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Amy Z.'s Review of YouNoodle
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01/21/2009 |
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| Brainiac |
| 10 Fans |
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| I Predict YouNoodle is Worth Nothing |
Review Focus: Business Model |
YouNoodle is a website that aims to be a "place to discover and support the hottest early-stage companies and university innovation. We develop decision-making technology and tools for the startup community." Rarely has an idea struck me as so poor and empty of substance and wholly constructed on a gimmick. What is YouNoodle offering?There is a quasi-social network aspect for entrepreneurs/startups, but there are many more polished services & news outlets out there from a social network perspective for entrepreneurs/startups (LinkedIn.com works pretty well, eh?...
More >>YouNoodle is a website that aims to be a "place to discover and support the hottest early-stage companies and university innovation. We develop decision-making technology and tools for the startup community." Rarely has an idea struck me as so poor and empty of substance and wholly constructed on a gimmick. What is YouNoodle offering?There is a quasi-social network aspect for entrepreneurs/startups, but there are many more polished services & news outlets out there from a social network perspective for entrepreneurs/startups (LinkedIn.com works pretty well, eh?) so this part of their business is unremarkable and boring. The site is poorly laid out as well so it is likely that any social network for entrepreneurs is not going to happen. But what has stirred up interest in YouNoodle is a financial model they've created underlying a tool they call the "Startup Predictor". Basically, per YouNoodle, the Startup Predictor determines what your company's valuation will be in three years based on an online quiz. How does YouNoodle's Startup Predictor work?According to an article by Scott D. Anthony on Harvard Insights "YouNoodle has developed a database that it claims can predict the valuation of early-stage startup companies. It developed the database by assessing 3,000 startup companies. The model relies on four basic areas: the team, financial factors, the concept, and advisors. A startup company fills in a survey with detailed questions focused on these four areas, and out pops the valuation." (see post here: http://discussionleader.hbsp.com/anthony/2008/08/younoodle_innovation_through_a.html) So far, according to an Inc Magazine article, the Startup Predictor has been used 6,000 times by entrepreneurs. It appears the Startup Predictor is generating buzz for YouNoodle which is good. (Inc article here: http://www.inc.com/magazine/20081201/whats-your-company-worth.html) What does YouNoodle want to be when it grows up?According to Inc Magazine, "YouNoodle's CEO, Bob Goodson, 28, says the company's goal is to break down the "old boys' club" of top-tier venture capital investors. He imagines that founders outside of traditional venture capital networks — that is, people who live in the middle of the country and didn't go to one of a handful of top schools — will eventually be able to take the test and earn meetings with investors on the strength of their YouNoodle scores. Investors, he says, will pay for access to the reports in the same way that used-car buyers pay for a vehicle history report from services like Carfax. "We want to build a Moody's for the start-up world," Goodson says." Does the business model/value proposition make any sense?In a word - NO. It is flawed on many levels, but let's discuss the marketing approach first.
- Why would the CEO go right after the "old boys' club"? It's good from a PR perspective and seems bold and might get some press, but why antagonize people who might be consumers of your data/information? It seems arrogant, immature and honestly, it seems like bad business.
- Why talk about the middle of the country vs the Ivy League or whatever? Your goal as the founder of a company is not to slice and dice your market into thin slivers but to bring in as many people who make sense to expand the market and the resulting opportunity. Seems like another good PR line but both collectively point to an emphasis on style over substance.
Marketing missteps aside, what are the problems with the business model? First and foremost, the business model is fatally flawed because the product, The Startup Predictor, is interesting but hopelessly inane.
- Valuation is an art - Financial models, no matter, how sophisticated and dressed up they may be are always wrong. We just need to look at our current financial/economic predicament to see where our financial models got us. They're very good at predicting things when companies are growing or declining at steady/predictable rates and if you have some understanding of key business indicators, but no matter what, they are wrong. The valuation models are consistently wrong, often significantly, even when there are reams and reams of historical data as there is with public companies. Private companies where the data is much more spotty and where financials are non-existent are therefore even more difficult to model. While the goals of disintermediating the "old boys network" sounds interesting, evaluating startups is a mix of skill and luck and so diligence is required but so is a good gut instinct.
- Intangibles cannot be modeled - The idea that "the concept itself, the advisors and the team" can be considered, evaluated and modeled is appealing because it sounds tidy, but there is no way to credibly do this no matter how fancy the diagrams or logic YouNoodle shows look. Startups are inventing markets in many instances so how does the concept get evaluated in such instances? Using comparable companies and their data? What if there isn't a real comp? Perhaps it'll be a hybrid of existing companies? There is way too much room for error - very significant error. You can look at the connections & relationships between the founders, but beyond anecdotal evidence that this matters, there is little real proof. When we talk about advisors, I assume this means folks like the VCs and advisory board of the company. Problem #1 is that if the startup has any legitimate VCs, they'll never have a need for this. And modeling advisors will be rudimentary at best in my view. Oooh, Kleiner Perkins is an investor so we'll give your valuation a factor of 2x since they're an A-list VC. Same with modeling the team. You've done well in a prior business so we'll give your valuation a bump. Doesn't sound too complex or fancy.
So beyond the fundamentally flawed product, what is wrong with the business model:
- Let's be the Moody's of startups - As the recent news makes clear, the rating agencies which Moody's is one of are not very good at their jobs. And they get lots and lots of information from companies they rate. And they still aren't very good at it. With startups, you're inherently data-constrained making the idea that a quiz with user-submitted inputs is useful even more laughable.
- It makes sense to be biased to the upside - Even if the Startup Predictor generated credible valuations, the company is incentivized to 'grade inflate' if they want startups using it. As an entrepreneur, I'd only use the Startup Predictor if it told me an answer I like which is a high #. So the target for this product is for entrepreneurs too inexperienced to develop their own credible valuations. If I'm an investor seeing a YouNoodle valuation, I would be suspect of the upside bias and an entrepreneur bringing a YouNoodle valuation.
- Investors will pay for this? - If the price was insignificant, then yes, this might even be an interesting data point to a time-strapped investor. But, given that as an investor, you may be making a large bet with money given to you by your investors, are you really going to rely on a report vs your own expectations and model for an investment? I doubt it or at least I don't think smart investors would do this. If it's a $100 per report, sure why not? But if all investors seriously look at 500,000 companies per year and 10% of those evaluations get a YouNoodle report (this is a high market penetration rate), that is 50,000 reports per year in total (I'm not talking about the pitches they see but those they seriously evaluate). That is a $5 million opportunity. I'm not sure how much they raised, but that doesn't seem like a big # given some of the brand name investors they have and the very organic, grassroots effort probably required to get these investors on board. According to the company's CEO, he thinks "YouNoodle will be worth $96 million in 2010" based on their own algorithm. Wow. (source: http://www.techcrunch.com/2008/08/05/the-highly-controversial-younoodle-startup-predictor-is-coming/)
The Proof is in the Pudding - How Good Are the Predictions?But all my arguments are useless if The Startup Predictor is ultimately very good at what it does, right? Because then there would undoubtedly be immense value. Even if the Startup Predictor was even directionally right as they might suggest it is supposed to be, it would be helpful as it would provide a filter for what is promising vs. not? So let's see how specifically or even directionally right YouNoodle is? So let these sink in a bit.
- A blog run by a few guys who talk about web2.0 is worth about the same as a search engine that hundreds of millions of people use and which possesses the largest advertising platform on the web.
- But let's not pick on TC as they at least have a real business. Google was worth 18.75x more than a site that helps people discuss their favorite mixed drink recipes. Oh really? I don't mean to pick on GarnishBar as I'm sure its founders and the service are great, but this clearly demonstrates that YouNoodle's Startup Predictor's ideas on valuation are worthless (even directionally). The founders will argue that the model is constantly be refined to improve it, but if that's the case, I'd suggest they should have done that before launching something that is half-baked.
What is positive about YouNoodle or why might it work?
- They've raised money from smart people (Max Levchin, Peter Thiel and The Founders Fund) so maybe these guys know or see something I am failing to see.
- Perhaps the Startup Predictor is not the centerpiece of their offering and as hypothesized here (http://dukeshead.wordpress.com/2008/02/19/younoodle-actually-can-predict-its-own-demise/), there is another plan behind the scenes and the Predictor is just a way to generate traffic (already been used by 6000 times). This particular blog post's author wonders if "Yoonoodle may not be what it professes to be. When you sign up, you are asked to upload a resume. It appears as if it's more of a social networking site for venture creation. A somewhat sneaky way of building a social network (brilliant!), and one bound to get polluted by wannabes (risk alert!). If they can solve the wannabe/spam problem, this could be a fairly successful business." Not sure I agree with the end conclusion as sneaky is probably not a great way to build a business, but given the lack of viability I otherwise see, who knows?
Other web thoughts & miscellaneous
- This blog entry (source: http://www.altgate.com/blog/2008/08/younoodle-is-a.html) calls YouNoodle a version of the Magic Eight Ball and points to a lack of confidentiality for startups who use the Startup Predictor which may be useful for entrepreneurs considering using it to know. According to this blog, "The Site may permit the submission and the hosting, sharing, and/or publishing of User Submissions. You understand that whether or not such User Submissions are published, YouNoodle does not guarantee any confidentiality with respect to any User Submissions."
- The above-referenced TechCrunch post has a solid comment by Vijay Chakravarthy who writes "I'm always vary of people who sell (for $29.99) guaranteed methods of making millions. If younoodle is even slightly accurate, they should start their own venture fund, rather than sell the software. The whole credit rating analogy is seriously flawed. Credit ratings work because large numbers of people (millions) smooth out the outliers, whereas a VC only has a portfolio of tens/hundreds."
Startup Predictor valuation in three years? Zero. But that is just a directional estimate.
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| Reviews for YouNoodle |
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I Predict YouNoodle is Worth Nothing
YouNoodle is a website that aims to be a "place to discover and support the hottest early-stage companies and university...
More >>YouNoodle is a website that aims to be a "place to discover and support the hottest early-stage companies and university innovation. We develop decision-making technology and tools for the startup community." Rarely has an idea struck me as so poor and empty of substance and wholly constructed on a gimmick. What is YouNoodle offering?There is a quasi-social network aspect for entrepreneurs/startups, but there are many more polished services & news outlets out there from a social network perspective for entrepreneurs/startups (LinkedIn.com works pretty well, eh?) so this part of their business is unremarkable and boring. The site is poorly laid out as well so it is likely that any social network for entrepreneurs is not going to happen. But what has stirred up interest in YouNoodle is a financial model they've created underlying a tool they call the "Startup Predictor". Basically, per YouNoodle, the Startup Predictor determines what your company's valuation will be in three years based on an online quiz. How does YouNoodle's Startup Predictor work?According to an article by Scott D. Anthony on Harvard Insights "YouNoodle has developed a database that it claims can predict the valuation of early-stage startup companies. It developed the database by assessing 3,000 startup companies. The model relies on four basic areas: the team, financial factors, the concept, and advisors. A startup company fills in a survey with detailed questions focused on these four areas, and out pops the valuation." (see post here: http://discussionleader.hbsp.com/anthony/2008/08/younoodle_innovation_through_a.html) So far, according to an Inc Magazine article, the Startup Predictor has been used 6,000 times by entrepreneurs. It appears the Startup Predictor is generating buzz for YouNoodle which is good. (Inc article here: http://www.inc.com/magazine/20081201/whats-your-company-worth.html) What does YouNoodle want to be when it grows up?According to Inc Magazine, "YouNoodle's CEO, Bob Goodson, 28, says the company's goal is to break down the "old boys' club" of top-tier venture capital investors. He imagines that founders outside of traditional venture capital networks — that is, people who live in the middle of the country and didn't go to one of a handful of top schools — will eventually be able to take the test and earn meetings with investors on the strength of their YouNoodle scores. Investors, he says, will pay for access to the reports in the same way that used-car buyers pay for a vehicle history report from services like Carfax. "We want to build a Moody's for the start-up world," Goodson says." Does the business model/value proposition make any sense?In a word - NO. It is flawed on many levels, but let's discuss the marketing approach first.
- Why would the CEO go right after the "old boys' club"? It's good from a PR perspective and seems bold and might get some press, but why antagonize people who might be consumers of your data/information? It seems arrogant, immature and honestly, it seems like bad business.
- Why talk about the middle of the country vs the Ivy League or whatever? Your goal as the founder of a company is not to slice and dice your market into thin slivers but to bring in as many people who make sense to expand the market and the resulting opportunity. Seems like another good PR line but both collectively point to an emphasis on style over substance.
Marketing missteps aside, what are the problems with the business model? First and foremost, the business model is fatally flawed because the product, The Startup Predictor, is interesting but hopelessly inane.
- Valuation is an art - Financial models, no matter, how sophisticated and dressed up they may be are always wrong. We just need to look at our current financial/economic predicament to see where our financial models got us. They're very good at predicting things when companies are growing or declining at steady/predictable rates and if you have some understanding of key business indicators, but no matter what, they are wrong. The valuation models are consistently wrong, often significantly, even when there are reams and reams of historical data as there is with public companies. Private companies where the data is much more spotty and where financials are non-existent are therefore even more difficult to model. While the goals of disintermediating the "old boys network" sounds interesting, evaluating startups is a mix of skill and luck and so diligence is required but so is a good gut instinct.
- Intangibles cannot be modeled - The idea that "the concept itself, the advisors and the team" can be considered, evaluated and modeled is appealing because it sounds tidy, but there is no way to credibly do this no matter how fancy the diagrams or logic YouNoodle shows look. Startups are inventing markets in many instances so how does the concept get evaluated in such instances? Using comparable companies and their data? What if there isn't a real comp? Perhaps it'll be a hybrid of existing companies? There is way too much room for error - very significant error. You can look at the connections & relationships between the founders, but beyond anecdotal evidence that this matters, there is little real proof. When we talk about advisors, I assume this means folks like the VCs and advisory board of the company. Problem #1 is that if the startup has any legitimate VCs, they'll never have a need for this. And modeling advisors will be rudimentary at best in my view. Oooh, Kleiner Perkins is an investor so we'll give your valuation a factor of 2x since they're an A-list VC. Same with modeling the team. You've done well in a prior business so we'll give your valuation a bump. Doesn't sound too complex or fancy.
So beyond the fundamentally flawed product, what is wrong with the business model:
- Let's be the Moody's of startups - As the recent news makes clear, the rating agencies which Moody's is one of are not very good at their jobs. And they get lots and lots of information from companies they rate. And they still aren't very good at it. With startups, you're inherently data-constrained making the idea that a quiz with user-submitted inputs is useful even more laughable.
- It makes sense to be biased to the upside - Even if the Startup Predictor generated credible valuations, the company is incentivized to 'grade inflate' if they want startups using it. As an entrepreneur, I'd only use the Startup Predictor if it told me an answer I like which is a high #. So the target for this product is for entrepreneurs too inexperienced to develop their own credible valuations. If I'm an investor seeing a YouNoodle valuation, I would be suspect of the upside bias and an entrepreneur bringing a YouNoodle valuation.
- Investors will pay for this? - If the price was insignificant, then yes, this might even be an interesting data point to a time-strapped investor. But, given that as an investor, you may be making a large bet with money given to you by your investors, are you really going to rely on a report vs your own expectations and model for an investment? I doubt it or at least I don't think smart investors would do this. If it's a $100 per report, sure why not? But if all investors seriously look at 500,000 companies per year and 10% of those evaluations get a YouNoodle report (this is a high market penetration rate), that is 50,000 reports per year in total (I'm not talking about the pitches they see but those they seriously evaluate). That is a $5 million opportunity. I'm not sure how much they raised, but that doesn't seem like a big # given some of the brand name investors they have and the very organic, grassroots effort probably required to get these investors on board. According to the company's CEO, he thinks "YouNoodle will be worth $96 million in 2010" based on their own algorithm. Wow. (source: http://www.techcrunch.com/2008/08/05/the-highly-controversial-younoodle-startup-predictor-is-coming/)
The Proof is in the Pudding - How Good Are the Predictions?But all my arguments are useless if The Startup Predictor is ultimately very good at what it does, right? Because then there would undoubtedly be immense value. Even if the Startup Predictor was even directionally right as they might suggest it is supposed to be, it would be helpful as it would provide a filter for what is promising vs. not? So let's see how specifically or even directionally right YouNoodle is? So let these sink in a bit.
- A blog run by a few guys who talk about web2.0 is worth about the same as a search engine that hundreds of millions of people use and which possesses the largest advertising platform on the web.
- But let's not pick on TC as they at least have a real business. Google was worth 18.75x more than a site that helps people discuss their favorite mixed drink recipes. Oh really? I don't mean to pick on GarnishBar as I'm sure its founders and the service are great, but this clearly demonstrates that YouNoodle's Startup Predictor's ideas on valuation are worthless (even directionally). The founders will argue that the model is constantly be refined to improve it, but if that's the case, I'd suggest they should have done that before launching something that is half-baked.
What is positive about YouNoodle or why might it work?
- They've raised money from smart people (Max Levchin, Peter Thiel and The Founders Fund) so maybe these guys know or see something I am failing to see.
- Perhaps the Startup Predictor is not the centerpiece of their offering and as hypothesized here (http://dukeshead.wordpress.com/2008/02/19/younoodle-actually-can-predict-its-own-demise/), there is another plan behind the scenes and the Predictor is just a way to generate traffic (already been used by 6000 times). This particular blog post's author wonders if "Yoonoodle may not be what it professes to be. When you sign up, you are asked to upload a resume. It appears as if it's more of a social networking site for venture creation. A somewhat sneaky way of building a social network (brilliant!), and one bound to get polluted by wannabes (risk alert!). If they can solve the wannabe/spam problem, this could be a fairly successful business." Not sure I agree with the end conclusion as sneaky is probably not a great way to build a business, but given the lack of viability I otherwise see, who knows?
Other web thoughts & miscellaneous
- This blog entry (source: http://www.altgate.com/blog/2008/08/younoodle-is-a.html) calls YouNoodle a version of the Magic Eight Ball and points to a lack of confidentiality for startups who use the Startup Predictor which may be useful for entrepreneurs considering using it to know. According to this blog, "The Site may permit the submission and the hosting, sharing, and/or publishing of User Submissions. You understand that whether or not such User Submissions are published, YouNoodle does not guarantee any confidentiality with respect to any User Submissions."
- The above-referenced TechCrunch post has a solid comment by Vijay Chakravarthy who writes "I'm always vary of people who sell (for $29.99) guaranteed methods of making millions. If younoodle is even slightly accurate, they should start their own venture fund, rather than sell the software. The whole credit rating analogy is seriously flawed. Credit ratings work because large numbers of people (millions) smooth out the outliers, whereas a VC only has a portfolio of tens/hundreds."
Startup Predictor valuation in three years? Zero. But that is just a directional estimate.
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