Niklas Zennstrom on Entrepreneurship

I had the opportunity to listen to Niklas Zennstrom this afternoon. He’s currently a Partner at Atomico Ventures (his VC fund) but he’s well-known as the founder of Kazaa, Skype and Joost. I wrote about Joost and Zennstrom recently. He talked about entrepreneurship, his own personal failures and successes and the European scene. As an entrepreneur myself, it was a very inspiring speech.

Niklas Zennstrom LeWeb Paris December 2009

A few excerpts:

  • Entrepreneurship is a lifestyle and takes up all your life. It requires lots of sweat and long hours of work.
  • You need an unshakeable belief in your startup, to be passionate about it, even when people don’t believe it.
  • For Kazaa, they were too early, actually several years early. This was a missed opportunity in terms of business development as their proposal to music companies fell on deaf ears.
  • If something is not working, take a deep breath and start again. In Zennstrom’s case, it became Skype. They went after a large market (phone companies) with fat margins. Skype got a lot of traction really quickly but it was very difficult to raise money. No one wanted to touch the company. VCs thought it was too risky.
  • He believes Loic Le Meur is probably the last European entrepreneur to move to Silicon Valley (Loic moved to San Francisco a few years ago to launch Seesmic, his current startup)
  • Entrepreneurs need to think of Europe as a market (critical mass vs. the US market)
  • Europe has a tendency to stigmatize failure but you cannot have big returns if you don’t have big risks
  • Joost was a misjudged opportunity. They could not strike the right partnerships.
  • Whatever you do, you never know the results in advance.
  • How’s the scene now? We’ve seen more and more companies from Europe being successful with a culture of international startup company. Companies think globally from the get go.
  • We now have European role models: Zennstrom himself, Loic Le Meur, Martin Varsavsky, etc.
  • Do we need an European Silicon Valley (i.e. a physical place)? No, we can meet online and then network at events.
  • Capital is no longer as important for entrepreneurs as a few years ago. Building a startup is more cost efficient and companies are able to reinvent themselves quicker with agile entrepreneurs.
  • It’s exciting to be an entrepreneur in Europe. In recession, you build companies and in peak market, you exit. The next few years will be fantastic. Disfunctional markets means entrepreneurs will enter the market.
  • Atomico Ventures wants to bet on European entrepreneurs that want to build tomorrow’s global companies. It’s all about the people (passionate) and it’s all about the size of the market.

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Did Joost Fail Because They Wanted to Work With Traditional Media Companies?

Seeing Niklas Zennstrom’s name on LeWeb’s list of speakers along with the news that Joost’s assets were being acquired by Adconion Media Group got me thinking about the dynamics of that specific startup. Joost was founded in 2006 to build a online video portal with the core idea that legal video streaming would be more efficient if it was built on peer-to-peer technology. The company signed content licensing agreements with major media companies, they had major funding ($45M), 150 software developers and experienced founders/entrepreneurs (Zennstrom and Janus Friis) who had had major successes with Kazaa and Skype. It seemed they would be successful once again.

It didn’t happen. Why? CNET explains that their technology choice of a downloadable application certainly impaired their chance of success. The arrival of Hulu, a big hit with users, also didn’t help  but I was specifically struck by this other reason: “Some of the big-name content partners seemed to be putting in a halfhearted effort with Joost, offering up reruns and esoteric programs instead of the new programming that people actually wanted to watch”. Hmmm…

Think about Kazaa and Skype. What did Zennstrom and Friis successfully achieve with these new initiatives? They directly attacked major players in large mature markets using industry weak points. Kazaa was an assault on the music industry, Skype took on telcos. They didn’t say “let’s work with these guys”. They just did it and leveraged the fact that these two industries were very profitable and slow to innovate. They foresaw the disruptive impact of technology and created a lot of value for their shareholders. Venture capital firms usually love these startups. When they created Joost, they changed their entrepreneur paradigm and it failed. Zennstrom and Friis’ new startup Rdio is in the online music space and it looks like they’re going to be working with the music industry. Will it impair their chance of success or has the music industry matured enough in the last 10 years to embrace innovation?

It got me thinking about newspapers, directory publishers, the movie industry, radio, magazines, and other traditional media companies. At one point or another, all these industries (who generate or used to generate fat profit margins) fought technology and we’re slow to innovate. I think it’s getting better (still not fast enough in my own opinion) but I was reminded it is still very slow in Canada by this blog post (in French) written by Yannick Manuri. He says that 40% of all online advertising spent in the country benefited foreign media companies and anecdotally he doesn’t see the sense of urgency in Canadian media companies. It’s a reality in other countries as well.

Why do we need industry disruptors to stimulate innovation in media? Couldn’t it happen by itself?

MySpace Wants to Partner with Other Media Firms to Launch ‘YouTube Killer’

From Variety.com via NewTeeVee.com

News Corp. is forging ahead on talks with a number of congloms to create a video platform that could compete with YouTube. “We’re in very active negotiations with all of the media companies to create the most robust video offering from professional content on the Web,” Fox Interactive Media topper Peter Levinsohn told investors at the Bear Stearns confab in Palm Beach, Fla. “Those conversations are ongoing, but they’re going very well,” he added. (…)

And then, perhaps hinting at where such a convocation would happen, he added, “No doubt MySpace will be a huge beneficiary of that.” News Corp. would reportedly like to see much of the content from other congloms live on its social-networking subsid. But comments glossed over a big sticking point: Other congloms have been resistant to making video available to MySpace, worrying that it would drive traffic and revenue to a competitor. Congloms are by no means unanimous on the subject; NBC has reportedly been more willing, while CBS has been more reluctant.(…)

Viacom recently decided to go its own way on video-sharing after talks with Google broke down, signing a content deal with a YouTube competitor, the Europe-based startup Joost. MySpace has been a major platform for News Corp.’s video, offering a hefty number of clips and sneak peeks of Fox content. Levinsohn did say that a major obstacle to pacting with other congloms is ensuring that those in charge of digital operations have the ear of the conglom chiefs. Digital divisions have gained clout in recent months but still may not have as much sway in the exec suite as they may need.

What it means: reading between the lines, this article highlights a couple of interesting points. First, the struggle of traditional media firms to redefine their competitive space with the arrival of Google: “Other congloms have been resistant to making video available to MySpace, worrying that it would drive traffic and revenue to a competitor”. Who’s the biggest long term competitive threat to CBS? Is it News Corp or is it Google-Yahoo-Microsoft (GYM)? And why not partner with both groups? I personally think you want to build up your own assets while partnering within your industry but also with GYM. We’ve seen the same kind of ambiguity in the newspaper world with Tom Mohr’s “Winning Online” manifesto “proposing that the US newspaper industry should merge into a single industry-wide network, at least for its digital assets. The article also discuss the kind of internal politics interactive teams are facing within traditional media companies: “Levinsohn did say that a major obstacle to pacting with other congloms is ensuring that those in charge of digital operations have the ear of the conglom chiefs.”. This internal in-fighting is, in my opinion, completely useless. The competitors are outside the walls of the company, not inside. Trust your interactive teams, they understand this new world order.