Sniffing out Great Ideas, Company Culture and Demographics! – Interview with Lookery CEO Scott Rafer

I present you Scott Rafer, CEO of Lookery, a user-targeting service that helps site owners amplify their audience data. In this  interview (conducted pre-event), Scott invites us for a peek into his mind to understand how he goes about sniffing out great ideas for profitable businesses, his views on important company cultures (even pointing out something interesting about Google’s Don’t be Evil mantra!) and lastly demand for Asian demographic data. A must read! Editor Update: Scott’s keynote speech at unConference 2009 (#unconf2009) can be found on Slideshare. Follow Scott on Twitter here.

Hello Scott,

It’s nice to have you with us for Unconference 2009.

In a previous article, you mentioned that a VC got you excited enough about a specific problem to ‘troll’ online for what’s available. Could you describe more about how you felt and what went through your mind and how you went about looking for it?

It was more obsession than excitement. In December 2005, Josh Kopelman of First Round Capital got me focused on the idea that social networks should be as widget distributed as everything else. He anticipated Facebook Connect by several years. I wasn’t specifically looking for the technology to address the problem, but I knew it when I saw it. I was surfing somewhat aimlessly when I ran across MyBlogLog’s “5 clicks today” mouseover on Feld.com, and thought “Aha!”

In a previous interview with Intruders.tv, you mentioned that you tend to avoid intellectually satisfying businesses. What Silicon Valley people thought made sense, mere mortal humans don’t understand any about, which translate to no business to talk about. Twitter didn’t make sense to the common folks till recently, what’s your take on that?

This is mainly a comment about consumer services. I’m not looking for non-techies to understand the business; I’m just looking for them to use it and care about it in decent volume. A few of us jumped on blog search and committed a bunch of investor money to it because it made sense to us, not because it got traffic. At this point, I want traffic and don’t really care I understand why the users keep showing up. The minute a site crosses a couple hundred thousand uniques a month, it’s worth looking hard at from a seed-stage perspective. Twitter did that in a very small number of months.

How would you go about sniffing out great ideas? Is there a routine you adhere to getting yourself involved in this arena?

I look for businesses where the IT infrastructure and/or marketing costs have dropped radically but the prices haven’t. I focus on exploiting the Innovator’s Dilemma by building “good enough” products incredibly cheaply and undercutting the incumbents by 50-90% on price. Lookery’s customers and prospects would love to buy demographic profiles from the credit bureaus and similar traditional vendors in the US, but those older companies sell the same information at 20x our prices. It’s almost impossible for them to move to cloud computing and match our costs, plus upcoming US regulations will soon cause them huge privacy problems that we’ve avoided in our basic service design. We expect US privacy laws to look like the EU’s before long — and we designed the service to be acceptable in Germany, which has  the strictest of EU privacy regulations.

Sweepery is similar in that running incentivized marketing programs is done by specialty ad agencies, and there is no ad network that leverages data across multiple campaigns, uses ad network automations, etc.

That all said, other than Lookery and Sweepery, the good ideas have shown up organically. MyBlogLog was a combination of Josh’s suggestion as mentioned above, the MyBlogLog cofounders’ (Steve Ho, Eric Marcoullier, John Sampson, and Todd Sampson) expertise, and addressing the show-stopping problems with Feedster’s UI. User-generated content is all about discovery, not about search. Thinking search mattered is one of two main things that caused us to fail at Feedster. Relatedly, we started Mashery to fix what was wrong with Feedster’s business backend and processes. The other main reason Feedster failed is that we couldn’t cheaply manage the customers who wanted to buy XML feeds, aka RESTful APIs, from us. We realized that a lot of people would soon have the same problem and built a service to solve the problem.

Most recently, Ghostery was an personal productivity tool that unexpectedly took off. It’s now a Firefox extension that has more than 800,000 downloads since it was first released 6 months ago. David’s got a knack for that sort of thing, and the commercial side is only now catching up.

Point of note:

Josh Kopelman is chairman, co-founder, and lead Series A investor at Mashery. He was Feedster’s first lead investor and stuck with us to solve this problem.  He is going to make great financial returns on Mashery — even if you include the money he lost in Feedster. And no, he wasn’t an investor in MyBlogLog. We never had any.

Lookery looks really great, maintaining steadfastly on permission marketing and not taking users for granted, very similar to Google’s Don’t be Evil mantra. I like that! Would you like to share how’s the culture like at Lookery?

Company cultures reflect the founders. David Cancel and I have each been working on startups for a long time and have learned some painful lessons that we try not to repeat. Generally, our mistakes have come from excess complexity and unrealistic expectations. Oren Michels of Mashery is the same way. We all think alike. Oren and I met David because he was Mashery’s first customer.

1. We’re big fans of simplicity and volume. Do one small thing — and do it a huge number of times. This leads directly to… If it can’t be done with cloud computing, don’t do it.
2. We don’t have secrets or tell lies, because both too expensive to keep track of. We can’t justify the time, effort, or capital.
3. Small companies should be virtual. We’re six people in three cities who have only all been in a room together once. When the economy improves, we’ll have twice-yearly get togethers. Otherwise, each of us tends to see one or two other employees one day a week or less.
4. Ideas are free; execution provides the only value.
5. Automate only after you know the automation is justified. Manual processes are fine until then.
6. Only raise money if you know EXACTLY how it will improve the business to the benefit of the current shareholders.
7. Etc.

Also, for smart, productive people, family life is critically important and stress is a terrible motivator. Half the company are work-at-home parents. We make schedule accommodations for childcare all the time and are very used to screaming three year olds “participating” in our staff calls.

Also, I really hope we’re nothing like Google culturally. “Don’t be Evil” makes the presumption that an organization can tell good from evil, which is both dangerous and patently false. Businesses can tell ethical from unethical, veracity from deception, and respect from disrespect. Google mistakenly believes they know better than that, and it shows in all sorts of ways. Their openness is unreliable and often fictionalized.

You mentioned that advertising in social networks will never work well and we might do better using the user profiles to create advertising elsewhere. Could you give us an example to get us thinking in the right direction?

I was referring to the large horizontal social networks. Specialty networks like WAYN (20s/30s vacation travelers) and Dogster (pet owners) do well selling marketing programs.

Lookery’s demographic data mainly comes from horizontal social sites. We never know the person’s identity, but we move the most useful marketing data (birth year and gender) from sites where the users socialize to sites where they search, research, and shop — but don’t have profiles detailing who they are. Facebook Connect is doing a more explicit version of the same thing.

The other option is for the big social networks to create vertical, editorially managed content sections like the portals did in the 1990s. MySpace Music is one step in this direction. Netlog is doing well here too.

Lookery must surely have collected vast amounts of insightful demographics in Asia. Would you like to share with us what’s hot in Asia now?

I have to disappoint you completely here. We don’t have interest data, just birth year and gender. We’ll branch out in a few ways, but not yet. Also, we are not yet seeing demand for our data in Asia, so we’re limiting ourselves to the global regions that I refer to as English-speaking countries and Western Europe/Middle East in my talk Saturday. We’d love to expand that to Southeast Asia, and know the Multiply and Friendster folks well enough to get a lot of profiles, but the right sort of advertising customers are  not active here yet.