76

Mixergy

• Zaarly: How To Get 100,000 Subscribers In 3.5 Months – with Bo Fishback 3 January, 2012, 7:42 am
  Bo Fishback is the cofounder of Zaarly, a marketplace that changes the way people buy goods and services locally. In this interview you'll learn the story of how Zaarly started right out of the gate, balanced two markets, and got 100,000 subscribers in the first few months.
• Focus Tools: Focus on what’s important. Automate or outsource the rest. [first modules free] 3 January, 2012, 7:42 am
  After Ari Meisel was diagnosed with an incurable disease of the digestive tract, he developed process of dealing with the daily stresses of life, by optimizing, automating, and outsourcing all of his tasks in life and business. In this course, you'll see the tools Ari uses to focus on what's important and automate or outsource the rest.
• IndieGoGo: Helping Thousands Of People Raise Millions – with Slava Rubin 3 January, 2012, 7:42 am
  How do you help thousands of people raise millions of dollars to fund their dreams? Slava Rubin is the cofounder of IndieGoGo, the crowd funding platform where anyone can raise money for anything creative, entrepreneurial, or for a cause.
• eBoost: Recruiting And Developing A Rockstar Team – with Johnny Chan 3 January, 2012, 7:42 am
  How do you recruit and develop a rockstar team? Johnny Chan is cofounder of eBoost Consulting, a digital marketing consultancy, that does an especially good job of developing its team.
• Do you want to be on Mixergy? 3 January, 2012, 7:42 am
  Are you especially good at buying Facebook ads? Or do you have a system for getting insanely useful feedback from your customers so you can iterate quickly? Or can you practically SEO WordPress in your sleep? Or have you developed any other superpowers that other founders need to learn?

67

Eric Ries

• STARTUP IS VISION 28 November, 2011, 8:47 am
  The following is a rather unusual guest post. One of the more surreal parts of speaking publicly and putting ideas out into the ether is to watch other people run with them. I can't seem to help tuning into comment threads on blogs, news aggregators, etc. Internet people being what they are, a lot of these comments are nasty, brutish, and short.  However, every once in a while, I come across someone who consistently corrects other people's mistakes. Someone who seems to get it. And who am I to complain if that someone happens to be a giant robot dinosaur named FAKEGRIMLOCK? As it turns out, FAKEGRIMLOCK is a writer and artist with a unique style. This guest post has been authored entirely by him, and views expressed are his own. What follows is FAKEGRIMLOCK's perspective on the importance of vision in a startup. He understands that vision and iteration are allies, for there can be no science without vision. Only vision is worth testing. I'll let him take it from here... STARTUP MORE THAN BRAIN, MORE THAN MONEY, MORE THAN WORK HARD. STARTUP IS VISION. STARTUP IS MAKE FIST OF CODE, PUT IT THROUGH THE WORLD. VISION IS PUT FIST IN RIGHT PLACE, BREAK WORLD IN HALF. FIRST THING DISRUPT SELF EVERYONE GOOD AT SEE CAN'T. EVERYONE LIVE IN WORLD FULL OF IMPOSSIBLE. EVERYTHING THAT MATTER IMPOSSIBLE UNTIL SOMEONE DO IT ANYWAY. STOP BEING EVERYONE. STARE AT WHY NOT UNTIL IT GIVE UP AND BECOME HOW TO. STARTUP IS DO THING EVERYONE HAVE EXCUSE NOT TO. VISION IS STOP EXCUSES, MAKE FUTURE INSTEAD. NOW GO BIG. THEN BIGGER WHAT YOUR PRODUCT CHANGE? IF ANSWER NOT "WORLD", GO HOME. WORLD HAVE ENOUGH LITTLE IDEA. GET OUT OF LINE, DO SOMETHING BIG. NO CAN HAVE VISION LOOKING AT SOMEONE'S BACK. WHAT IF ONLY HAVE LITTLE IDEA? SMASH IDEA. THROW AWAY DETAIL. THROW AWAY FEATURE. THROW AWAY CAN'T. INSIDE LITTLE IDEA IS BIG PROBLEM HELD DOWN BY CAN'T. SET IT FREE. STARTUP IS SOLVE PROBLEM NO ONE ELSE WILL. VISION IS SOLVE PROBLEM NO ONE ELSE SEE. SET COURSE TO AWESOME SMART STARTUP BUILD, ITERATE, FAIL FAST. WITHOUT VISION FAIL FAST IS JUST LOTS OF FAIL. VISION NOT HOW. VISION IS WHERE. TAKE EVERYTHING YOU DOING THAT NOT MOVE TOWARDS VISION. STOP DOING IT. NOW EVERYTHING MOVE IN RIGHT DIRECTION. TOWARDS WIN. EVEN FAIL. STARTUP IS FAIL INTO BUILD IMPOSSIBLE. VISION IS FAIL INTO WIN EVERYTHING. TEST TODAY, NOT TOMORROW TEST IMPORTANT. TEST TELL YOU IF BUILD THING RIGHT. TEST ABOUT DETAILS. ONLY WAY TEST VISION IS WIN. VISION NOT A BULLETPOINT. NOT GO IN SPREADSHEET. THERE NO ALGORITHM FOR AWESOME. DETAILS IMPORTANT. FOR ENGINEER. BUILD TOMORROW NOT SAME AS WHAT TOMORROW TO BUILD. STARTUP IS SEE WINDOW, START BUILDING WINGS. VISION IS JUMP OUT WINDOW, TRUST WINGS HAPPEN BEFORE GROUND. NOW MAKE FIST INTERNET FULL OF WAY TO MAKE THINGS BETTER. LOTS OF STARTUPS OUT THERE MAKE THINGS BETTER THAN YOU. ONLY YOU FULL OF SEE WHAT THING TO BUILD. VISION IS SEE WHAT OTHERS NOT, DO WHAT OTHERS WON'T, WIN WHEN OTHERS CAN'T. VISION LIKE STORY WITH MOUSE AND CHEESE. SOMEONE MOVE CHEESE, MOUSE FORGET CHEESE, INVENT MACHINE GUN AND EAT CAT. BE THAT MOUSE.
• That old-time startup religion 15 November, 2011, 6:25 am
  Warning: the video below may be offensive to some readers. It contains irreverent use of religious language. Viewer discretion is advised.  So there I was, on stage in front of a large crowd, when Jason says "Has anyone seen the movie Apostle?" That's when I knew things were about to get interesting. I was in Los Angeles on book tour a few weeks ago. The Los Angeles Lean Startup Circle arranged a spectacular event. I was interviewed - live on stage - by Jason Calacanis for This Week in Startups. The video became Episode #199, and you'll get to watch it below. Jason's a controversial - and always entertaining - character. He's the founder and CEO of Mahalo, as well as the This Week In network. Oh and he also plays the occasional hand of televised high-stakes poker. So I really did not know what to expect when I met him on stage. For just about an hour, we had an in-depth interview, with Jason asking the kind of questions you only get from someone who has lived through the real highs and lows of entrepreneurship. I thought things were going well. And then things took a pretty hilarious turn. Jason decides, on the spot, that we're going to have our very own revival meeting. In a full-on southern preacher accent, he invites entrepreneurs up on stage for some "hands on healing" as they share their real stories of problems, challenges, and obstacles in their startups. And, to my great surprise, people come forward. To be honest, I thought it was going to be a disaster, but I was wrong. The rest you have to watch for yourself. Eric Ries of Lean Startup - TWiST #199 (The "Praise Jesus" starts at about 56 minutes in. Don't say I didn't warn you.) I wanted to share this video with you, and not just because it is extremely entertaining. At the end of the session, I can tell that something is starting to bother Jason. We've been talking all along about pivots, vanity metrics, and validated learning. And I can see it start to dawn on him that, like the founders we've been "healing" all night, he has some questions about Mahalo that he wants answered. And so we have a conversation, live on stage, about whether and how Mahalo should pivot from their current business (educational web videos) to a place where they're having unexpected success (paid iPad instructional video apps). A few days later, I noticed this in my newsfeed: Mahalo Lays Off 25 Percent for Shift to Apps From Video. And a few days after that, Mahalo got in touch to ask if I'd come into their studio to record a video instructional app based on The Lean Startup. After all that, how could I say no? So if you'd like to see the next chapter in this story, you're cordially invited to a video shoot, which will take place next Monday, November 21, at Mahalo World HQ in Los Angeles. I'll be lecturing, we'll take questions from the audience, and - if anyone has the courage to come on stage - we'll even do some "hands-on healing" case studies with real entrepreneurs. Want to come? Sign up here. See you Monday.
• Case Study: The Nordstrom Innovation Lab 25 October, 2011, 2:06 pm
  Today's case study answers a bunch of questions all at once about Lean Startup principles: can they be used inside a Fortune 500 company? can they be used to sell physical low-tech products? can they be used in a retail store? I have been confidently answering questions like these non-stop for the past few months. I do believe the answer is yes. But, as the saying goes, seeing is believing. And now you won't have to take my word for it. Nordstrom is currently ranked #254 on the Fortune 500 (yes, I looked it up) with over $9 billion in revenues. Scrappy startup they are not. And yet they face the same competitive pressures that are causing every modern company to take a long, hard look at the process they use to innovate. Anyone who has read The Innovator's Dilemma knows just how hard it is for a company that has been successful to invest in potentially disruptive innovations. I have been talking to JB Brown, the manager of the Nordstrom Innovation Lab about publishing a case study. At the same time, Nordstrom had sent a camera crew to document the Lab at work. When I saw the rough cut of the videos they were producing, I knew they would be a powerful teaching tool. It's one thing to talk about "rapid experimentation" and "validated learning" as abstract concepts. It's quite another to see them in action, in a real-world setting. Proving his understanding of minimum viable product, JB suggested that we start small, by posting a "case study MVP." That's how this post came to be. Below, you'll find two videos: one about the lab, and one containing a case study of the team at work. Watch them both. If you have questions, JB has generously agreed to make himself available to answer them in a future post. Just leave your question as a comment to this post. If there's sufficient interest, we'll expand this MVP. "A Lean Startup Inside a Fortune 500 Company" "We Really Don't Know What the Features Are Yet..." Here are some highlights that I found especially interesting: One-week iterations. One of the hardest things about corporate innovation is breaking through the slowness that is the default speed for most initiatives. The Nordstrom Innovation Lab solves this problem by working in one-week increments. In the second video above, you'll see them build an entire new product in one week end-to-end. Genchi gembutsu. This is one of my favorite concepts from the Toyota Production System. It translates roughly as "go and see for yourself" - it's the Toyota version of "get out of the building." By talking face-to-face with customers, salespeople, and managers in a physical store, the innovation team is able to identify an opportunity that they can execute against extremely quickly. But they go beyond simply "getting out of the building" - they actually set up shop physically in a retail store for the entire week. They build products, test new features, and get feedback all out in the open. You really have to see it to believe it. Simple, rapid, experiments. I hear all the time that developing for iOS, with its myriad approval delays and deployment obstacles means that you can't use rapid development techniques on that platform. Yet in the video you'll see this team overcome that bias with a little ingenuity. They simply brought two iPads with them. While the app is in development, the sales team is using one iPad, and the developers are working on another. At every break, the sales team swaps iPads with the developers - always using the latest version of the app. (The same technique works with paper prototypes, too.) Have questions for JB and the rest of the Nordstrom Innovation Lab team? Post them as comments.
• Best. Birthday. Ever. 29 September, 2011, 7:45 am
  Last week I turned 33, while on the road. I received an incredible amount of good news all at once. First off, I received the big news that you'll get to read if you open up the paper this coming Sunday: The Lean Startup has debuted at #2 on the New York Times Bestseller List. The Lean Startup debuts at #2 on the New York Times Bestseller List Look closely, and you'll see The Lean Startup right below televangelist Joel Osteen and right above The Guinness Book of World Records. The Wall Street Journal also maintains a bestseller list specifically for business books. The Lean Startup debuted there at #2 as well: On the very same day, my friend Hiten Shah was the first to spot this strange sight on a local newsstand: If you click through, you'll get to read a significant excerpt from the book in the current issue of Inc Magazine. But by far the best part of my birthday was getting to spend it with so many of you. (OK, the Chicago Lean Startup Circle's minimum viable birthday cake was pretty awesome, too). I have spent the past two years working on this book. I have believed all along that - with your help - we could take these ideas to a mainstream audience. You've done your part. By supporting the book in such large numbers, you've put it on the map for thousands of new people: entrepreneurs, managers, investors, and policy makers. As those people actually get a chance to read the book, we'll find out if I've managed to live up to my part of the bargain. I hope the book is worthy of the faith you all have placed in it. In any event, thank you. It's been an amazing ride - and the ultimate birthday present.
• Updates from the road 19 September, 2011, 7:25 am
  Greetings from Toronto, stop four on my book tour. I thought I'd share a few updates; for a firehose of detailed updates, follow me on Twitter or Plancast. Bundle Deadline Extended First things first: remember the Last Lean Startup Bundle, the one that I said was only going to run for 48 hours? Well, I keep getting talked into extending the deadline. I'm glad I did, since some folks have put the extra time to good use. For example, One of my favorite venture firms (who believed early in IMVU), Menlo Ventures, bought a Super Mentor Bundle for their portfolio companies. How cool is that? However, today is really truly the last day to order the bundle. Monday, September 20, 11pm EST. The early reviews are in I've been waiting months to find out how the world at large would react to the book itself, and it's such a relief that the moment is finally here. I'm extremely honored by this review in the Financial Times: Every so often a business book comes along that changes how we think about innovation and entrepreneurship. Clay Christensen’s theories on disruptive innovation and Geoffrey Moore’s potent metaphors of “crossing the chasm” from small to mass markets, and going “inside the tornado” of starting a business, have loomed large over entrepreneurial theory for years. Eric Ries’s The Lean Startup has the chops to join this exalted company. I'm equally proud of the comments and reviews from actual entrepreneurs and practitioners. And I even appreciate the constructive criticisms and other feedback. (And see how I'm resisting the urge to feed the trolls?) @DavidForrestDavid ForrestCongratulations to @ericries on his new book Lean Startup -theleanstartup.com/book - a MUST READ for any entrepreneur @CraigRutkunasCraig Rutkunas@ericries I was a bit sceptical because of all the hype, but I'm reading the #LeanStartup and it's awesome. Time well spent Eric. @rsukumarSukumar RajagopalJust finished reading #leanstartupby @ericries in one sittingamzn.to/razItT ~ ****ing brilliant. Groundbreaking stuff. Must read.And then there's the nearly 100 reviews on Amazon. Go check them out and, I hope, leave your own contribution. Photos from the tour Thanks to the folks at Montabe, there's a realtime image gallery of photos related to the book launch. I appreciate everyone who's taken the time to upload a photo of the book in the wild or a snapshot at one of our launch events. Here's a few of my favorites: That's it from the road. Having an amazing time. Thank you all so much.
• The Last Lean Startup Bundle: claim $3,000,000 in prizes 18 September, 2011, 3:49 pm
  The Lean Startup Book launches in just under a week. [Forget the verbiage, just show me the deal! OK: do you want 5-100 copies or 100+ copies?] How many copies will this book sell in its first week – real, hardcover, paper copies? If that number crosses some unknowable threshold, the book will debut as a bestseller, and then an awful lot of people are going to read it. People who would never bother with an entrepreneur’s blog, who may not even see themselves as entrepreneurs: shopkeepers and policy makers, CFO’s and private equity managers, and even future entrepreneurs. With your help, our movement can reach a truly mainstream audience, one that – at least in my humble opinion - truly needs to hear what we have to say. But there’s no reason we can’t have a little fun along the way. I wanted to create an absolutely irresistible offer, one that would entice you to buy not just a single book – but to buy one for your entire team, entire company, or just for everyone you know. This bundle is 100% stuff I think you will really use. No phony discounts. No free trials. The more books you buy, the more valuable the rewards. This blog post is going to be long, and below you will see every last detail of every last tier of prizes. I chose Amazon Web Services to be our marquee reward, and not just for the obvious reason that so many of you are - right this very moment – already hosting on AWS EC2. Almost any startup - in any industry - can use AWS to find and serve customers. I chose AWS because it offers so many different services, from hosting to databases to payments (FPS) to content delivery (CloudFront) - even e-commerce fulfillment (FWS). The AWS team is excited about the book, too, and they’ve stepped up huge: the tiers below contain almost $100,000 in AWS credits. Some of the packages are almost worth buying for that value alone. But only almost! Because at every level I have tried to give way more value than you’re paying. When you read the descriptions below, you’re going to think the “value” column is crazy. How could it possibly be that high? But I urge you to read the whole thing, check my math, and see if it’s real. Each and every package is worth what it says. Add them all up, and we're talking about $2,933,061.00 worth of prizes. No kidding around here. Some of the prizes are practical, like Pivotal Tracker, KISSmetrics, Ask Your Target Market, Assistly, Hello Bar and Sauce Labs. I’ve only included services that I believe in and that I think you’re going to use. Some of the prizes are just fun. My personal favorite (the prize I am secretly hoping won’t sell out so I can skim one for myself): a signed hardcover copy of one of my favorite new books, the crazy 80’s-video-game-themed sci-fi bestseller Ready Player One by Ernest Cline. (Yes, you will get one in the mail, courtesy of my publisher, and his, Crown/Random House). Trust me, when this book gets made into a movie and becomes the next WarGames, you’re going to feel pretty cool having this signed copy on your shelf. You’ll get awesome video content, including the video Lean Startup course I created exclusively for Udemy. You’ll the complete video recording of the amazing Lean Startup track at SXSW 2011, every single presentation. And many of you will get seven awesome action videos courtesy of Appsumo. And then there are the special bonus packages, for those who can make use of extremely large quantities of books. I asked some of the top Lean Startup super-mentors to volunteer to be prizes, and they are here. You can get time with me, too. And we’ve even got a spot in the extremely exclusive (and extremely cool) Lean User Experience Residency (LUXr) program, which normally costs $15,000. And, if you are disappointed that my book tour doesn’t take me to your city, you can instruct my publisher to change it. Truly, that’s just the tip of the iceberg. Dive in below and see what you think. Read more »
• The Lean Startup Book Tour 14 September, 2011, 10:04 am
  Today, September 13, 2011 is launch day! And, for me, it's literally a launch into a crazy amount of travel. For the next two weeks, I'm going to do as many events, interviews, and talks as I physically can. I hope you'll join me, either in person or virtually. A complete list of book tour stops for the first leg of my journey is below. To stay up-to-date, you can get the firehose of updates by following me on Twitter or for "just the facts" follow me on Plancast. However BEFORE WE CONTINUE with the list of events, can I ask just one favor? Many of you who pre-ordered the book -especially those of you on Kindle- have already received your copy. The Amazon.com reviews page for the book has just opened to the general public (up until now it's been limited to Amazon Vine reviewers). The first 24 hours are critical in establishing that all-important "average star rating" that tends to settle in. Would you take just a few minutes to post your honest impressions of the book on Amazon? I'd really appreciate it. Now, on with our regularly scheduled launch... Tuesday, September 13 - San Francisco TechCrunch Disrupt It all begins at TechCrunch Disrupt. At 11:45am I'll be honored to share the stage with two great entrepreneurs: Introducing The Lean Startup, by Eric Ries with case studies, Intuit’s Scott Cook and Instagram’s Kevin SystromAnd in the evening, the book launch party is also part of Disrupt. We'll be in the concourse from 5:30-7:30pm. Please come celebrate. If you like to support local independent bookstores, Book Passage, one of my favorite SF bookstores will be on hand selling copies, which I'm happy to sign. Wednesday, September 16 - On your TV Update: Just got word that I'll be appearing on Bloomberg West at 3pm PST. Be sure to tune in! Thursday, September 15 - Los Angeles Drucker Business Forum It starts bright and early at the Drucker Business Forum, with a breakfast event at 7:45am (talk starts at 8:15). Tickets are $35, which includes a copy of the book (I know you already have one - but give it to a friend?). I have a limited number of free tickets to give away, first-come first-served. You can grab one here. Details: The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful BusinessesTickets $20, $35 includes Ries’ book The City Club on Bunker Hill 333. S. Grand Avenue, 54th Floor Los Angeles, CA 90071Lean LA + This Week in Startups Twice on this trip, I'm sitting down with an over-the-top free-wheeling no-holds-barred interviewer that is guaranteed to be entertaining. How could I stop in LA without filming an episode of This Week in Startups with Jason Calacanis? Luckily, the amazing Lean LA meetup group has organized to do this in front of an audience, at the Santa Monica Civic Auditorium. Tickets are $30 and include a copy of the book. I'll be signing copies as well. Register here. A Conversation with Eric Ries Thursday, September 15, 2011, 7:30 PM 1855 Main St, Santa Monica, CA (map) Price: $30.00/per person Eric not only created the term "Lean Startup", he has sparked a movement that is changing the way people think about startups. In a very special Lean LA event, serial entrepreneur Jason Calacanis from Mahalo and This Week in Startups will interview Eric Ries live on stage at the Santa Monica Civic Auditorium. Friday,  September 16 - Seattle On Friday, I fly to Seattle, where I'll be for two days. The first day kicks off with two corporate events, one at Amazon (in their Fishbowl series) and one at Microsoft. Employees only. That evening, there will be a casual talk followed by a book signing at Town Hall Seattle (co-sponsored with Lean Startup Seattle). Friday • September 16 • 6pmHappy Hour with Startup Guru Eric Ries The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (CROWN) Town Hall Seattle, 1119 8th Avenue, Seattle (Enter on Seneca) For Eric Ries, a "startup" is an organization dedicated to creating something new under conditions of extreme uncertainty, no matter what the size. So how is it best to deal with uncertainty? How does an organization like this thrive? By learning to be rapidly responsive and agile. Ries wants to show you how. Please Note: Autographed copies of books are only available after the event. Presented by the Town Hall Center for Civic Life. Series media sponsorship provided by PubliCola. Series supported by The Boeing Company Charitable Trust and the RealNetworks Foundation. Tickets are $5 at brownpapertickets.org or 1.800.838.3006, and at the door beginning at 6pm. Town Hall members receive priority seating. $26.00  Buy an Autographed Copy  Saturday,  September 17 - Seattle StartupDay 2011 by Startup Weekend & Seattle 2.0  Startup Weekend and Seattle 2.0 are teaming up to put on an awesome all-day conference on Saturday. I'll be the closing keynote at 4:30, but you should really come for the whole day if you can. They've got an amazing line up of speakers, including Sean Ellis, Scott Porad, Rand Fishkin and many more. Register here. Monday, September 19 - Toronto My only Canadian stop on the tour is in Toronto at the Rotman School of Management. Startup Experts Speaker Series @ Rotman5:00 sharp to 6:00pm presentation and Q&ASPEAKER: Eric Ries, Author, Startup Lessons Learned Blog and The Lean Startup (Crown Business, September 13, 2011); Entrepreneur-in-Residence, Harvard Business School; Co-Founder and former Chief Technology Officer, IMVUTOPIC: “The Lean Startup: The Radical New Approach Savvy Entrepreneurs Use to Unleash Creativity, Work Smarter and Get Products to Market Sooner”PLACE: Fleck Atrium (ground floor), Rotman School of Management, University of Toronto, 105 St. George Street, Toronto (ON)BOOKSALE: additional copies of The Lean Startup will be available for sale at the eventFEE: $30 per person (fee includes HST, the session and 1 copy of The Lean Startup)TO REGISTER: Click Here Tuesday, September 20 - New York Unfortunately, all of my events in New York on this trip are closed to the public. Mostly, I'll be doing media and interviews, followed by a reception at IDEO. Never fear, I'll be back in a big way in October, centered around the Web 2.0 Expo.  Wednesday, September 21 - Boston A big event at Harvard Business School, where I'm returning this year as an Entrepreneur-in-Residence. This is event is free and open to the public. The talk itself will be in Burden Auditorium on the HBS campus, followed by a reception & book-signing in the brand-new Harvard i-lab: 5pm: The Rock Center & Harvard i-labpresent: Eric Ries Hear from Rock Center Entrepreneur-in-Residence, Eric Ries. Eric is the creator of the Lean Startup methodology and the author of the popular entrepreneurship blogStartup Lessons Learned. 6pm: Harvard i-lab reception with Eric Ries Following the talk with Eric Ries, join us for a reception - the inaugural event - at the Harvard i-lab. Co-sponsored by the Rock Center & the Harvard innovation lab.Thursday, September 22 - Chicago + Around the World The Chicago Lean Startup Circle and Northwestern University are hosting me on my birthday. As a birthday present, they've teamed up with Crown to organize a Virtual Book Tour version of this event. If you want to organize your own gathering anywhere in the world, and participate via live simulcast, you're welcome to do so. Just contact Paul Lamb at Random House. Details: Join us on Thursday, September 22nd for a Conversation with Eric Ries. Crown Books is releasing Eric Ries' book The Lean Startup in September, and Eric will be at the Chicago Lean Startup Circle on September 22nd for an "Actors Studio" style conversation with Bernhard Kappe.  The price of the ticket also includes a copy of Eric's book The Lean Startup.Thanks to Michael Marasco and the Farley Center for Entrepreneurship at Northwestern's McCormick School of Engineering, we'll be hosting this event at Northwestern University's Thorne Auditorium on Chicago Avenue by the lake. Register here.  September 23-26 - TBA I'll be in New York and then Washington DC for media on these days, but don't have anything public on the schedule to announce.  Tuesday, September 27 - San Francisco Home, home again.  I'm honored to be hosted by the Commonwealth Club of California, who I've spent many hours listening to on public radio. They obviously have a lot of courage, because not only are they putting me on stage, they've invited Dave McClure to interview me. He's promised to keep it clean enough for radio. We'll see. At least his crazy fonts can't shine through an audio-only medium, so he won't blind anybody. In all seriousness, I'm really excited about this event. If you can, please come out and join us. It'll be fun. Eric Ries: The Principles of a Lean Startup Sep 27 2011 - 6:30pmThe Principles of a Lean StartupEric Ries, Author, The Lean StartupIn conversation with Dave McClure, Founder, 500 Startups Starting one, working for one, going public with one – startups seem to be the thing to do in SF. But how do you make your startup great? Ries, the guru behind the “Lean Startup” sensation, asks: Is your startup employee-centric and knowledge-obsessed? Is your company functioning at optimal efficiency? Is your office a fun place to work? Ries will reveal what he believes to be the necessary hard facts that lead to a successful startup. Location: SF Club Office Time:  6 p.m. check-in, 6:30 p.m. program, 7:30 p.m. book signing/networking reception
 Cost: $20 standard, $12 members, $7 students Location  Blue Room, The Commonwealth Club   As always when I'm on tour, if you're a reader of this blog, please do come say hello. Your support and enthusiasm mean a lot to me. Thanks.
• The power of small batches 12 September, 2011, 8:01 am
  The following is an excerpt from The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses published by Crown Business.  In the book Lean Thinking, James Womack and Daniel Jones recount a story of stuffing newsletters into envelopes with the assistance of one of the author’s two young children. Every envelope had to be addressed, stamped, filled with a letter, and sealed. The daughters, age six and nine, knew how they should go about completing the project: “Daddy, first you should fold all of the newsletters. Then you should attach the seal. Then you should put on the stamps.” Their father wanted to do it the counterintuitive way: complete each envelope one at a time. They told him “that wouldn’t be efficient!” So he and his daughters each took half the envelopes and competed to see who would finish first. The father won the race, and not just because he is an adult. The one envelope at a time approach is a faster way of getting the job done even though it seems inefficient. This has been confirmed in many studies, including this one (from LSS Academy): Why does stuffing one envelope at a time get the job done faster even though it seems like it would be slower? Because our intuition doesn’t take into account the extra time required to sort, stack, and move around the large piles of half- complete envelopes when it’s done the other way. It seems more efficient to repeat the same task over and over, in part because we expect that we will get better at this simple task the more we do it. Unfortunately, in process-oriented work like this, individual  performance is not nearly as important as the overall performance of the system. (If you're skeptical, you're in good company. For a frame-by-frame breakdown of where the time went in that video, see this post.) But even if the amount of time that each process took was exactly the same, the small batch production approach still would be superior, and for even more counterintuitive reasons. For example, imagine that the letters didn’t fit in the envelopes. With the large- batch approach, we wouldn’t find that out until nearly the end. With small batches, we’d know almost immediately. All these issues are visible in a process as simple as stuffing envelopes, but they are of real and much greater consequence in the work of every company, large or small. What if it turns out that the customers have decided they don’t want the product? Which process would allow a company to find this out sooner? Lean manufacturers such as Toyota discovered the benefits of small batches decades ago. When I teach entrepreneurs this method, I often begin with stories about manufacturing. Before long, I can see the questioning looks: what does this have to do with my startup? But the theory that is the foundation of Toyota’s success can be used to dramatically improve the speed at which startups find validated learning. Toyota discovered that small batches made their factories more efficient. In contrast, in the Lean Startup the goal is not to produce more stuff efficiently. It is to— as quickly as possible— learn how to build a sustainable business. Think back to the example of envelope stuffing. What if it turns out that the customer doesn’t want the product we’re building? Although this is never good news for an entrepreneur, finding out sooner is much better than finding out later. Working in small batches ensures that a startup can minimize the expenditure of time, money, and effort that ultimately turns out to have been wasted. Want to know more about how small batches can dramatically change the way you work? Click here to pick up your copy of The Lean Startup.
• The ink is on the dead trees 8 September, 2011, 10:21 am
  I am holding in my hand one of the very first print editions of The Lean Startup. The Zen-inspired design by Marcus Gosling looks amazing in physical form. And in just two weeks, on September 13, 2011, it will be in bookstores everywhere. Read below for details on the book tour, how to get a free book, and more. Excitement about the book continues to build, and I am a little overwhelmed by all the attention. Over the weekend, The Lean Startup hit #1 on Barnes & Noble overall (it's still there as I'm writing this, wow). Amazon and B&N have been involved in a bit of a price war, dropping the price below $14 for the first time. And, in a minor but satisfying victory, my publisher has dropped the price of the Kindle edition to $12.99. The early reviews and endorsements have been amazing. I'm incredibly honored to have so many legends and personal heroes on this list (you can see them all on the Amazon listing). Here's a taste: "Eric has created a science where previously there was only art.  A must read for every serious entrepreneur—and every manager interested in innovation." —Marc Andreessen, co-founder of Andreessen Horowitz, Opsware Inc. and Netscape “This book should be mandatory reading for entrepreneurs, and the same goes for managers who want better entrepreneurial instincts. Ries’s book is loaded with fascinating stories—not to mention countless practical principles you’ll dearly wish you’d known five years ago.” —Dan Heath, co-author of Switch and Made to Stick "The Lean Startup isn't just about how to create a more successful entrepreneurial business, it's about what we can learn from those businesses to improve virtually everything we do. I imagine Lean Startup principles applied to government programs, to healthcare, and to solving the world's great problems.  It's ultimately an answer to the question 'How can we learn more quickly what works, and discard what doesn't?'"— Tim O'Reilly, CEO O'Reilly Media  The Book Tour Starting in two weeks, I'm going on a crazy action-packed book tour. We'll officially launch the book at TechCrunch Disrupt in San Francisco. From there, the tour goes through Los Angeles, Seattle, Toronto, New York, Boston, Chicago, DC, and culminates back in San Francisco at the Commonwealth Club on September 27. And that's just round one - I'll be back on the road in October, too. To get all the details on the tour, be sure to follow me on Plancast. I'll be posting links to every event there once they are online. Virtual Book Tour For cities that aren't on the tour, you can still participate remotely, via simulcast. This will probably take place September 23. We'll be offering the stream for free to organizers who want to create their own local events, as we did for Startup Lessons Learned. If you're interested in organizing an event, please contact Paul Lamb at Random House. One Last Lean Startup Bundle (& looking for beta testers) I'm going to be making one last push for book pre-orders, with an amazing bundle that will go live next week. It will be focused on evangelists who are willing to buy copies for their entire company. The prizes will make it an incredibly good deal - the lineup includes everything from tons of Amazon Web Services credits to time with world-class mentors to signed (!) copies of the new (and awesome) sci-fi novel Ready Player One. Unlike past bundles, this one will be tiered, so more copies = more prizes, and strictly quantity limited. Want to get a first look at the bundle? I'm looking for beta testers who want to get early access and be guaranteed to get in on the action before their preferred tier sells out. If you sign up for the beta program, you'll find out about the specific prizes and have a chance to order before everyone else. And, in case you hadn't guessed, you'll be looking at a minimum viable product - with details subject to change. If that sounds interesting, sign up now. Who Influences You? As the printed books roll off the presses, my publisher will be following the standard launch playbook: mailing early copies out to members of the press, influencers, and bloggers. I get a personal allocation of books to send out, and I'd like to invite you to tell me who to send them to. Who influences you? We all know that one person in our lives who is truly influential, who always gives good advice and who people look up to. It could be someone in the media, someone you work with, or just someone you know casually. If you want to nominate them to receive an early copy of the book for free, just let me know here. Please don't nominate yourself. LOL your way to a free early copy I only have a few early copies I can give away, and not everyone can be an uber-influencer. And I'm getting a little tired of taking this all so seriously. So I am including one last way you can get a completely free copy: create some Lean Startup-themed lulz. You can choose from any of these three memes: Lean Startup Junkies, Winter is Coming, or Lean Startup Cats. Post your entry in the comments (below), or vote for your favorite by replying to the comment. I'll send a free copy to the funniest entry or entries, as judged by the community. Thank you for your continued support. This book represents over two years of work. I can't wait to hear what you think. Stay tuned...
• Winter is coming 10 August, 2011, 8:29 am
  It doesn't matter if you call it a boom or a bubble. The startup business moves in cycles, and what goes up will eventually come down. We're in summer. One easy way to tell: notice all the startup experts and prophets that have sprung up in the last two years (myself included). Notice how many of them made their money during a previous boom. George R. R. Martin would call them summer's children. Summer will end. When, how much, and why - I don't know. These are questions for financial analysts and investors, people with their ears (and attention) much lower to the market-ground than entrepreneurs can afford. But the signs of winter are all around us: persistently high unemployment, market shocks, ill-timed austerity measures. For a while, startupland can stay insulated from these broader forces, but not indefinitely. The LP's that fund booms are, after all, pension, municipal, and sovereign wealth funds. Consumers need disposable income to invest in the latest products, as do the companies who serve them and advertisers who reach them. We've enjoyed these years of summer. But winter is coming. Entrepreneurs should be prepared. Obviously, those who depend on raising money at a specific time in the future should be on their guard. Anyone whose plan is to "raise money in six months" is really saying, "I am planning on no significant financial crises happening six months from now." I wouldn't want to be making such specific predictions right about now. As every expert has been saying: if you can raise money on fair terms right now, do it. If you can spend money fueling your engine of growth, do it. If you need to double-down on a major pivot, on a drive to hit product-market fit, do it. But we have much bigger questions to tackle about what will happen in winter. For example, entrepreneurship will suddenly stop being cool, and go back to being seen as risky, a little crazy, and a little dangerous. Those of us promoting the idea that entrepreneurship is a viable career option need to be ready. Right now, the "startup career" is an easy case to make. It's going to get harder. We need to be ready. Those people working to nurture and support new startup hubs may see all of their hard work destroyed. I am especially worried about the burgeoning scene in places like New York. Will Union Square become another Silicon Alley? I hope not. We need to be thinking about this now. The endless networking groups that thrive on hype and sizzle will suddenly wither. Do we have enough groups that are focused on the nuts-and-bolts of real entrepreneurship to keep those ecosystems vibrant? Which kind of group are you investing your time and energy into right now? I expect that a shocking number of the current crop of incubators, accelerators, and other startup-support programs will suddenly disappear. In summer, it's all-too-easy to have your program look like a success, because there is an endless supply of talented people becoming first-time entrepreneurs and an endless supply of investment dollars chasing them when they graduate. It's hard to know, in summer, which of these programs actually add value and which are glorified admissions officers. Winter will tell. If you depend on one of these program for support, be ready. This may sound like all doom and gloom, but I'm feeling personally very optimistic. Hype gets in the way. Every ounce of energy invested in vanity metrics and success theater could have gone into building real value instead. As I've been saying in my talks for a while now, the real entrepreneurship - not the caricature from pop culture and mass media - is boring, tedious, and extremely difficult. It's anything but cool: product prioritization meetings, deciding which customers to listen to and which to ignore, and valiantly trying to keep the vision alive in the face of contradictory facts. To recruit people into that business, the real innovation business, should be our goal. I hope all of us are ready to reach out to those founders and would-be founders and nurture and support them through the hard times. That will create real value. As I see it, the big opportunities to change entrepreneurship come in winter. During the last crisis, I was asked constantly for my advice on how to save money and cut costs. Most people didn't really expect my answer to be about the Build-Measure-Learn feedback loop and all the rest of the Lean Startup methodology. But the truth is: to save money, we have to cut any costs that are slowing down our ability to find validated learning about whether we're on the path towards a sustainable business. Cutting any other costs just help us go out of business more slowly. But this begs the question: if we're spending money on something that is slowing us down, why are we doing it all? And why did we have to wait for a financial crisis to cut those costs? Why not cut them now? Fall is a pretty good season to get serious about discovering which actions really contribute to creating value and which are waste. It's harder to act in a disciplined way in summer. All around you, you see excess and nonsense, companies being bought or funded for zillions of dollars without traction. It's hard to stay focused. Remember: most of those "lucky" companies die inside their new parent companies. Remember: in the long run, the surest way to be successful is to create more value than you capture. Remember: the truly great entrepreneurs didn't get in this to make money, but to change the world. Stick to that plan, and - even if you fail - you'll feel good about yourself in the morning, in any season.

49

Chris Dixon

• Building products from improvised user behaviors 2 January, 2012, 2:49 pm
  For a long time, there were niche communities of “lo-fi” camera enthusiasts: people who shared photos taken on old cameras that had interesting ways of filtering shots. The iPhone app Hipstamatic popularized lo-fi filters, selling over 1M copies. Because Hipstamatic lacked sharing features, many users took pictures with Hipstamatic and then shared them using other apps. Then came Instagram, which combined lo-fi filters and easy sharing. Instagram has been downloaded 15M times and has apparently crossed over to mainstream users. Instagram built a product devoted to a job that users were previously performing improvisationally using multiple products. This is a common pattern for popular software and services. Before Twitter, people shared interesting links through email or “link round-up” blog posts. Tumblr’s short-form blogging/re-blogging was inspired by an “unintended” use of long-form blogging platforms like WordPress. Before Foursquare, power socializers sent out mass text messages with their locations (in fact, Foursquare’s predecessor Dodgeball did exactly that). New startup ideas are all around you, in the improvised behaviors of people you know. It takes a keen product eye, however, to notice these improvisational behaviors and recognize which ones are worthy of being developed into standalone products.
• Recruiting programmers to your startup 29 December, 2011, 10:41 am
  Here are some things I’ve learned over the years about recruiting programmers* to startups. This is a big topic: many of the points I make briefly here could warrant their own blog posts, and I’m sure I’ve omitted a lot. - The most important thing to understand is what motivates programmers. This is where having been a programmer yourself can be very helpful. In my experience programmers care about 1) working on interesting technical problems, 2) working with other talented people, 3) working in a friendly, creative environment, 4) working on software that ends up getting used by lots of people. Like everyone, compensation matters, but for programmers it is often a “threshold variable”. They want enough to not have to spend time worrying about money, but once an offer passes their minimum compensation threshold they’ll decide based on other factors. - Software development is a creative activity and needs to be treated as such. Sometimes a programmer can have an idea on, say, the subway that can save weeks of work or add some great new functionality. Business people who don’t understand this make the mistake of emphasizing mechanistic metrics like the number of hours in the office and the number of bugs fixed per week. This is demoralizing and counterproductive. Of course if you are running a company you need to have deadlines, but you can do so while also being very flexible about how people reach them. It is sometimes helpful to think of recruiting as 3 phases: finding candidates, screening candidates, and convincing candidates to join you. - Finding means making contact with good candidates. There are no shortcuts here. You need to show up to schools, hackathons, meetups – wherever great programmers hang out. If your existing employees love their jobs they will refer friends. Try to generate inbound contacts by creating buzz around your company. If you have trouble doing that (it’s hard), try simple things like blogging about topics that are interesting to programmers. - Screening. Great programmers love to program and will have created lots of software that wasn’t for their jobs or school homework. Have candidates meet and (bidirectionally) interview everyone they’ll potentially be working with. If the candidate has enough free time try to do a trial project. There are also more procedural things that can be useful like code tests (although they need to be done in a respectful way and they are more about getting to know how each side thinks than actually testing whether the candidate knows how to program (hopefully you know that by this stage)). - Convincing them to join you. This is the hardest part. Great programmers have tons of options, including cofounding their own company. The top thing you need to do is convince them what you hopefully already believe (and have been pitching investors, press etc): that your company is doing something important and impactful. The next thing you need to do is convince them that your company is one that values and takes care of employees. The best way to do this is to have a track record of treating people well and offer those past employees as references. A few things not to do: you will never beat, say, Google on perks or job security so don’t even bother to pitch those. You’ll never beat Wall Street banks or rich big companies on cash salary so don’t pitch that either. You’ll never beat cofounding a company on the equity grant, but you can make a good case that, with the right equity grant, the risk/reward trade off of less equity with you is worth it. Finally, I’ve long believed that early-stage, funded startups systematically under-grant equity to employees. Programmers shouldn’t have to choose between owning a fraction of a percent of an early-stage funded company and owning 50% of an unfunded company they’ve cofounded. Naval Ravikant recently wrote a great post about this: Post-traction companies can use the old numbers – you can’t. Your first two engineers? They’re just late founders. Treat them as such. Expect as much. Making those first engineers “late cofounders” will dramatically increase your chances of recruiting great people. This is a necessary (but not sufficient) condition for getting the recruiting flywheel spinning where great people beget more great people. * As someone who personally programmed for 20 years including about 10 years professionally, I preferred to call myself a “programmer.” Some people prefer other words like “hacker” “developer”, “engineer” etc. I think the difference is just uninteresting nomenclature but others seem to disagree.
• My year in blogging 28 December, 2011, 7:54 pm
  It was a mixed year for me as a blogger. I didn’t post much as I would have liked – I spent most of the year working with eBay in a process that eventually led to Hunch being acquired. But I also learned a lot and tried to share some of those learnings here. Below are the posts I think were the best and also seemed to get the most pageviews and reader comments. An internet of people Making industries “garage ready” for startups Business development: the goldilocks principle Some lessons learned Do you want to sell sugar water or do you want to change the world? What the NYC startup world needs (and doesn’t need) Founder/market fit Best practices for raising a VC round There are two kinds of people in the world Apple and the TV industry Google’s social strategy MIT is a national treasure Dropbox and why you should invest in people SEO is no longer a viable marketing strategy for startups Selling pickaxes during a gold rush Predicting the future of the Internet is easy: anything it hasn’t yet dramatically transformed, it will. For older posts, see the contents page. I haven’t updated this page in a long time but plan to do so soon.
• Michael Lewis’ Boomerang 22 December, 2011, 2:17 pm
  Michael Lewis’ Boomerang is the best book you can read to understand the global credit crisis. Here’s an excerpt from the chapter on Iceland that involves fishing, smelting, banking, and elves. Yes, elves. Alcoa, the biggest aluminum company in the country, encountered two problems peculiar to Iceland when, in 2004, it set about erecting its giant smelting plant. The first was the so-called hidden people—or, to put it more plainly, elves—in whom some large number of Icelanders, steeped long and thoroughly in their rich folkloric culture, sincerely believe. Before Alcoa could build its smelter it had to defer to a government expert to scour the enclosed plant site and certify that no elves were on or under it. It was a delicate corporate situation, an Alcoa spokesman told me, because they had to pay hard cash to declare the site elf-free, but, as he put it, “we couldn’t as a company be in a position of acknowledging the existence of hidden people.” The other, more serious problem was the Icelandic male: he took more safety risks than aluminum workers in other nations did. “In manufacturing,” says the Alcoa spokesman, “you want people who follow the rules and fall in line. You don’t want them to be heroes. You don’t want them to try to fix something it’s not their job to fix, because they might blow up the place.” The Icelandic male had a propensity to try to fix something it wasn’t his job to fix. Back away from the Icelandic economy and you can’t help but notice something really strange about it: the people have cultivated themselves to the point where they are unsuited for the work available to them. All these exquisitely schooled, sophisticated people, each and every one of whom feels special, are presented with two mainly horrible ways to earn a living: trawler fishing and aluminum smelting. There are, of course, a few jobs in Iceland that any refined, educated person might like to do. Certifying the nonexistence of elves, for instance. (“This will take at least six months—it can be very tricky.”) But not nearly so many as the place needs, given its talent for turning cod into PhDs. At the dawn of the twenty-first century, Icelanders were still waiting for some task more suited to their filigreed minds to turn up inside their economy so they might do it. Enter investment banking. It’s a short book – just 5 chapters covering Iceland, Ireland, Germany, Greece, and California. What’s particular fascinating is how each place had a wildly different reaction to the credit glut.
• The TripAdvisor IPO 21 December, 2011, 6:10 pm
  - Great startup story. Raised a total of $4.2m in venture capital, sold to IAC/Expedia for $210M, and had some interesting adventures and pivots along the way. They started out by trying to aggregate reviews from other websites and white label their product to Expedia and other large travel websites. TripAdvisor.com was just a showcase that accidentally became a destination site. As of today TripAdvisor is an independent public company, trading at a market cap of $3.5B. - Great for Boston. Fairly or not, Boston is often typecast as an infrastructure, B2B, hardware, and biotech town. Between Tripadvisor and Kayak, Boston now has at least two very important consumer internet companies. - Big win for the “golden age of SEO”.  By which I’m referring to roughly 2001-2008 when “demand” for content (people typing in search queries) far outpaced supply (good content). Companies like Yelp and TripAdvisor (along with Wikipedia, IMDB, etc) grew huge during this period, almost entirely through SEO. They did this by getting highly defensible flywheels spinning where more content meant more SEO which meant more users which meant more content. It is now far more difficult to grow a startup primarily through SEO. Almost all monetizable search categories have vast excesses of SEOd content. Moreover, Google is creating their own content (e.g. Google Places) which, at least at times, they have favored in their search results. - The user experience should improve. MG Siegler and others have criticized TripAdvisor for an excess of ads. I don’t disagree with MG, but I also think this is largely the result of the broken online ad attribution system that punishes intent generators and rewards intent harvestors. Travel reviews are for users at the beginning of the travel research process (which on average takes weeks), but all CPA and CPC ad programs pay only for the last click which usually means when users are purchasing tickets or making reservations. Hence review sites are forced to saturate their website real estate with purchasing widgets and display ads. Hopefully as online ad attribution improves this will no longer be necessary. - It’s weird how little coverage this IPO got and how the financial press missed the interesting stories. TripAdvisor ended the day at ~$3.5B in market cap, making it the second most valuable East Coast consumer internet company (after Priceline). Every story I saw focused on the share price drop over the day. The fact that the price dropped from its opening price simply means the bankers mispriced the stock and therefore insiders didn’t get the sweetheart deal they thought they were getting. Update: I interviewed the CEO/founder of TripAdvisor on TechCrunch yesterday. Topics include the company’s origins, relationship with Google, SOPA, and advice to fledgling entrepreneurs.
• What jobs are users hiring your product to perform? 21 December, 2011, 1:04 am
  One of Clay Christensen’s favorite concepts is that instead of dividing your customers into segments and asking which features each segment would like, you should think about what “job” the customers are “hiring” you product to perform. Here is an example: A fast-food restaurant chain wanted to improve its milkshake sales. The company started by segmenting its market both by product (milkshakes) and by demographics (a marketer’s profile of a typical milkshake drinker). Next, the marketing department asked people who fit the demographic to list the characteristics of an ideal milkshake (thick, thin, chunky, smooth, fruity, chocolaty, etc.). The would-be customers answered as honestly as they could, and the company responded to the feedback. But alas, milkshake sales did not improve. The company then enlisted the help of one of Christensen’s fellow researchers, who approached the situation by trying to deduce the “job” that customers were “hiring” a milkshake to do. First, he spent a full day in one of the chain’s restaurants, carefully documenting who was buying milkshakes, when they bought them, and whether they drank them on the premises. He discovered that 40 percent of the milkshakes were purchased first thing in the morning, by commuters who ordered them to go. The next morning, he returned to the restaurant and interviewed customers who left with milkshake in hand, asking them what job they had hired the milkshake to do. “Most of them, it turned out, bought [the milkshake] to do a similar job,” he writes. “They faced a long, boring commute and needed something to keep that extra hand busy and to make the commute more interesting. They weren’t yet hungry, but knew that they’d be hungry by 10 a.m.; they wanted to consume something now that would stave off hunger until noon. And they faced constraints: They were in a hurry, they were wearing work clothes, and they had (at most) one free hand.” The milkshake was hired in lieu of a bagel or doughnut because it was relatively tidy and appetite-quenching, and because trying to suck a thick liquid through a thin straw gave customers something to do with their boring commute. Understanding the job to be done, the company could then respond by creating a morning milkshake that was even thicker (to last through a long commute) and more interesting (with chunks of fruit) than its predecessor. The chain could also respond to a separate job that customers needed milkshakes to do: serve as a special treat for young children—without making the parents wait a half hour as the children tried to work the milkshake through a straw. In that case, a different, thinner milkshake was in order. There are at least three obvious ways to apply this concept: 1) when searching for startup ideas, think about jobs people want done that they can’t currently get done, 2) when thinking about how to fix or improve your product, understand why existing users are hiring your product (or should be hiring your product) and try to improve those experiences, 3) when analyzing markets, segment companies by the jobs they are hired for. Sometimes products that might appear similar (e.g. two photo sharing apps) are actually hired for very different purposes, and are therefore misclassified as competitors.
• Trusting platforms 20 December, 2011, 6:30 pm
  In response to my post yesterday about how an internet of people has enabled a new wave of web-based marketplaces, Nick Mango commented: There’s actually 2 levels of trust here. The first is knowing and trusting the person you’re buying from. And if you don’t know who they are, then you must move on to the second level of trust, which is do you know and trust the platform the person is using. The ability to have “second order trust” is one of many reasons the internet has made so many institutions obsolete. Take the SEC’s role in policing private companies that market themselves to potential investors. This was sensible consumer protection back when the government was arguably the only organization that had the means and incentives to identify fraudulent investment schemes. But today we have many examples of websites that’ve built mechanisms for reliably tracking the reputations of individuals and organizations. This means the SEC could – in theory – make the unit of regulation platforms instead of investors and startups (something the crowdfunding bill being considered by Congress seems to do at least in part), which in turn could unleash a new wave of innovation among crowdfunding platforms and crowdfunded startups.
• An internet of people 19 December, 2011, 1:23 pm
  Over the past few years, a bunch of web-based marketplaces have gotten popular – Etsy, Kickstarter, AirBnb, to name a few. Many of these business ideas had been tried before but are succeeding only now. When a trend like this emerges, it’s always interesting to ask “why now?” For example, for almost a decade, entrepreneurs tried to create video sharing services like YouTube, but only succeeded when certain key dependencies – broadband, digital video cameras, a version of Flash that “just worked” – became widespread. I asked Roelof Botha the “why now” question regarding web-based marketplaces. He said something I thought was really interesting: marketplaces depend on trust, and trust requires knowing the reputation of a prospective counterparty. Today, for the first time, you can get background information on almost any prospective counterparty by searching Google, Facebook etc. Or put more simply: we finally have an internet of people.
• cdixon.org site statistics 14 December, 2011, 7:39 pm
  I hadn’t looked at cdixon.org site logs in over a year until today.  Here are the numbers according to the Dreamhost panel: I’ve been blogging more lately which explains why Dec 2011 is tracking to be up near 2M page views (although frankly that number seems high to me- I wonder if somehow they are counting each page view multiple times – maybe due to the way WordPress works?) As if we needed another reminder of how wrong Compete data is here is their chart: Not even directionally correct.  Yeah they show UVs and not pageviews but I don’t see any reason those would have gotten decoupled. (I had cdixon.org tagged with Quantcast for a while but removed it a few weeks ago –  their chart when cdixon.org was tagged makes more sense (as you’d expect)). I blog just for fun / hobby, so don’t really care about these stats. But it’s interesting to see the (in)correctness of these popular analytics services.
• Forces that affect whether a large company will buy your product (according to Marc Andreessen) 14 December, 2011, 6:08 pm
  From Marc Andreessen’s “Moby Dick Theory of Big Companies“: You can count on there being a whole host of impinging forces that will affect the dynamic of decision-making on any issue at a big company. The consensus building process, trade-offs, quids pro quo, politics, rivalries, arguments, mentorships, revenge for past wrongs, turf-building, engineering groups, product managers, product marketers, sales, corporate marketing, finance, HR, legal, channels, business development, the strategy team, the international divisions, investors, Wall Street analysts, industry analysts, good press, bad press, press articles being written that you don’t know about, customers, prospects, lost sales, prospects on the fence, partners, this quarter’s sales numbers, this quarter’s margins, the bond rating, the planning meeting that happened last week, the planning meeting that got cancelled this week, bonus programs, people joining the company, people leaving the company, people getting fired by the company, people getting promoted, people getting sidelined, people getting demoted, who’s sleeping with whom, which dinner party the CEO went to last night, the guy who prepares the Powerpoint presentation for the staff meeting accidentally putting your startup’s name in too small a font to be read from the back of the conference room… Man, I wish Marc still blogged.  (ht saul lieberman)

43

readwriteweb

• Strategy Roundtable: Spotlight On Jacksonville, Florida 26 January, 2012, 3:30 pm
  Today's roundtable was co-hosted with the Jacksonville Startup Weekend. For the uninitiated, Startup Weekends are 54-hour events where entrepreneurs come together to pitch ideas, form teams, and learn best practices. This past weekend, the Jacksonville entrepreneurship community hosted their own version of this exciting program. 150 people came together, and 17 businesses were formed. An additional 50 were on the wait-list, an evidence of the energy and enthusiasm that is bubbling in Florida right now. MJ Charmani, founder of iStart Jax, a business accelerator, and one of the key organizers of the event, introduced today's session with additional reports on last weekend's event. Sponsor Armex Zero Suit First, Eric Keeler with Armex Industries, Inc. pitched the Armex Zero Suit, a new kind of durable, special-purpose suit with significantly higher heat and cold resistance targeted towards racecar drivers, firefighters, and military personnel. Eric has done some technology scouting, and believes he can deliver on the specs of the product. The problem, however, is that he is assuming that an investor would fund the product development. Investors rarely fund concepts. Even seed investors generally fund businesses that are already rolling. So, Eric will need to create a method with which to get to paying customers before any investor would invest. In addition, there is significant work to do on market sizing and go-to-market strategy. Direct selling simply is not the right solution for bringing this product to market. The price-point is too low for that to be sustainable. pay2pitch.com Next Perry Kaye presented pay2pitch.com, a network where entrepreneurs will come and pitch investors and mentors and pay, say, $1,000 for a twenty-minute interaction. The money, however, will be donated to the investor or mentor's favorite charity. Perry rightly points out that a miniscule percentage of entrepreneurs get funded. We agree on the observation, and many of you have already seen our The Other 99% video. However, Perry's observation that entrepreneurs don't get funded because they can't get meetings is not entirely accurate. Most entrepreneurs don't get funded because they are simply not fundable. For a variety of different reasons that have to do with the fundamentals of their businesses, entrepreneurs, even if they CAN get meetings, don't get funded. So paying $1,000 to get a 20-minute meeting, in my opinion, is a total wastage of money. Of course, if the assumption is that this is for charity, that is different. The second problem with the assumption here is that mentoring networks typically do not scale. You can see my video on the subject to get more color on why. Bottomline, we get this question very often: Can 1M/1M help me get funded? So yes, tons of entrepreneurs are looking for funding, whether or not they should. Most of them are not fundable. So getting them to pay $1,000 for a 20-minute meeting that will most likely result in a rejection seems deceptive to me. Ziffor Then Tim LeMaster pitched Ziffor, a service for table restaurants that would like to offer promotions for non-peak times. This is a compelling idea, because many restaurants that have experimented with Groupon-like services have often been overwhelmed with unprofitable customers showing up during peak hours. Tim's idea offers a good solution to this problem. However, there are some serious operational complexities involved to make a solution like this work at scale. Getting access to restaurant booking data won't be easy. Also, selling to restaurants is expensive, as we have seen in the massive operational expenditure and lack of profitability in the Groupon model. I reviewed Tim's financial assumptions, and advised him to redo them with the assumption that the team would have to bootstrap the business locally, get enough validation, etc., before any investor would even consider investing. SustanAbin Next Rushabh Shah pitched SustainAbin, a concept that anchors on the assumption that 83 million people are searching for how to practice a green lifestyle. Rushabh wants to create a portal that harnesses this traffic, and give them meaningful content, based on which he would be able to generate high value leads for local businesses in the sustainability area such as solar, organic farming, etc. Rushabh needs to do a lot of studying of how lead-arbitrage businesses work. To make a case of the business he proposes, he would have to, somehow, channel the search traffic from Google to his site. This is the domain of PPC and SEO, and the market is very competitive, buying extremely expensive. On the business model side, also, some of the assumptions of monetizing with advertising are misplaced. I keep repeating this: there is way too much unmonetized ad inventory out there, driving CPMs down. Dramatically. Rushabh's analysis of the business needs to be significantly more thorough and comprehensive to even assess viability. Bthere Vincent Laganella then pitched Bthere, an excellent concept of analyzing 911 data feeds to extract leads for glass repair, door and window repair, and other crime-related contexts that immediately trigger needs in consumers. For example, a consumer has just had a burglar break in to the house through a glass window. The 911 call would generate a lead for a local glass repair shop instantly. And small businesses would be more than happy to pay good money for such immediately actionable leads. Very strong idea, and excellent analysis of the business fundamentals. Overall, today's roundtable was a window into Jacksonville's efforts at drumming up additional entrepreneurship for regional economic development. The Startup Weekend programs around the world are doing this in different cities, and the organization is supported by the Kauffman Foundation. We look forward to supporting more such efforts through the 1M/1M initiative. The Roundtable You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables on the following dates starting at 8:00 a.m. PST: Thursday, February 2, Register Here. Thursday, February 9, Register Here. Thursday, February 16, Register Here. Thursday, February 23, Register Here. If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs. I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch, and it will help you to decide if 1M/1M is a program for you. Discuss
• Infographic: What the Heck is an LLC? 20 January, 2012, 2:00 pm
  The kind folks at Intuit have posted this infographic on their blog this week that describes what a limited liability corporation is and how it stacks up to other kinds of corporate entities. It couldn't come at a better time for my family, as my wife is considering expanding her own business and wants to investigate her options. LLCs are great if you want to limit the amount of bookkeeping you have to do and if you don't mind paying self-employment taxes. A better choice for larger businesses is an S Corporation (which is what I have used over the past several decades) which has more books to keep but also more flexibility when it comes to how your income is taxed too. Sponsor Thanks Intuit for putting together a great amount of information in one place. Discuss
• Little Startup Makes It To the Big Stage, the Super Bowl 20 January, 2012, 1:15 pm
  There comes a time in the life of any startup where the founders look at each other, let out a sigh of relief and say, "we're going to make it." Startup founders and their first employees work countless hours making sure the product is functioning, helping clients and customers and responding to mini-catastrophes that crop up all over the place like wild fires during the Santa Ana winds. The founders of Boston-based startup Promoboxx must be breathing that sigh of relief. Promoboxx has landed a deal with Chevy to power its Super Bowl commercials from local dealers. Yes, that Super Bowl. The one where Madonna is playing the halftime show this year. How did a little startup out of TechStars Boston make it to the biggest stage in the world? Sponsor Chevy will utilize the PromoBoxx platform to engage its 6,000 dealers with co-branded campaigns designed for each specific dealers. The commercials are being released before the Super Bowl and local dealers are given tools to promote their own specific version of the campaign online through email, Twitter, Facebook and their own websites. Think about the logistics behind that for a second. That is 6,000 dealers with their own co-branded commercials. Each dealer has thousands of customers. That is a lot of very specific, locally targeted marketing going on. That means that Promoboxx's platform needs to be very robust and scalable to deliver content at rates that size. "We built it to be a cloud scalable platform that is able to handle practically simultaneous infinite users and large national brands" said Jamie Fiedler, lead engineer at Promoboxx. To accommodate Chevy, Promoboxx had to create new user interface and unique experience for each of the 6,000 dealers. That is not easy. Promoboxx teamed with Big Fuel, a social media company out of New York, to handle the issue. "The design and development team was updating the Promoboxx dealer engagement portion of the platform at the same time as they were revamping the entire product," Promoboxx CEO Ben Carcio told ReadWriteWeb. Therefore, all of this new technology being developed will morph into the overall product offering. This made the Promoboxx technology team realize how flexible the product needed to be when working with such large brands, which forced them to build a Modular RESTful API." Promoboxx focused on creating a flexible backend to handle the needs of each specific dealer. This will be the biggest test for Promoboxx. With 6,000 dealers of varying degrees of technological prowess, the platform needs to be simple enough to be everything to everybody. "The way the process works can vary per brand, so the importance of a flexible API/backend was super crucial. There wasn't a defined path that every company or dealer would follow, so flexibility was an essential part," said Fiedler. Super indeed. Super Bowl that is. Promoboxx has likely hit an inflection point in its evolution. The company got its first big break. Now the real work starts. Discuss
• Strategy Roundtable For Entrepreneurs: Are Media Sites Fundable? 19 January, 2012, 3:45 pm
  Today's roundtable brought some core issues up for debate regarding media startups that are focusing largely on Content and Community features and expecting to get funded. So, I would like to take some time to offer a broad overview on the topic and some pointers to entrepreneurs who are making the assumption that you can raise $500,000 for such a venture. Be careful! Empower Lounge Misty Gibbs from Austin, Texas, presented Empower Lounge, a concept for a website that focuses on offering inspirational content along four major vectors: work, health, play and giving. In addition, the site will offer some level of professional networking. Misty is folding in a national site, Inspiration Lounge, and a local site, AustinWomen, to bring together her current 10,000-strong subscriber base under the Empower Lounge umbrella. Sponsor I probed quite hard about the specific positioning for the site and brainstormed with her on examples of other sites/organizations with related agendas: Women 2.0, ASTIA, Ladies Who Launch, etc. The first two are non-profits, and Ladies Who Launch is still a fairly small-traffic destination, far from a venture-style, high-growth business. The company that has successfully monetized in the women vertical is Glam Media, but their model is of a Vertical Ad Network. I also pointed out that there is way too much unmonetized ad inventory online, a challenge that is putting digital publishers through serious heartburns. I have shared my thoughts on this topic over and again on my blog, as well as elsewhere on the Web. We've had substantive discussions on the topic with entrepreneurs such as John Ramey, CEO of iSocket, Kenny Rosenblatt, CEO of Arkadium, and Jay Samit, CEO of SocialVibe, who all attest to the downward pressure on CPM rates and the challenges of low fill-through. In addition, ad networks taking large cuts of ad revenues put further pressure on the publishers. Vikrant Mathur, CEO of iFood.tv discusses that at length in the blog post here. Vikrant is running a bootstrapped publishing company, and is a 1M/1M premium member. In 1M/1M, we happen to have a great deal of experience dealing with such companies and their challenges. I don't think I got through to Misty, though. She is 'confident' that she can raise $500,000 for this website right away. Well, good luck, Misty! I hope you are right. However, for other entrepreneurs who may be listening a bit more seriously to the challenges facing the industry, I would also like you to invest some time and energy in assessing the 'fundability' of your project before making assumptions like this. You can use the 1M/1M Self-Assessment for that purpose. Also, here is a short video on the issue of fundability, addressing some questions that we hear often from entrepreneurs. In conclusion, I would like to highlight the fact that entrepreneurs really should STOP focusing so much on funding and start worrying more about how to build a sustainable business. Less than 1% of entrepreneurs actually ever get funded. The other 99% who go out to look for financing get rejected. But there is no reason to believe that you cannot succeed even without funding. So, my advice to Misty is to focus on the business fundamentals of how to get to revenues and profits within a realistic time frame. Here is my video message to all entrepreneurs who are focused on raising money and are facing difficulty: The Other 99% (Entrepreneurs). Themeefy Also, Titash Neogi from Pune, India, pitched Themeefy, a publishing platform for self-publishers that helps users create, curate and publish books, magazines, etc. I happen to know a great deal about this business because of my own long involvement in publishing. So, we dialoged about the product marketing issues of what constitutes a complete product in this space. For instance, HTML books are simply not enough and all the traditional formats of e-books need to be supported. Similarly, self-publishing platforms like Amazon's CreateSpace need to be supported; iPad apps need to be supported. In general, when you come to the market with a solution, it needs to meet the needs of the contemporary customers. The proposed solution is an inadequate one for serious book authors to want to use. It is, however, being used for free by about 5,000 educators, travel book authors, etc., which is a good start. But people using your product for free is one thing, getting them to actually pay is quite another. And that's where Themeefy will need to develop a product roadmap and business strategy that takes this minimum viable product and builds a sustainable business out of it. I will be happy to help him accomplish that. You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables on the following dates starting at 8:00 a.m. PST: Thursday, January 26, Register Here. Thursday, February 2, Register Here. Thursday, February 9, Register Here. Thursday, February 16, Register Here. Thursday, February 23, Register Here. Please note, next week's roundtable will be co-hosted with Jacksonville Startup Weekend and a couple of hundred entrepreneurs are participating in this weekend's event in Florida. On January 26, the top five will be presenting at the 1M/1M roundtable. If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs. I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch, and it will help you to decide if 1M/1M is a program for you. Discuss
• Strategy Roundtable For Entrepreneurs: Spotlight On IIT Kharagpur, India 13 January, 2012, 10:34 am
  Today's roundtable was jointly organized by the Indian Institute of Technology, Kharagpur (IIT KGP) and the 1M/1M program as part of the former's Global Entrepreneurship Summit organized by the student-run e-cell. For the uninitiated, IIT KGP is considered one of the top technology schools in India, and it is located in the Eastern part of the country, not far from the city of Kolkata. I have visited IIT KGP many times over the years, and each time I see a marked improvement in the energy and momentum at the campus on entrepreneurship. My 1997 recruitment visit met with tepid response, with the student body largely interested in multinational placements at the time. But a subsequent visit in January 2009 saw a massive change: the students were excited about entrepreneurship. Sponsor Today's roundtable was yet another step forward: the students have started producing interesting, viable business ideas, and some are even validating them successfully. It gives me great satisfaction to observe this evolution, and play a small role in shepherding these young entrepreneurs along. Before I start discussing the businesses, I'd like to highlight the role the National Entrepreneurship Network (NEN) has played in developing the e-cells at 470 different schools and colleges in India. NEN is part of the Wadhwani Foundation's efforts at entrepreneurship development, and it is great to see how pervasive their success has been. I spoke to Ajay Kela, the CEO of Wadhwani Foundation recently, and got a feel for the breadth of their investment. The challenge ahead for NEN and the academic institutions in India is to now take the massive interest and enthusiasm that has been generated, and harness it to produce a large number of successful companies. Today, at IIT KGP, we caught a glimpse of some of the budding heroes of 21st century India. mobHUB First, Piyush Bagaria from IIT KGP pitched mobHUB, a learning management solution with extensive simulation and visualization capability that he proposes to sell to science and technology educational institutions to empower faculty to produce rich media content. Piyush has got some early encouragement from a couple of schools in Calcutta, and while he needs to expand the scope of his validation process, there are some interesting nuggets in his core idea. Optimum Mobility Services Next Lakshman Pasala from IIT KGP presented Optimum Mobility Services, a fleet routing and optimization solution for cab companies, their current validation segment, followed by logistics companies operating trucks, etc. Two cab companies have already validated the idea, and OMS is on their way to signing up more cab companies in India as beta customers. Clearly, the solution offers some concrete value, and conceivably, OMS can look at the global market later on in their evolution. The notion of Indian companies bringing software technology to the Western market at dramatically lower price-points is one that I have highlighted on many prior occasions. BUYHatke Then Gaurav Dahake from IIT KGP pitched BUYHatke, a penny auction site that is considering three primary segments with a consumer-to-consumer e-commerce business model: net-savvy housewives, IT and BPO professionals, and college students with Internet access. My feedback was that the company needs to enter the market in a business-to-consumer mode because the logistics infrastructure in India is not at a point where a c-to-c business can thrive. A B-to-C business, on the other hand, can use Flipkart's logistics infrastructure, and have a better shot at success. My other feedback was to focus on one of the three segments, because everything else - from customer acquisition, to merchandising, to PR, to SEO would work better if the segmentation is tighter. Univect Education Solutions Next Parth Pachoir and Udayan Pandey from IIT KGP presented Univect Education Solutions, a social network for parents, teachers, and students in second and third tier Indian cities, to support online expert networks, mentoring programs, knowledge sharing, etc. The team is short of Computer Science expertise, and is looking for a co-founder to add to their pack. I like their focus on second and third tier Indian cities, and they have already started pilots in Uttar Pradesh and Madhya Pradesh. TransTag Then Nishant Koul from IIT KGP pitched TransTag, a RFID solution to help check car-theft in India. Well, Nishant's idea, to achieve success, would need the cities to install RFID readers at every street-corner. This is impossible to consider as realistic in the near term. Nishant would turn grey by his mid twenties if he hangs his hat on this idea, so I discouraged him to pursue it. Instead, he should turn his talents elsewhere. I very much enjoyed getting a peek into IIT KGP's entrepreneurship action tonight, and look forward to working with other campuses - both in India, as well as in the US, Europe, Asia, and Latin America - on similar programs. You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables on the following dates: Thursday, January 19, 8:00 a.m. PST, Register Here. Thursday, January 26, 8:00 a.m. PST, Register Here. If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs. I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch, and it will help you to decide if 1M/1M is a program for you. IIT photo by zimble thimble Discuss
• Startup Rules of the Road 11 January, 2012, 5:00 pm
  I met with two 20-something budding entrepreneurs this week, just by chance. I love working with and mentoring these young people. There is so much energy and hope to better themselves and make the world a better place too. And so much they need to learn. I thought I would encapsulate some of my advice that I gave them, and perhaps motivate you to reach out to someone you know who is looking to start their own business and send this post their way too. Sponsor First, it is so often said that you have to find your passion. But it is very true. If you are going to suffer the long hours and the many frustrations of starting your own business, you need to have something that is going to power you through the darkest times. If you come up with a business idea that doesn't get your groove on, drop it and think of something else. Find the narrowest niche you can and fill it completely and hopefully exclusively. It doesn't really matter what you do. What matters is what everyone else isn't doing, and how you can complement or fill in the gaps. The narrower the niche, the better. It helps if you can explain your niche in a short sound bite too, because that is what you are going to be doing a lot of. And don't be afraid to change to a new niche when the market shifts or as you get better at understanding what your customers need, too. You aren't going to be running MegaCorp (at least, not yet), so being flexible is key. Understand your own limitations and use them to decide on the nature of the business you wish to create. For years I have had a one-person freelance writing business, designed purposely not because I am anti-social, but because that is my preferred work style. You need to think through the implications of your ideas and understand what you are getting yourself into with the particular business you have in mind. One friend of mine designed her freelance business around a small staff, because that was what she was comfortable with. Different strokes.... Building a website because isn't the same thing as building a business. While is certainly is the case that many businesses are going to have some kind of online presence, they just begin with the website. A corollary to this is: If you aren't technical, find someone who can help and treat them well. Make that: treat them extra well. When I built my first website back in the early days, I hired a kid all of 19 years of age. Now I would hire even younger: they have the skills, and they work cheap. But sometimes you want to partner with someone with more maturity, and realize when that is needed. Pick domain names, corporate names, and other names to match and be easy to speak and remember. This is so important. There is a site called KnowEm.com that can help you figure out if your chosen name is available on hundreds of social networks, and even search the US Patent and Trademark Database. This is a good place to start. Don't forget about email newsletter marketing. Email may be going the way of the dinosaurs, but it is still a very powerful tool that can help spread your word and get you customers. One friend of mine built up his business big time with a weekly newsletter: over a year he had more than two thousand subscribers, and a regular business. The service provider that I use for my email newsletter charges me the grand sum of less than $5 a month. Speaking of monthly costs, keep your recurring costs low. It is amazing what kinds of services you can get these days for free or nearly so in just about everything. Look at what you can get on open source sites. You can host your own blog, set up your own domain, sign up for cloud-based accounting, and a lot more for less than $500 a year, in some cases a lot less. It used to cost me $500 just to have a server sit in a rack someplace. My friend Bruce Fryer has a site called CheapBastardStartup that has links to running his 100% virtual corporation. He suggests raising $50,000 and get a product and customers and then go after the big money once you have proven your concept. But I suggest starting with even less dough - say $5000 - and see how far you can run with your idea with that. Don't figure on paying yourself a salary, at least initially. I am sure that there are lots more ideas for getting started. Feel free to share them in the comments. Discuss
• Silicon Alley vs. Valley: Who Has More Tech Startup Cred? 11 January, 2012, 10:00 am
  Although cities like Chicago, Austin, and North Carolina's Research Triangle have produced a number of Web-based businesses in recent years, the New York's startup scene is growing exponentially. The amount of capital and seed funding continues to rise as well as the success of local companies like foursquare, Gilt Groupe, and Tumblr. There's no shortage of debates in the blogosphere as to whether one coast has the advantage over the other. Regardless of what side you're on, many would agree that there's no better time to be an entrepreneur. The MBA students at UNC prepared this interesting and interactive infographic that looks at some of the more important ventures to come from either coast, and offer some commentary from the leading venture capitalists. Sponsor Via MBA@UNC: Online MBA Discuss
• Strategy Roundtable For Entrepreneurs: ERP Galore 5 January, 2012, 6:00 pm
  At today's roundtable, we had an unusual amount of discussion on ERP startups. Given that ERP is such a mature market, the fact that all this startup activity is going on in ERP is a bit puzzling to me. Rural ERP Surjith Singh from Chennai, India, pitched Rural ERP, a business that intends to focus on supplying rural Indian small and micro businesses with local language ERP systems. While there are 30 million small and micro businesses in rural India, according to Surjith, and only 5% of those know English, there are substantial barriers to selling technology to these companies, including the fact that computer knowledge and Internet connections are both quite low in this segment. Hence, building a local language (Tamil, Hindi, Bengali, Punjabi, Marathi, Gujrati) ERP SaaS business will be an uphill task. Sponsor The company, however, has a small ERP product plus customization services business which currently generates $36k a year, on track to do $50k this year. The 20 customers for this business are urban businesses in Tamil Nadu, and one of them had some local language needs coupled with the regular English ERP functions. The strategy for scaling this business needs to be completely rethought. Building a rural ERP company is going to be an uphill task, and I am not convinced that Surjith should follow that route. SmartERP Next Sudhendra Seshachala from Houston, Texas and Bangalore, India, presented SmartERP, catering to the domain-specific needs of textile companies in India. Sudhi also has a professional services business that generates $200-250k a year, and is currently financing his forays into ERP. The textile ERP business is in validation stage with a couple of paying beta customers, and Sudhi needs a strategy to scale both. My assessment is that the textile industry in India is also extremely backward, so the business model that would work for that sector is more a managed services kind of solution as opposed to a regular software or SaaS model. Patient-Help Then Adarsh Patil, also from Bangalore, India, pitched Patient-Help which is toying with two different, albeit related ideas: (a) a doctor-patient marketplace for India (and potentially other markets where the insurance industry is less mature than the U.S. or Europe), and (b) a marketplace for medical tourism. The latter is what he has started implementing, and it has a business model of generating leads via PPC advertising, followed by selling those leads to hospitals and medical service providers. Adarsh has a crucial decision ahead of him: which of the two businesses is he going to pursue? You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables on the following dates: Thursday, January 12, 7:30 p.m. PST, Register Here. Thursday, January 19, 8:00 a.m. PST, Register Here. Thursday, January 26, 8:00 a.m. PST, Register Here. If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs. I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch, and it will help you to decide if 1M/1M is a program for you. Cane field photo from RDPixelShop Discuss
• Strategy Roundtable For Entrepreneurs: Free Apps, Ad-Supported Business Models => Dangerous! 22 December, 2011, 6:01 pm
  At today's roundtable, the last for 2011, we had four different countries represented and an intense set of discussions on five very interesting businesses - a fabulous event to end the year with. BootstrapToday Anand Agarwal from Pune, India, pitched BootStrapToday, an Application Lifecycle Management (ALM) SaaS solution from his company Sensible Softwares. Anand already has 100 beta customers and fifteen of them are paying Rs. 1000-2000 (~$20-$40) per month to access advanced workflow logistics and intelligence in the area of software testing and productivity improvement. Sponsor Anand is asking an important question as part of his work with BootStrapToday: The annual cost of software bugs is about $59.5 billion. Can we reduce time spent on fixing bugs and maintain quality? If you are running a software engineering team, I am sure you can relate to this question rather well. To answer the question, Anand and his team are leveraging social network-based machine learning and intelligence built into application lifecycle management, thereby reducing the knowledge gap and ramp up time via effective collaboration. Social network analysis of developer contributions to predict software quality, dependency structure and fault proneness of individual software components are just some of the pieces of the immensely complex puzzle. If you wish to experiment with the product, please sign up at BootStrapToday. Anand also announced a newly drawn up partnership with AppDirect, which is a network of marketplaces for Web-based software and distribution to more than 500,000 businesses. Through the AppDirect Network, BootStrapToday is currently available for free trial and purchase through ISP's including Bell Canada, which is Canada's leading ISP (Internet Service Provider). BootStrapToday has now been listed both on AppDirect and Bell Business App Store. Anand is a premium member of the 1M/1M program, and we will be working with him to further validate his product, crystallize his go-to-market strategy and, of course, help him get to the upcoming 1M/1M Hall Of Fame. Inphodrive Next Mark Heifets from Netanya, Israel, presented Inphodrive, a technology for helping drivers use the Internet in a completely speech enabled mode. Mark is looking for an appropriate segment to position this market in, and I advised him against a pure consumer solution if his assumption is that the business model would be an ad-supported mobile app. You may ask why, and this is a very important point that I would like all entrepreneurs to be aware of. Currently, there is far too much unmonetized ad inventory online and on the mobile eco-system, and this is dramatically driving down CPM rates making it very difficult for businesses to survive on ad revenue. Those who read my columns regularly know that I have highlighted this problem as one of 2012's biggest open problems that needs to be addressed. Meanwhile, though, I cannot advise nascent businesses to launch with a free, ad-supported business model. You have to go to a subscription or a transaction business model, and if you are doing Freemium, then please, also be aware that only 1%-2% of free users convert to premium. It may or may not be sufficient to build your business, especially if you are working with a low ARPU scenario. Do not stumble into an unworkable situation without thinking through these highly complex business model, pricing model, and sustainability issues. evly Then, Eric Edelstein from Cape Town, South Africa, pitched evly, a Facebook app for crowdsourcing ideas that he foresees brands using to engage their audiences. Eric is working with a good number of brands and ad agencies in South Africa and has already succeeded in getting them to pay $700/month for the solution. However, there are some significant issues around pricing and sales model alignment here that need to be dealt with to arrive at a repeatable sales process for the international market, which is Eric's eventual goal. In the U.S. or Europe, for example, selling an $8,400/year subscription via direct field sales is just not justifiable. It will render the profitability of the business unworkable. What I like very much in Eric's situation is that real customers are involved, and from them he can derive good feedback. My guidance, however, is that there is a complex pricing model and sales channel strategy to figure out here, one that I have seen many startups get burnt by. Eric needs to be aware of the pitfalls. BlitzLocal Then Dennis Yu from Portland, Oregon, presented BlitzLocal, which is an analytics engine gauging the effectiveness of online campaigns for various brands like Rosetta Stone. Dennis has a robust enterprise business that is yielding strong revenue traction, and he is now trying to figure out how to make a self-service version of the 'report card' tool available to small businesses. There is, once again, a significant brand and pricing challenge here. If he gives a somewhat similar (adequate) product to small businesses for free or for a very small price, his enterprise customers would refuse to pay the kind of premium they are paying today. I asked Dennis why he doesn't just focus on the enterprise business, which seems to be scaling nicely. If I heard him correctly, he said that some days, the business scored $100,000 a day. If that is indeed true, I simply don't see a business case for diverting attention away from the enterprise business. A.I.type Last, Udi Yehezkel from Hadera, Israel, pitched A.I.type, a very interesting predictive writing technology for mobile keyboards. Today, when fat fingers dance on tiny keyboards, often the results are awkward. Mistakes happen. Autocorrect features on iOS or Blackberry are simply not of the accuracy level that Udi's technology can get to. Currently, Udi has an Android App out there, which has 250,000 free users, of which 5,000 are paying. Clearly, there is a very easy Android App business to be built here. But conceivably more, in partnering with the OS vendors as well, like Google, Apple, Microsoft, Palm and RIM. Very interesting business! You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables at 8:00 a.m. PST on the following dates: Thursday, January 5, Register Here. Thursday, January 12, Register Here. Thursday, January 19, Register Here. Thursday, January 26, Register Here. If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs. I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch, and it will help you to decide if 1M/1M is a program for you. Discuss
• Strategy Roundtable for Entrepreneurs: Web 3.0 & Social Dancing, Romania Emerging 15 December, 2011, 4:30 pm
  At today's roundtable, we had a 30-minute segment on Web 3.0 and Social Dancing. We basically took the Web 3.0 framework - Web 3.0 = (4C + P + VS) - and did a blue sky exercise on how to create a comprehensive user experience for social dancers. We also explored business models that not only can span advertising, subscription, and e-commerce, but also hybrid virtual-physical concepts that could even draw upon a Starbucks of Salsa, Tango or Swing! It's a fun segment, so please take a look at the recording here. I hope some of you reading this post ARE social dancers. I am. I would love to see a much better leverage of web technologies to facilitate the formulation of dance related experiences. For more, you can also follow the discussion on my blog titled: Web 3.0 and the Argentine Tango. Complete with videos and definitive use cases, it would give an interested reader some great ideas on how to design such a Web 3.0 system. Sponsor Then we moved to another exciting segment for which I need to give you some context. As you may recall from previous roundtable posts, that 1M/1M works closely with many incubators around the world. We simply offer our services as an extension of the incubators' existing programming. Today, Timisoara Software Business Incubator, led by Executive Director Radu Ticiu, brought on an entrepreneur to pitch, giving us a window into the Romanian startup scene. 123ContactForm Florin Cornianu from Timisoara, Romania, pitched 123ContactForm, a company that competes in the same space as YCombinator's WuFoo that exited earlier this year for a $35M price, and was acquired by SurveyMonkey. In other words, 123ContactForm offers web forms of all kinds that are used by web developers, small businesses, etc., for various purposes, from surveys to lead collection. Florin has already built a nice, profitable business with $100,000 a year in revenue. Of course, the significantly lower cost-structure in Romania helps a lot. He is looking at additional expansion opportunities, especially in Europe (through the introduction of multi-language forms) and Asia (through channel partners). The space is crowded, and requires steady navigation. However, it is wonderful to see steadfast execution from a software startup, and the evolution of a sustainable business in Romania. We hope to see many more in 2012. You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables at 8:00 a.m. PST on the following dates: Thursday, December 22, Register Here. Thursday, January 5, Register Here. Thursday, January 19, Register Here. Thursday, January 26, Register Here. If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs. I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch and it will help you to decide if 1M/1M is a program for you. Dance photo by Gabriel Discuss

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• How to Develop Your Fund Raising Strategy 16 January, 2012, 11:28 pm
  Raising money is hard. And when you’re relatively new to the process it’s easy to be confused by the process. There is all sorts of advice on the Internet about how to raise capital. Of course much of it is conflicting. I’ve raised money as a “hot company” and I’ve raised capital when no one would return my phone calls. I’ve raised in boom markets and when everybody thought the Internet was a fraud. I’ve raised seed rounds and A-D rounds. I raised money as an entrepreneur, like you, in 1999, 2000, 2001, 2003 and 2005 for two different companies. And of course I’ve sat on the other side of the table: As a VC. I now observes the fund raising process as a profession. And I also now have to raise money myself, but this time from bigger institutions that our industry calls LPs (limited partners). I’ve tried to make this advice as well-rounded and biased free as I can. This is not just the perspective of a VC although I can’t say I have zero VC bias. This is the fund raising perspective from both sides of the table. Executive Summary For those that want the answer without reading a long post – here it is. Fund raising (as is much of life) is a sale – pure and simple. The sooner you understand that the sooner you can plan your campaign. As with any sales campaign you need to: Qualify your buyers early so you focus your scarce resources on people likely to buy your product Spend time researching your buyers and not just pitching them Call high. Partners make investment decisions. Meet in person. They’re not buying a book on Amazon or shoes on Zappos. They’re buying you. And that doesn’t work remotely. Build a relationship with your investors over time. “People buy from people they like, trust, respect and … believe.” (Zig Ziglar). Trust doesn’t come from one 45-minute Powerpoint pitch or 30-minute demo. Create scarcity. Three rules in sales: Why buy anything? Why buy me? Why buy now? If you haven’t read my post about that, you should. The hardest is the last: Why Buy Now. People avoid difficult decisions until they have to make them. Every company is different so it’s hard to listen to advice from the uber-successful fund raisers. Their story will likely be very different from yours. Fund raising is bloody hard. It takes a lot of work. Don’t believe otherwise. If you want to watch the video version summary of my advice on fund raising it’s here. It’s an hour and has tons of insights on the process. Tell a friend! And now, the details … 1. Identify the right target investors Every investor is different. I never suggest that entrepreneurs just randomly pitch VCs. Start by trying to narrowing the list of total prospective VCs. Create a spreadsheet or list them in a CRM. The total universe of VCs are what we call in sales “suspects” – otherwise known as “the top end of your funnel.” But focusing on too many is a mistake. You want to narrow the suspects into a group called “prospects.” These are people with whom there is a likely match for your product or service. This narrowing follows the three golden rules of sales: qualify, qualify, qualify. Remember again that the three major steps to a sale are: Why buy anything? Why buy me? Why buy now? If you can solve these three major questions you’ll sell. The first step in the qualification is “why buy anything?” In VC terms that means the key questions you need to answer are, is this investor: Geographically focused and have they invested in my geography before? (most Seed or A round deals will be done by an investor in your region so that should help you to focus. Other investors have national practices. Know which one you’re talking with) Right for my stage? (approaching an investor who normally does $20 million C rounds for your $2 million funding round is a waste). Focused on my industry? (I get approached about clean tech or biotech periodically – I don’t focus on these. You’re wasting your time with me). Already invested in one of my key competitors? VCs are unlikely to invest in direct competitors so you will normally be qualified out. Do they have money to invest? (look at how many deals the firm has done in the past 12 months. If it isn’t many (or any) that should tell you something. You can also find out when they raised their last fund. If it was more than 5 years ago you probably want to ask around a bit to see whether they’re still investing). Also recognize that WITHIN a VC you have partners who focus on different areas. For example, if you’re looking to approach Kleiner Perkins it’s worth knowing that my friend Matt Murphy runs their iFund and therefore is the in-house expert on all things mobile. I’m sure there are many partners at KP that know the mobile space but if you’re a “mobile first” company you’d be well served by focusing on Matt. In Accel that’s Rich Wong. At GRP that’s largely me. If you’re raising money in Financial Services I’ve never met a more knowledgeable investor than my partner, Brian McLoughlin. He’s focused on that sector (not exclusively but predominantly) and therefore has an amazing network at large financial services firms to help you with business development. He knows the history of all of the payment gateways, mobile payment platforms, credit offerings, remittance companies, etc. Others that are experts in this field include Matt Harris at Village Ventures and Jim Robinson at RRE. Approaching random VCs who aren’t experts in FS makes little sense. In ad tech there’s Seth Levine at Foundry Group and both Dana Settle & Ian Sigelow at Greycroft. And so on. Not trying to be comprehensive here – just making sure you know that partners & firms are often focused. Fred Wilson likes, “large networks of socially connected people” while Foundry lists its 5 key themes on its website. Do your homework. I do the same. When raising money for GRP, I look at my suspect list and say, “Do they like VC versus buy-out funds? Have they invested in new VC relationships versus just doing investments in firms in which they have long-standing investments? Do they invest in funds that are $200-300 million versus $50 million or $500 million.” I use the same methodology I am advocating to you. 2. Determine how to get access to them In the era of social networks, LinkedIn, Facebook messaging, Quora and email addresses that are easily guessable, it’s easy to think that maybe you should just approach a VC directly. They seem so reachable. Yet this approach in my mind is the equivalent of spam. I get many Tweets directed at me that say, “come check out my product.” Even if I wanted to be this accessible, I could never find enough time in the day to evaluate every single person who approached me. Neither can any VC. So they develop short-hand ways to qualify things better. The main way they qualify is to determine who introduced them and the veracity of the introduction. As I like to say, in the era of social networks and transparency if you can’t figure out how to get introduced to a VC then hang up your cleats now. You’ll never make a great entrepreneur. I wrote a longer post on how to access VCs that you should read. But the short answer is that the best intro is from a portfolio company of that VC or by other entrepreneurs whom that VC respects. So your journey to fund raising begins by strengthening your relationships with other entrepreneurs. You need to build genuine relationships with these portfolio startup founders as well as trust with them and the rest will follow. Earn the right to the intro. I often recommend that entrepreneurs try to focus on building relationships with younger companies that aren’t already “big time” because they’ll have more time and willingness to help. Approaching Dennis Crowley to figure out how to get access to his earliest investor, Bryce Roberts? Not so much. And trust me, if you’re early stage you DO want to meet Bryce. He’s awesome for early-stage entrepreneurs. 3. Meet early There is much controversy on this topic. I have laid out my philosophy in, “I Invest in Lines, Not Dots.” If you haven’t read that you should – it’s one of my most re-tweeted posts. There is the school of people who tell you that you should only meet with VCs when you’re ready to raise. Their arguments are: a. Fund raising is too time consuming and meeting early is wasting time b. The VC will get a bad impression of you and you should wait until you’re on your best footing to raise. Both of these arguments are logical and thus many entrepreneurs buy them. They’re both flawed, though. “Fund raising is too time consuming” … yes, fund raising takes time. If you save it all for some mythical 6-week period every 18 months where you hit up all the VCs at once – sure, it will consume much of those six weeks. But as I’ve argued before, you need to ABR (always be raising). By constantly taking focused VC meetings you’ll have relationships established for when you are ready to raise. As the CEO you have many tasks you need to do on a regular basis. Call it your functional pie chart. These include building products, recruiting, managing your finances, marketing, selling, getting feedback from customers and … fund raising. It will be at least 5% of your week so if you work a 60-hour week (I know, I know, you work more) then you should dedicate 3 hours per week to fund raising. Maybe up to 6 hours. Remember that if you’re meeting with targeted investors you’re meeting people who can challenge your thinking. You’re meeting with people who can help you with introductions. You’re meeting people who can give you market insights and information. REAL information. Not what you read in the press. And of course you’re meeting people who can give you money. It takes money to grow a business. Most VC partners do 2-3 deals per year max (except for the higher volume shops). So the odds are never great for you. But VCs want to be helpful – even when they can’t invest. So they go out of their way to offer advice and introductions. The shortest path to meeting hard-to-meet entrepreneurs or senior executives at a big company is to have a VC who likes you, but isn’t yet ready to invest in your company, introduce you. “VCs will get a bad impression of you” … also logical but slightly misleading. So let me be clear. DO NOT show up at a VC meeting unprepared. Do not “wing it” and see how the meeting goes. Know your plan in advance. Know what you’re going to discuss. Know how much information you’re going to give. Know that it is HUGELY important to make a good impression. What I advocate is letting the VC know that, “you’re not yet fund raising but you’re building early relationships because you’re going to be fund raising in the near future and you want to start determining where there are good matches in the industry for your firm.” All VCs want early access. If they see you when you’ve already got your first term sheet and they’ve got 3 weeks to decide then by definition they have no relationship with you. So winning means they’re paying the highest price. Sure, some people work this way. I think it’s a terrible way to work. When I get these inevitable emails or calls I respond the same way, “It’s a shame for me that I’m too late to your process. Why don’t we meet right after you raise your money so we can start a relationship early for your next round.” And I mean it. Fab wrote a popular post on fund raising in which they advocated a very different approach. Their approach worked for them because their business is super hot and on fire. I introduced one of my dearest friends and one of the most talented guys I have worked with, David Lapter, to the company and he became CFO. So I know how first-hand how awesome Fab is. And the CEO is experienced. If your business is totally killing it please follow Fab’s advice. It’s ideal for people who have VCs all chasing them. For everybody else I would encourage you to meet early and often. 4. Press the flesh It’s tempting to want to stay in your offices and fund raise via email or web conferencing. But fund raising is a contact sport. You’ve got to get out there and shake hands and kiss babies. If you’re in the Bay Area this may be easier. If you’re not you’re going to have to put in some miles and some time away from home. Raising money is a “direct sale” not a telephone sale. They are buying you. So interacting with you in person is paramount. Many VCs don’t like to tell people to travel to them. They may even suggest phone calls. This is part out of guilt of not wanting to make you travel and part because they know they can have shorter meetings on the phone – it’s harder to cut a meeting short if you have traveled. Always do your important meetings in person. I can’t over state the importance of the human connection in being able to develop a relationship. 5. Avoid the two big donuts in the year There are two times every year where raising VC from partnerships with more than two partners is exceedingly hard. July 15-Aug 31 and Thanksgiving to New Years. I’m not saying VCs are lazy. They are not. But they are highly likely to be in the age bracket of 35-55 and often have kids. That means that they take their holidays with their families and these are the big seasons. Most VCs I know these days answer emails on vacation. Good or bad – it is. But there is a different reason not to raise in those periods. In order to get a VC to agree to fund you, you need to get the entire partnership on board. And so while your VC partner may not be gone the entire month of August, you can bet that at any time at least a few of their partners will be gone. And because all sales processes rely on momentum, you don’t want to have a process that has a “dead spot” in the middle of it. I call these “fund raising donuts.” Plan your timing accordingly. If you’re concerned about this issue I wrote a longer post on the topic. 6. Have a narrative / make it simple Nobody will buy what they don’t understand. It’s your job to take the complexity of your company & industry and develop a “narrative” that helps investors better understand the context. It’s basically story telling. Don’t under estimate the power of stories. When I was reading the Fab.com website I noticed that the CEO refers to Fab’s “one thing” being design. By taking in this way, he can create a storyline that investors can say, “oh, Fab.com. They’re the place focused on design. They think design wins. They think there’s any underserved market for young urban professionals who care about quality design and don’t want to buy cookie-cutter, Idea furniture and accessories” (or whatever their pitch is). Investors can agree or disagree but they know what they’re evaluating. As do journalists. The best company pitches are those that can create this narrative. Why does the world need another X. Or why are the market conditions ripe for a new entrant who does Y when Y hasn’t existed in the past 20 years. I spoke at length about the narrative here. Trust me when I say that the narrative is vital to your business. It’s important in aligning internal strategy, communicating with others, talking with partner, recruiting and, yes, raising VC. 7. Create a sustained campaign Many people equate a great sales meeting with success. They then lament the fact that the process died shortly thereafter. All sales campaigns are processes that occur over time. It’s your job to find a continued way to stay on the radar screen of the VC. You had your great meeting. If it felt great it probably was. But in the three weeks since your meeting that VC has seen 12 other companies, had 3 board meetings and had to deal with some enquiries from his own investors. So when you’re wondering what they’re thinking about – unfortunately it’s not likely you. Think about it this way. Let’s say you have a product in which the CMO of a company is your buyer. You wouldn’t imagine they’re sitting around 3 weeks after your meeting daydreaming about you. They’re under pressure to do tons of stuff. You were a priority when they agreed to meet you but since then they’ve been putting out other fires. If you start to think of VCs as a person who might buy your product then you can plan your sales campaign accordingly. Some relevant posts to help you on this topic: I met a VC, what happens next? How do you build long-term relationships with VCs But the summary for you is: - get an intro - create materials for your first partner meeting. This is a demo + a high-level deck - create materials that would be used in a follow-up meeting. This includes stuff like detailed financial plans, product roadmaps, etc. - prepare a list of reference clients, a reference list of people they could call to ask about you Then make sure to send out VERY high-level summary emails to update key investors on your company progress. Ask for 30-minute update meetings from time-to-time. Stick to your time slot unless they say they want longer. Investors back companies where they see traction. What better way to show traction than to meet a VC early, baseline your performance and then update them on your positive achievements? 8. Lobby If it were a sales campaign to a CMO you would naturally think about having customer references. You’d even probably go as far as to ask your best customers if they wouldn’t mind proactively reaching out to your prospects to subtly tell them how great you are. I call it “marketing heroes” and I wrote about it here. So why would raising venture capital be any different. If the best intros to VCs come through qualified referrals from people they trust, then it follows that the best way to keep VCs interested in you is to have similar people tell them how great you are. So determine the VCs you want to influence, identify who influences them, figure out how you’re going to get these people loving your product, your company and you. And then ask for their help in reminding the VC how great you are. And remember my golden rule, “you don’t ask, you don’t get.” Nobody proactively bugs a VC to tell them how great you are. You have to ask for it. Will the VC know you asked them? Who cares. Any great VC will know that’s how the world works and if that’s how you influence them it’s probably the tool you use to influence journalists, customers, prospective employees and corporate suitors for M&A one day. The only people you don’t need to lobby are people whom you don’t want to invest. 9. Recognize that fund raising is a part of your ongoing duties As I’ve said before, ABR. Always be fund raising. It’s just a part of your ongoing activities as a founder. Sure, you might not like it. It might not seem “core” to your business success. It is. Building a business is not about only building a product and seeing if customers like it. You can’t just do those things in business that you enjoy. Make fund raising a habit. Don’t only engage every 18 months. 10. Test interest One of the best sales coaches I ever worked with used to talk to me about “testing prospects.” What he meant was that since your scarcest resource as a manager or sales rep is your time you need to qualify better. Most people are afraid of asking the tough questions because they prefer to imagine that you might be a buyer than to know that you’re 100% not. I prefer the latter. I once did a project with Carly Fiorina when she was president at Lucent. Her quote that always stuck with me was, “I’d rather get a firm no then a muddy yes.” So true. At least you can move on and focus your time on energy on people who might say yes. So how do you test a VC? It’s actually OK to say something at the end of your meeting such as, “I know that you’re not likely to give me a strong indication at this meeting but I’d love to know if this is the sort of opportunity you could imagine doing if I was able to persuade you over time or would I be best off focusing my attention on other VCs?” Said politely and I promise you people will appreciate it. Similarly, it’s OK to email a non-responsive VC by saying, “I’ve email you a couple of times and left a voicemail. I know we all get busy. I just wanted to confirm whether you were super busy or whether this was a sign that maybe I’m not a good fit for your firm? If that’s the situation – I’d understand. But if so I’d love to know so that I can focus my limited time on other VCs. (if you are still open, I’d love the chance for a 30-minute meeting to give you a status update. I think you’ll be impressed.) Other ways of testing a VC? - if they show interest and have spent time with you, why not ask if you can set up a customer call for them so they can hear directly what they think of your product? Willingness = they are engaged. Not willing either equals, “not now” or “not ever.” Better that you know. A firm no is better than  muddy yes. - how about setting them up to use your product? (if it’s possible). Then you have a reason to check in every couple of weeks, “I noticed you didn’t yet get a chance to log in to the product. Would you mind if I had a senior training rep call you for 30-minutes to give you a quick demo to get you up to speed? There are a million ways to test. I’d say
• Interesting New Tech Blog for your Radar Screen 5 January, 2012, 2:34 pm
  Over the holiday I became aware of a new tech blog that aims to have deep insights into the next generation of technology, which they call The Hypernet. Why should you care? Well, it is established by some of the industries more successful investors – Mike Maples and Roger McNamee. My favorite post was this one (image above) in which they talked about their 10 hypothesis for technology investing. It maps to a lot of my own views so I was interested to learn more. If you click through to Roger & Mike’s blog you’ll see that this blog post then links to a detailed presentation on the topic. The ones I focus on the most are 2-7 and 10. Hope you enjoy it. And I hope they keep up their early momentum.
• Spend 2012 on the Right Side of the Haimish Line 1 January, 2012, 12:44 pm
  Occasionally on this blog I break away from industry commentary and write more broadly. The first day of 2012 seems the perfect day to do so. One of the most important articles I read during the entire year was David Brook’s op-ed article on “The Haimish Line.” In it Brooks talks about his recent trip to Africa with his 12-year-old son. They stayed in some nice camps with showers & swimming pools and in some very basic camps without electricity or running water. At the simpler camps his family interacted with all of the other guests – there was a certain bond – a warmth. At the nicer camps they had more luxury, comfort and space. Sometimes a bit of each is in order. But what he noticed was much more happiness & many more memories were derived at the poorer camps where you interacted with people. He defined the difference between being at the two camps as “crossing an invisible haimish line,” “[Haimish is] a Yiddish word that suggests warmth, domesticity and unpretentious conviviality” I like that. He goes on to say, “We live in a highly individualistic culture. When we’re shopping for a vacation we’re primarily thinking about Where. The travel companies offer brochures showing private beaches and phenomenal sights. But when you come back from vacation, you primarily treasure the memories of Who — the people you met from faraway places, and the lives you came in contact with.” So true. And so I framed much of my life since reading the article in Haimish terms. Was I on the right side? What things made me happy? What luxuries were false comforts? The more I reflected on what makes my truly happy the more I realized that I was happiest on the right side of the Haimish line even when it’s sometimes easier to sneak back over the the reclusive luxury side. The great irony is that the more success you have in life the more likely you are to be pulled on to the wrong side of the Haimish line. You can fly first class and not talk to fellow passengers. You can stay in super exclusive hotels. You can have big offices and lavish houses. Yet none of these things lead to the great feelings you get being amongst people of all walks and backgrounds. It is this reminder that helps me form my internal compass and not hide behind a fortress. It’s why I still randomly meet up with people I’ve met on Twitter or this blog. It’s why I still go to after-conference parties and hang out until the end of the night with whomever wants to chat. It’s why I can still be caught playing beer (and tequila) pong at 4am at the Local Response offices. And why I still made it to breakfast at 8.30am with Christina Cacioppo the next morning (although I’m not sure she found me too Haimish of a conversationalist that day ). If you get a chance after you’re done with this post then please be sure to read Brook’s Haimish op-ed. Examples in My Life & Work SxSW 2011 was the first year I went to SxSW. I wrote about my experience in this post and why I enjoyed this event more than most. If you haven’t been and are considering it I highly recommend reading that post. But summarizing what I liked most about SxSW? It lives on the right side of the Haimish line. Almost all of the people at SxSW are from out of town. They have very little “other business” in Austin as they would when the come to NYC, SF or LA. So many people just “hang out.” The event seems to be more focused on 6pm – 3am than it does to people sitting and watching panels. I had so many casual meet-ups with random people that I wanted to spend quality time with, like Naval Ravikant and Farb Nivi. Like Steve Blank, Dave McClure, Dennis Crowley, Evan Cohen, Gary Vaynerchuk, John Price, Angelo Sotira and many, many more. All of these people were publicly accessible and talking with just about anybody. One of the biggest pleasures for me was just meeting all of the random people at food trucks at 2am like Joshua Cook from Gunderson Dettmer where we chatted over chicken-fried waffles served with syrup and hot sauce. Nom nom nom. Or riding a crazy party bus and sitting next to Aaron Batalion the co-founder & CTO of Living Social. Randomly. Office Space I always love visiting companies because you can tell so much about the character of the company by spending time in their offices. You get a feel for the company “vibe.” Do they all get along? Do they have a strong sense of culture? Do they seem to have fun? Having a great work environment is tremendously important in attracting & retaining great employees and in getting teams to work well together. Teams that hang out together work more productively in difficult situations. You find some offices where the CEO or senior team have cordoned themselves off. It’s an obvious temptation. As a founder you end up having to deal with a lot of sensitive information & discussions. You probably also value the concentration you can get from a bit more quiet and solitude. Cordon yourself off and you get dragged into a lot fewer problem-solving sessions for other people. But doing so has many drawbacks. And I usually recommend against it. One of my big disappointments at GRP has been our office space in Los Angeles. When you walk in it feels like a lawyer’s office.  Like we take ourselves a bit too seriously. I can’t really change it because we had a super long lease. But that expires soon and I hope to get back to the right side of the Haimish line. We’ll see. TechStars Interactions I refuse to go to demo days. Not just TechStars but any demo day, really. Why? Well, I get nothing out of seeing how well a bunch of people can pitch their businesses on stage. You don’t get to know companies that way. It’s very artificial and contrived. Yet I love TechStars. So I promised the guys that I would come and hang out with companies well before their demo days. Dave Tisch was kind enough to organize sessions for me in NY (little did I know in advance they would be filming it for a reality TV show on Bloomberg where I was cast as Simon Cowell ) I came and hung out with companies and got to know many 1-on-1. Some I still speak with. And Nicole Glaros organized a full day and evening for me in Boulder. I did individual sessions with every single company. And then we busted out the ping pong table. And as anybody who was there will attest I summarily defeated every TechStars company handily. They were lulled into a false sense of security by my gray hair It wasn’t until David Cohen turned up that I got knocked off my mantle. And went home with bruised ribs from diving. I was too sheepish to tell my wife it was a ping pong injury. Creek. Entrepreneur Dinners One of my favorite things to do is to organize entrepreneur dinners when I travel. I usually ask somebody local who knows the local scene to invite out 10-15 local entrepreneurs who might be interested to meet up and I agree to pick up the tab. What I love is that I don’t pre pick the companies. I don’t try to optimize for who might be a great investment opportunity or somebody that I really “should know.” In stead of just calling up buddies who live in the area or inviting out the most senior person in town that I know, I opt for random interactions. Why? The Haimish factor. I find no better way to get a feeling for local communities than to sit with a group of early-stage entrepreneurs and talking about the local scene. What is working, what isn’t? What are their projects? What is the local funding environment like? I profiled one of these interactions from when I last visited Seattle. Sure, it would probably be “easier” to just grab a friend and have a quiet dinner at a local posh restaurant. I like to do that sometimes, too. But I prefer the crowd. The Subway I lived in London for nearly a decade. For the first few years I took the Underground everywhere. Over time as I became more senior at Andersen Consulting I had more resources to take taxis everywhere. For a few years I found myself constantly in taxis. It was certainly more private. I probably caught less colds. But it was colder. After I started my first company I find myself back on the Underground. I love that feeling of being amongst random people. I love the people watching. I love imagining what all of their lives are like. What they do. Where they live. Who they are. When I’m in New York City I almost always find myself taking the subway where possible. I feel more connected. I feel more at one with the city. I feel more Haimish. Camp in Sequoia National Park Every year I go with my family to a camp in the mountains of Sequoia National Park – it has become a family tradition. The kids get to go hiking, water skiing, kayaking, sing camp fire songs, roast marshmallows, do a skit in front of a group, do archery, swim in a lake, make tie-dye t-shirts and even shoot rifles. Mostly they get very dirty. Hang out with new friends. Spend lots of time with my wife & me. And we eat every meal together. The accommodations are fine – certainly not The Four Seasons. Tania & I each do activities that we don’t get enough time to do during the year like mountain biking, rock climbing, water skiing and sunset hikes with spectacular views. And we also shot rifles! For suburban kids turned city-slickers I have to admit it’s a lot of fun. The camp attracts people from many different backgrounds from NorCal and SoCal (there’s no easy airports so people don’t seem to come from out of state). But almost nobody asks what other people “do.” It barely comes up until late in the week. We eat at tables together. We hike together. We sing silly songs together. We see each other every morning looking like a Mack Truck ran us over. Everybody talks. Everybody lets their hair down (and certainly doesn’t wash it). It’s one of our highlights every year. And it’s very Haimish. Launchpad LA A few years ago I started a mentorship organization in Los Angeles called Launchpad LA now run by the uber talented Sam Teller. As I alluded to in my post on our recent program in which we now invest $50,000 per company and have shared office space, Bill Gross (the founder of Idealab) was instrumental in convincing me to keep Launchpad LA running despite an over-abundance of local LA accelerators. He said: “I think that the more initiatives, the better … I think it’s the many initiatives and variety that make Silicon Valley, Silicon Valley and that we need to do more of that here.” But one of the other major drivers that I discussed with all of the people with whom I sought counsel in the decision was The Haimish Factor. Having been involved with 23 companies that had been through Launchpad LA in its first couple of years, I felt very close to these founders. I count most of them as personal friends. We hung out a lot together a dinners and educational events. And as I said to my close friend Adam Lilling who helps run Launchpad LA “I’d much rather sit in Launchpad’s offices and get to know 10 companies intimately than to constantly sit in a conference room in an artificial situation being constantly pitched by entrepreneurs where my job is to mostly say, ‘no.’ Getting to know a handful of entrepreneurs better and helping them with their daily problems does a much better job of keeping me connected to what issues modern companies are facing than debating the merits of pitch decks in 45-minute sessions. In my job, I obviously need to do both. But I can tell you which is more clearly on the right side of the Haimish line. So in 2012 you’ll see me a lot more often at the Launchpad LA offices. And on the road out meeting you. Speaking at events. Holding dinners. Getting rides from random people (a habit I picked up from Brad Feld). Occasionally inviting anybody available in the next 30 minutes to come have breakfast with me. Happy 2012 to all of you. My wish for you all is – when your January program to “get back into shape” fades into normal life, try for your second goal.  Remember the Haimish line. Find ways to always put yourself amongst people where you’re an equal and where your status is less important than your ability to talk, engage, challenge, compete and laugh with others. Some Fun Extra Reading If you have some extra time and want to read some of the other posts I’ve done that stray outside of the tech boundaries I’ve compiled a small list of my favorite ones below (in no particular order): 1. Focus on “The Dopeness” (Life is 10% how you make it, 90% how you take it) 2. Whose Life are you Going to Change? (my tribute to Cory Van Wolvelaere & challenge to readers) 3. Don’t Take the Littles Things for Granted (on spouses, children & friendships) 4. Leadership, Teams, Success & Happiness (Tiger Moms & the true definition of success) 5. Don’t Lose Twice (know when it’s time to be gracious) 6. Read, Travel, Experience, Live (avoiding monoculture as a way to become a broader thinker)
• Should Startups Focus on Profitability or Not? 27 December, 2011, 6:45 am
  There are certain topics that even some of the best journalists can’t fully grok. One of them is profitability. I find it amusing when a journalist writes an article about a prominent startup (either privately held or preparing for an IPO) and decries that, “They’re not even profitable!” I mention journalists here because they perpetuate the myth that focusing on profits is ALWAYS the right answer and then I hear many entrepreneurs (and certainly many “normals”) repeating the same mantra. There is a healthy tension between profits & growth. To grow faster businesses need resources in today’s financial period to fund growth that may not come for 6 months to a year. The most obvious way to explain this is with sales people. If you hire 6 sales reps in January at $120,000 / year salary then you’ve taken on an extra $60,000 per month in costs yet these sales people might not close new business for 4-6 months. So your Q1 results will be $180,000 less profitable than if you hadn’t hired them. I know this seems obvious but I promise you that even smart people forget this when talking about profitability. Hiring more people isn’t always the right answer. You have to understand whether they’re likely to yield revenue growth in the near term OR whether you have access to cheap enough capital to fund your losses until your investments pay off. Exec Summary: Most companies (98+%) in the world (even tech startups) should be very profit focused. Being profitable allows you degrees of freedom you don’t have when you rely upon other people’s money. You may have leverage when you DO need to fund raise. (There are many investors who are not looking to build enormous businesses who value the fact that you can run a business profitably) It allows you many more exit opportunities. While Google and Facebook will buy “acquihires” (at least as of Dec 2011), many acquirers hate the idea of buying companies that aren’t profitable. When they look at buying your company they often think in terms of “how long will it take until I earn back the profits to pay for my acquisition price?” If you’re not profitable you’re purely a cost center to them. Being profitable certainly makes your company more sustainable in difficult times. The characteristics of somebody who should NOT focus on profitability include those who: Have or perceive that they have the opportunity to build an immensely scalable businesses. Internet scale. Have easy access to capital by investors who are committed to building businesses at Interent scale As I like to say, “If you’re really on to an enormous idea then other people in the market are going to spot that and want to compete with you. If you have a market lead then raising capital and making investments now will help you as others enter the market. If you don’t, somebody else WILL!” The Details I have had this discussion with many a first-time entrepreneur. They have have raised $2-3 million, built a product that has some amount of market traction and got to annualized revenues of around $1 million. At this level, as a founder you feel SO CLOSE to profitability that many say, “I’m going to keep my costs really low this year to try and hit profitability. I don’t want to be beholden to investors.” My response is often, “That’s fine. What’s your objective? Are you looking to potentially sell the company in the next year or two? Do you plan to run this as a smaller business but maintain healthy profits? Do you imagine eventually raising VC and trying to build a faster growing company?” Because of the circles I run in I tend to meet many people who eventually do want to build large companies and therefore do want to eventually raise VC and “go big.” But they want to do it with leverage. I often point out that investors at this stage care way more about growth than profits so be careful not to shoot yourself in the foot. I certainly understand the desire to be in control, which is what you are when you earn a profit. Just be careful that it doesn’t come at the expense of investments in growth. The likely response of a VC to your company that raised $3 million and now is profitably doing $1.5 million in revenue three years later is, “So effing what?” Harsh, but reality. If you had huge customer growth but just didn’t focus on revenue that’s a different story. If you spent the 3 years perfecting some hugely differentiated technology IP that may also be different. But if you simply went more slowly to show you could earn a profit you may need to look for alternative funding sources to fuel your future growth. Understanding Profits No discussion about profitability can sensibly happen without covering the basics first so please forgive the 101 nature of these charts. Simplifying: Revenue - Cost of Goods Sold (COGS) = Gross Profit (also called Gross Margin or sometimes “Net Revenue”) - Operating Costs = Profit When I look at an income statement (also called a profit & loss statement) I start by focusing on the revenue line.  One thing that should matter to all people trying to understand the performance of a company is whether they have revenue growth. I always remind this to journalists who ask me about public stocks. If you had two companies each with $100 million in “earnings” (profits) they might have vastly different prospects for the future. One company might be growing its revenue at 50% per year and the other might be growing at 5% per year. And assuming they both had the same net profit margins (profit / revenue) then the former company would be much better off at the end of the year. So while the simplest way that people often evaluate stocks is by P/E ratios (price-to-earnings), one also needs to look at other metrics such as the PEG (price-to-earnings-growth). [of course there are MUCH more sophisticated financial tools than either of these, but PEG is a short-hand many people use] Investors value growth. The value of a company is the expected value of all future cashflows discounted back to today’s dollar (because as you know a dollar next year is worth less than a dollar today) and a company that is growing more quickly is more likely to yield better overall profits in the future. So for a start when you want to evaluate companies you want to evaluate “growth.” Looking at earnings alone across two companies won’t tell you the picture of the different prospects. And when you’re looking at even earlier-stage companies (as VCs do) you might be even more focused on customer growth than revenue growth. The Nature of your Revenue Matters When I do evaluate companies that already have revenue, I actually want to understand the revenue line in more detail. What makes up revenue? Is it one product line or multiple? Do 20% of the customers make 80% of the revenue or do the top 3 customers represent 80% of the revenue. This is called “revenue concentration” and the more concentrated your revenue the higher the risk that your revenue could decline in the future. I also try to understand things like how you’re pricing your product, how your competitors price and what your pricing expectations will be in the future. Fast early growth in a market is often eroded when competition gets fierce and prices are forced down due to competition. Revenue is Not Revenue is Not Revenue But it’s not as simple as just looking at revenue in dollar terms. For example, look at the following graph. You’ll notice that although both companies have the same revenue every year, Company 1 has MUCH higher gross margins than Company 2 because the cost of sales (COGS) is much lower. “COGS” represents the amount that each sale costs you. For example, if you sell your product through a third-party reseller who charges 30% of any sale then your COGS will be 30% of revenue (assuming no other costs of sales). The example chart is not actually atypical. The first company represents a normal software company that sells its products directly (either via sales staff or directly off of the internet). Many software companies have 85-90% gross margins, which is why it has historically been a very attractive industry. Company 2 might represent an “ad mediation company” where the company gets paid by ad networks for running ads on publisher websites and the company in turn must pay the publisher 85% of the revenue it collects. This is not atypical for “middle men” who often take 15-30% of the value of the sale This could also be a travel website who gets paid a bounty for selling airline travel. Companies like to have high numbers in their revenue column but this can be quite misleading. After all, if you sell $500 million of United Airline tickets that isn’t really YOUR revenue. Your revenue is the $75 million you got paid in booking fees. It could be an eCommerce website or “flash sale” where they are booking revenue from customers but then having to pay out a high percentage of the sale to the clothing manufacturer. Many eCommerce companies are in fact, middle men. Gross margins can range from 15-40%. I know you’re shaking your head and thinking, “duh” but I promise you that even some of the most sophisticated people I know get off track on this issue of “gross revenue” versus “net revenue.” I saw this first hand with the growth of the “flash sale” category. People kept saying, “Company X is already doing $100 million in revenue! Wow! Amazing growth!” Um, no, “Company X is doing $100 million in gross revenue but is only at 12% margins which means the majority of the value is in the goods. Many of these companies weren’t even taking physical possession of the goods in the early days. So they are really doing $12 million in “revenue.” That in and of itself is an achievement. But it’s very different than $100 million in two years.” Shouldn’t All Companies Want to Be Profitable? Not necessarily. Let’s consider the following two software companies, both of which have 66% gross margins. Both companies look the exact same after one year. They both raised angel / seed money of $1.5 million to fund operations in their first year of operations. Both companies lost $1 million in their first year. Gross margins at 66% is fine (they’re selling through a reseller who takes a 33% margin) but their sales aren’t yet large enough to cover the costs of their IT development team + management + marketing + office costs, etc. In many Internet startups 80% of the operating costs will be people. So which company is better run? The answer is that you have no way of knowing. A naive journalist might lament the fact that Company A is “not profitable” or is being a typical Internet startup and not worried about costs. After all, they doubled their operating costs when they weren’t even profitable. What did they actually do? They raised $5 million in venture capital to fund growth. They used the money to hire a bigger tech team so they could roll out their second product line. They hired a marketing team to promote their products more broadly. They hired a biz dev team to work on deals where their product could be embedded in other people’s products as a way to increase customer demand. They got a bigger office space so their employees would feel comfortable and they could improve employee retention. If there was strong market demand for their product then this investment might pay off handsomely. Let’s look at years 3-5 of the two companies. Even though Company B initially looked prudent, it turns out that the investment that Company A made in people led to a higher annual growth rate. At the end of year 5 Company A has earned $14 million in cumulative profits (gains – investment years) while Company B has made $5 million. Company A is now doing $47 million in annual revenue which Company B is doing $12 so years 6-10 appear rosier for Company A as well. I know which company I’d rather have invested in. Growth matters. But let’s consider an even more aggressive scenario. Let’s call it the “super high growth” Internet company. You know, the kind that unknowing commentators would be quick to lambast as being wasteful because they’re not profitable. The company would have had to raise at least $35 million in venture capital to have funded operations like this. More likely they raised $50 million or more. Note that they likely raised this in 2-3 tranches, not all up front or all at once. Crazy? Stupid? Should they have slowed down operating costs in order to “make a profit.” Again, it depends. If the growth is as spectacular as it is here and IF they have access to cheap capital then they’d be crazy not to have raised the VC and instead stayed unprofitable. This is the trade-off between profits & growth. You can drive profits up by not investing today’s dollars in tomorrow’s growth. The next time a journalist wants to slam Amazon for not being more profitable I wish they’d understand this. Amazon is continuing to grow at such a rapid pace that of course it should take some of today’s profits and reinvest them in growth. If there is a company that can’t grow fast enough then they should do other things with their profits, like return it to shareholders. A Final Note on Profitability vs. Being Cashflow Positive More 101, but experience tells me this is worthwhile to many. Many investors care much more about cashflows than income statements. It’s worth noting just for those that aren’t familiar with the difference between an Income Statement and a Cashflow statement that being “profitable” is not the same as being “cashflow positive.” You can be profitable while losing money. Huh? I thought profitable meant you were making money? Income statements are designed according to accounting standards that are designed to “match revenues & costs in the period for which they should be attributed.” Quick examples: 1. An ad network (the middleman) might sell $500,000 in ads. It might agree to pay the publisher who runs those ads in 14 days. The advertiser who bought the ads might pay the ad network in 60 days. So for this money I might show that I’m profitable on my income statement but I might actually have paid out $500,000 that I didn’t receive yet (negative cashflow) 2. I might have sold a $1.2 million contract over two years. I therefore might be “booking” $50,000 per month in revenue on my income statement. But the customer may be paying me quarterly in arrears (at the end of the quarter). So for the first two months of every quarter I’m showing revenue on my income statement that I don’t yet have in cashflow. 3. The same is true obviously on the cost side. I might have bought $450,000 in equipment that I amortize over the three years that I expect this equipment to be useful. So every year I show costs of $150,000 but I really spent the money up front.
• Getting to Know Maker Studios 25 December, 2011, 1:51 pm
  A year ago I invested, along with Dana Settle at Greycroft Partners, in a startup company called Maker Studios. What excited me was that they had an immensely talented team that understood how to produce & distribute low-cost videos, initially via YouTube. It was founded by Danny Zappin, Lisa Donovan & Ben Donovan (along with several creative talent like Shaycarl, KassemG and others). They know this model of YouTube production & distribution better than anybody else that I’ve met in my 5 years in Los Angeles. And anybody who follows this blog knows that I believe television disruption has already begun and it is more likely to resemble Internet content than streaming long-form content to our living rooms. As I talked about this model with several friends in Silicon Valley I always heard the same refrain, “we don’t invest in content business – they are ‘hits driven’.” I had to laugh a bit at at the irony of this. For one, the consumer-driven startup world has become immensely hits driven. You need star power of entrepreneurs surrounded by star power angels & VCs who in turn get tons of press from adoring journalists who are insiders amongst this crowd of tech cognoscenti. And this is at the same time that content has become more predictable. Sure, you need to start with talent. But when you produce on Internet you can test your content in the same way that Silicon Valley firms test early versions of their software. You can get feedback from your audience and adjust based on their feedback. You can get subscribers who receive every version of your content that you release. You can monetize via Google Ad Sales before you have enough revenue to build your own sales team. Sound familiar? Maker Studios is the ultimate “lean startup.” And then you can build email lists and market video content to your fans in the same way Gilt Groupe markets its clothes to its end consumers, making it an insanely scalable business. In the era of the Internet video is not a one-way medium. Content producers can have direct relationships with end viewers that serve as feedback loops & direct marketing vehicles. And nobody knows how to do this better on the Internet than Maker Studios. They are now the largest independent network who produce in-house videos and distribute them. Maker Studios is dedicated to working with “talent” in the same way that Silicon Valley is dedicated to working with engineers. Our talent includes writers, directors, actors, singers, post-production professionals, costume designers, lighting professionals, sound mixers, show runners and so on. This kind of business will not easily be replicated in Silicon Valley precisely because the skills are different. We are now attracting serious management talent, having recently brought in the venerable Courtney Holt as the COO. And I’m excited to say that we’ve poached a major technologist from Silicon Valley who will move down to Los Angeles join as CTO in January. More on this soon. But I really couldn’t do an overview of Maker Studios justice. I’ll leave that to Carson Daly who interviews Danny, Lise & Ben for Last Call in this great piece that describes what they do and why I’m privileged to watch them continue to build out their vision. And if you happen to be “talent” (including tech engineers!) make sure to reach out to team Maker. There isn’t a more talent-friendly Internet video network out there.
• The Amazing Power of Deflationary Economics for Startups 22 December, 2011, 10:43 pm
  I’m often asked by people what investment areas interest me. It’s true that I have a functional focus on three areas: Performance-based marketing, digital television and mobile computing. I try to invest in things that I know and that I believe I might have better knowledge and relationships than the masses of VCs. I have other areas of interest & competence such as cloud computing and document management given my background. It’s also true that I’m mostly founder driven, where the founding team & my personal relationship with them leads to a strong mutual working relationship. If that bond isn’t there or if it feels like I’m in a bidding process for the highest price, I might as well be Wells Fargo. But one theme in pervasive in all my thinking about investing in Internet-based companies: Deflationary economics. And it’s something I think you ought to consider when building your Internet businesses. Here’s what I mean When you think about the great achievement of the Internet in aiding content, commerce & communication they include: Large scales of connected people & information never seen before in humanity Unprecedented transparency of information Open standards that make it easier to plug into other products & services, creating a global bazaar Socially connected individuals and platforms that enable faster roll-outs of successful products Payment ready consumers (Amazon, iTunes, PayPal) and businesses (Google AdWords, Square) So which types of businesses become super successful given this environment? Ones that offer amazing value (low relative margins) at high volumes that makes it nearly impossible for high-cost incumbents to compete. That’s what I mean by deflationary economics. It is a classic case of the Innovator’s Dilemma in practice.  If you’re a startup and you haven’t read my summary of Clay Christensen’s seminal work please do. It’s the single most influential piece of work in determining my investment philosophy and how I think about markets.  In a recent panel discussion I participated in with Fred Wilson he said the same. Why Deflationary Business Win In the simplest form, new startups have a product that is INFERIOR to that offered by the competition but at a dramatically lower price with the seller opting for a very thin margin on their product. Initially their only customers are people who can get by on the reduced functionality or perhaps don’t have the money to spend on the expensive product. Often it turns out that the market is greatly expanded by having a lower price point new entrant. And over time the new entrant attracts enough business that, as depicted in the graph above, the quality of the product slowly increases over time. The new entrant keeps margins low but suddenly has a lot of profits due to large volumes of business. How does the incumbent respond? Not by dropping price & quality – they don’t have an advantage there. Instead they spend more money trying to innovate on product quality and call attention to the weaknesses of the new entrants product quality. Often major customers defect en masse to the new entrant as they realize that the huge price premium is not justified by the product differentials. That is what Clay Christenson defined in his book as “The Innovator’s Dilemma.” And this approach to looking at startup industries is what I call “deflationary economics.” How it May Apply to Your Business? When I’m asked about all of the mistakes I made at my first startup (I made them all) I often tell people that the single biggest mistake that I made was charging too much for my products. We knew how to sell – we had clients paying $1 million / year. We knew there was value in what we provided. In order to grow we hired successful and expensive sales people who in turn were able to (and incentivized to) sell projects at higher margins and close big deals. This was a mistake. We grew really fast for a few years. But eventually low-cost new entrants came into the market offering most of our features at 10% the costs. We still won large customers but over time it became harder to compete. Had I taken the lower-margin approach I really think I’d be sitting atop a $1 billion+ company today. So when you start your company think carefully about whom your target customer is. If you’re trying to be a value-based product or trying to scale to a large market size you may want to think about deflationary economics. Does your product dramatically reduce costs in an industry with large incumbents and fat margins? Can you provide a narrowly focused product to a niche of that market who will be attracted to dramatically lower costs? As your business grows can you find ways to continually lower your costs by whatever means? I would also think about how you use scale to your advantage to keep margins low. Are you offering a product where the supply costs will continue to drop precipitously? (think Amazon’s Storage costs) Are there alternative ways to monetize your product where incumbent are not? (think virtual goods of Zynga, ad supported models, freemium models) Are there ways to offer super low margins on your product knowing that you will overlay other product offers to the same customers later that will improve your margins? Most of the Internet’s Greatest Successes Have Been Deflationary Craigslist – Think about what Craigslist achieved. It’s remarkable. They took an industry that had charged people large sums of money (the classified industry) and made it almost entirely free. How do existing incumbents compete with that? Craigslist is kind of an anomaly in that it’s founder seems to run it in a non-traditional style and with some objectives other than the pure profit motive. But by providing free listings he build critical mass (volume) so charging small amounts for certain types of listing (i.e. recruiting) he could build a very profitable business. Craigslist is everybody’s favorite business to say, “I’m going to disrupt them” but somehow nobody has really been able to. Given their terrible UI I’m sure it will eventually happen. But beating free is hard, as is creating a two-sided market (chicken & egg problem). Amazon – Amazon is the ultimate deflationary business. Everybody knows the story well. They launched as an online book seller. They had huge scale advantages because they could offer a much wider book selection since they didn’t need to be limited to the physical floor space of a physical retailer. They had huge cost advantages because they didn’t need to pay for retail space or all of the retail workers. They even   had a government break because they didn’t need to charge taxes and thus consumers got an even better price. But Amazon didn’t try to build a hugely profitable business. Does that sound dumb? I always see naïve journalists comment negatively on businesses that are “not profitable.” Sometimes it’s good to not focus on profitability & sometimes it’s bad. There is a tension between profitability & growth. The more you want the latter the more investments you make in people and infrastructure now to pay for faster growth that expense of short-term profitability. It doesn’t work for every business. But if you are growing uber fast, building for scale and have access to capital to fund your growth then it’s always the smart play. So instead of maximizing price they kept cutting costs.  Innovator’s Dilemma. How do physical retailers compete with that? Especially when Amazon will offer free shipping for its best customers. And Amazon wasn’t content with just being books, they wanted to be THE Internet retailer. Walmart in the cloud. This generation’s Sears Catalog. So they kept cutting costs of everything they offered. And then they decided they wanted to be the Internet retailer of computing services so they created Amazon Web Services (AWS). And they made it so cheap that everybody gravitated towards them. They had a scale advantage and were driving deflationary economics (in other words, massively driving down the costs of goods & services). I was at Salesforce.com when Amazon was super aggressive on that storage pricing. I met with our network experts to figure out whether we could launch a competing service. The assessment of our best experts was that we couldn’t. Their view was that Amazon was taking a loss on providing Internet storage. I have not inside data on that but I’ll be they were right. I’ll bet that Amazon’s view was to start with a loss leader because they knew that storage costs could come down and that they could add more service on top of their storage product and ultimately provide a profitable bundle of IT services to their customers. In other words, storage might have been a “loss leader.” In any event, they had such scale advantages in providing this Internet infrastructure that to this day nobody in the industry has come close to matching them. In my estimation this is one of the biggest strategic mistakes Google has made in not competing more aggressively with AWS. The Cloud is the future at Amazon has an enormous lead. As far as I know, the revenue in AWS is not publicly broken out but the last rumor I heard was that it had crossed $1 billion per year. Google – They have led the deflationary pressure on advertising, bringing whole industries into chaos. This has particularly hurt the print media businesses that can no longer charge enough to pay for editorial, printing & distribution. They are bringing deflationary economics to word processing, spreadsheets and office automation. They are bringing deflationary economics to local advertising. I guess I would describe Google as the ultimate scale & deflationary business. Skype – As with many deflationary businesses, Skype started by giving away its product for free. Free phone calls anywhere in the world is as deflationary as it gets. Telecommunication companies are still charging people for phone calls when the costs to them of providing the calls is infinitesimally small. Data transfer is what costs telecom companies money these days. Ultimately when Skype had 10’s of millions of users it rolled out products that made money. They started with “Skype Out” which was placing a call from a Skype line to somebody on a normal telephone. They charge for this call, but they charge at rates that are an order of magnitude cheaper than a telco. Expect this industry to be whiplashed by deflationary economics in the next 5-10 years. It’s no wonder they’re pushing so hard to be become our Internet supplier and our TV suppliers. Unfortunately for them neither of these businesses will escape the deflationary maelstrom either. TextPlus – Speaking of telecom disruption, a new breed of mobile telco is emerging that are riding the deflationary wave. It’s the reason I invested in TextPlus. At 25 million downloads & 10 million monthly active users we’re achieving a scale that makes it a very attractive opportunity. We started offering free text messaging at a time when most telcos are still charging $240 / year for unlimited-texting plans. In many parts of America that’s a lot of money for families to be absorbing for something that costs the telcos almost zero. That’s one reason a free texting app has been so popular. But beyond that TextPlus now offers free phone calls to other TextPlus users and out-of-app calls are a fraction of the normal costs by mobile providers. Expect a deflationary revolution in the global telecom market – at a minimum for voice services. And with 6 billion global handsets you can imagine what an immense market this will be. LinkedIn – Lots of people talk about LinkedIn as a social network. What interests me is the deflationary impact that LinkedIn and other recruiting websites have had on the recruiting market. Think of the principles I described about Internet economics of Craigslist: huge scale, many parts of the service are free and monetize the narrow features where businesses are willing to pay – and at hugely deflationary prices to their normal recruiting fees. Zynga – Deflationary. In the offline world people were buying consoles and then paying for game titles separately – many in the $29-49 price range per game. Along comes an immensely scaled business that offers games for free. I know, it isn’t offering the same quality of games so I’m not arguing that the entire game console business goes away over night. But it is hard to argue longer-term against the deflationary pressures that Zynga brings. Maker Studios – Network television costs $50,000 – 100,000 per minute to produce. Reality shows can be cheaper, with the lowest-end costing $6,000 – 8,000 per minute. Maker Studios is an Internet producer of content relying on deflationary economics. It produces shows for $500 – 1,000 per minute. It’s no surprise that it has now become one of the most viewed networks of video programming in the world, achieving 500 million video views per month having only raised $3 million in venture capital. Maker Studios produces shows like =3 by Ray William Johnson (NSFW), one of the most subscribed to shows on YouTube. Many episodes are garnering 8-12 million views while its network competitor (and equally brilliant show) Tosh.O is getting 3 million views. Other shows like Epic Rap Battles of History (my personal favorite – if you get addicted we’ve produced about 15 or so now. The best ones have been watched more than 35 million times) and Animonsters are delivering huge audiences and significant revenues. I know that the networks, studios & cable companies don’t yet see this business as a threat. My experience in looking at deflationary businesses says that they should pay attention to it. Deflationary economics tend to eat at the core of traditional offline businesses. Of course I could go on and on including businesses like AirBnB, DropBox, Box.net, Yammer and so on. All deflationary. But by now you more than got the point. So What Do I Look for In My Investments? Exactly what I’ve outlined. Teams that care about keeping costs low. Teams that want to drive waste out of the system. Teams that have a “lean” mentality. Teams that are comfortable with transparency of pricing & costs and don’t mind competing in that environment. Teams who aspire to build really big businesses and believe in deflationary economics.
• The End of the Web? Don’t Bet on It. Here’s Why 20 December, 2011, 12:55 am
  Fred Wilson recently posted a great video on his blog with the CEO of Forrester Research, George Colony. The money slide is the graphic below. The chart shows three scarce resources and their improvements over time. The top line is available storage (S), the middle line represents processing power (following Moore’s law) or (P) and the bottom line is the Network (N). In it he asserts that the web is dying and in its ashes will see the rise of the “App Internet.” The App Internet is different than the HTML Internet (aka The Web, WWW and in the mobile arena “The Mobile Internet” or short-hand HTML5) because the “presentation layer” and “client side” functionality are defined by applications that run on your mobile device and connect into the open Internet back-end to exchange information with other web services. He’s right about this. But only temporarily in my view. And while the App Internet is currently more powerful than the Mobile Internet it has fundamental flaws. It isn’t open in either its standards or in the way that applications are marketed and distributed. I will cover this in my post. Colony’s presentation is intriguing (and worth a watch if you have a few minutes) because I love to see when informed people make arguments that are different than you ordinarily hear (and different from my own views). In the end, my bet is that George’s bets will largely prove wrong. This blog post lays out my case. If anybody from Forrester reads this I hope they won’t see it as an attack on George’s presentation, which I found enlightening, well argued and interesting. My views are just a data point in the debate. In the end, Seth Godin’s comments on Fred’s blog post said it best: “His black swan is showing. The problem with just about every prediction made by industry firms like Forrester (all the way back to 1985 when these firms said that the Commodore 64 was going to change the world–until the VCR interrupted to become the next big thing) is that they are based on sophisticated analysis of what’s in the rear-view mirror.  A tough way to drive. The trends are legit, but we have no idea what unexpected breakthrough in human interaction is going to change everything.” In other words, nobody can really assert authoritatively what the future of tech or the Internet will hold. I have some educated guesses. George’s Arguments 1. The web is dying and will be replaced by “the App Internet.” He says that since storage & processing are growing at a much more rapid rate than the network we’ll be at a point where not having apps on devices will greatly under utilize the power of the devices in our hands. In other words, our mobile devices are all powerful and the network that they connect into sucks. 2. Social networking is peaking. He cites that we have reaching a saturation of social networking in which nearly everybody is already using social networks (85+% in most developed countries and in urban environments in the developing world) and the amount of time dedicated to social activities already exceeds many other important tasks such as exercise and is even approaching the same amount of time we dedicate to child care. He argues for a world he calls POSO (post social) in which we will only use social applications which drastically cut down our time involvement and/or increase our productivity. 3. Social media will be pervasive in the enterprise and is primarily driving by customer interactions. He shows data that the overwhelming majority of major enterprise in the US is currently adopting or looking to adopt social networking technology. When asked what their objectives are they cite some form of “improving customer communications” by a long margin. A (Very) Brief (and Selective) History in Computing To understand my perspective you have to rewind to the late 80′s / early 90′s in business computing. As a software developer I wrote code on what was called a “dumb terminal” because it literally had no processing capability. It is the opposite of the world that Colony describes. The local computer had no processing capability, the network did its job and the central computer was the master. We wrote programs that existed solely on a centralized computer (a mainframe), all of our data was stored centrally and all processing was centralized. When we wanted to compile our programs (turning human programming language into an executable file that the computer can read) we had to submit them to the mainframe and wait for them to be processed in sequence along with everybody else’s code. In busy times compiling a program could take more than an hour, so we obviously didn’t submit often and if our program had errors and was unable to compile it was devastating. Things got so bad on one project that we ended up doing split shifts with teams of people programming from 8pm-6am and the next team arriving at 8am. Throughout the 90′s the PC became much more popular in corporate environments, so companies began to replace dumb terminals with PCs. We ran software on the PCs called “terminal emulation” that allowed us to act like a dumb terminal to interact with mainframes and to act like a PC (with word processing, spreadsheets, etc. the rest of the time. In this era the computing model known as “client / server computing” was popularized. What this model said was that since we now had really powerful processing on our desktops we should split the computing responsibilities between the PC (the client) and the mainframe (the server). Initially the computer did basic functions like “screen validation” (making sure that you didn’t enter non-sensical data into fields, for example) and could take over functions like compiling your software code so you could check for errors before submitting it to the mainframe. Over time the PCs began to do more and more. They took over the “presentation layer” of computing. As a society we got used to the windows metaphor of computing. So suddenly we had “drop down” boxes that gave us multiple choice selection of data, we had dialog boxes that would prompt us with “Are you sure you want to proceed? Y/N.” This initially took on what was called “thin clients” because the server did most of the work. The more the processors on our PC improved, the more we expected our PCs to do and everybody gushed about this new era where we had much better user interfaces and we had way more individual device power. Centralized computing was giving way to smart, distributed devices. Sound familiar? It was wonderful. For 5 minutes. Then the unintended consequences started cropping up. How much data was acceptable to sit on local devices? Few had considered what happened in a world in which the data was distributed. Suddenly you had security risks, confidentiality problems, privacy concerns (think about your medical records being distributed), etc. What happened when you submitted a processing request to a central server (think, I’d like to transfer money from my bank to yours) but the transaction didn’t complete? You could be in a situation where your local computer had assumed the money was transferred and it wasn’t. We had to develop whole frameworks of “middleware” to deal with this problem. We had to come up with “two phase commits” and “rollbacks” and other data tricks to keep our devices in sync. We started to realize that that most expensive part of computing was actually manpower. Manpower to develop all of these applications, manpower to maintain them, and manpower to deal with all of these devices, which added great complexity to our IT environments. For example, on any software upgrade for a typical client/server enterprise package it would take up to 50% of the overall development budgets to deal with testing the software in heterogenous environments. So having powerful devices with decentralized computing is not always a panacea. Enter the World Wide Web (WWW). As George appropriately describes in his video, the Internet and the Web are two different, but related things. The Internet represents what you might think of as “plumbing.” It defines how data gets moved around on networks, how files get located, how files get transfered between devices, how packets of data get sent via routers, etc. The WWW is the presentation layer. It’s central standard was HTML (hyper text markup language) that described how we would show data on computer screens. When web browsers (the programs that can read and interpret HTML) were popularized they were “dumb.” It was literally like returning to the old days of computing. On the Web almost all of the processing was centralized and your browser was your input / output device. As an example of how dumb they were (for those that don’t remember) whenever you changed one field in a browser-designed program the entire screen had to refresh. It was a terrible user experience. But for software developers like my company the web was a blessing. We were able to crank out software code at a much greater pace than was ever possible for. We designed our code and tested it in a Firefox browser and once we had working code we then had to figure out how to make the clunky Internet Explorer work. But the heterogenous environment was practically eliminated. We didn’t have to worry about which computer you were on. we didn’t have to support 3 database types, worry about network configurations, etc. We flirted for a brief period with building some client-side applications (mostly for offline use) but abandoned those efforts when we realized how much overhead it took to maintain – especially as we release new versions of our code and had to always keep the local, offline software in sync with our releases. We adopted an ethos that all of our development would be web only and that eventually browsers would become more powerful and make the user experience much better. And that’s what happened. A series of standards emerged known as “AJAX” (asynchronous javascript and xml) that gave the web-based designer much more control over the browser. Suddenly you could update small portions of the browser without refreshing the whole screen. AJAX was one of the major drivers of the “dot com renaissance” that became known as Web 2.0. As people realized streamlining client-side development really matters to cost-effectively build software, new tool sets emerged to streamline the process. Libraries like jQuery have emerged that lower the effort to build front-end code. Web & Social Change the Landscape of the Web Prior to the popularization of smart phones and Facebook we were in a pretty good place on the Web. The one big concern many people had was how to constrain the total dominance of Google. Every startup (every company, really) was beholden to the traffic god that was Google search. One change in Google’s algorithm and whole businesses could be wiped out as chronicled in this excellent book by John Battelle called The Search. The growth of social networking (er, the growth of Facebook) along with the growth of the iPhone have changed the landscape dramatically. In this chart from Silicon Alley Insider you can see the first major trend to affect the open Web – the growth of Facebook. And Facebook’s popularity has only increased in the past year. Why does the rise of Facebook affect the web? Because it isn’t a part of the open WWW. Facebook exists behind a walled garden. You need to log in to use it. Content or software developers who want to build products that work in Facebook have got to develop inside of Facebook’s framework rather than working on open, Internet standards. Brands, celebrities and even individuals like you who produce information inside this walled garden are subject to the rules & conditions set upon you by a private company – Facebook. This isn’t a case against Facebook, it’s just a statement of fact. As more people consume Facebook pages, less people are consuming open Web pages. I wrote about this previously here and spoke about it on YouTube with Howard Lindzon here & here. (if you’re not that familiar with the topic it’s worth a 20-minute watch) Is the App Emerging as the Winner? The App Internet had a clear advantage in the past few years. Why? Because the mobile devices had a series of new features for which mobile browsers were not optimized. Examples include the camera, GPS, the accelerometer and the small screen sizes. And importantly when developing games that require high-end graphics to handle game play you need to make use of the iPhone’s PowerVR GPU (graphics processing unit). So Apps were inherently more powerful than browser-based applications. It also had two other huge advantages. 1. Apple had a mechanism for charging users for apps and because most people already had an iTunes account it was simply 1-click to purchase an item. This meant that small teams could create games and make real revenue whereas on the Web this was much harder because you either had to build (or license) your own billing infrastructure, convince consumers to get out their credit cards (which they don’t like to do) or you had to sell enough advertising to make it worth offering your product. 2. Apple had a store. For early game developers this made it easier for your application to be found on the limited “shelves” in the iPhone App Store. Now that there are MANY more apps out there – this isn’t such an easy game. But in the early days the App Store was very appealing to new entrants. Round 1 clearly goes to the App Internet. Will the App Metaphor Hold for Mobile? This is where my disagreement with many starts. I think the allure of Round 1 has convinced people that in mobile, apps are better. I’m not so sure. 1. Workarounds are developed. The surest sign of a market inefficiency is when solutions emerge to help developers get around the bottlenecks of platform development. This is what is happening in mobile. Developers are now able to build apps in native languages such as Javascript or HTML5 that can run in multiple platforms. There are companies that develop “wrappers” that in essence handle all of the functionality needed to control each individual device that “abstracts” the programmer from having to build in device specific code. Some of the companies that do this include PhoneGap, Appcelerator, Strobe and RhoMobile. 2. Browsers will catch up. Just as in the first round of the web when everybody complained that web browsers weren’t powerful enough to build applications on, many of us believed that open systems would win. Eventually standards will emerge that will make it easier to build natively into browsers. Effectively either the wrapper developers become browsers or the browsers build wrappers or the two groups merge. Also note that AJAX finally took off when Google open-sourced a bunch of its internally built AJAX frameworks. I wouldn’t be surprised if big innovations from Facebook and others in the mobile web eventually see there way into open-source mobile initiatives. 3. The costs of multi-platform development are too expensive. The costs for developers to build for multiple platforms is too great, the gatekeepers are too powerful and the outcomes ultimately limit innovation as happens in any system when a few players are a choke hold on distribution. If you want to do a deeper dive on why I believe this is bad overall for the system despite the short-term allure of iPhone’s beautiful products please see my post “App is Crap, why Apple is bad for your health.” And before Fanboys slam me, please note that I own 3 Mac laptops, 2 iPads, 5 iPod devices & Apple TV. I love the products. That doesn’t mean I think it’s great for our future as an industry to have a close distribution system. 4. Distribution becomes a stranglehold. Fred Wilson talks about this in his “mobile gatekeepers” post. The early allure of empty shelves in the App Store is making way to the over-crowded shelve (currently tallied at more than 500,000 SKUs). This leads to all sorts of games by developers to get into the rankings, most of which favor companies with more cash. Also, whenever we see distribution strangleholds we tend to see slower innovation and more resistance by the distributor to change. Think about the following examples: mobile phone companies who controlled our crappy phones prior to the iPhone breaking that hegemony cable & satellite companies who have controlled our paid TV through set-top boxes that make it impossible for innovation on the TV set radio stations that controlled the music we listened to until music could achieve wider distribution on the Internet Choke points are never good for innovation. 5. Data, data, data. Just as when we first went from mainframe computing to client-server computing we forgot that data leakage and data management across multiple devices is a big issue. The App Internet creates the potential for many more data issues. That doesn’t mean they can’t be solved, but it’s not as easy as saying, “powerful apps on our mobile devices is the best answer.” More power, more distribution = more data problems. 6. TCO. There is an acronym we use in computing called TCO or Total Cost of Ownership. It is often used in ROI calculation on projects to estimate a build vs. buy decision. Often people who build apps internally at their company calculate only the costs of the initial build rather than the total costs of maintenance of the project. Maintenance often greatly exceeds the development costs when you consider both human costs of maintenance plus the loss of productivity of not having an app that innovates as fast as the market solutions do. I think there’s a TCO argument to be made against the proliferation of the App Internet. The more companies build their own apps, the more maintenance work they’ll need to do, the more employees they’ll need to maintain their apps and the further the innovation drain. I know this is a harder concept to quantify and intellectualize but I’ve seen it first hand in 20 years of working with large corporation on “legacy” IT projects. The App Internet opens the door to many more legacy apps. This argument never features into any young developers mind because it takes years to see the decaying effect of legacy infrastructure in corporations (plus, many app developers prefer the sexy world of consumer apps). To be clear … I think that the App Internet won’t disappear overnight. I also think certain apps will always be more effective built natively. But the same is true of today’s non-mobile computing. Still, most apps need not exist. Long live the Mobile Web. And What about Colony’s Assertions about Social? I’m going to save that for a future post. Coming soon. Postscript: “If I had more time, I would have written a shorter letter.” Marcus T Cicero Sorry for the uber long post. Given more time I could make it concise. And I’d have fewer typos. But I valued getting my ideas out there. If you think there are any inaccuracies I’d be glad to meet you in the comments section and I’ll gladly amend any mistakes (rather than differences of opinion)
• Let Me Introduce Myself 17 December, 2011, 9:46 pm
  I am a big believer in VC pitches that the bio slide should come up front. Actually, I think the advice in this post applies to any sales meeting also. The short answer is that by knowing the key members of the management team the VC firm can quickly identify strengths on your time and know whether you have some competitive advantage in your chose field relative to other people with whom you will compete. This is especially important since I believe that 70% of the decision of many VCs are based on the potential of the management team in one way, shape or form. I know it’s incredibly important to me in my investment decisions. I wanted to write a quick post on a pet peeve that I have when teams present “who they are” whether in a bio slide or just in the up front introductions. What occasionally happens is the CEO introduces his team giving a brief overview of who everybody is. I hate this. I want to hear everybody speak – to get to know the team. What purpose could there be to having the CEO talk on behalf of everybody? You might say, “it’s streamlined, we don’t want the intro to take too long.” That’s an excuse. If you really believe that then just have your team practice their personal intro’s and tell them the time budget they have to hit. Why is it a pet peeve? For starters I think that if you bring people to the meeting with you they should all have a role in the presentation. No “bag carriers.” If they already have a limited role relative to the CEO then why would you kill an obvious place where they actually CAN be heard (but by the way, I think best practice is to assign pages to key execs in advance and know who will do which pages). The second reason I don’t like it is that it is usually a sign of a domineering CEO, which I never like. Great CEOs can attract and retain great talent. This appears to be the case with Dave Morin who is apparently doing a great job at retaining his key talent in difficult times. When I see a CEO who takes 90% of the minutes of a meeting I assume that as a leader that person probably doesn’t listen to others opinions as much as they should. Either that or he/she don’t trust his/her colleagues. I’ve run into the problem myself. We traveled the country last year meeting with people who invest in VC funds to get to know them better. Occasionally one of my partners would intro me because I’m the newest parter at the fund (at just under 5 years, they have been at GRP Partners 8-15 years). I would always jump in early into their intro and politely break in to introduce myself. I don’t like being framed by others. Let me introduce myself! Let your team introduce themselves. Image courtesy of Fotolia
• Why I’d Rather Err on the Side of Direct Feedback Than Pleasantries 7 December, 2011, 7:12 pm
  A few weeks ago I was reading a blog post by MG Siegler that really struck a chord. The title was “The Jerk,” which is a reference to both the Steve Martin film but more precisely to Robert Scoble’s interpretation of Steve Jobs having just read his biography. The gist of MG’s argument is that he’d rather work with people who are openly critical of his ideas if it helps him to perform better than to have a bunch of “yes men” around who just say what a great job he’s doing. I agree with that mentality. And the problem is that most people are “yes men” because it’s easier. It’s far easier to tell somebody, “that looks great” than to defend why you don’t agree. To critique requires you to have your own point-of-view, to be able to articulate it and to be able to debate the merits of your point-of-view relative to the the other persons. I have written about this topic in regards in different ways before and if you haven’t read them I think they’re probably both worth a glance: 1. Don’t be a Grin Fucker 2. Don’t Sweep Feedback Under the Rug When I sent out a Tweet with MG’s article I got a number of messages back saying the equivalent of “you don’t need to be a jerk to make a point. In today’s economy it is counter productive because the best employees have options.” I agree with that sentiment (my motto is that life is too short to work with dicks) but I think it misses the point. The broader message in my mind is one of being honest & direct with your feedback (= hard) versus giving people a free pass when you know something isn’t high quality (= easy). I recently was reviewing a press release for a company in which I’m an investor. The CEO sent around his draft release to the entire investor base for comments. I would describe the responses at “atta boys” ranging from “awesome!” to “we’re so excited to work with you.” My response? I told him that I thought the press release was crap (I think my words, exactly).  It was overly intellectual, had too many competing ideas, didn’t have enough catch phrases that would be picked up in the press, emphasized some facts that made us look smaller than we were, was too long and had terrible quotes. I then asked for editing rights to his Google Doc and I rewrote a version of it. I then walked him through the logic of why I changed what I did. Of course I can’t write every press release for the company nor would I want to. I wanted to lead by example, make my points and then I hoped that the founder would think about how to do this himself the next time. I promised him that if he liked his version better he could run with it and I wouldn’t complain. But that I was certain that my version was better for reasons a, b, c, d, e. It was nearly 2am. Sure, it would have been ONE HELL OF A LOT EASIER to say, “well done! good luck!” but I cared more about the outcome and the lesson. VC Pitches I face this issue several times a week. I get presentations from aspiring entrepreneurs. Having been an entrepreneur for near-on a decade and having pitched in 100 VC meetings I hated getting no feedback. “Thanks, we’ll call ya” or “We really like you but need to see a bit more traction.” So I swore when I got into the industry to provide real feedback, in real-time in my meetings. I’m not always right. I say so. I don’t live the business every day – you, do. So if you have conviction and think I’m wrong – fine. I view my job is to be your sparring partner. To make sure you’ve thought methodically about your business. To pick hole’s in your approach. To try and save you wasted energy, help you avoid bad decisions and to make you that much better in your next VC meeting. I try to do it constructively and with a smile on my face. But I can’t always be that. Sometimes I just serve it up directly. On a bad day I’m sure it can come off as condescending but I try my best not to make it so. If I tell somebody that I am “absolutely certain this won’t work” (based on my judgment) I’m sure it doesn’t feel very nice. I usually try my best to offer constructive views on what they might do differently. But if my honest assessment is that they need a new CEO, need a better designed product, or similar – I will say so. I subscribe to the philosophy that 70% of the people will respect me for my directness if I’m not a dick. They might not like the message at the time but later they may value the insights. 30% will likely just think I’m a dick. That’s OK. I always believed that the job of a startup founder is to be Respected, Not Loved. And the same holds true for VCs. [if you never read that post, I think you'd enjoy it] So if it takes 30% of the people to not like me in order to deliver some value to the 70% I’m willing to make that trade off. It’s the harder path, trust me. You get argued with. You have to defend your point-of-view. It takes longer. You frustrate some people. In Summary I don’t believe in yelling at people. It’s counter productive. Don’t be a dick for dick’s sake. I’ve seen plenty of that in my career. But don’t give people a free pass on feedback. Take the harder track. Have a point-of-view. State it. Defend it. Push your colleagues (or your boss!) to produce higher quality work by challenging assumptions. Image courtesy of Fotolia.com
• If You Don’t Have a Discrete Hypothesis You Are Incapable of Failing 27 November, 2011, 6:28 pm
  There are very few people in Silicon Valley who have such a precise grasp on what defines success of early-stage startup companies than Eric Ries. And there are very few people who so consistently exceed my expectations when I hear them speak. I find myself nodding – even when the topic is one I don’t expect to agree with such as “fail fast.” This week was no exception. I interviewed Eric for an hour for - This Week in Venture Capital. What’s awesome is that the ThisWeekIn team now does time coding so you can go directly to the section in the video you want to hear (you need to click on link for video and then below the video in YouTube the links to the exact times will take you to that section in the video). We had a wide-ranging discussion which included discussions of Eric’s early career (including his failures), how he came to focus on the Lean Startup movement (at the encouragement of Steve Blank who was an investor in the company he co-founded) and what he wants to do next. Importantly we also discussed: should startups raise small amounts of money or large? should companies do spreadsheets / plan / have a hypothesis for success? what is the difference between a “pivot” or a “double dribble” (changing your business completely)? when is the right time to go big with PR? how do you handle internal company morale? how should you organize teams in a startup? (functional workgroups vs. product workgroups) what is the importance of social media? what is wrong with today’s social media? what lessons can we draw from Steve Jobs successes? Eric is so damn good. I could have gone 2 hours. If you have some time I promise he doesn’t disappoint. Or if you’re pinched on time the summary is below and the time coding can help you watch a brief snippet on topics that interest you. And make sure to pick up a copy of his book. Oh, and if you didn’t guess, the title, “if you don’t have a discrete hypothesis you are incapable of failing” is, of course, an Eric Ries quote. There are many in this episode. Check it out. Timecodes: 00:00 Welcome, our guest is Eric Ries, founder of the Lean Startup Movement. 00:45 Intro to Eric 01:17 Background, before the Lean Startup 01:53 Yale during the Dot Com Bubble 3:35 The real entrepreneurs come out during a down economy 4:15 Eric’s startup history 6:30 Why did it take so long to ship? 8:17 How did you decide to go with either shrinkwrap or web only product? 9:14 What was the root cause of the failure of your first company? 11:00 Mark on over-hyping PR 11:50 Startup problems! 13:43 Why would you talk to journalist? Why waste energy? 14:20 People go too fast to internationalize 14:45 Eric: The vital function of a startup is to learn how to build a sustainable business 15:40 Discussion of Awe.sm 17:30 Can you make startups science? 19:30 A teachable moment for entrepreneurs: HAVE A HYPOTHESIS! What do you do better, different, or what do you want to achieve? 20:42 Looking for the “Up and to the Right” charts 21:20 Starting points for business should be a problem 22:10 Eric: Innovation Accounting 22:53 Eric’s book: The Lean Startup 24:00 Big money vs. Little money 25:40 The fundamental goal should be to eliminate waste 26:44 Too much capital is not good 26:54 Mark on the negatives of the “Fail Fast” movement 27:45 Eric: The thing that is supposed to fail fast is your bad ideas, not your company 31:10 Mozy Pro Ad 34:00 Imvu 35:29 Why people use social media. Will these norms change? 36:30 Eric: Social media is great for people with social capital 38:00 Should you use avatars? 40:05 What happened after Imvu 41:00 Transitioning from software to writing 42:20 Did agile development influence you? 43:20 The inception of Lean Startup 44:45 Telling an entrepreneur to focus is like telling a fat person to lose weight 46:18 iOS Vs. Android 46:50 Engines of Growth 48:30 Vanity metrics 49:00 Startups are all naked in the mirror 51:10 Astrology and causality in startups 52:00 Actionable metrics 53:35 Opposition to departmental silos 54:20 Semi-autonomous teams 57: 00 How do you rectify company mission and customer demand 58:00 Apple is iterative 1:01:01 Why Steve Jobs got fired 1:01:45 Fenwick and West AD 1:03:03 So what comes next? 1:03:35 Eric: what is society going to do? Most people are working on failing ideas. 1:05:35 Middle class job of the next generation: software development! 1:06:05 The skills gap 1:07:15 The “College Deal” and why it needs to change 1:09:50 We need education!

32

AVC

• The Academy For Software Engineering 13 January, 2012, 2:39 am
  A number of years ago, I wrote a blog post talking about the need to teach middle school and high school students how to write software. In the comments (where the good stuff happens), a Google engineer told me to go down to Stuyvesant High School and meet a teacher named Mike Zamansky who had taught him to write code in high school. So I did that and thus begun my education into the world of computer science education in the NYC public high school system. What I learned was that other than Mike's program at Stuyvesant and a few other small programs, there wasn't much. So began my quest to see more computer science and software engineering in the NYC public school system.  Yesterday I went up to the Morris High School in the Bronx to watch Mayor Bloomberg's State of The City Address. In a speech that was largely about the intertwined nature of education and the economy, he announced that the city is opening The Academy For Software Engineering this fall in the Union Square neighborhood of New York City. It was a proud moment for me and Mike Zamansky, who was seated next to me on the stage. I want to personally thank the Mayor, his education team led by Dennis Walcott, and his economic development team led by Robert Steel for adopting an integrated set of technology, economic development, and education policies and then aggressively rolling them out city wide. The Academy For Software Engineering is just one part of a much bigger strategy of developing new industries and new jobs in New York City and making sure we have the education resources, both in K-12 and at the college/university level, to properly staff these new industries. The Academy Of Software Engineering is not a "specialized school." It will be open to all students as part of the high school admissions process in NYC. The City's goal (and mine too) is to open up opportunities for many more students than the small number of specialized schools can deliver. Hopefully the curriculum that is developed and teachers that are trained at the Academy will get rolled out into high schools all over the city in the coming years. The Gotham Gal and I have provided the initial financial support to hire a new schools team and recruit a top notch Principal. But we do not want to be front and center in this story. The team at the DOE and City Hall that has brought this school to life and the Advisory Board of educators and industry leaders (led by Evan Korth of NYU) should get way more credit for what has happened to date. And we will need more financial and industry support (as well as a fantastic Principal) to make this school a success. So if you would like to join us in this effort, please email me via the contact link at the bottom of this blog and let me know how you would like to help. This is an ambitious effort and we will need it.
• Shapeways and 3D Printing 11 January, 2012, 3:03 am
  Last week, in the thread on Herky Jerky Investing, the AVC community forked into an incredible discussion about 3D printing and our portfolio company Shapeways. If you click on this link, you'll see that the conversation just goes on and on and on. Clearly 3D printing is something that has captured the imagination of many members of the AVC community. We are huge believers in the power of technology to feed creativity and new kinds of businesses. 3D printing in general and Shapeways in particular is exactly that kind of transformative technology. It is still not on the radar of most people. But that is rapidly changing. To get a sense of how fast things are changing in the world of 3D printing, check out this prezi that Shapeways published on their blog yesterday (hint: go into fullscreen mode, it's way better).   Shapeways 2011 on Prezi Related articles NYC at Center of 3D Printing and Craft Manufacturing (technoverseblog.com) Shapeways Brings the Future of Stuff to New York City! (continuations.com) MakerBot announces latest model that is capable of two color 3D printing (geek.com) Steve Ho: 3D Printing Is Coming (toddsampson.com) 3D printing? Now there's an app for that (simplyzesty.com) Mineways offers up 3D-printed models of your Minecraft creations (engadget.com)
• Fredsquare 7 January, 2012, 4:29 am
  Our very own Kid Mercury has built a learning community (and game) called Fredsquare. The following is a guest post he has written to introduce all of you to it. I hope you'll visit Fredsquare, play the game, and learn a bit about startups too. I am sure the Kid will love to get your feedback on Fredsquare in the comments too. ------------ FredSquare is an application I’ve hacked together for the AVC community. Its mission statement is to help startups learn. Here’s how it works: Articles and videos from around the web that help startups learn are imported the site. Comments on AVC tagged #fs are also imported. If you’re leaving a comment that you think helps advance the FredSquare mission – help startups learn – please feel free to tag it #fs. Imported content, #fs tagged comments, and original content contributed by FredSquare members is curated and organized to create FredSquare University. I like to think of it as “Wikipedia for startups”: an encyclopedia-style reference source that we can use to continue learning, so that we can build the best startups possible. Those with the Bouncer Badge are responsible for curating content and building FredSquare University. (Currently this is just me, though hopefully we can grow to more Bouncers in time when it is warranted). The more content of yours that Bouncers add to our University, the more Badges you’ll earn. Each Badge is assigned a numerical value, and the sum of your Badges is your FredScore. Boosting your FredScore will unlock privileges as our game develops (right to launch your own storefront and accept FredBucks, discounts on other stores, etc – but all that comes later, once the community has some more engagement). While building an educational resource is the paramount goal, effectively serving our mission goes beyond creating an encyclopedia – for learning is an interactive endeavor, and we humans tend to learn most by doing. And so, the game mechanics of FredSquare also reward founders for building their startup. Here are some Badges founders can earn for engaging in activities that most startups need to do to as part of their path towards sustainable success: Slide Deck (for publishing a slide deck) Video Pitch (for creating a video pitch) Engaged Users (for reaching 10,000+ authentic registered members) Disruptive Strategy (for having a strategy that fits the framework of disruptive theory Click here for a full list of badges. Remember that earning Badges boosts one’s FredScore. As our game develops, I’d like for FredScore to serve as a reputation metric of sorts. I hope that it can be used to identify startups getting traction that may be worthy of investment – either via crowdsourcing, should the legislative environment allow that, or by bringing qualified startups to the attention of accredited investors – like Fred. I believe that FredScore, in conjunction with private groups and discussion forums on FredSquare, will provide us with a richer environment for startups to network with each other -- and thus to learn how to build great startups by doing the work involved.   Money, Governance, and CopyrightThe creation and management of FredSquare is part of my larger objective of building learning-centric communities with game mechanics for blog stars that will include a P2P economy (i.e. users buy and sell with each other using Fredbucks – sellers must have a high enough FredScore). InformedTrades is a more developed prototype if you are looking for another example. Anyway, as game operator, I will impose a tax on all transactions once our economy develops, and will retain a portion of revenue via virtual goods and affiliate marketing. The goal is to share the majority of revenue with the community via FredBucks (which, in time, will be able to redeemed for a variety services that help startups grow – i.e. hosting, video production, web design, outsourced software development, etc), as well as with Fred’s favorite charity, Donor’s Choose. At present there are just banners on FredSquare, and 100% of all banner revenue is being donated to Donor’s Choose. A large percentage of virtual gift revenue will be donated to Donor’s Choose as well. Fred appears to be down with giving me leeway to run this. But while I’m running things, if Fred tells me to do or not do something, I will obey, so long as the order does not violate any law imposed by the US Federal government or the state of Florida, USA. The goal is certainly to channel the brand of Fred and the spirit he has engendered here. I find it extremely unlikely this will be a cause for concern but I do find it worthwhile to clarify as much as possible at the outset.  All original content published on FredSquare is CC-BY licensed. Consistent with the spirit of Fred, FredSquare operates on that side of the business model debate pertaining to copyright, under the belief that such a policy will generate the most opportunity for all. If you do not find this agreeable, publishing original content on FredSquare or tagging your comments on AVC with #fs may not be for you.  Anyway, the first step is to build the community and get an economy going, then we can all argue about sharing money later. :)By now the time has come for me to end this introduction to FredSquare, and for you to make a choice: you can ignore this blog post and tell yourself that there is no hope for society; government sucks, corporations suck, the economy sucks, most startups fail, your mom doesn’t love you, etc. Or you can enlist as a citizen of FredSquare, share your knowledge and build your startup, and be a part of creating the startup utopia that sets us free.      
• Herky Jerky Investing 5 January, 2012, 2:36 am
  The WSJ says some venture funds hit pause on big deals. The Journal describes a group of venture capitalists dialing back on certain deals after a breathless year of venture investing that had some comparing 2011 to the late 1990s dot-com bubble. Many venture capitalists said they now are increasingly passing on companies seeking frothy valuations, and some are trying to get off the beaten path to find cheaper deals. I am not a fan of this start and stop style of investing. Nobody can time markets. You can't deliver great returns to your investors by being a momentum investor during some periods and a value investor in others. I believe the only way to be a top performing investor in any asset class is to have a disciplined investment strategy and approach and apply it consistently and actively in all markets all the time. I am proud that our firm has been investing at about the same rate of new investments per year for almost eight years now. It hasn't gone up much but it also has not gone down much. We will never be the most active venture capital firm. But we will never be inactive either. We are open for business as much today as any other day in the past eight years. If you are building a large network of engaged users that has the potential to disrupt a big market, please talk to us about what you are doing.
• 2012: The Year That Movements Go Mainstream? 29 December, 2011, 7:10 am
  I returned from ten days of skiing with my family last night. I'm on mountain time and plan to stay there until the new year. Staying up late and sleeping late seems to be a good way to bring in the New Year. But even so, my version of sleeping late is getting up at 8am. My family's version of sleeping late is getting up at noon. That leaves a fair bit of time to read and think. And so that's what I did this morning. And here is what I am reading and thinking about: 1) Ron Paul is likely to win the Iowa Republican Caucus. Newt Gingrich says "I think Ron Paul's views are totally outside the mainstream of virtually every decent American." Maybe Paul's win in Iowa is the moment when Paul's ideas and the Tea Party movement go mainstream. 2) Occupy's organizers are building their own social network. The idea of a distributed social net that is not controlled by any company or institution has been around for a while. Identica and Diaspora have not taken off. Can a movement make it happen? I think it has a better chance because networks need people in them. 3) Reddit's users want to target a Senator after their successful attack on GoDaddy. The Reddit community can marshall a lot of activity when they want to. Last year's Rally To Restore Sanity was largely catalyzed by the Reddit community. If they do go after a Senator with that kind of intensity, it will have an impact. 4) Wired says that 2011 was the year that IP trumped Civil Liberties. It sure feels that way to me. Beware the backlash. 5) Twitter reports a Massachusetts DA's subpeona to its users. The money quote from that post: "Never declare war on the young," said Harvey Silverglate, a noted civil libertarian, told the Boston Herald in reference to the less-than-tech-savvy wording of the subpoena. "They'll outlast you. They'll outthink you. They'll outdo you... That may be the lesson the DA's office is about to learn." Back in the spring of this year I told the folks at Techcrunch Disrupt that I thought the next big thing was "cultural revolution" fomented by the fact that roughly a billion people all over the world are connected directly to each other. I'm still not entirely sure how to invest in this megatrend, but it sure feels like it is upon us.
• Profitable: To Be Or Not To Be? 28 December, 2011, 7:38 am
  Mark Suster has a great post on this topic. In typical Mark fashion, it is long, with a lot of detail and substance. I highly recommend all entrepreneurs take the time to read it end to end. For those who won't take the time to read it end to end, I'll summarize it. Many high growth companies can be profitable. They have enough revenue to cover their essential costs and could easily decide to show a profitable income statement. But they don't make that choice. Instead they invest heavily in the business with the expectations that those investments will produce more revenue (by hiring salespeople), or additional products (by hiring engineers and product managers), or additional geographies (by hiring an international team), or any number of other value enhancing aspects of the business. The result of that decision is that the business loses money or simply breaks even (I prefer the latter approach). There was a discussion of profits (or the lack of them) in the comments to the IPO Market blog post I wrote last week. A number of commenters pointed out that many web companies lack profits. I don't think that is actually true (certainly not for many that have gone public), but it is true that most, if not all, web companies are not optimizing for profits this year or next year. They are optimizing for the ultimate size of their businesss and the total amount of cash flow they can ultimately expect to generate when the business gets to maturity. This is tricky stuff. If you are going to take all of your potential profits and reinvest them in the businesss in search of higher growth and greater profits in the future, you had better be right about those investments. And it is often hard for investors to see how those investments are going to pay off, so at times you can be penalized for making those choices. Right now the public markets seem to be paying companies more for long term growth than for near term profits, so it seems that public market investors (and VCs) are aligned in this respect. But that is not always the case. Markets are fickle. But the best entrepreneurs are focused on the long term vision and will invest in their businesses without paying too much mind to what investors want at any point in time.
• Mocked And Misunderstood 27 December, 2011, 5:07 am
  When people ask me, "how do you know which companies and services are going to be the biggest successes?", I usually tell them to look for the companies and services that are mocked and misunderstood. For some reason, that correlates highly with the biggest breakout successes. Twitter is a great example of this. For years, every post, column, or article written about Twitter would have comment after comment making fun of a service where people "told the world what they had for lunch." Of course, people were doing that on Twitter and people still do that on Twitter. But what those mocking Twitter were missing is that in between the tweets about pizza and pita were posts about politics and poetry. There was substance in the midst of nonsense. And all the while that those mocking Twitter were obsessing about the nonsense, the substance was increasing and the usage was growing. Comscore has Twitter's monthly users at ~170mm people worldwide, up >60% in the past year. That makes Twitter one of the top twenty websites in the world and it is growing faster than most of those twenty websites. That is what I call "breakout success." I woke up thinking about this because before I went to bed last night I watched last night's episode of Rock Center with Brian Williams. They had a piece on our portfolio company Kickstarter. The piece itself was pretty good. But at the end, Brian Williams discussed it with the Kate Snow (who did the piece), and he said something like "so this is like the guy on the street asking for a handout?". Yeah, just like that Brian. Kickstarter couldn't be farther from the "guy on the street asking for a handout" and yet that was Brian's takeaway after watching the piece (or maybe he didn't watch it). Either way he mocked Kickstarter and misunderstands it. And that is fine with me. Because its a signal that Kickstarter is on to something big. I knew that already, but situations like this are reinforcing for me. They are the "tell". So when your company and services gets mocked and is misunderstood by most everyone, particularly the mainstream press and media, just smile and keep doing what you are doing. You are on to something big. Image from StartupQuote.com
• Some Thoughts On The IPO Market For Web Companies 22 December, 2011, 5:42 am
  We have an IPO market for web companies again. I don't have all the names in front of me, but this year has brought IPOs for Pandora, LinkedIn, Groupon, Zynga, and TripAdvisor. These five companies are all trading for north of $1bn market cap. Pandora is at ~$1.5bn. LinkedIn is at ~$6bn. Groupon is at ~$15bn, Zynga is at ~$7bn, and TripAdvisor is at ~$3.5bn. We can (and surely will in the comments) argue about these valuations. Some will say they are too high. Some will say they are too low. That's what makes a market. But in the aggregate, these valuations do not seem ridiculous to me. The public market investors are valuing these companies at prices that have some rationality to them. What is possibly more interesting is that the public markets are valuing these companies at less than the late stage private market might value them at. Again, I don't have the data in front of me (I'm on vacation), but I believe that some of these companies had private financings at our above these current market caps. The past decade (post Internet bubble, post Sarbox) brought a new normal to the late stage venture capital market. Companies are staying private longer. They are doing multiple rounds of growth financing privately. And they are doing multiple rounds of secondary liquidity for the founders, angels, and early investors. Mike Moritz calls these financings the "new IPOs". This "new normal" is allowing these companies to stay private and develop into real businesses. With a lot of revenue. The five companies I mentioned at the top of this post will have close to $5bn in revenue this year. The company with the least amount of revenue is Pandora which, as of its last quarterly report, is operating at a $300mm annual revenue run rate. These companies also have built sophisticated management teams that are highly capable of managing a business to meet the expectations of public market investors. They have strong operating executives, strong financial executives, and strong product and engineering leadership. They should be well run public companies. The five companies I mentioned at the top of this post are carrying a combined market cap of $33bn. So they trade at an average of 6.6x revenues. And that is not including the cash they have on their balance sheets. I am not going to do the math, but I would bet if you back out the excess cash, you might see revenue multiples of less than 6x for this cohort. These are full valuations in a historical context, but these are not crazy valuations. If these companies can continue to grow at the rates they are currently growing, and if they can generate significant cash flow from their businesses (some of these companies already are doing that), then they should be more valuable in the next couple years, generating gains for the public market investors who hold the stock. When Zynga was pricing its offering last week and getting ready to start trading its stock, I got a note from a friend who said "let's hope for a '99 style first day pop." I responded that was the last thing I wanted to see. And thankfully we did not get that. It is not healthy for companies to trade at prices well beyond what they are worth. It puts incredible pressure on the team to deliver results that can't be delivered. And when the stock inevitably comes back to reality, the team feels like they somehow failed. Morale is impacted. The whole things is madness. And who benefits from that first day pop? Only the best customers of the banks who led the offerings. Why should they get a windfall when they did nothing to build the company and when they will be out of the stock so fast it will make your head spin? The IPO market for web companies we have right now is rationale. We can argue whether it is pricing thse offerings correctly. But it feels about right to me. I believe we will see a bunch of IPOs next year, led by Facebook, which is the poster child of this whole "stay private longer" movement. If we as an industry can be patient, keep our companies private longer until they are truly IPO ready, then we should have a sustainable IPO market. That's where we seem to be headed. Let's not get greedy and screw it up. Disclosure: USV has a significant holding in Zynga therefore I am long that stock through my interest in USV. Related articles Tech IPOs Just Ain't What They Used To Be (techcrunch.com) Zynga, Groupon, Pandora and LinkedIn Worked For This Investor (blogs.wsj.com) Later-stage rounds and "setting the bar too high" (cdixon.org) The TripAdvisor IPO (cdixon.org)
• FinTech 2012 15 December, 2011, 3:03 am
  I've written extensively about the startup accelerator phenomenon. I think it has been transformative for entrepreneurs and VCs and startups in general. We should all take a second and thank Paul Graham for his insight into how to properly construct such a program. Paul is a visionary entrepreneur who has changed the game. One of the things I am most excited about in the startup accelerator world is the development of "vertical accelerators." We have seen them emerge in healthcare, education, finance, and a number of other sectors. Last year I blogged about the first FinTech Accelerator here in NYC. I watched that group of entrepreneurs go through FinTech last summer, I talked to them at an evening event, and I watched what has happened to those teams after they came out of the program. I was impressed at every stage. Last week, the second annual FinTech program, FinTech 2012, was announced. Like last year, the secret sauce of this program is the leadership of the CIOs and CTOs of the largest banks and financial services companies: The chief technology officers and senior technology executives from 12 financial services firms will pick up to six entrepreneurial companies to participate in the Lab, which begins in May 2012. Bank of America, Barclays Capital,Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street, and UBSwill be joined this round by American Express and Capital One. When I talked to the teams that went through last year's program, this was the thing that all of them gushed about. Getting regular access to the highest level technology execs in these institutions was a game changer for most of the teams. If you have a fintech startup that could benefit from participation in such a program, you should seriously consider FinTech 2012. There's an information session on January 10th and the applications are due on January 18th. Details are here.
• Should You Introduce Yourself To Me At A Bar? 8 December, 2011, 3:18 am
  Saw this question on Hacker News today: Went to a talk by a VC who is very active in my area. Didn't get a chance to introduce myself after the talk (there were < 25 ppl at the talk but the VC had to run). A few hours later, was out for drinks with a friend and saw he was at the same bar but talking with someone else. Discussion ensued with my buddies around whether or not I should intro myself considering I didn't have a chance earlier in the day, but I ultimately decided against it. What say you: Should I have? I ask for the next time I'm in this situation. I say hell yes you should introduce yourself. But you should also respect that the VC is out with friends and probably isn't up for a long conversation. I would suggest you walk up to the VC, say "I saw your talk today. It was great. My name is Jane Doe and I'd love to find a suitable time to tell you what I'm working on. I'll send you an email to follow up. It's a real pleasure to meet you." Then make a polite departure. My view on these sorts of things is that I love meeting people, no matter where I am. But I don't love being pitched when I'm out with friends and family. The Gotham Gal has witnessed this so many times that she gets annoyed by it now. It happens most often at parties. Sometimes she'll just grab me and say "let's get out of here." Social situations are ideal for a quick hello. Make an impression. Put a face to a name. But don't pitch. That's going overboard.

23

Paul Graham

21

startuplessonslearned

• London Calling 7 January, 2012, 12:02 am
  Happy New Year! Four months ago, The Lean Startup debuted at #2 on the New York Times bestseller list. Since then, I have been immersed in a non-stop whirlwind book tour of North America, filled with as many events, interviews, and talks as I could physically manage. On Monday, I’m taking The Lean Startup across the pond to the UK to launch the first international edition. A complete list of book tour stops for my journey is below. I hope you'll join me, either in person or virtually. You can also stay up-to-date by following me on Twitter or on Plancast. And for those that have been asking, yes, a host of translations are in the works. I've included a preliminary list at the end of this post. Tuesday, January 10- Dublin, IrelandDublin Lean Startup MeetupI’ll be there as The Dublin Lean Startup Meetup Group hosts its first meeting at 6:45pm. Tickets are $25 Euros, and the first 50 registered will get a copy of my book. Register here Hilton Hotel Northern Cross, Malahide Rd Dublin, Ireland D17 Eric Ries will be launching 'The Lean Startup Meetup Group' Dublin on January 10th "Lean startup" is a term coined by Eric Ries. His method advocates the creation of rapid prototypes designed to test market assumptions, and uses customer feedback to evolve them much faster than via more traditional product development practices.Wednesday, January 11- Dublin, IrelandI’ll be facilitating in the Internet Growth Acceleration Programme (iGAP) program. For iGAP participants only. Thursday, January 12- London, EnglandLondon School of Economics At 6:30pm, I’ll present a public lecture at the Department of Management. This event is free and open to all with no ticket required. Entry is on a first come, first served basis.London School of Economics and Political Science Sheikh Zayed Theatre, New Academic Building 54 Lincoln's Inn Fields, WC2A 3LJ Most new businesses fail. But most of those failures are preventable. The Lean Startup is a new approach to business that's being adopted around the world. It is changing the way companies are built and new products are launched. The Lean Startup is about learning what your customers really want. It's about testing your vision continuously, adapting and adjusting before it's too late. Now is the time to think Lean. This event marks the publication of Eric Ries new book The Lean StartupFriday, January 13 - Cambridge, London, England On Friday morning, I’ll take a train North to Cambridge. The day kicks off with a corporate event at RedGate Software. Employees only. That evening, there will be a casual talk followed by a book signing at The Hauser Forum. The Hauser Forum Registration is from 4pm with the talk starting at 4:30pm with an opportunity for Q&A afterwards, followed by drinks and light refreshments. To sign up Please register here. The Seminar Centre The Hauser Forum 3 Charles Babbage Road Cambridge, CB3 0GT His book, 'The Lean Startup', is an incredible work. Its only flaw is its name. Eric's principles of innovation apply to any organisation of any type and of any size, and not just startups. Lean is one of the major trends shaping our world and its impact goes beyond just optimizing our supply chains. Lean startups can be the most capital efficient companies in the world, because they strive to prevent energy from being expended uselessly. Human talent, passion, and wisdom is too precious a commodity to allow it to be wasted.Saturday, January 14 - London, England On Saturday, I return to London and will pay a virtual visit to the Lean Startup Machine event that is taking place in Palo Alto, California.  Sign up here. Sunday, January 15 - London, EnglandThe LeanCamp Unconference Topics will be focused on current challenges of the Leancamp participants. Early bird tickets are sold out, but more tickets will be released on Saturday, January 7. Register here. Roberts Engineering Building University College London Torrington Place (@ Malet Place) WC1E 6BT LondonMonday, January 16- London EnglandBusiness Leaders Network Event At 6pm I’ll take the stage to talk about the ideas behind The Lean Startup and what it means to apply those ideas in practice. After the talk and Q&A, there will be a networking reception and everyone will leave with a complimentary copy of the book. Ticket information here Mermaid Theatre Puddle Dock Blackfriars, London, EC4V 3DBTuesday, January 17- London, EnglandTechHub I’ll return to TechHub, where I will coach three TechHub Member companies live on stage. This will be followed by plenty of time for Q&A with the audience. This event sold out last year. Register here. TechHub 76-80 City Road, EC1Y 2BJ LondonAs always, if you're able to come by an event, please do say hello. See you in Europe! Coming Soon: other international editions of The Lean Startup Germany - Muenchner (March 2012) France – Pearson (March 2012) Spain - Planeta / Gestion 2000 imprint (February 2012) Brazil - Leya / Lua de Papel imprint (first half of 2012) Japan – Nikkei BP (Spring 2012) Taiwan - Flaneur Co. (Summer 2012) Russia – Alpina (July 2012) Thailand - WeLearn Korea – Insight Press China - China Citic Press
• STARTUP IS VISION 28 November, 2011, 8:47 am
  The following is a rather unusual guest post. One of the more surreal parts of speaking publicly and putting ideas out into the ether is to watch other people run with them. I can't seem to help tuning into comment threads on blogs, news aggregators, etc. Internet people being what they are, a lot of these comments are nasty, brutish, and short.  However, every once in a while, I come across someone who consistently corrects other people's mistakes. Someone who seems to get it. And who am I to complain if that someone happens to be a giant robot dinosaur named FAKEGRIMLOCK? As it turns out, FAKEGRIMLOCK is a writer and artist with a unique style. This guest post has been authored entirely by him, and views expressed are his own. What follows is FAKEGRIMLOCK's perspective on the importance of vision in a startup. He understands that vision and iteration are allies, for there can be no science without vision. Only vision is worth testing. I'll let him take it from here... STARTUP MORE THAN BRAIN, MORE THAN MONEY, MORE THAN WORK HARD. STARTUP IS VISION. STARTUP IS MAKE FIST OF CODE, PUT IT THROUGH THE WORLD. VISION IS PUT FIST IN RIGHT PLACE, BREAK WORLD IN HALF. FIRST THING DISRUPT SELF EVERYONE GOOD AT SEE CAN'T. EVERYONE LIVE IN WORLD FULL OF IMPOSSIBLE. EVERYTHING THAT MATTER IMPOSSIBLE UNTIL SOMEONE DO IT ANYWAY. STOP BEING EVERYONE. STARE AT WHY NOT UNTIL IT GIVE UP AND BECOME HOW TO. STARTUP IS DO THING EVERYONE HAVE EXCUSE NOT TO. VISION IS STOP EXCUSES, MAKE FUTURE INSTEAD. NOW GO BIG. THEN BIGGER WHAT YOUR PRODUCT CHANGE? IF ANSWER NOT "WORLD", GO HOME. WORLD HAVE ENOUGH LITTLE IDEA. GET OUT OF LINE, DO SOMETHING BIG. NO CAN HAVE VISION LOOKING AT SOMEONE'S BACK. WHAT IF ONLY HAVE LITTLE IDEA? SMASH IDEA. THROW AWAY DETAIL. THROW AWAY FEATURE. THROW AWAY CAN'T. INSIDE LITTLE IDEA IS BIG PROBLEM HELD DOWN BY CAN'T. SET IT FREE. STARTUP IS SOLVE PROBLEM NO ONE ELSE WILL. VISION IS SOLVE PROBLEM NO ONE ELSE SEE. SET COURSE TO AWESOME SMART STARTUP BUILD, ITERATE, FAIL FAST. WITHOUT VISION FAIL FAST IS JUST LOTS OF FAIL. VISION NOT HOW. VISION IS WHERE. TAKE EVERYTHING YOU DOING THAT NOT MOVE TOWARDS VISION. STOP DOING IT. NOW EVERYTHING MOVE IN RIGHT DIRECTION. TOWARDS WIN. EVEN FAIL. STARTUP IS FAIL INTO BUILD IMPOSSIBLE. VISION IS FAIL INTO WIN EVERYTHING. TEST TODAY, NOT TOMORROW TEST IMPORTANT. TEST TELL YOU IF BUILD THING RIGHT. TEST ABOUT DETAILS. ONLY WAY TEST VISION IS WIN. VISION NOT A BULLETPOINT. NOT GO IN SPREADSHEET. THERE NO ALGORITHM FOR AWESOME. DETAILS IMPORTANT. FOR ENGINEER. BUILD TOMORROW NOT SAME AS WHAT TOMORROW TO BUILD. STARTUP IS SEE WINDOW, START BUILDING WINGS. VISION IS JUMP OUT WINDOW, TRUST WINGS HAPPEN BEFORE GROUND. NOW MAKE FIST INTERNET FULL OF WAY TO MAKE THINGS BETTER. LOTS OF STARTUPS OUT THERE MAKE THINGS BETTER THAN YOU. ONLY YOU FULL OF SEE WHAT THING TO BUILD. VISION IS SEE WHAT OTHERS NOT, DO WHAT OTHERS WON'T, WIN WHEN OTHERS CAN'T. VISION LIKE STORY WITH MOUSE AND CHEESE. SOMEONE MOVE CHEESE, MOUSE FORGET CHEESE, INVENT MACHINE GUN AND EAT CAT. BE THAT MOUSE.
• That old-time startup religion 15 November, 2011, 6:25 am
  Warning: the video below may be offensive to some readers. It contains irreverent use of religious language. Viewer discretion is advised.  So there I was, on stage in front of a large crowd, when Jason says "Has anyone seen the movie Apostle?" That's when I knew things were about to get interesting. I was in Los Angeles on book tour a few weeks ago. The Los Angeles Lean Startup Circle arranged a spectacular event. I was interviewed - live on stage - by Jason Calacanis for This Week in Startups. The video became Episode #199, and you'll get to watch it below. Jason's a controversial - and always entertaining - character. He's the founder and CEO of Mahalo, as well as the This Week In network. Oh and he also plays the occasional hand of televised high-stakes poker. So I really did not know what to expect when I met him on stage. For just about an hour, we had an in-depth interview, with Jason asking the kind of questions you only get from someone who has lived through the real highs and lows of entrepreneurship. I thought things were going well. And then things took a pretty hilarious turn. Jason decides, on the spot, that we're going to have our very own revival meeting. In a full-on southern preacher accent, he invites entrepreneurs up on stage for some "hands on healing" as they share their real stories of problems, challenges, and obstacles in their startups. And, to my great surprise, people come forward. To be honest, I thought it was going to be a disaster, but I was wrong. The rest you have to watch for yourself. Eric Ries of Lean Startup - TWiST #199 (The "Praise Jesus" starts at about 56 minutes in. Don't say I didn't warn you.) I wanted to share this video with you, and not just because it is extremely entertaining. At the end of the session, I can tell that something is starting to bother Jason. We've been talking all along about pivots, vanity metrics, and validated learning. And I can see it start to dawn on him that, like the founders we've been "healing" all night, he has some questions about Mahalo that he wants answered. And so we have a conversation, live on stage, about whether and how Mahalo should pivot from their current business (educational web videos) to a place where they're having unexpected success (paid iPad instructional video apps). A few days later, I noticed this in my newsfeed: Mahalo Lays Off 25 Percent for Shift to Apps From Video. And a few days after that, Mahalo got in touch to ask if I'd come into their studio to record a video instructional app based on The Lean Startup. After all that, how could I say no? So if you'd like to see the next chapter in this story, you're cordially invited to a video shoot, which will take place next Monday, November 21, at Mahalo World HQ in Los Angeles. I'll be lecturing, we'll take questions from the audience, and - if anyone has the courage to come on stage - we'll even do some "hands-on healing" case studies with real entrepreneurs. Want to come? Sign up here. See you Monday.
• Case Study: The Nordstrom Innovation Lab 25 October, 2011, 2:06 pm
  Today's case study answers a bunch of questions all at once about Lean Startup principles: can they be used inside a Fortune 500 company? can they be used to sell physical low-tech products? can they be used in a retail store? I have been confidently answering questions like these non-stop for the past few months. I do believe the answer is yes. But, as the saying goes, seeing is believing. And now you won't have to take my word for it. Nordstrom is currently ranked #254 on the Fortune 500 (yes, I looked it up) with over $9 billion in revenues. Scrappy startup they are not. And yet they face the same competitive pressures that are causing every modern company to take a long, hard look at the process they use to innovate. Anyone who has read The Innovator's Dilemma knows just how hard it is for a company that has been successful to invest in potentially disruptive innovations. I have been talking to JB Brown, the manager of the Nordstrom Innovation Lab about publishing a case study. At the same time, Nordstrom had sent a camera crew to document the Lab at work. When I saw the rough cut of the videos they were producing, I knew they would be a powerful teaching tool. It's one thing to talk about "rapid experimentation" and "validated learning" as abstract concepts. It's quite another to see them in action, in a real-world setting. Proving his understanding of minimum viable product, JB suggested that we start small, by posting a "case study MVP." That's how this post came to be. Below, you'll find two videos: one about the lab, and one containing a case study of the team at work. Watch them both. If you have questions, JB has generously agreed to make himself available to answer them in a future post. Just leave your question as a comment to this post. If there's sufficient interest, we'll expand this MVP. "A Lean Startup Inside a Fortune 500 Company" "We Really Don't Know What the Features Are Yet..." Here are some highlights that I found especially interesting: One-week iterations. One of the hardest things about corporate innovation is breaking through the slowness that is the default speed for most initiatives. The Nordstrom Innovation Lab solves this problem by working in one-week increments. In the second video above, you'll see them build an entire new product in one week end-to-end. Genchi gembutsu. This is one of my favorite concepts from the Toyota Production System. It translates roughly as "go and see for yourself" - it's the Toyota version of "get out of the building." By talking face-to-face with customers, salespeople, and managers in a physical store, the innovation team is able to identify an opportunity that they can execute against extremely quickly. But they go beyond simply "getting out of the building" - they actually set up shop physically in a retail store for the entire week. They build products, test new features, and get feedback all out in the open. You really have to see it to believe it. Simple, rapid, experiments. I hear all the time that developing for iOS, with its myriad approval delays and deployment obstacles means that you can't use rapid development techniques on that platform. Yet in the video you'll see this team overcome that bias with a little ingenuity. They simply brought two iPads with them. While the app is in development, the sales team is using one iPad, and the developers are working on another. At every break, the sales team swaps iPads with the developers - always using the latest version of the app. (The same technique works with paper prototypes, too.) Have questions for JB and the rest of the Nordstrom Innovation Lab team? Post them as comments.
• Best. Birthday. Ever. 29 September, 2011, 7:45 am
  Last week I turned 33, while on the road. I received an incredible amount of good news all at once. First off, I received the big news that you'll get to read if you open up the paper this coming Sunday: The Lean Startup has debuted at #2 on the New York Times Bestseller List. The Lean Startup debuts at #2 on the New York Times Bestseller List Look closely, and you'll see The Lean Startup right below televangelist Joel Osteen and right above The Guinness Book of World Records. The Wall Street Journal also maintains a bestseller list specifically for business books. The Lean Startup debuted there at #2 as well: On the very same day, my friend Hiten Shah was the first to spot this strange sight on a local newsstand: If you click through, you'll get to read a significant excerpt from the book in the current issue of Inc Magazine. But by far the best part of my birthday was getting to spend it with so many of you. (OK, the Chicago Lean Startup Circle's minimum viable birthday cake was pretty awesome, too). I have spent the past two years working on this book. I have believed all along that - with your help - we could take these ideas to a mainstream audience. You've done your part. By supporting the book in such large numbers, you've put it on the map for thousands of new people: entrepreneurs, managers, investors, and policy makers. As those people actually get a chance to read the book, we'll find out if I've managed to live up to my part of the bargain. I hope the book is worthy of the faith you all have placed in it. In any event, thank you. It's been an amazing ride - and the ultimate birthday present.
• Updates from the road 19 September, 2011, 7:25 am
  Greetings from Toronto, stop four on my book tour. I thought I'd share a few updates; for a firehose of detailed updates, follow me on Twitter or Plancast. Bundle Deadline Extended First things first: remember the Last Lean Startup Bundle, the one that I said was only going to run for 48 hours? Well, I keep getting talked into extending the deadline. I'm glad I did, since some folks have put the extra time to good use. For example, One of my favorite venture firms (who believed early in IMVU), Menlo Ventures, bought a Super Mentor Bundle for their portfolio companies. How cool is that? However, today is really truly the last day to order the bundle. Monday, September 20, 11pm EST. The early reviews are in I've been waiting months to find out how the world at large would react to the book itself, and it's such a relief that the moment is finally here. I'm extremely honored by this review in the Financial Times: Every so often a business book comes along that changes how we think about innovation and entrepreneurship. Clay Christensen’s theories on disruptive innovation and Geoffrey Moore’s potent metaphors of “crossing the chasm” from small to mass markets, and going “inside the tornado” of starting a business, have loomed large over entrepreneurial theory for years. Eric Ries’s The Lean Startup has the chops to join this exalted company. I'm equally proud of the comments and reviews from actual entrepreneurs and practitioners. And I even appreciate the constructive criticisms and other feedback. (And see how I'm resisting the urge to feed the trolls?) @DavidForrestDavid ForrestCongratulations to @ericries on his new book Lean Startup -theleanstartup.com/book - a MUST READ for any entrepreneur @CraigRutkunasCraig Rutkunas@ericries I was a bit sceptical because of all the hype, but I'm reading the #LeanStartup and it's awesome. Time well spent Eric. @rsukumarSukumar RajagopalJust finished reading #leanstartupby @ericries in one sittingamzn.to/razItT ~ ****ing brilliant. Groundbreaking stuff. Must read.And then there's the nearly 100 reviews on Amazon. Go check them out and, I hope, leave your own contribution. Photos from the tour Thanks to the folks at Montabe, there's a realtime image gallery of photos related to the book launch. I appreciate everyone who's taken the time to upload a photo of the book in the wild or a snapshot at one of our launch events. Here's a few of my favorites: That's it from the road. Having an amazing time. Thank you all so much.
• The Last Lean Startup Bundle: claim $3,000,000 in prizes 18 September, 2011, 3:49 pm
  The Lean Startup Book launches in just under a week. [Forget the verbiage, just show me the deal! OK: do you want 5-100 copies or 100+ copies?] How many copies will this book sell in its first week – real, hardcover, paper copies? If that number crosses some unknowable threshold, the book will debut as a bestseller, and then an awful lot of people are going to read it. People who would never bother with an entrepreneur’s blog, who may not even see themselves as entrepreneurs: shopkeepers and policy makers, CFO’s and private equity managers, and even future entrepreneurs. With your help, our movement can reach a truly mainstream audience, one that – at least in my humble opinion - truly needs to hear what we have to say. But there’s no reason we can’t have a little fun along the way. I wanted to create an absolutely irresistible offer, one that would entice you to buy not just a single book – but to buy one for your entire team, entire company, or just for everyone you know. This bundle is 100% stuff I think you will really use. No phony discounts. No free trials. The more books you buy, the more valuable the rewards. This blog post is going to be long, and below you will see every last detail of every last tier of prizes. I chose Amazon Web Services to be our marquee reward, and not just for the obvious reason that so many of you are - right this very moment – already hosting on AWS EC2. Almost any startup - in any industry - can use AWS to find and serve customers. I chose AWS because it offers so many different services, from hosting to databases to payments (FPS) to content delivery (CloudFront) - even e-commerce fulfillment (FWS). The AWS team is excited about the book, too, and they’ve stepped up huge: the tiers below contain almost $100,000 in AWS credits. Some of the packages are almost worth buying for that value alone. But only almost! Because at every level I have tried to give way more value than you’re paying. When you read the descriptions below, you’re going to think the “value” column is crazy. How could it possibly be that high? But I urge you to read the whole thing, check my math, and see if it’s real. Each and every package is worth what it says. Add them all up, and we're talking about $2,933,061.00 worth of prizes. No kidding around here. Some of the prizes are practical, like Pivotal Tracker, KISSmetrics, Ask Your Target Market, Assistly, Hello Bar and Sauce Labs. I’ve only included services that I believe in and that I think you’re going to use. Some of the prizes are just fun. My personal favorite (the prize I am secretly hoping won’t sell out so I can skim one for myself): a signed hardcover copy of one of my favorite new books, the crazy 80’s-video-game-themed sci-fi bestseller Ready Player One by Ernest Cline. (Yes, you will get one in the mail, courtesy of my publisher, and his, Crown/Random House). Trust me, when this book gets made into a movie and becomes the next WarGames, you’re going to feel pretty cool having this signed copy on your shelf. You’ll get awesome video content, including the video Lean Startup course I created exclusively for Udemy. You’ll the complete video recording of the amazing Lean Startup track at SXSW 2011, every single presentation. And many of you will get seven awesome action videos courtesy of Appsumo. And then there are the special bonus packages, for those who can make use of extremely large quantities of books. I asked some of the top Lean Startup super-mentors to volunteer to be prizes, and they are here. You can get time with me, too. And we’ve even got a spot in the extremely exclusive (and extremely cool) Lean User Experience Residency (LUXr) program, which normally costs $15,000. And, if you are disappointed that my book tour doesn’t take me to your city, you can instruct my publisher to change it. Truly, that’s just the tip of the iceberg. Dive in below and see what you think. Read more »
• The Lean Startup Book Tour 14 September, 2011, 10:04 am
  Today, September 13, 2011 is launch day! And, for me, it's literally a launch into a crazy amount of travel. For the next two weeks, I'm going to do as many events, interviews, and talks as I physically can. I hope you'll join me, either in person or virtually. A complete list of book tour stops for the first leg of my journey is below. To stay up-to-date, you can get the firehose of updates by following me on Twitter or for "just the facts" follow me on Plancast. However BEFORE WE CONTINUE with the list of events, can I ask just one favor? Many of you who pre-ordered the book -especially those of you on Kindle- have already received your copy. The Amazon.com reviews page for the book has just opened to the general public (up until now it's been limited to Amazon Vine reviewers). The first 24 hours are critical in establishing that all-important "average star rating" that tends to settle in. Would you take just a few minutes to post your honest impressions of the book on Amazon? I'd really appreciate it. Now, on with our regularly scheduled launch... Tuesday, September 13 - San Francisco TechCrunch Disrupt It all begins at TechCrunch Disrupt. At 11:45am I'll be honored to share the stage with two great entrepreneurs: Introducing The Lean Startup, by Eric Ries with case studies, Intuit’s Scott Cook and Instagram’s Kevin SystromAnd in the evening, the book launch party is also part of Disrupt. We'll be in the concourse from 5:30-7:30pm. Please come celebrate. If you like to support local independent bookstores, Book Passage, one of my favorite SF bookstores will be on hand selling copies, which I'm happy to sign. Wednesday, September 16 - On your TV Update: Just got word that I'll be appearing on Bloomberg West at 3pm PST. Be sure to tune in! Thursday, September 15 - Los Angeles Drucker Business Forum It starts bright and early at the Drucker Business Forum, with a breakfast event at 7:45am (talk starts at 8:15). Tickets are $35, which includes a copy of the book (I know you already have one - but give it to a friend?). I have a limited number of free tickets to give away, first-come first-served. You can grab one here. Details: The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful BusinessesTickets $20, $35 includes Ries’ book The City Club on Bunker Hill 333. S. Grand Avenue, 54th Floor Los Angeles, CA 90071Lean LA + This Week in Startups Twice on this trip, I'm sitting down with an over-the-top free-wheeling no-holds-barred interviewer that is guaranteed to be entertaining. How could I stop in LA without filming an episode of This Week in Startups with Jason Calacanis? Luckily, the amazing Lean LA meetup group has organized to do this in front of an audience, at the Santa Monica Civic Auditorium. Tickets are $30 and include a copy of the book. I'll be signing copies as well. Register here. A Conversation with Eric Ries Thursday, September 15, 2011, 7:30 PM 1855 Main St, Santa Monica, CA (map) Price: $30.00/per person Eric not only created the term "Lean Startup", he has sparked a movement that is changing the way people think about startups. In a very special Lean LA event, serial entrepreneur Jason Calacanis from Mahalo and This Week in Startups will interview Eric Ries live on stage at the Santa Monica Civic Auditorium. Friday,  September 16 - Seattle On Friday, I fly to Seattle, where I'll be for two days. The first day kicks off with two corporate events, one at Amazon (in their Fishbowl series) and one at Microsoft. Employees only. That evening, there will be a casual talk followed by a book signing at Town Hall Seattle (co-sponsored with Lean Startup Seattle). Friday • September 16 • 6pmHappy Hour with Startup Guru Eric Ries The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (CROWN) Town Hall Seattle, 1119 8th Avenue, Seattle (Enter on Seneca) For Eric Ries, a "startup" is an organization dedicated to creating something new under conditions of extreme uncertainty, no matter what the size. So how is it best to deal with uncertainty? How does an organization like this thrive? By learning to be rapidly responsive and agile. Ries wants to show you how. Please Note: Autographed copies of books are only available after the event. Presented by the Town Hall Center for Civic Life. Series media sponsorship provided by PubliCola. Series supported by The Boeing Company Charitable Trust and the RealNetworks Foundation. Tickets are $5 at brownpapertickets.org or 1.800.838.3006, and at the door beginning at 6pm. Town Hall members receive priority seating. $26.00  Buy an Autographed Copy  Saturday,  September 17 - Seattle StartupDay 2011 by Startup Weekend & Seattle 2.0  Startup Weekend and Seattle 2.0 are teaming up to put on an awesome all-day conference on Saturday. I'll be the closing keynote at 4:30, but you should really come for the whole day if you can. They've got an amazing line up of speakers, including Sean Ellis, Scott Porad, Rand Fishkin and many more. Register here. Monday, September 19 - Toronto My only Canadian stop on the tour is in Toronto at the Rotman School of Management. Startup Experts Speaker Series @ Rotman5:00 sharp to 6:00pm presentation and Q&ASPEAKER: Eric Ries, Author, Startup Lessons Learned Blog and The Lean Startup (Crown Business, September 13, 2011); Entrepreneur-in-Residence, Harvard Business School; Co-Founder and former Chief Technology Officer, IMVUTOPIC: “The Lean Startup: The Radical New Approach Savvy Entrepreneurs Use to Unleash Creativity, Work Smarter and Get Products to Market Sooner”PLACE: Fleck Atrium (ground floor), Rotman School of Management, University of Toronto, 105 St. George Street, Toronto (ON)BOOKSALE: additional copies of The Lean Startup will be available for sale at the eventFEE: $30 per person (fee includes HST, the session and 1 copy of The Lean Startup)TO REGISTER: Click Here Tuesday, September 20 - New York Unfortunately, all of my events in New York on this trip are closed to the public. Mostly, I'll be doing media and interviews, followed by a reception at IDEO. Never fear, I'll be back in a big way in October, centered around the Web 2.0 Expo.  Wednesday, September 21 - Boston A big event at Harvard Business School, where I'm returning this year as an Entrepreneur-in-Residence. This is event is free and open to the public. The talk itself will be in Burden Auditorium on the HBS campus, followed by a reception & book-signing in the brand-new Harvard i-lab: 5pm: The Rock Center & Harvard i-labpresent: Eric Ries Hear from Rock Center Entrepreneur-in-Residence, Eric Ries. Eric is the creator of the Lean Startup methodology and the author of the popular entrepreneurship blogStartup Lessons Learned. 6pm: Harvard i-lab reception with Eric Ries Following the talk with Eric Ries, join us for a reception - the inaugural event - at the Harvard i-lab. Co-sponsored by the Rock Center & the Harvard innovation lab.Thursday, September 22 - Chicago + Around the World The Chicago Lean Startup Circle and Northwestern University are hosting me on my birthday. As a birthday present, they've teamed up with Crown to organize a Virtual Book Tour version of this event. If you want to organize your own gathering anywhere in the world, and participate via live simulcast, you're welcome to do so. Just contact Paul Lamb at Random House. Details: Join us on Thursday, September 22nd for a Conversation with Eric Ries. Crown Books is releasing Eric Ries' book The Lean Startup in September, and Eric will be at the Chicago Lean Startup Circle on September 22nd for an "Actors Studio" style conversation with Bernhard Kappe.  The price of the ticket also includes a copy of Eric's book The Lean Startup.Thanks to Michael Marasco and the Farley Center for Entrepreneurship at Northwestern's McCormick School of Engineering, we'll be hosting this event at Northwestern University's Thorne Auditorium on Chicago Avenue by the lake. Register here.  September 23-26 - TBA I'll be in New York and then Washington DC for media on these days, but don't have anything public on the schedule to announce.  Tuesday, September 27 - San Francisco Home, home again.  I'm honored to be hosted by the Commonwealth Club of California, who I've spent many hours listening to on public radio. They obviously have a lot of courage, because not only are they putting me on stage, they've invited Dave McClure to interview me. He's promised to keep it clean enough for radio. We'll see. At least his crazy fonts can't shine through an audio-only medium, so he won't blind anybody. In all seriousness, I'm really excited about this event. If you can, please come out and join us. It'll be fun. Eric Ries: The Principles of a Lean Startup Sep 27 2011 - 6:30pmThe Principles of a Lean StartupEric Ries, Author, The Lean StartupIn conversation with Dave McClure, Founder, 500 Startups Starting one, working for one, going public with one – startups seem to be the thing to do in SF. But how do you make your startup great? Ries, the guru behind the “Lean Startup” sensation, asks: Is your startup employee-centric and knowledge-obsessed? Is your company functioning at optimal efficiency? Is your office a fun place to work? Ries will reveal what he believes to be the necessary hard facts that lead to a successful startup. Location: SF Club Office Time:  6 p.m. check-in, 6:30 p.m. program, 7:30 p.m. book signing/networking reception
 Cost: $20 standard, $12 members, $7 students Location  Blue Room, The Commonwealth Club   As always when I'm on tour, if you're a reader of this blog, please do come say hello. Your support and enthusiasm mean a lot to me. Thanks.
• The power of small batches 12 September, 2011, 8:01 am
  The following is an excerpt from The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses published by Crown Business.  In the book Lean Thinking, James Womack and Daniel Jones recount a story of stuffing newsletters into envelopes with the assistance of one of the author’s two young children. Every envelope had to be addressed, stamped, filled with a letter, and sealed. The daughters, age six and nine, knew how they should go about completing the project: “Daddy, first you should fold all of the newsletters. Then you should attach the seal. Then you should put on the stamps.” Their father wanted to do it the counterintuitive way: complete each envelope one at a time. They told him “that wouldn’t be efficient!” So he and his daughters each took half the envelopes and competed to see who would finish first. The father won the race, and not just because he is an adult. The one envelope at a time approach is a faster way of getting the job done even though it seems inefficient. This has been confirmed in many studies, including this one (from LSS Academy): Why does stuffing one envelope at a time get the job done faster even though it seems like it would be slower? Because our intuition doesn’t take into account the extra time required to sort, stack, and move around the large piles of half- complete envelopes when it’s done the other way. It seems more efficient to repeat the same task over and over, in part because we expect that we will get better at this simple task the more we do it. Unfortunately, in process-oriented work like this, individual  performance is not nearly as important as the overall performance of the system. (If you're skeptical, you're in good company. For a frame-by-frame breakdown of where the time went in that video, see this post.) But even if the amount of time that each process took was exactly the same, the small batch production approach still would be superior, and for even more counterintuitive reasons. For example, imagine that the letters didn’t fit in the envelopes. With the large- batch approach, we wouldn’t find that out until nearly the end. With small batches, we’d know almost immediately. All these issues are visible in a process as simple as stuffing envelopes, but they are of real and much greater consequence in the work of every company, large or small. What if it turns out that the customers have decided they don’t want the product? Which process would allow a company to find this out sooner? Lean manufacturers such as Toyota discovered the benefits of small batches decades ago. When I teach entrepreneurs this method, I often begin with stories about manufacturing. Before long, I can see the questioning looks: what does this have to do with my startup? But the theory that is the foundation of Toyota’s success can be used to dramatically improve the speed at which startups find validated learning. Toyota discovered that small batches made their factories more efficient. In contrast, in the Lean Startup the goal is not to produce more stuff efficiently. It is to— as quickly as possible— learn how to build a sustainable business. Think back to the example of envelope stuffing. What if it turns out that the customer doesn’t want the product we’re building? Although this is never good news for an entrepreneur, finding out sooner is much better than finding out later. Working in small batches ensures that a startup can minimize the expenditure of time, money, and effort that ultimately turns out to have been wasted. Want to know more about how small batches can dramatically change the way you work? Click here to pick up your copy of The Lean Startup.
• The ink is on the dead trees 8 September, 2011, 10:21 am
  I am holding in my hand one of the very first print editions of The Lean Startup. The Zen-inspired design by Marcus Gosling looks amazing in physical form. And in just two weeks, on September 13, 2011, it will be in bookstores everywhere. Read below for details on the book tour, how to get a free book, and more. Excitement about the book continues to build, and I am a little overwhelmed by all the attention. Over the weekend, The Lean Startup hit #1 on Barnes & Noble overall (it's still there as I'm writing this, wow). Amazon and B&N have been involved in a bit of a price war, dropping the price below $14 for the first time. And, in a minor but satisfying victory, my publisher has dropped the price of the Kindle edition to $12.99. The early reviews and endorsements have been amazing. I'm incredibly honored to have so many legends and personal heroes on this list (you can see them all on the Amazon listing). Here's a taste: "Eric has created a science where previously there was only art.  A must read for every serious entrepreneur—and every manager interested in innovation." —Marc Andreessen, co-founder of Andreessen Horowitz, Opsware Inc. and Netscape “This book should be mandatory reading for entrepreneurs, and the same goes for managers who want better entrepreneurial instincts. Ries’s book is loaded with fascinating stories—not to mention countless practical principles you’ll dearly wish you’d known five years ago.” —Dan Heath, co-author of Switch and Made to Stick "The Lean Startup isn't just about how to create a more successful entrepreneurial business, it's about what we can learn from those businesses to improve virtually everything we do. I imagine Lean Startup principles applied to government programs, to healthcare, and to solving the world's great problems.  It's ultimately an answer to the question 'How can we learn more quickly what works, and discard what doesn't?'"— Tim O'Reilly, CEO O'Reilly Media  The Book Tour Starting in two weeks, I'm going on a crazy action-packed book tour. We'll officially launch the book at TechCrunch Disrupt in San Francisco. From there, the tour goes through Los Angeles, Seattle, Toronto, New York, Boston, Chicago, DC, and culminates back in San Francisco at the Commonwealth Club on September 27. And that's just round one - I'll be back on the road in October, too. To get all the details on the tour, be sure to follow me on Plancast. I'll be posting links to every event there once they are online. Virtual Book Tour For cities that aren't on the tour, you can still participate remotely, via simulcast. This will probably take place September 23. We'll be offering the stream for free to organizers who want to create their own local events, as we did for Startup Lessons Learned. If you're interested in organizing an event, please contact Paul Lamb at Random House. One Last Lean Startup Bundle (& looking for beta testers) I'm going to be making one last push for book pre-orders, with an amazing bundle that will go live next week. It will be focused on evangelists who are willing to buy copies for their entire company. The prizes will make it an incredibly good deal - the lineup includes everything from tons of Amazon Web Services credits to time with world-class mentors to signed (!) copies of the new (and awesome) sci-fi novel Ready Player One. Unlike past bundles, this one will be tiered, so more copies = more prizes, and strictly quantity limited. Want to get a first look at the bundle? I'm looking for beta testers who want to get early access and be guaranteed to get in on the action before their preferred tier sells out. If you sign up for the beta program, you'll find out about the specific prizes and have a chance to order before everyone else. And, in case you hadn't guessed, you'll be looking at a minimum viable product - with details subject to change. If that sounds interesting, sign up now. Who Influences You? As the printed books roll off the presses, my publisher will be following the standard launch playbook: mailing early copies out to members of the press, influencers, and bloggers. I get a personal allocation of books to send out, and I'd like to invite you to tell me who to send them to. Who influences you? We all know that one person in our lives who is truly influential, who always gives good advice and who people look up to. It could be someone in the media, someone you work with, or just someone you know casually. If you want to nominate them to receive an early copy of the book for free, just let me know here. Please don't nominate yourself. LOL your way to a free early copy I only have a few early copies I can give away, and not everyone can be an uber-influencer. And I'm getting a little tired of taking this all so seriously. So I am including one last way you can get a completely free copy: create some Lean Startup-themed lulz. You can choose from any of these three memes: Lean Startup Junkies, Winter is Coming, or Lean Startup Cats. Post your entry in the comments (below), or vote for your favorite by replying to the comment. I'll send a free copy to the funniest entry or entries, as judged by the community. Thank you for your continued support. This book represents over two years of work. I can't wait to hear what you think. Stay tuned...

15

Answers OnStartups

• I have signed a non-compete agreement in the IT industry with my current employer 16 January, 2012, 12:16 pm
  What if I make my father register the business? Can the employer close the business if my father will be the legal owner of the business?
• Any experiences with Silicon Valley Bank? 16 January, 2012, 11:00 am
  SVB claims to have worked with lot of tech startups (and they do i believe), but does anyone here in this forum have first hand experience with SVB?. Why should someone choose them over some other international bank? Why should someone NOT choose them?
• Interactive Educational Game 16 January, 2012, 10:38 am
  I'm a high school Special Education teacher who would like to develop an online educational game for students with disabilities. My current tech skills are minimal. Since my idea is in its infancy, what skill set do I need? Should I take game design classes?
• Valuing intangible assets in an LLC sale 16 January, 2012, 10:16 am
  Upon sale of an LLC, how would I express the values of intangible assets the LLC has generated (e.g. certain access rights, processes and procedures, IP, and customer relationships)? These are assets the LLC has generated after its formation so they don't show up as initial contributions. Also, the assets are not physical assets so they don't show up as fixed assets on the LLC's balance sheets. What concerns me is that from what I understand, most exits of LLC take the form of an asset sale so where an LLC's value is primarily in intangible assets how does one get paid for that value?
• I am starting what I thought was a partnership with an existing business in a new location 16 January, 2012, 9:54 am
  I bring a skillset and experience they do not have. We discussed terms and were set on a split of revenue and equity. We went to for licensing and signing of the lease and ran into some issues. As this would be a new LLC the operating costs rise dramatically as we can no longer run under the same insurance umbrella and the leasing company for the office wants to have everyone personally liable for the lease as it is a new company. On the other hand to run it under the same name but as a branch location, this would be eliminated and the expenses drop dramatically. This would prevent me from being able to have an equity stake in the company at this time. My question is, can I protect my self via an employment contract or by other means to prevent them from letting me go after i build the business? How can i still keep some sort of stake in it? They compensation plan and my split of revenue has not changed. The point of me giving my sweat equity is to have my own business or a partnership.
• Software Product Info Management Tools 16 January, 2012, 9:37 am
  We are a start up with 2 product families and 10 classic desktop software products. We are looking for software to manage all the data and documents related to these products, such as features, whitepapers, etc. We have product managers and would prefer to allow them to change these documents/info only. Are there any specific solutions for the software industry? I am aware of document management systems, but I am looking for something specifically for management software products. Cheers, Paul
• sample business model canvas or tool 16 January, 2012, 7:02 am
  Hi I am looking for some sample business model canvas with proper details ? Any link or image would be welcome Any quick tool to build a model canvas would be also helpful. cheers
• What's the average percentage share of investor 16 January, 2012, 5:37 am
  I am a new entrepreneur seeking investors. I need $4 million in capital to start my company. Investors came forward to help me with my required capital, but they are asking for 50% of lifetime share, which I found too high. Can anybody suggest to me what's the minimum and maximum percentage that I can give him for investing $4 million? Also should I have to pay for whole lifetime or just a fixed period of time?
• Will Open-Sourcing my SaaS solution positively impact revenue? 16 January, 2012, 3:59 am
  I have yet to go public with my SaaS startup, and am considering releasing it under an open-source license. Below are some thoughts I've collated in answer to this question: No As competitors could just download our project and sell at a more competitive monthly rate As companies could just setup there own build and not pay us Yes As the developer community will like the license (good publicity) As this will solve customer skepticism such as: “What if you’re not around in a year” will be combated with we're open-source, so you can e.g.; get others to host Since others will fix bugs and enhance our service with us Because small businesses will be outpriced from infrastructure or skillset needed Becasue large businesses will want the support (someone to blame/ring-up!) Will Open-Sourcing my SaaS solution positively impact revenue?
• I have non compittitive agreement with my current employer to not open IT business 16 January, 2012, 12:44 am
  what if I make my father register the business does he have the right to close the business if my father will be the legal owner of the business

7

Steve Blank

• American Entrepreneur Radio Interview 27 December, 2011, 7:00 am
  I was lucky enough to get interviewed by Rob Morris of American Entrepreneur Radio. Ron Morris has a great “radio voice,” and actually seemed to understand what the heck I was talking about.  It made for a fun interview. Click here to listen to the interview: Steve Blank American Entrepreneur Radio interview The following week Ron Morris interviewed Regis McKenna, who for decades was the “gold standard” for high tech Public Relations in Silicon Valley. Click here to listen to the Regis interview. . Filed under: Big Companies versus Startups: Durant versus Sloan, Business Model versus Business Plan, Customer Development
• The National Science Foundation Innovation Corps – Class 2: The Business Model Canvas 22 December, 2011, 6:30 am
  The Lean LaunchPad class for the National Science Foundation Innovation Corps is a new model of teaching startup entrepreneurship. This post is part two. Part one is here. Syllabus here. The 21 NSF teams had been out of the classroom for just 15 hours as they filed back in with their business model canvas presentations.  Their assignment appeared (to them) to be deceptively simple: Write down their initial hypotheses for the 9 components of their company’s business model (who are the customers? what’s the product? what distribution channel? etc.) Come up with ways to test each of the 9 business model canvas hypotheses Decide what constitutes a pass/fail signal for the test. At what point would you say that your hypotheses wasn’t even close to correct? Consider if their business worth pursuing? (Give us an estimate of market size) Start their team’s blog/wiki/journal to record their progress during for the class  Teaching logistics Each week every team presented a 5-minute summary of what they had done and what they learned that week. As each team presented, the teaching team would ask questions and give suggestions (at times direct, blunt and pointed) for things the students missed or might want to consider next week. While the last sentence is short, it’s one of the key elements that made the class effective. Between the three of us on the teaching team there was 75 years of entrepreneurial experience. (The 2 VC’s between them probably have seen 1000′s of presentations.) While there’s no guarantee our comments were correct or we had any unique insight, we did have enough data for pattern recognition. The instructors sat in the back of the room and used a shared Google spreadsheet for grading. We graded the teams on a scale of 1-10 and each of us left detailed comments the other teaching team members could share and comment on. Week after week it gave us a pretty detailed record of the progress and trajectory of each team. (As great as the presentations may be, sitting through 21 of them in a row were exhausting. After this first cohort, the NSF will be putting 25 teams at a time in a class. We intend to break the group into three parallel presentation sections.) All teams kept a blog – almost like a diary – to record everything they did outside the building. This let the teaching team keep tabs on their progress and offer advice in-between class sessions. Getting the teams to blog required constant “encouragement,” but it was invaluable. First, as we had a window into each teams engagement with customers, it eliminated most of the surprises when they came into class to present. Second, the blog helped us see if they were gaining insight from their customer discovery. Insight is what enables entrepreneurs to iterate and pivot their business model. The goal wasn’t just to talk to lots of people – the goal was to learn from them. Finally, their blogs gave us and them a permanent record of who they talked to. Over time this contextual contact list will be turned into a shared contact database for all future NSF teams. The 21 Teams Present The first team up was Arka Lighting. We liked these guys, but for a while no one on the teaching team could figure out what their core technology was. We knew they wanted to make LED lights that had better performance because they would dissipate less heat.  Finally when we understood that their core technology was heat pipes, it wasn’t clear why that made them a better LED supplier.  Were they selling to end users? OEMs? Manufacturers? We suggested that perhaps they had jumped to too many assumptions. If you can’t see the slide deck above, click here Next up was SenSevere – solid-state hydrogen and hydrocarbon sensors for use in severe environments.  They were going to start with the $81M Chlorine market where they already had a partner. It seemed like a tiny business. Did they just want to become a licenser of technology? Were their other severe environments that their sensors fit into? Did customers just want the sensors or a more complete sensing solution? If you can’t see the slide deck above, click here Graphene Frontiers was next. Graphene is incredibly cool. It’s touted as the new “wonder material” and its inventors won the 2010 Nobel Prize in Physics. The team wanted to make wafer-scale Graphene films. And do it at ambient pressure. But their proposed products seemed like research lab selling other research labs low volume products. It seemed liked technology in search of a business. Reading the Graphene Frontiers blog for the first week, we realized that in a burst of enthusiasm they set up a Google AdWords campaign to drive traffic to their site! If you can’t see the slide deck above, click here Ground Flour Pharma was going to take Fluorine-18 and make a new generation of fluorodeoxyglucose (FDG) radiotracers for Positron emission tomography scanners. But it wasn’t clear who benefits enough to make this a business. If they need FDA trials is it worth the money needed for approval? Is this just a technology license or is it a company? If you can’t see the slide deck above, click here C6 Systems had a great set of photos with things on fire in the woods. It seemed like they were going to burn downed trees to do what? Make charcoal? It looked like fun but is this a hobby or a scalable business? Is their any patentable Intellectual Property? What was their Value Chain? Their blog showed a good head-start on talking to customers. If you can’t see the slide deck above, click here Photocatalyst made nanogrids that became miniaturized self-supported mats, similar to fishing nets, that float on water and rapidly decompose crude oil using sunlight. The result is that pollutants are turned into water, carbon dioxide and other biodegradable organics for environmental remediation. Their slides sounded like a technical presentation of nanocatalyst features but their blog showed that they had been actively talking to customers in the last two days. If you can’t see the slide deck above, click here After the teams presented it was the turn of the teaching team.  We presented our second lecture, this time on “Value Proposition.” If you can’t see the slide deck above, click here For tomorrow, the teams had 15-hours to get out of the building and talk to 10-15 customers and test their Value Proposition. While most of the teams got on the phone or into their cars, a couple of others complained, “You didn’t tell us we were supposed to use our spare time to talk to customers. We thought this was just spare time.” At first, I thought they were joking. Spare time? I don’t think you understand the key principle in a startup – there is no such thing as spare time. The clock is running and you’re burning cash. Go! Filed under: Lean LaunchPad, Teaching
• The Government Starts an Incubator: The National Science Foundation Innovation Corps 20 December, 2011, 7:00 am
  Over the last two months the U.S. government has been running one of the most audacious experiments in entrepreneurship since World War II. They launched an incubator for the top scientists and engineers in the U.S. This week we saw the results. 63 scientists and engineers in 21 teams made 2,000 customer calls in 8 weeks, turning laboratory ideas into formidable startups. 19 of the 21 teams are moving forward in commercializing their technology. It was an extraordinary effort. Your Country Needs You In July I got a call from Errol Arkilic, a program manager at the National Science Foundation (NSF), the $6.8-billion U.S. government agency that supports research in all the non-medical fields of science and engineering.  “We’ve been reading your blog about your Lean Launchpad class.”  Wow, that’s nice, I thought, a call from a fan. No, the conversation was about to get more interesting. “Our country needs you.” Say what? “Part of the NSF charter is to commercialize the best of the science and engineering research we fund. We want to make a bet that your Lean Launchpad class can apply the scientific method to market-opportunity identification. We think your class can train scientists to start companies better than how we’re doing it now.”  Uh oh, where’s this heading?  “We want to select the best of our researchers, pay them $50,000 to take your class and see if we can change the outcome of their careers and their research.” “That’s great, maybe I can set up a class for you next year,” I replied.  The answer shot back, “We want the class to start in 90 days,” I remember thinking, “Wow, whoever’s on the other end of phone sounds just like an entrepreneur, they were asking for the impossible.”  Just as I was computing whether this was possible, he added, “And we want to bring 25 new teams every quarter.” So of course, I said yes. While they’ll never admit it, the National Science Foundation was starting an incubator – the Innovation Corps – to take the most promising research projects in American university laboratories and turn them into startups. The Innovation Corps – Using the Lean LaunchPad as an Incubator for Scientists and Engineers The Innovation Corps Startup Team These weren’t 22-year olds who wanted to build a social shopping web site. Each of the teams selected by the NSF had a Principal Investigator – a research scientist who was a University professor; an Entrepreneurial Lead – a graduate student working in the Investigator’s lab; and a mentor from their local area who had business and/or domain expertise. And they were hard at work at some real science. The I-Corps Incubator Program Unlike other incubators, our Lean LaunchPad Class had a specific curriculum. We taught them the business model / customer development / agile development solution stack. This methodology forces rapid hypothesis testing and Customer Development by getting out of the building while building the product. (The mentors in our program are there to support the methodology, but aren’t there to tell stories.) The gamble was that we could train Professors doing hard-core science, who had never been near a startup or Silicon Valley, to get out of the building and talk to customers and Pivot as easily as someone at a web startup. The Scientists, the NSF and the teaching team were all going to go where no one had before. Given that Silicon Valley had started with scientists and engineers not MBA’s, I thought this was a bet worth making. The Curriculum Since the teams were in Universities scattered across the U.S., we couldn’t keep them in Silicon Valley for all 8 weeks, so we tried an experiment in teaching remotely. First, we brought all 21 teams to Stanford for 3-days of 10 hour-a-day classes in business model design and customer development. After returning to their schools, they got out of their labs while they built their products. Once a week, via Webex,they presented their Customer Development progress on line to the teaching team and the other teams. Then it was our turn, and we lectured all the teams remotely. After 7 weeks they returned to Silicon Valley for their final presentations. (The class syllabus is here. The class textbooks were “The Four Steps to the Epiphany and Business Model Generation.”) Assembling the Teaching Team We recruited two veteran Venture Capital partners to be part of the 10-week teaching team: Jon Feiber, at Mohr Davidow and John Burke of True Ventures. Alexander Osterwalder joined us for the opening day, and Oren Jacob, ex-CTO of Pixar joined us for a finale. The First Class As the first class settled into their seats at Stanford I wondered if we were going to be able to get them to act like startups. Most of the Principal Investigators were professors. Some had their own labs managing large groups of researchers. Their average age was in the mid-40’s. Their mentors were at least that old. Only the Entrepreneurial Leads (the PI’s assistants) were in their mid to late 20’s. Looking at them  I wondered if: 1) hard-core science and engineering projects could rapidly pivot, 2) if the Principal Investigators would simply “assign” the work to their graduate students. I thought about the common wisdom that only 20-year olds doing Internet startups could be agile. Some incubators would have labeled this group too old to be entrepreneurs. I smiled as I realized that I was older than most (but not all) of them. The Stanford Lectures Our first lecture was about 1) how to organize their thinking of what it takes to build a startup – the business model canvas and 2) how to test their hypotheses – the Customer Development Process. Since the first part of the lecture was about Alexander Osterwalder’s Business Model Canvas, Osterwalder flew in from Switzerland to teach slides 20-76. And since the rest of the slides were about Customer Development, I taught those. If you can’t see the slide deck above, click here. The homework for the 21 teams in the next 24-hours? Come up with a business model canvas for their startup. And tell us how they will test each of their business model hypotheses. As day one ended, I wondered what those canvases would look like. Stay tuned for Part 2. Filed under: Lean LaunchPad, Teaching
• The Startup Team 13 December, 2011, 6:30 am
  Individuals play the game, but teams beat the odds SEAL Team saying Over the last 40 years Technology investors have learned that the success of startups are not just about the technology but “it’s about the team.” We spent a year screwing it up in our Lean LaunchPad classes until we figured out it was about having the right team. Startup Team Lessons Learned During the last 12 months we’ve taught 42 entrepreneurial teams with 147 students at Stanford, Berkeley, Columbia and the National Science Foundation. (As many teams as most startup incubators.) Get into the Class When I first started teaching hands-on, project/team entrepreneurship classes we’d take anyone who would apply. After awhile it became clear that by not providing an interview process we were doing these students a disservice. A good number of them just wanted an overview of what a startup was like – an entrepreneurial appreciation class (and we offer some great ones.) But some of our students hadn’t yet developed a passion for entrepreneurship and had no burning idea that they wanted to bring to market. Yet in class they’d be thrown into a “made-up in the first week” startup team and got dragged along as a spear-carrier for someone else’s vision. Step One – Set a Bar So as a first step we made students formally apply and  interview for the Lean LaunchPad class. We were looking for entrepreneurs who had great ideas and interest in making those ideas really happen. We’d hold mixers before the first class and the students would form their teams during week one of the class. But we found we were wasting a week or more as the teams formed and their ideas gelled. Step Two – Apply As A Team So next time we taught, we had the students apply to the class as a team. We hold information sessions a month or more before the classes. Here students with preformed teams could come and have an interview with the teaching team and get admitted. Or those looking to find other students to join their team could mix and market their ideas or join others and then interview for a spot. This process moved the team logistics out of class time and provided us with more time for teaching. But we had been selecting teams for admission on the basis of whether they had the best ideas. We should have known better.  In the classroom, as in startups, the best ideas in the hands of a B team is worse than a B idea in the hands of a world class team. Here’s why. Step Three – Hacker/Hardware, Hustler, Designer, Visionary As we taught our Lean LaunchPad classes we painfully relearned the lesson that team composition matters as much or more than the product idea. And that teams matter as much in entrepreneurial classes as they do in startups. In a perfect world you build your vision and your customers would run to buy your first product exactly as you spec’d and built it. We now know that this ‘build it and they will come” is a prayer rather than a business strategy.  In reality, a startup is a temporary organization designed to search for a repeatable and scalable business model. This means the brilliant idea you started with will change as you iterate and pivot your business model until you find product/market fit. The above paragraph is worth reading a few times. It basically says that a startup team needs to be capable of making sudden and rapid shifts – because it will be wrong a lot. Startups are inherently chaos. Conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant. And finding product/market fit in that chaos requires a team with a combination of skills. What skills? Well it depends on the industry you’re in, but generally great technology skills (hacking/hardware/science) great hustling skills (to search for the business model, customers and market,) great user facing design (if you’re a web/mobile app,) and by having long term vision and product sense. Most people are good at one or maybe two of these, but it’s extremely rare to find someone who can wear all the hats. It’s this combination of skills is why most startups are founded by a team, not just one person. University Silos While building these teams are hard in the real world, imagine how hard it is in a university with classes organized as silos. Business School classes were only open to business school students, Engineering School classes were only open to engineering school students, etc. No classes could be cross-listed. This meant that you couldn’t offer students an accurate simulation of what a startup team would look like. (In our business school classes we had students with great ideas but lacking the technical skills to implement it. And some of our engineering teams could have benefited from a role-model to follow as a hustler.) So the next time we taught, we managed to ensure that the class was cross-listed and that the student teams had to have a mix of both business and engineering backgrounds. I think we’ve finally got the team composition right – relearning all the lessons investors already knew. But now on to the next goal – getting our mentor program correct. Lessons Learned Finding product/market fit in startup chaos requires a team with a combination of skills Hacker/Hardware, Hustler, Designer, Visionary At times an A+ market (huge demand, unmet need) may trump all Getting the Mentors right is the next step Filed under: Customer Development, Family/Career/Culture, Lean LaunchPad, Teaching
• You’ll Be Dead Soon – Carpe Diem 30 November, 2011, 6:30 am
  Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything – all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Steve Jobs Watching an entrepreneur fail is sad, but watching them fail from a lack of nerve is tragic. Excitement At the beginning of this year Bob, one of my ex-students was in entrepreneurial heaven. He had an idea for a new class of enterprise software insight-as-a-service based on big data web analytics as a Cloud/SaaS (Software As a Service) application. Bob had taken to heart the business model canvas and Customer Development lessons. After graduating he put together a prototype and had quickly marched through Customer Discovery, iterating his product with the help of CIOs and Fortune 1000 IT departments. I had made one of the introductions to a Fortune 100 CIO’s so I got to hear his progress from both him and the CIO. Takeoff After 90 days, things seemed to be moving at startup speed. Bob had a backlog of users wanting to try his application, and the corporate IT people who were trying his early prototype said, “It’s crude, we hate the user interface, it’s missing lots of features – but we’ll kill you if you try to take it away from us.” I pointed a VC who followed the space to the CIO who was testing the prototype. The VC told me the CIO wouldn’t get off the phone. He kept telling him he couldn’t remember when he had seen an enterprise software product with so much promise. The VC checked with other IT users and heard the same reaction. It was a “gotta use it, don’t take it away, we’ll have to buy it” product. After a demo and lunch, the VC (who normally did later stage deals) wrote my ex student a check for a seed round. Life couldn’t be better. I followed Bob progress in bits and pieces from updates from the CIO, the VC and his emails and blogs. He seemed to be on the fast track to startup success. But pretty soon a few worrying warning signs appeared. The first thing that I noticed was that Bob couldn’t seem to find a co-founder. I wasn’t close enough to know if he wasn’t really looking for one, but given the early success he was having, it seemed a bit odd. But the next thing really got me concerned. Bob started hiring second rate developers. At best they were B- players. Stall A month went by, and the product stopped getting better. The U/I still sucked, and new features had stopped appearing. The next month, the same thing. I got a call from my CIO friend asking, “what was going on?” He said, “It was a great prototype, we would have loved to deploy it company-wide, and I hate to let it go, but it looks like Bob company just lost interest in developing it. I’m going to dump it and look for a substitute.” So I called Bob and suggested we grab a coffee. I asked him how things were going and got the update on how the earlyvangelists were using the product. As I had heard, they were ecstatic. But Bob said he was worried he hadn’t found the right customer segment yet. “I’m not sure I can get all of these guys to pay me big bucks,” he said. “That’s why I stopped coding, and I’m spending all my time out in the field still talking to more customers.” “What does your VC’s say you ought to be doing?” I asked.  “Oh, he hasn’t had much time for me, his firm almost never does seed deals. It turns out I was an exception.”  Oh, oh. The conversation was starting to make the hair on the back of my neck stand up. Bob had gotten to a place most founders never do – his product was a “gotta have it for people with big budgets.” He should have been back rapidly coding, iterating and finding out what feature set would get him to paying customers. Instead he had produced barely 3 weeks of progress in the last 5 months. His prototype was rapidly wearing out its welcome. A Lack of Nerve When I pressed Bob on this he admitted, “No I guess my engineers aren’t very good. But I hired guys who were cheap because I wasn’t sure if my hypotheses were right. Didn’t you tell us to test our hypotheses first?” Now it was my time to be surprised. “Bob, you’ve validated your hypotheses better than any startup I’ve ever seen. You found that out in the first month. You got customers begging you to finish the product so they could buy it. You should have been hiring world-class talent and building something these CIO’s will pay for. It’s not too late. It’s time to grab them by the throat and go for it.” I wasn’t ready for the answer, “Steve, I’ve been reading all about premature scaling and making sure everything is right before I go for it. I want to be sure I get all of this right. I’m afraid I’ll run out of money.” I thought I’d make one more run at it. “Bob,” I said, “few entrepreneurs get the first time response you have from an early product. At your rate you’re going to burn through your cash trying to get it perfect. It’s a startup. You’ll never have perfect information. You’re sitting on a gold mine. Grab the opportunity!” I got a blank stare. We made some more small talk and shook hands as he left. Bob was in the wrong business, not the wrong market. He wanted certainty, comfort and security. I stared at my coffee for a long time. Carpe Diem – make your lives extraordinary. Lessons Learned Yes, premature scaling is a cause of startup death Yes, you need to get out of the building and test your hypotheses But, when an opportunity smacks you in the head for gosh sake grab it with both hands and don’t let go If you can’t, get out of the startup game Filed under: Customer Development, Family/Career/Culture
• Scientists Unleashed 15 November, 2011, 6:30 am
  Some men see things as they are and ask why. Others dream things that never were and ask why not. George Bernard Shaw We’re in the middle of our National Science Foundation Innovation Corps class – taking the most promising research projects in American university laboratories and teaching these scientists the basics of entrepreneurship. Our goal is to accelerate the commercialization of their inventions. Our Lean LaunchPad class teaches scientists and engineers that starting a company is another research project that can be solved by an iterative process of hypotheses testing and experimentation built around the business model / customer development / agile development solution stack. It’s “the scientific method” applied to startups. Although I typically don’t write about a class while it’s going on, I had to share this extraordinary reflection that Satish Kandlikar, one of the National Science Foundation principal investigators, posted to our Lean LaunchPad class blog. Satish Kandlikar – The Spirit of Entrepreneurship Satish Kandlikar has been a professor in the mechanical engineering department at the Rochester Institute of Technology for the past twenty-one years. His research is focused in the areas of flow boiling, critical heat flux, contact line heat transfer, and advanced cooling techniques His team, Akara Lighting, wants to build a device for LED lights that gets rid of heat 50% better than anything on the market. This would result in LED’s having a higher performance at a reduced cost. Here’s what he had to say about his experience in the Lean LaunchPad class …. “It is quite an eye-opening experience to transition from an academic “PI” (Principal Investigator) to someone who wants to run a technology start-up. The change in the mindset is perhaps the important factor on the path to success… The teaching team is simply phenomenal in identifying the pitfalls in our path and guiding us in finding the solutions. They have shown us the other side of the equation from technology to market acceptability. We have been extremely fortunate in having this kind of guidance and support. A key finding I would like to report is that we just had another “pivot” two days ago when our mentor brought to our attention that we can succeed as a heat pipe company providing thermal solutions to various LED products as well as other applications. I visited two companies, one providing data center cooling solutions, and other providing control panel cooling systems. Key alliances are expected to occur through these initial, very positive, contacts. One fundamental change that I see in my approach going forward is that I am looking at the research in a totally different way. It is no longer, in my mind, a means to publishing papers and simply graduating students. It means now, to me, how the research can be applied to make products that are accepted in marketplace. Making students understand the entire process, to whatever extent I can influence them, and inspiring them to aspire for transferring their knowledge to products is becoming an important thrust in my classroom interactions. Another eye-opener was on understanding communications. While making presentations in academic setting, it was more of a paper-based research with extension of knowledge, without too much understanding of its application. Knowing the audience was really not a factor. Now after making “cold-calls”, and seeing that there is a certain way to get them interested in just a few opening sentences, was simply amazing. Knowing what their needs are is a crucial step. Now it is becoming clear what Steve meant when he said, “get out of the building”. It is clear that the building referred to our mindset more than the physical act of going out or simply contacting someone outside. The purpose of this posting was to document my beginning of the transformation process from an academician to an entrepreneur. And I am definitely enjoying it.” Scientists Unleashed Over fifty years ago Silicon Valley was born in an era of applied experimentation driven by scientists and engineers. Fifty years from now, we’ll look back to this current decade as the beginning of another revolution, where scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before, unleashing a new era for a new American economy built on entrepreneurship and innovation. And scientists like Satish Kandlikar and the National Science Foundation will lead the way. Filed under: Business Model versus Business Plan, Customer Development
• Steel In Their Eyes – Why VC’s Should Be Startup CEO’s 1 November, 2011, 5:30 am
  A man who carries a cat by the tail learns something he can learn in no other way. Mark Twain Venture Capitalists who are serious about turning their firms into more than one-fund wonders may want to have their associates actually start and run a company for a year.  Running a company is distinctly different from simply having operating experience – (working in bus dev, sales or marketing.) None of that can compare with being the CEO of a startup facing a rapidly diminishing bank account, your best engineer quitting, working until 10pm and rushing to the airport and catching a redeye for a “Hail Mary” close of a customer, with your board demanding you do it faster. Today, you can start a web/mobile/cloud startup for $500,000 and have money left over.  Every potential early-stage Venture Capitalist should take a year and do it before he or she makes partner. Here’s why. ——- Venture capital as a profession is less than half a century old. Over time Venture firms realized that the partners in the firms needs a variety of skills: People skills (ability to recognize patterns of success in individuals and teams) People skills People skills Market/technology acuity (patterns of success, domain expertise) Rolodex/deal flow (deal sourcing/ability to make connections for the portfolio) Board skills (Startup coaching, mentoring, strategy, operational/growth) Fund raising skills Some of these skills are learned in school (finance), some are innate aptitudes (people skills), some are learned pattern recognition skills (shadowing experienced partners, hard won success and failures of their own), and some are learned by having operating experience. But none of them are substitutes for having started and run a company. How to Become a VC Early-stage Venture Capital firms grow their partnerships in different ways, some hire: partners from other firms associates and put them on a long career path venture/operating partners to get them into new industries an executive who had startup “operating experience” rarely a startup founder/CEO In surveying my VC friends, I was surprised about the strong and diverse opinions. The feedback varied from: “.. because culture is such an important part of who we are, we will probably never hire a partner from another firm. The idea of bolting on someone from another firm is somewhat antithetical to who we are. We think that our venture partner role is the most likely path to general partner.” ..we have a partner-track associates program.  We want to find someone who has a lot of consumer internet product experience as either product manager, founder, VP Product, etc. with 3-7 years of experience.” “…we do not even try to train new partners. We bring people into our firm who have learned how to be VCs at the partner level somewhere else and have demonstrated their talent in boardrooms alongside of us. We completely and totally punt on the idea of “training a VC.”  It’s an ugly and painful process and I don’t want to be part of it.” “…if they don’t have operating experience  the odds of them knowing what they’re talking about in a board meeting for the first five years is low..” Carrying the Cat By The Tail When I finally became a CEO it was after I had spent my career working my way up the ladder in marketing in startups. I did every low-level job there was, at times sleeping under my desk (engineering was doing the same.) By the time I was running a company, having some junior employee tell me why they couldn’t do something because of “how hard it was” didn’t get much sympathy from me. I knew how hard it was because I had done it myself. Startups are hard. What running a company would do is give early-stage VC’s a benchmark for reality, something most newly-minted partners sorely lack. They would learn how a founding CEO turns their money into a company which becomes a learning, execution and delivery engine. They would learn that a CEO does it through the people – the day-to-day of who is going to do what, how you hold people accountable, how teams communicate, and more importantly, who you hire, how you motivate and get people to accomplish the seemingly impossible. Further, they’d experience first hand how, in a startup, the devil is in the details of execution and deliverables. My hypotheses is simple:  what most VC’s lack is not brains or rolodex or people skills – but hands-on experience as a startup CEO – knowing what it’s like trying to make a payroll while finding sufficient customers while you’re building the product.  Sure, a year as a CEO won’t make them an expert, but it will change them quicker than 10 years in the boardroom. Does it Matter? There’s a school of thought that says the skill set of a great early-stage VC – awesome people skills, curiosity, likable, etc. – versus the attributes of a great entrepreneur – pattern recognition, tenacity, etc. may not have much overlap. Early stage investing is not a spreadheet, quantitative driven exercise, nor is it about technology – it is a deal business and people drive the deals. And while having experience as a startup CEO may make you a better board member, it may not substantively contribute to your career as an early stage investor – which depend on many more important skills. Steel in their eyes Ten years ago starting a company required millions of dollars and first customer ship took years. Now it’s possible to build a company, ship product and get tens of thousands of customers in a year with less than $500K. For venture firms who want to groom/grow associates or operating execs into partners (rather than hiring proven partners), here’s my suggestion: Have them start as an analyst (search for deal flow and people, due diligence) Then take a year as a product manager in a startup in the firm’s portfolio Then come back as an associate for a year – shadowing board and partner meetings Then take a year and $250-500K to start and run a mobile/web/cloud company. See what it’s really like on the other side of that boardroom table Then return as a partner This process will create a new generation of venture capital partners, ones who have been battle tested in the trenches of a startup, hardened by hiring and firing, tempered by making a payroll and losing orders, and will never forget it’s all about the people. These VC’s would return to their firms with steel in their eyes. They’d be relentless about accountability from board meeting to board meeting with laser like focus on the one or two issues that matter. They would understand the CEO-VC-board dynamic in a way that few who hadn’t lived it could. They’d be ruthless in their choice of people and teams, looking for those few who have natural curiosity, a passion to win, and who won’t take no for answer. Lessons Learned Venture Capital is still a “craft business” Early stage VC’s should have startup CEO experience It can now be gained cheaply and quickly It will give them perspective and edge that would take a decade to learn  Filed under: Venture Capital
• How the iPhone Got Tail Fins – Part 2 of 2 20 October, 2011, 5:30 am
  Read part 1 of this post for background. By the early 1920’s General Motors realized that Ford, which was now selling the Model T for $290, had an unbeatable monopoly on low-cost automobile manufacturing. Other manufacturers had experimented with selling cars based on an image and brand. (The most notable was an ad by the Jordan Car company.) But General Motors was about to take consumer marketing of cars to an entirely new level. Market Segmentation General Motors had turned the independent car companies acquired by its founder Billy Durant into product divisions. But in a stroke of genius GM transformed these divisions into a weapon that Ford couldn’t match. With the rallying cry “a car for every purse and purpose,” GM positioned its car divisions (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac) so they would cover five price segments – from low-price to luxury. It targeted each of its brands (and models inside those brands) to a distinct economic segment of the population. Chevy was directly aimed at Ford – the volume car for the working masses. Pontiac came next, then Oldsmobile, then Buick. The top-of- the-line Cadillac offered luxury and prestige announcing you had finally arrived at the top of the conspicuous consumption heap. Consumers could announce their status and lives had improved by upgrading their brands. GM had one more trick to make this happen. Within each brand, the top of the line was just a bit less expensive than the lowest priced model of the next expensive brand. The goal was to convince the consumer to spend a little more to trade up to a more prestigious brand. Market segmentation by price was something no other automotive manufacturer had ever done. While other car companies could compete with one of GM’s divisions, few had GM’s capital and resources to compete simultaneously with the onslaught of car models from all five divisions. Planned Obsolescence While market segmentation allowed GM to use its divisions to reach a wider market than Ford or Chrysler, this didn’t solve the problem of market saturation. By the late 1920’s, most everyone in the U.S. had a car. And cars lasted 6 to 8 years. Even worse, the market was now filled with used cars that provided even lower cost basic transportation. Sloan, the General Motors CEO, faced two seemingly unsolvable challenges: How do you get consumers to abandon their perfectly fine cars and buy a new one? How do you turn a product that competed on price and features into a need? In another stroke of genius, GM invented the annual model change. Sloan borrowed this idea from fashion where styles changed every year and applied it to automobiles starting in the 1920s. General Motors would change the external appearance of cars every year. Sloan preferred to call it “dynamic obsolescence.” Styling and design became an integral part of GM’s strategy. Sloan hired Harley Earl to set up GM’s in-house styling staff. Earl would run it from 1927 to 1958. Before Earl, cars were designed by in-house body-engineers who focused on practical issues like function, costs, features, etc. Each exterior component was designed separately to be functional – radiator, bumpers, hood, passenger compartment, etc. Some companies used 3rd party bodymakers to set the style , but GM was the first to take car design away from the engineers and give it to the stylists. The concept of yearly “improvements”, whether styling or incremental technology improvements, every model year gave GM an unbeatable edge in the market. (Henry Ford hated the idea. He had built Ford on economies of scale – the Ford Model T lasted for 19 years.) Smaller car makers could not afford the constant engineering and styling changes they had to make to keep competitive. GM would shut down all their manufacturing plants for a few months and literally rip out the tooling, jigs and dies in every plant and replace them with the equipment needed to make the next year’s model. GM had figured out how to take a product which solved a problem – cheap transportation – and transform it into a need. It was marketing magic that wasn’t to be equaled until the next century. By the mid-1950′s every other car company was struggling to keep up. Mass Marketing Starting in the 1920’s and continuing for the next half century, automobile advertising hit its stride. Ads emphasized brand identification and appealed to consumers’ hunger for prestige and status. Advertising agencies created catchy slogans and jingles, and celebrities endorsed their favorite brands. General Motors turned market segmentation and the annual model year changeovers into national events. As the press speculated about new features, the company’s added to the mystique by guarding the new designs with military secrecy. Consumers counted the days until the new models were “unveiled” at their dealers. Results For fifty years, until the Japanese imports of the 1970’s, Americans talked about the brand and model year of your car – was it a ’58 Chevy, ’65 Mustang, or 58 Eldorado?  Each had its particular cachet, status and admirers. People had heated arguments about who made the best brand. The car had become part of your personal identity while it became a symbol of 20th Century America. After Sloan took over General Motors its share of U.S cars sold skyrocketed from 12 per cent in 1920, until it passed Ford in 1930, and when Sloan retired as GM’s CEO in 1956 half the cars sold in the U.S. were made by GM. It would keep that 50% share for another 10 years. (Today GM’s share of cars total sold in the U.S. has declined to 19%.) How the iPhone Got Tail Fins Over the last five years Apple has adopted the GM playbook from the 1920′s – take a product, which originally solved a problem – cheap communication – and turn it into a need. In doing so Apple did to Nokia and RIM what General Motors did to Ford. In both cases, innovation in marketing completely negated these firms’ strengths in reducing costs. The iPhone transformed the cell phone  from a device for cheap communication into a touchstone about the user’s image. Just like cars in the 20th century, the iPhone connected with its customers emotionally and viscerally as it became a symbol of who you are. —- The desire to line up to buy the newest iPhone when your old one works just fine was just one more part of Steve Jobs’ genius – it’s how the iPhone got tail fins. It’s one more reason why Steve Jobs will be remembered as the 21st century version of Alfred P. Sloan. Filed under: Big Companies versus Startups: Durant versus Sloan, Technology
• How the iPhone Got Tail Fins – Part 1 of 2 18 October, 2011, 5:30 am
  It was the most advanced consumer product of the century. The industry started with its innovators located in different cities over a wide region. But within 20 years it would be concentrated in a single entrepreneurial startup cluster. At first it was a craft business, then it was driven by relentless technology innovation and then a price war as economies of scale drove efficiencies in production. When the market was finally saturated the industry reinvented itself again – one company discovered how to turn commodity products into “needs.” They opened retail outlets across the country and figured out how to convince consumers to flock to buy the newest “gotta have it” version and abandon the perfectly functional last year’s model. No, it’s not Apple and the iPhone. It was General Motors and the auto industry. In the Beginning At the beginning of the 20th century the auto industry was still a small hand-crafted manufacturing business. Cars were assembled from outsourced components by crews of skilled mechanics and unskilled helpers. They were sold at high prices and profits through nonexclusive distributors for cash on delivery. But by 1901, Ransom Olds invented the basic concept of the assembly line and in the next decade was quickly followed by other innovators who opened large scale manufacturing plants in Detroit – Henry Packard, Henry Leland’s Cadillac, and Henry Ford with the Model A. The Detroit area quickly became the place to be if you were making cars, parts for cars, or were a skilled machinist. By 1913 Ford’s first conveyor belt-driven moving assembly line and standardized interchangeable parts forever cemented Detroit as the home of 20th century auto manufacturing. Feature Wars The automobile industry was founded and run by technologists: Henry Ford, James Packard, Charles Kettering, Henry Leland, the Dodge Brothers, Ransom Olds. The first twenty-five years of the century were a blur of technology innovation – moving assembly line, steel bodies, quick dry paint, electric starters, etc. These men built a product that solved a problem – private transportation first for the elite, and then (Ford’s inspiration) – transportation for the masses. Market Saturation Ford tried to escape the never-ending technology feature wars by becoming the low cost manufacturer. Fords River Rouge manufacturing complex – 93 buildings in a 1 by 1.5 mile manufacturing complex, with 100,000 workers – vertically integrated and optimized mass production. By 1923, through a series of continuous process improvements, Ford had used the cost advantages of economies of scale to drive down the price of the Model T automobile to $290. When the 1920’s began there were close to a 100 car manufacturers, but the relentless drive for low cost production forced most of them out of business as they lacked capital to scale. For a brief moment, half the cars in the world were now Fords. To make matters worse, the long service life of Ford and GM cars (8 years for Fords Model T, 6 years for everyone else) retarded sales of new cars. In 20 years, U.S. car ownership had risen from 0 to 80% of American families – the market was approaching saturation. Now cars would have to be sold almost entirely to people who already owned a car. The Crazy Entrepreneur After success as a leading manufacturer of horse-drawn carriages, Billy Durant was one of the few who saw the writing on the wall and got into the car business. Although he wasn’t a technologist, he was an entrepreneur with a great eye for acquiring car companies run by technologists. His keen insight was that several carmakers combined under one company umbrella would have more growth potential than one brand on its own. Like most founders, he was great at searching for a business model but terrible at in large company execution. When his board fired him, Durant bought a competing company called Chevrolet, built it larger than his last company, and used Chevy stock to buy out his old company – General Motors – and threw out the board. Yet a few years later under his brilliant but reckless leadership GM was again on the brink of financial disaster and his new board fired him. (Durant would die penniless managing a bowling alley.) Durant’s ultimate replacement – an accountant named Alfred P. Sloan – would turn GM into the leading and most admired company in the U.S. Relentless Over the next decade Sloan would implement a series of innovations which would last for over half a century. And catapult General Motors from the number 2 car company (with a ¼ of Ford’s sales) into the market leader for the next 100 years. Here’s what he did: Distributed Accounting Unlike Ford, GM was originally a collection of separate companies. Distributed Accounting turned those fiefdoms into product divisions each of which, could be focused like Ford’s mass-produced lines. But Sloan went further. He figured out how to centralize financial oversight of decentralized product lines. His CFO created standardized division sales reports and flexible accounting, and allocated resources and bonuses to the GM divisions by a uniform set of rules. It allowed GM to be ruthlessly efficient internally as well with its dealers and suppliers. It got the division general managers to fall in line with corporate goals but allowed them to run their divisions freely. GM became the prototype of the modern multidivisional company. Car Financing. Realizing that Ford would only accept cash for car purchases, in 1919 GM formed GMAC to provide new car buyers a way to finance their purchases through debt. Consumer Research. Every since his days at Hyatt Roller Bearing, Sloan, and by extension GM, was relentless about getting out of the building – they had an entire department that studied consumers, dealers, suppliers. More importantly, Sloan led by example. He visited dealers and suppliers, listened to customers and was tied tightly to his head of R&D Charles Kettering. All this would have made General Motors a well-run and well-managed company.  But what they did next would make them the dominant company in the U.S. and eventually put tail-fins on the iPhone. Part 2 explains it all. Filed under: Big Companies versus Startups: Durant versus Sloan, Technology
• Nokia as “He Who Must Not Be Named” and the Helsinki Spring 10 October, 2011, 5:30 am
  I was invited to Finland as part of Stanford’s Engineering Technology Venture Program partnership with Aalto University. (Thanks to Kristo Ovaska and team for the fabulous logistics!) I presented to 1,000’s of entrepreneurs, talked to 17 startups, gave 12 lectures, had 9 interviews, chatted with 8 VC’s, sat on 4 panels, talked policy with 2 government ministers, 2 members of parliament, 1 head of a public pension fund and was in 1 TV-documentary.  More details can be found at www.steveblank.fi This is part 2 of 2 of what I found. Part 1 can be found here. Toxic Business Press and Contradictory Government Incentives Unique to Finland with its strong cultural emphasis on equality and the redistribution of wealth is a business press that doesn’t understand startups and is overtly hostile to their success. When MySQL was sold for $1B and the cleantech company the Switch got acquired for $250M, one would have expected the country to celebrate that they had built these world-class companies. Instead the business press dumped on the founders for “selling out.” In 2010 it got worse with an Act in parliament about the Monitoring of Foreigners’ Corporate Acquisitions. Many founders mentioned this as a reason not to incorporate or grow their companies in Finland. While the government says they love startups, the first thing they did this year is raise the capital gains tax. While it might have been politically expedient, it was not a welcome sign for long-term investment. I suggested they consider an investment tax credit for pension funds that invest in Finnish based VC firms. Nokia as “He Who Must Not Be Named” I was in Finland three days before I realized that no one had mentioned the word “Nokia.”  After I brought it up in a meeting, you could have heard a pin drop.  Nokia was Finland’s symbol of national competence. Most Finns take their failure as a personal embarrassment. (Note to Finland – lighten up. Nokia was blind-sided in a classic disruptive innovation. 50% the fault of a Nokia management that didn’t see it coming, while 50% was due to brilliant Apple execution.) Ultimately, Nokia’s difficulties will turn out to be good news for Finnish entrepreneurs. They’ve stopped hiring the best talent, and startups are not looking so risky compared to large companies. Nanny-Culture, Lack of Risk Taking, Not Sharing What makes Finland such a wonderful place to live and raise a family may ultimately be what kills it as a startup hub. There’s a safety net in almost every part of one’s public and private life – health insurance, free college tuition, unions, collective bargaining, fixed work hours, etc. And what’s great for the mass of society – a government safety net verging on the ultimate nanny state – makes it impossible to fail. You find early stage employees expecting to work normal hours, to get paid a regular salary, and not asking or expecting equity. There isn’t much of a killer instinct among the masses. It’s the rare region where risk equals experience. By nature Finns are not good at tolerating risk. This gets compounded by the cultural tendency not to share or talk in meetings, sometimes to the point of silence. This is a fundamental challenge in creating an entrepreneurial culture.  This extends to sharing among startups. The insular nature of the culture hasn’t yet created a “pay it forward” culture. Summary The young entrepreneurs I met are bringing impressive energy and intelligence to their goal of building one of Europe’s leading technology hubs in Helsinki. Finland itself has significant engineering talent, and is also attracting entrepreneurs from Russia and the former USSR. It will be fascinating to see if they can lead the cultural change and secure the political support (in a government run by an older generation) to support their vision. Lessons Learned Finland is trying to engineer an entrepreneurial cluster as a National policy to drive economic growth through entrepreneurial ventures They’ve gotten off to a good start with a start around Aalto University with passionate students Startup incubators, business angels and VCs are starting to emerge The country needs to figure out a long term privatization strategy for Venture investing Finnish culture makes risk-taking and sharing hard Filed under: Business Model versus Business Plan, Customer Development, Teaching, Venture Capital