Browsing articles from "March, 2007"

Required Reading…

I had the chance to catch up on a little light reading over the last week: Founders at Work and Mr. China. Here’s what I learned. Founders at Work is inspiring reading about some incredible founders from the past few years and the past few decades. Key takeaways are that it’s people first, ideas second; and that whatever the original idea for a company, success will likely be the result of a much different idea.

Successful entrepreneurs have known for a long time that the best way to start a company is to find some good people to work with and then just to start working. The “right” idea often comes about as the result of working on one thing and then solving another problem in the process, or of being in the right general area and nimble enough to switch courses when a new path presents itself.

The trick for investors, of course, is to invest after a few of the experiments have been run but before the successful experiment plays itself out. The great entrepreneurs in Founders at Work were able to run lean and mean while they were in experiment mode and then used capital to move their business forward more aggressively.

Everyone has been talking about Mr. China and it is a great read. It’s the story of a former Andersen consultant who moves to China to enter the new world of business there in the 1990′s. He teams up with an investment banker and together they invest (and lose) hundreds of millions of dollars. I loved the book but wondered why it took them eight years to learn the lesson, “when in Rome, do like the Romans.”

It was also notable that the author was as surprised as he was by the actions of some of the people he invested in, who then set up next-generation, competitive shops right next door or mis-used their investors’ money. The entrepreneurs profiled in the book were extremely aggressive, yet they didn’t seem that much different from, say, the Intel founders setting up shop after Fairchild, or the Enron execs mis-allocating money from their stock holders and pensioners.

The author comments at the end on how in fighting the day to day battles he became out of touch with the overall evolution of the country. The fact that in the midst of the action it’s easy to lose sight of the big picture is, in and of itself, a great takeaway. Moreover, there will always be someone else who neglects the importance of really understanding the local environment and wants to become the next “Mr. China.” The author has done all businesspeople a service by sharing the story of his life in China – it’s a funny and very worthwhile read.

Mar 31, 2007

Social Networks: The New Platform

The big social networks are the new platform. More than 10 years ago, Windows became the platform of choice. It provided core functionality but allowed companies to build a huge variety of applications that extended the platform and cemented its dominance in the market. Today’s large social networks have the same opportunity. The question is, will they capitalize on it?

As I mentioned last August, widgets are the future. They are today’s new applications and they live on top of the existing social networks. They also run within lots of other environments — blogging platforms, open source community systems, and good old web sites. But their real impact is on the large, established social networks.

The great risk and the great opportunity for Windows was that it was a wide open sytem. This caused users (and CIO’s) a lot of angst because it meant users could run just about any application they wanted to — even applications that caused the system to crash or corrupted their data. But the risks far outweighed the benefits. Windows became the standard not because it was a great platform in and of itself but because of the applications it enabled — communications apps from email to browsers to IM, productivity applications, games, and the list goes on.

Today’s social networks aren’t sure what their policy is on being open. So far they seem to be taking a wait and see approach — kind of like the big wireless carriers.

Where’s the line? As one entrepreneur described it to me, the line is drawn when other sites try to get revenue (in the form of advertisements) directly within an existing social network. It’s ok to let users put a widget on their page that causes the user to click on the widget and go to another site (you know the ones), where ads are displayed or money is collected.

But the social networks do not like it when these same companies show ads or try to collect money within their widgets directly on the social network’s site, without the permission of the social network. That’s where the line is.

What the social networks should really do is open up their sites. As another entrepreneur said, the site with the broadest support for widgets and third-party supplied functionality will ultimately win.

The social networks should also implement a well-defined and supported revenue sharing mechanism. They should try out Microsoft’s old mantra: “embrace and extend.” Rather than challenging the ecosystem, they should support and encourage it — not just by allowing widgets and the like — but by enabling the ecosystem participants to make money (alongside the social networks).

The big social networks are today’s new platform. May the most open one win.

Mar 25, 2007

No Laptop, Will Travel

For the first time in a long time I traveled out of town without a laptop. I figured it would be rough, but it wasn’t. Here’s why.

Instead of taking a bag with me I took just a book and my treo. The book was Founders at Work. I had it with me when I went to meet a startup company and it has clearly become a bible for entrepreneurs.

Traveling without a bag is nothing short of amazing. I was able to skip ahead in line. Going from meeting to meeting there’s nothing to forget. And my Treo worked great.

Composing blog entries like this one was straightforward. I was able to stay on top of email, and best of all, I processed it a lot faster. Just like having limited capital and resources is the best forcing function for a startup, having a limited screen size and keyboard was a great constraint on me.

No laptop, will travel. Try it. You’ll be happy you did.

Mar 23, 2007

A/B Test Your Business, Not Just Your Product

It’s become easy to A/B test web pages to see what works and what doesn’t. But the great entrepreneur applies A/B testing to his or her entire business. Here’s how.

Rather than making decisions based on what might or could work, great entrepreneurs try a lot of different approaches — from product features to marketing programs to hiring. They don’t base decisions on what “should” or “shouldn’t” work according to the common wisdom — they simply run a lot of little experiments to see what works and what doesn’t.

Will the animated click to buy button result in more conversions over the static one? The great entrepreneur tries out both and evaluates the data to see which one performs better. It turns out that animated click to buy buttons do result in more conversions, in some cases producing as much as a seven-fold increase.

In marketing programs, great entrepreneurs try a lot of things in small quantities to see what might work. Consumers are fickle — it’s hard to know how they’ll respond to a paid ad, an organic search result, an email newsletter, a presentation at a conference, or a renewal notice that encourages them to buy more rather than just renew. (As any marketing expert will tell you, a meaningful subset of customers who are offered the opportunity to purchase more when already making a purchase will do so.)

Successful entrepreneurs try it all, and then, even when they’ve found something that works really well, they keep on trying more stuff. The drive to keep on trying more new things even when something that works is already in-hand is what keeps them ahead of the competition.

Great entrepreneurs also apply fast iterations to hiring, whether at the individual employee level or at the board level. This isn’t easy. It requires a lot of work and a huge investment of time and energy.

These entrepreneurs are not afraid to bring lots of new people into the organization, knowing that some will then be around for the long-term. This isn’t as much about matching the right people to the right stage of a startup as it is about working with a lot of different people.

They bring lots of new people into their lives all the time — as advisers, employees, and friends. Some of these become wonderful long-term relationships. Great entrepreneurs never let their environment become stale. They’re always adding interesting new people with new ideas to the mix.

Don’t just try out new product features. Try out new people and approaches to business. Treat your startup as a fluid environment rather than a static one. You’ll create a better product — and a better startup.

Mar 18, 2007

Is It 1999 All Over Again?

Yes — and No.

In a lot of ways, it does feel like 1999 all over again. Entrepreneurs are out raising money, venture capital is flowing, and more deals are getting done that have gotten done in a long time. Banks and attorneys report anecdotally that they are signing more lockup agreements than they have in a while. And just yesterday I read a plan that basically said “our competitor raised $25M so we think we can too.”

The investing environment is frothy and prices are expensive for Series B deals, especially those that are consumer facing. A lot of the frothiness in the late 90′s was generated by the venture community itself — deal after deal got done. And certainly there is once again a lot of money available.

There are four key differences from eight years ago, however. They are:

1) Widespread broadband
2) A much lower barrier to starting a company
3) Resurgence of the angel community
4) Immediate consumer adoption (or not)

Widespread Broadband

Broadband adoption has sky-rocketed. While the market crashed back in 2000 and 2001, broadband — and the Internet — took off. This enabled a huge set of applications to be delivered that involve streaming media, rich content.

It also means, simply put, that people spend a whole lot more time on the Internet than they did back in 1999.

Much Lower Barrier to Starting a Company

Just as importantly however is that the barrier to starting a company today is much lower than in the 1990′s. Just about everything you need is either cheap or free through hosted applications or open source.

Joomla and Drupal for community sites

Ruby on Rails and CakePHP for quick implementation
Gmail and Google hosted mail for domain specific email

Mantis for bug tracking

Wiki’s for collaboration

Google Apps for business applications Amazon S3 for processor cycles and storage
Dedicated hosting available via lease

Google Checkout and Paypal for online payments

Off-shore development resources

Talk to web companies started even in 2004 and most of them still run a huge set of their own servers. Servers they have to maintain and that have to go on the balance sheet as a capital expense. Talk to web companies started in the last 18 months and most if not all of them lease dedicated servers or use Amazon S3.

People talk about the huge impact of open source and hosted services on business. But the even bigger impact is on the entrepreneurial community and the ease with which one can start a new company.

Immediate Adoption (or Not)

Distribution is now immediate through the Internet, and so too as a result, is adoption or lack thereof. As Paul Kedrosky pointed out, compare the speed of adoption of the Sony Walkman to that of the iPod. Adoption moves an order of magnitude faster now than 10 years ago — whether for consumer electronics or online offerings.

So you can build out an idea and test whether consumers — in the form of actual consumers or business customers — are going to adopt your offering a lot faster than you could in the last decade. Google Checkout and Paypal mean that just about anyone can take a payment online. Angel Community Resurgence

Angels and small funds are back and a key part of the deal-flow process. This has always been the case, but in the last few years, angels and a select group of smaller, very early stage funds such as First Round Capital, O’Reilly Ventures, Omidyar, and the Founders Fund have emerged.
This provides a rich ecosystem for entrepreneurs by providing them with capital, hands-on expertise, and venture relationships. And it’s great for venture capitalists, inundated with deal-flow due to the decreased barriers to starting companies.

Is It 1999 All Over Again?

Yes — and No. The key difference is that the user adoption experiment — that is, the process to determine whether a business customer or a consumer is going to use a new product — can be run faster and more capital-efficiently than eight or even three years ago.

It does not cost less to scale a company. But running the initial experiment, and trying out a number of ideas before settling on a specific plan is an order of magnitude faster and less capital intensive than it used to be. That drastically reduced opportunity cost is great news for both entrepreneurs and venture investors.

Mar 14, 2007

The Art Of Not Pitching

Many great blogs and books tell you how to perfect your pitch to potential investors. What they leave out, however, is the most important pitch of all: the non-pitch. Successful entrepreneurs have mastered The Art of Not Pitching. Here’s how.

The key to not pitching is first and foremost that you are not raising money. But you need money to start or grow your business. Right, I know. This is the great irony of venture capital: the companies we are most interested in investing in do not need our money. They may want money from venture capitalists, it might help them go a lot faster, but they are going to carry out their vision with or without us.

Just last week I met a highly successful entrepreneur for lunch and he gave me the classic non-pitch. We talked for well over an hour, but never in that time did he pull out a single slide. Yet I would love to work with this entrepreneur.

He was able to communicate his concept and strategy in just a few sentences. He didn’t need a pitch because he was already busy building his product and acquiring users. Our money would help him scale, make key hires, and go faster, but he was busy building his vision.

The best entrepreneurs are starting stuff all the time, with or without money. This is simply in their nature. They aren’t starting completely new companies every second, but they are using every interaction — without thinking about it — as an opportunity for user or customer input, a chance to generate a new idea for a feature that might be useful, or a new company they might want to start somewhere down the road.

It’s not that the best entrepreneurs happened onto one idea and that was it, it’s that they were busy trying one idea after another and one of the ideas they tried stuck. Often the best concepts arrive when you are hard at work on something else.

Ultimately just about every deal does need a pitch of one form or another to synch the deal — to go in front of the partnership. But the best entrepreneurs can communicate their concepts so simply that no pitch is required — potential recruits, investors, and board members can “get” the concept without a slide deck. This enables them to come in and not-pitch: they may take us through a slide deck, but they could just as easily communicate their unique insight and vision without one.

How do you get to that point? It takes a lot of work. Forget the classic elevator pitch — far too long. See if you can describe your key insight in a sentence or two. Accomplish that, and a new avenue of pitching will become available to you: the non-pitch.

Mar 11, 2007

Startup Lessons From The Queen

My best learning comes in the form of either fast, simple lessons communicated from others to me, or long struggles the result of which cause my business acumen to take huge and often sudden catapults forward. What is as valuable as the learning process itself is finding my own simple examples that crystalize my beliefs into lessons I can articulate, apply, and repeat. The Queen illustrates two such key lessons for startups.

I’m talking, of course, about the movie that portrays the actions of the royal family (primarily in the form of the Queen), the prime minister, and the public following the death of Princess Diana in 1997. It’s been said elsewhere that the movie was funny and moving – it was – so I won’t bother repeating the rave reviews here.

The Queen wasn’t at the top of my list of movies to see, which is why I shouldn’t have been surprised when I got some of those classic, simplified examples I’m always hoping to find. Just as I’ve come to expect that the best learning comes unexpectedly, so to do the best simplified examples come in situations that weren’t part of the plan or at the top of my list of things to do.

Here they are:

1) You have to surround yourself with the best advisers who give you phenomenal advice, but ultimately you must make the call, even if it flies in the face of some of the advice you receive.

That’s what separates the decision maker from the advisers. Collect as much data as you can, but ultimately you’re making a decision based on what you believe is the right move. With smart advisers around you, the right advice is often in the room somewhere. It’s deciding which advice to listen to and which to ignore that matters.

Case in point: the difference between Blair and his speech-writer. As portrayed in the movie, the speech-writer was using every opportunity to take down the Queen while pumping up Blair – and he took the "take down" part too far. Blair recognized how bad a move the "Queen bends on knee to Downing street" headline was immediately ("when you screw up, you really screw up"), while the speech-writer didn’t: the decision maker versus the adviser. Had Blair continued to listen to his speech-writer as adviser in that instance, he would have created an enemy rather than an ally in the Queen. The Queen learned this critical lesson to about hearing advice but then making up her own mind – her mother and husband where both advising her to do nothing, others were advising her to take action: she had to take in all the data and then make a decision.

Lesson for the entrepreneur: an ability to collect huge amounts of data and then make your own decisions (even despite what others are saying) is a recipe for success. Knowing that, you just have to incorporate rule number two, which is:

2) Survival is dictated not by your ability to evolve and adapt, but by your ability to evolve and adapt faster than your environment.

Case in point: The Queen doing what she was raised to do, taking actions based on the experience of going through the war, what tradition indicated, when the right thing was to respond flexibly and uniquely to unique circumstances.

As Blair pointed out in the movie, flexibility – and evolution – is what it takes to survive. Every entrepreneur knows that, of course, but the real insight to be taken from this example is not just that you have to evolve to survive, but that you have to evolve faster than your environment is.

The pace at which your environment is evolving dictates the absolute minimum pace at which you must evolve to survive. Change slower than your environment, and you go extinct. Go faster and you have a real shot at winning.

Had the Queen waited another month to evolve her thinking, it would have been too late. As it was, it was down to the wire — "the time for statements is past," Blair tells her in the movie.

Startups fail for lots of reasons, but by far the biggest isn’t that they don’t evolve and adapt at all, but that they don’t evolve and adapt faster than their environment. It’s your relative pace that matters.

Mar 3, 2007