation turned out, it was streaming live and is available here.

How much harder can my launch get? I’m launching the private beta of  SetJam on Wednesday morning, and left work last night FINALLY happy with how stable our system is. I even asked a couple of friends to take a look and bang on the system a little.

Strangely, it was completely unstable for them. Nothing seemed to be working. I’ve been up all night trying to figure this out. Just now, I remembered your little 1,2,3 easy article, about the new simplified FB connect implementation.

You see, we use FB Connect as our means of authentication (back when it took a month to figure out all the issues with FB Connect and Django). Now every idiot and asshole in the world is testing out the 123 easy, and FB connect can’t handle it! And now I can’t test my software 3 days before launch. So sad.

Things have been going just like startups go.  There have been ups and there have been downs.  The end result however, is that I’ve assembled one of the most talented product teams I’ve ever worked with and together, we’ve built a product that will finally make online TV as easy (and I believe better) than traditional TV.

We’re set to launch our private beta next Tuesday on October 6th, and I believe it will be great.  About a week ago though, I got an email from a Xoogler friend of mine asking if I’d seen a new startup that had just launched that day at TC50.  I could tell from the link that my friend had just alerted me to the bogey man I’d been warning my team about–the big competitor I KNEW was out there, but couldn’t find.  I knew because the URL of the startup–”clicker.com”–probably cost more than the life savings I’d put into SetJam.

What do you do in a situation like that?  My decision was not to read the article.  I had a marketing piece and some product work my team was counting on for that day, and I couldn’t afford to distract myself.  Yesterday, I finally decided we were ready enough for launch that I could take a look.  As this blog post indicates:  I’m distracted.

I’m also more focused.  I’ve been here before and competition makes me better.  Back in the first months of Angelsoft.net, our goal was to become the official software provider to the Angel Capital Association.  We pitched them and they declined.  We decided to move forward anyway.  We asked if we could do a focus group at their next annual meeting and they declined.  We rented a suite in same hotel they were having the conference for our meeting.  We asked for the attendee list (which they’d handed out the year before), and they declined.  We created the most comprehensive list of angel groups in the world.  The morning before my focus group, the ACA announced in the opening session that they were launching their own angel group management software and that they did not approve of other efforts.  That evening I led a focus group of 30 of the most respected Angel group managers in the world to find out what kind of problems they were facing.  Today, Angelsoft is the official software of the ACA and every other angel organization in the world.

So how do I plan to become the TV Guide for full-length TV and Movies on the web?  By using the hard-won knowledge I gained at Angelsoft (sadly too often by NOT following the principles below) to compete:

1. Let your community build your software: At TC50 Clicker demonstrated a product that has about every bell and whistle you can imagine.  SetJam is stripped down to the bare essentials.  I’ll let our users tell us what they need instead of deciding for them.
2. Evaluate your competition honestly: At TC50 Clicker demonstrated how they were better than Hulu by showing that it was impossible to find the full-length episodes of Charlie Rose.  They achieved this effect by choosing NOT to click on Hulu’s “TV Full Episodes” filter.  Admittedly, we all fudge a little in demos, but really?
3. Know your partners:  At TC50 Clicker stated that they were focused on streaming video now, but would soon be adding downloads from sites like Netflix.  Netflix streams their videos.  Netflix is already part of SetJam and it works great!
4. Live within your means:  I was hoping to bootstrap SetJam.  We’ll be launching with an affiliate model that enables us to be profitable on a per user basis the day we launch.  Admittedly, having a competitor raise $8 million on a PowerPoint like it’s 1999 will probably force us to raise some capital to compete, but it won’t be $8 million and we’ll at least be live!

The point of this piece isn’t to bash Clicker.  Their product looks very cool and their CEO, the former CEO of Ask.com, seems like a genuinely nice guy.  The point is, if you know what you’re doing, and you believe you’re the best, competition should only make you better.

If you’d like to participate in our private beta, just go to http://www.setjam.com and sign up.  We’d love to have you help us build the software you need.

If you’re an investor, I’m looking for a partner to help me make Clicker the Ask.com of online video guides.  I think you’ll find SetJam is a real bargain!

Clicker demo video ($8 million in): http://www.ustream.tv/recorded/2162433

SetJam demo video ($50,000 in): http://drop.io/setjam_video

Let me start at a very low level with a basic psychological statement about humans–each of us individually and all of us collectively are on a never-ending quest to be in complete control of our surroundings.  This isn’t a very radical statement.  As humans we spend incredible energy to get people to do what we want, to own things so we can do with them what we please, and to work collectively to subdue nature to our wills.  As someone raising a 2 year old girl, it’s self-evident that this desire starts in infancy and that a lot of what it means to “grow up” is taking increasing control of our environment, as well as learning to accept the limited control each of us has (without crying uncontrollably, which apparently is the default reaction.)

So what’s this have to do with brands and their effectiveness on TV?  Well, let me start with another somewhat obvious statement that sounds rather radical when stated plainly–TV is a miracle.  For those of us who have lived with it our entire lives, this is easy to forget.  Imagine though how utterly astounding it was the first time we as humans saw moving images of real, live people broadcast instantly across the country.  It’s even bigger than this when we put it in relation to our desire to control our surroundings–for the first time we as humans could ALL be present at the most important events, the best shows, exactly where we would want to be WITHOUT affecting anyone else’s ability to be there as well.  We could all collectively have the BEST seat in the house.

So once again, what’s this have to do with brands and our relationship with them?  Well, if we want nothing more as humans than to control our surroundings and TV was (and still is) a miracle that fulfilled this desire more fully than anything before it, all we have to ask is who gave us this ultimate gift of control?  In the early days of television, this wasn’t a very hard question to answer.  TV didn’t give you the chance to even ASK who brought you the miracle, because every television show stated this EXPLICITLY–”brought to you by” American Airlines, Ivory Soap, or Lucky Strikes.

When someone is bringing you the miracle of transporting yourself to the best seat at the best shows in the world, AND they are doing it for free, it’s not really hard to understand what our relationship with these brands was like.  We were so predisposed to liking them in fact, that the brand didn’t even need to stand for anything very distinctive.  Are Gillette razors really better?–who cares they just brought me Joe DiMaggio and Jackie Robinson competing in the 1947 World Series.  Who would shave with anything else?!

So what did innocent ole technology do to disrupt this hugely successful symbiotic relationship between TV consumers and brands?  My premise is that a number of technologies have slowly taught us to “game” the sponsorship model.  In other words, they began to train us to avoid commercials by taking specific actions.  It’s my belief that as we have trained through thousands of these interactions to become ever more sophisticated at avoiding commercials, we’ve unconsciously entered into an ever more explicit game, the objective of which is to banish our enemy–the sponsor.  Let’s take a look at specific examples of this progression.

I still remember my 6 year-old self somnambulating in my tighty-whiteys down to our living room to wake up with the TV, when to my utter amazement, a Superman cartoon appeared instead of the local news.  What strange magic was this? An hour later when my friends came to pick me up for school, I was still standing in the exact same place transfixed by the Bozo Show.  I’m sure I watched every commercial that morning in stunned silence, but my reverence didn’t last long.

Cable TV enabled me for the first time to start “flipping” when a commercial came on.  You couldn’t do this with just 3 channels that timed their commercials.  Within a matter of days, I remember walking over to the TV to flip the channel when the commercials would take too long.  Within a matter of weeks, I’d adopted the habit of lying close enough to the TV to flip the channels with my feet.  I probably laid there 4 hours a day learning to avoid sponsors.

And then, we got a new TV with a magical item I quickly learned to love–the remote control.  Think of this name in the context of what I said about our deepest human desires.  A REMOTE CONTROL?  Are you KIDDING me?  Is it any wonder men treat these things like the fists of Zeus that they are?!  Besides being remote it gave me the additional tools of typing the exact number of a channel, remembering my “flip” channel, and the ever powerful Mute button.  The Gameboy wasn’t the first hand-held game; it was the remote control and it only played one game–avoid the commercial.

The internet and its impact on the level of control I expected when consuming content is probably a little too much to go into for an already overly-long post.  Let it suffice to say that I’d basically abandoned the TV for the internet long before TV-like content became available because I was just so much more in control with the internet.  Technology came to the rescue of TV however, but in rescuing TV, it also gave me the ultimate weapon in my anti-sponsor arsenol–the DVR.

The DVR made TV great again.  Most obviously in this context, it allowed me to fast-forward through commercials.  I, as do many of you I’m sure, pride myself on my expert ability to skip commercials.  I have a natural rhythm for the commercial break and can often stop the fast-forwarding process perfectly with my eyes closed.  I know what kind of commercials certain networks show right before returning to programming that serve as a cue for me to stop.  I skoff at their pathetic attempts to show a brief 5 second promo for the show that LOOKS like the show to entice me to stop for the next commercial–I am not fooled.

Look at the sophistication of this war!  Measure and counter-measure between sponsors and me, Joe-viewer.  The thing that the networks and the sponsors don’t understand, and the entire premise of this mammoth blog post is that it doesn’t matter if the networks and sponsors ultimately win the technology battle–they still lose!  Not because they can’t force me to watch their commercials, but because I will HATE them for doing so.

I’ve been engaged in trench warfare for 30 years AGAINST sponsors and their messages.  Sponsors are now my ENEMY.  Networks can invent technology that forces my eyes to be open and facing the screen while a commercial plays before I can see the rest of my show (don’t worry–they’re working on it!).  Sure I’ll watch, but instead of making me feel good about the sponsor and their message it will make me hate both of them.

This phenomenon isn’t just about TV and the technologies I’ve talked about.  It’s about a bigger change in what it means to be human.  21st century humans are so saturated with information, that our primary survival task is to find a way to filter that information.  In fact, it is now social custom, given how precious our attention is, that any organization that ROBS us of that attention, is deserving of MORAL opprobrium.   THAT’S JUST NOT SOMETHING YOU WANT YOUR BRAND ATTACHED TO!

In my next post I’ll discuss the proposed solution to this problem and the hugely under-appreciated difference between “targeting” and “intent” that I hope SetJam can take advantage of.

Let’s take a look at the revenue flow document and see if there are any clues as to who will win and who will lose:

A diagram of the how the money flows in the media industry.

Once again, just as we saw subscription revenue leaking over to the OTT companies, we see the beginnings of advertising revenue leaking as well.  Who loses in this situation?  Big cable?  Big media?

Well, there is a small chance big cable could REALLY lose.  If the media companies decided to release their content for free over the internet and support it solely with advertising revenues, the cable companies would cease to exist.  Given the fact that this would be suicide for the media companies, this seems unlikely (particularly in a global advertising recession).

The MSOs stand to lose advertising revenue only in so far as they lose subscribers to the various OTT companies.  Although big media hasn’t emulated the joint subscription/advertising deals they have with MSO with the OTT players, they likely will, and MSOs will suffer.

But what about the media companies themselves?  Once again, the news isn’t as bad for them as it is for the MSOs.  Although they are likely to have to share advertising revenues with websites that distribute their content for them, they are likely to have to pay LESS than they did to the MSOs.  There are a number of reasons for this:

1. These websites will have to compete directly with each other (unlike the MSO’s who often have regional monopolies or duopolies), so they won’t be able to demand premium revenue shares.
2. Their cost structures are decreasing more quickly than those of the MSO’s (or the affiliates for that matter), so they will need less of the advertising dollars to be profitable.
3. Just like the media companies own many of their affiliate networks, they have made sure they own web distribution as well with network branded websites, and more importantly with Hulu, which is owned jointly by 3 of the 5 big media companies (NBC Universal, Disney, and News Corp).

So big media is likely to maintain a larger percentage of the advertising dollars than they did under the old model, but just like with the transition from cable subscribers to OTT subscribers, there is a risk:  Will advertising revenues for online distribution be as big as they were with broadcast and cable?

The news is both good and bad.  First the good news: CPMs are currently higher for online distribution than they are for broadcast.  The number currently floating around the industry is that Fox gets a $30 CPM for the Simpsons during broadcast and a $60 CPM for the Simpsons on Hulu.  The reason for this is that Hulu can make you watch the ad, whereas most households with DVRs will skip the ad.

So what’s the bad news?  Well, while broadcasting that episode of the Simpsons, Fox shows 18 ads; whereas on Hulu, it shows only 3.  That means that overall, Fox gets 1/3 of the revenues.  Of course, this if Fox’s choice.  There is no RULE that internet users must be shown fewer ads than broadcast users.

This means that if big media can show the same number of commercials, get a higher CPM, AND have to share less of the revenue with their distributors, it could be sitting very pretty during the switch from broadcast to internet distribution.  There are certain realities about the new consumer, however, that this optimistic picture belies.

I’ll save that for my next post,  when I discuss the real issues advertisers are facing and how they aren’t unique to New TV at all.