Archive for November, 2009
Seed Investor’s Guide to Finding the Next Twitter
I had breakfast this morning with my friend Ben Lerer. He, and his dad Ken Lerer, have recently put together a seed fund to make angel investments in early stage consumer companies. He asked me a question, which two years ago, I would have been able to answer in a heartbeat, but today caused me a moment of pause. He asked me what companies are on Twitteresque growth trajectories that would be worth investing in regardless of price. The reason I paused was because working at a venture capital firm for a few years, you get to a point where your thinking is probably 6-12 months ahead of the curve. But lacking thousands of data points on blazing markets and the companies within them, I have probably lost that 6-12 month advantage. I still read a ton, and spend time with smart folks from the entrepreneurial and VC communities, but the fire hose of information isn’t quite as fat.
Part of the job of an Associate at a venture capital firm is to identify new and emerging spaces that are worth investing ahead of, and exposing those opportunities to the partnership. Microblogging in 2007 was one of those spaces. To this day, Joel Cutler (who happens to be absolutely brilliant) at General Catalyst will tell you he owes me “a good drink of wine” for passing when I insisted we should fight to bet on Twitter, despite what seemed like a hefty price tag in the first venture round that Union Square Ventures ended up leading (the round got done at a $20M valuation, and two years later Twitter was just valued at $1 Billion).
That’s sort of the nature of being a junior guy at a venture firm. Because you have less responsibility with the existing portfolio, you are able to spend more time than the old guys taking in new data and expanding the firm’s thinking into untouched markets. You develop theses around that data, and when you find something you truly believe in, you need to pound the table so that the Partners who have not spent the last 3 months learning this new space with you will listen and understand the opportunity. Even still, there is a very good chance that nobody will be willing to use one of their bullets on your idea. Each partner at a venture firm gets to make 3 or 4 bets a year (might vary a bit from firm to firm depending on size of fund and number of partners), and a firm probably looks at 2,000-5,000 deals a year. Passing on winners is part of the business. Bessemer actually has a great page on their site where they display the firm’s Antiportfolio. The Antiportfolio is a list of all the massively successful companies they could have invested in, but didn’t. A star studded list of billion dollar logos is accompanied by hubristic quotes from the “passing partners,” explaining why they would never invest in the likes of Ebay, Apple, Google, Intel, Paypal, etc…
So in the absence of an immediate answer to Ben’s question, I can perhaps supply a recipe for any early stage investor who is trying to get ahead of the curve. This is my process for finding the next Twitter:
1) Read: Macro (i.e. Economist) and micro (vertical blogs) content ingestion (30%)
2) Try: Personally experience as many products and services as possible in markets of interest, identify game changers (15%)
3) Experts: Develop and test theses with thought leaders from industry and academia (15%)
4) Entrepreneurs: Speak/meet with every entrepreneur attacking a given market, identify current state of the market and who is best positioned to capitalize on sea changes and future direction (40%)
5) Repeat steps 1-3 over time and across markets
Oh, and if you’re the next Twitter, and investors haven’t found you…you can email me, I’ll try to put you in touch with the right folks…
Read Full Post | Make a Comment ( 3 so far )“Open Sourced” Job Spec
On November 5th, almost exactly 3 weeks ago, 253 people read my first blog post. On November 25, 2 days ago, 4,730 people showed up. While I am excited by the growth, I am still searching for better ways to harness the collective knowledge within this new community. Despite more than 5,000 people reading the last post, only 8 decided to comment and continue the line of thinking. Less than 2/10 of a percent participation is not very good.
Today, I want to experiment with a new concept. I’d like to take a page from the open source software movement, and apply that spirit to the creation of a VP of Marketing Job Spec. For those not familiar, the theory behind open source software development is that much of the coding effort required to carry out development of a project overlaps with the effort required to build other similar (or not so similar) products. By openly sharing a body of code with everyone in a given community, all members within it are able to leverage what has already been accomplished/created, instead of reinventing the wheel from scratch. So if I’m building an e-commerce site and I want to include a shopping cart function, I could spend hours developing my own from scratch, or I could just plug in an open source module that another developer wrote, knowing that his code will do the trick. With the time I saved, maybe I will figure out how to build a feature on top of his code that reduces drop off, and then, if I’m cool, I’ll publish the code behind my enhancement back to the community (open source developers, if I butchered this, please chime in).
So now that I have all of you smart people reading this blog, I figured we could draw on some of your collective knowledge in an effort to create the ideal Job Spec. Whatever we create here, will hopefully be the result of years of experience and lessons learned by those who have hired well (and not so well). My hope is that the document we create will enhance our hiring at JumpPost, but also that it will serve as a template from which any startup recruiting a VP of Marketing can build.
I will start with a brief description of what JumpPost is, and then work into what I think we need:
JumpPost is somewhere between an online classifieds site and a low cost online real estate broker. So, if Craigslist and Redfin had a baby, it might look something like JumpPost. From a customer acquisition perspective, we are focused on general population consumers who are psyched about saving/making money during a change of residence. We’re not interested in reaching home owners (at least for now), and folks who live in cities are more exciting than suburbanites and rural dwellers. It’s a pretty wide net we can cast, and some of our value propositions are unique (read: won’t be competitive to acquire certain types of users), while others are highly competitive. In a VP of Marketing, we are looking for someone who has a play book for building a liquid online community through a series of paid and non-paid customer acquisition strategies.
I’d like to collect contributions to three lenses through which we can identify a star VP of Marketing:
1) General Personality traits: What type of person makes a great online/consumer marketer? ideas that might be right or wrong include:
– data driven thinker
– addiction to analytics
– detail oriented
– quantitative bent
– understanding of relationship between product development and marketing efforts
– what else? What personality traits do the best marketers you know exhibit? Any surprising ones? Any huge red flags that your bad marketing hires displayed?
2) Specific marketing skills and experience requirements:
A) What unique skills should this person possess? ideas include:
– fluency in Google Analytics
– proficiency with SEM keyword tools/models (i.e. Clickable)
– what else? (I actually don’t know what are best in class skills here)
B) What experiences and backgrounds best prepare someone for this type of gig? Ideas include:
– comes from an analogous market acquiring similar demo of user (in our case: online travel, online classifieds, online real estate, online jobs, marketplaces, etc…)
– managed SEM campaign of $XX million budget with XX level of success (what are the metrics to judge success here? What’s a good baseline to measure outperformance vs. underperformance?)
– designed and executed successful referral program alla Gilt.com, Jetsetter.com, etc…(again, what’s a good baseline for measuring outperformance vs. underperformance?)
– fluency acquiring customers from within larger platforms like Facebook, Twitter, etc…
– took an online consumer facing site from xx users to yy users in xx months (what’s best in class here, and how do we separate out the candidate’s contribution to that growth from all other efforts that played a hand?)
3) General traits and skills necessary for an early stage startup team member: What are the must haves and red flags when determining if a hire for any early role will be able to hack it in the beginning stages of a company’s development? Ideas include:
– previous experience growing a company from alpha product to exit
– effusive and clear communicator
– “roll up your sleeves” attitude, no job is too small (not going to try to hire service providers to do all the work)
– comfort with a lack of structure and ability to create and execute own initiatives
– what else? what are the best predictors that an early hire will be a star team member?
So, my suggestions are in no way exhaustive. Please, those who have successfully and unsuccessfully hired an online VP of Marketing, rip this apart and share your experience in the comments of this post. Where am I right on? What is way off? Let’s try to fill these three buckets and I’ll publish a composite spec for all to build off of going forward.
Read Full Post | Make a Comment ( 4 so far )Founders Need Rock Hard Abs
There are two primary reasons why a founder needs rock hard abs:
1) working out of cafes and apartments, hunched over 12″ screens in shitty chairs with improper lumbar
support is NOT good for your posture. A strong core will help…
2) in the early stages of building a company, it is absolutely essential that you learn how to take a punch to the gut.
I have two close friends from Dartmouth who got flown out to the Valley this past weekend for final round interviews with Y Combinator. Y Combinator is basically a hybrid venture capital firm/startup boot camp. A couple of times a year, they “admit” a class of very early stage startups, give them small dollars and a ton of advice and resources, and essentially groom them into venture-financable companies. It is a spectacular head start for first time entrepreneurs, who give up less than 10% of their companies, and graduate with an embedded network and a sharper set of skills to go make it happen.
I just got the news that said friends didn’t make it in. I thought for a few minutes about the implications of this data on the trajectory of their company, and realized that the actual value lost in that opportunity is minimal (a near commodity), but only if they replace that opportunity with something comparable, or even more valuable. Is Y Combinator a great head start? Sure. But so is the participation of some professional angels, or an early stage seed fund, or one of the 6 other clones of Y Combinator that have popped up in the last two years (Techstars, Dreamit, etc..).
BUT, it is not this value lost that poses the greatest threat to their business. The real danger lies in the impact that bad news has on a company’s culture, founders’ state of mind, rate of progress, and general confidence. After two months of product development, business planning, and strong forward momentum, my friends just got their first real “punch to the stomach.” And that, by the way, is exactly what bad news feels like when you are starting out. So much of your effort. time, and identity is wrapped up in this creation, that bad news can actually have a physical impact on founders. Much like getting dumped by a woman you love, entrepreneurs will speak of a pain in their stomach or chest that they just can’t shake.
So much of early success comes from founders evangelizing their efforts, and sharing their company with anyone who will listen. Momentum plays a huge role in a founder’s ability to do so, insofar as it is a lot easier to sell a vision that you passionately believe is going to come true, than it is to sell that same vision in a time of personal doubt. Customers, partners, investors, friends, and family can smell that doubt in a founder’s mind. This reality provides a positive feedback loop which furthers the doubt, and so on and so forth.
The same is 100% true for positive data…and therein lies one of the most important lessons I have learned about starting a company: No matter how bad the news, it is essential that you absorb that blow, deal with the immediate implications, and then do anything you can to generate some good news. The faster you can cut off that positive feedback loop, and shift the momentum of your company back in the right direction, the better chance you have of replacing that “lost value” with something of comparable or greater value. It is your responsibility as a founder, to turn this corner faster than everyone else in your company, and let them draft off of your forward momentum.
None of this is an argument for denial of the facts, and believe me, hindsight is 20/20 (there were days in Untitled Partners where I was not able to do this fast enough), but I think this skill, of taking a punch, and getting back up fast, is one of the most important to develop in a founder’s tool kit. And there is no “faking it.” You can’t just throw a smile on top of negative energy and sell everyone on “the positives.” It is about actually addressing bad news, developing methods to accelerate your personal recovery time, and then quickly taking steps to right the ship.
Think about how many times Rocky gets pummeled in that fight with the giant Russian dude who killed Apollo. Every time he gets knocked down to the mat, he gets back up faster…and at some point…the dude that’s throwing all the blows get’s tired, a window of opportunity emerges, and that’s when Rocky is able to start landing his jabs. Momentum shifts, the crowd rises to their feet, the right kind of positive feedback loop commences, and he achieves the impossible. Next time you watch that movie, take a look at Sly’s abs…rock hard, baby. Team Data Owl…start doing crunches. how fast can you flip this switch?
Read Full Post | Make a Comment ( 12 so far )Quantitative valuation of a human life (from a guy who stinks at math)
This weekend I went on a run in Prospect Park with my good friend Eric Ruben. He is not involved in the startup world at all (white collar criminal defense attorney), but I include the above link because his beard in this picture is amazing. Anyway, he asked me to explain the “impact statement” that permanently occupies the upper right corner of this blog (reproduced below):
I think there is one metric that can be used to measure the value of a human life and that’s impact. How did you change things? How many people did you touch? How different is the world because you lived in it and how positive was the change that you affected?
I proposed the following equation as a way to calculate the impact of a person’s single action (I have not taken a math class since high school, so if this is wrong, please suggest modifications):
(# of people positively impacted) x (volume of positive impact) – (# of people negatively impacted) x (volume of negative impact) = Total Net Impact of action
Therefore:
(Total Net Impact of action)x(all actions of 1 person) = Total Net Impact of a person
where:
impact = the change in trajectory of recipient’s life by the action
volume = fictitious scale of -100 to 100, with 0 being either no impact or neutral impact
Each action carries a different volume of impact, as defined on our -100 to 100 unit scale. For demonstration purposes, I will peg some human actions to the scale (recognizing that weighting this scale objectively is impossible):
Unit: Action
-100: I kill Jim (most profound possible change on trajectory of Jim’s life)
-75: I steal Jim’s wife and true love
-15: I fire Jim
-.0002: I make Jim cry:
-.0001: I don’t say hello when I see Jim
0: I don’t exist
.0001: I say hello to Jim
.0002: I make Jim laugh
15: I employ Jim
75: I introduce Jim to his wife and true love
100: I give birth to Jim (most profound possible change on trajectory of Jim’s life)
Ok, almost done with the setup, bare with me please.
Based on our equation for Total Net Impact of a life:
(Total Net Impact of action)x(all actions of 1 person) = Total Net Impact of a person
There is a limiting factor which I will call personal bandwidth (or energy). If you don’t like that variable, we could use time as a proxy for personal bandwidth, but that does not really factor in the efficiency with which someone executes on their time. Regardless, I guess we’ll say that:
Sum(all actions of 1 person) = total personal bandwidth
So now, every person chooses to allocate their personal bandwidth differently, and this allocation is expressed in the actions an individual takes.
And here is where there are multiple paths to maximizing net impact. My roommate, Alex, would say he spends an outsized portion of his personal bandwidth attempting to positively impact his family’s lives. So let’s say he spends 50% of his bandwidth performing 10 actions a day, each of which has a 10 unit impact per family member (calls mom every day, tells her I love you…etc), and his family is 3 members beyond himself. His daily impact on his family is (10)(10)(3) = 300 units of impact. Now he has 50% bandwidth remaining. He spends 25% on 1000 actions that each impact his own life .5 units (eating, thinking, scratching an itch, lifting weights, etc…) for a total impact of (1000)(.5)(1) where one is himself, for a total net impact of 500. He spends 20% of his bandwidth writing an article for Time Magazine that has a .05 impact on the 600,000 people who read it, for a total net impact of (.05)(600,000) = 30,000. The remaining 5% of his bandwidth he spends yelling at his roommate for being messy, which has a (-1 impact)(1 roommate) = -1 Total Net Impact. So in one day, Alex’s Total Net Impact = 30,000+300+500-1, or 30,799
This math would suggest that Alex should spend more time creating content for Time Magazine, and less time calling his Mom and Dad, assuming he subscribes to my equation for valuing a human life. But, this is where the subjectivity of weighting in our Jim Scale throws a wrinkle into the math. While I valued the impact of his article at .05, or 1/20 of the value of a call to his mom (10), Alex might value the impact of the article on a reader at .0005, or 1/2,000 of the impact a call to mom. If so, his Total Net Impact would = 300+300+500-1, or1,099. Obviously, on that scale, his current allocation of his personal bandwidth is much closer to optimization.
Social proximity of the recipient to the actor (impactor) seems to be the primary culprit influencing deviation from an objective valuation of an action’s impact. When allocating bandwidth, it is human nature to weight the impact on family > impact on friends > impact on countrymen > impact on foreigners > impact non-humans > non-living (environment). So a typical American might (incorrectly) weight the same action, let’s say donation of $1 to a starving child, at 2 units of impact if the recipient lives in the United States, and at 1 unit if he is in Sudan. This is not to say value is uncorrelated to social proximity. I think a large part of impact is dependent on the level of receptivity a given recipient has to that action. So, Alex’s mom is much more likely to internalize his action and incorporate it into her future, than is one of his readers, and therefore perhaps the potential impact of an actor may be inversely correlated to the strength of relationship between actor and recipient.
Personally, my sense is that independent of how you weight the scale, the number of people impacted is the most scalable and important lever in maximizing Total Net Impact. As such, it is a personal goal of mine to touch as many people as possible over the course of my life. Building consumer facing companies that have a positive impact on a large volume of people feels like an effective vehicle to realize immediate impact, but I think this equation applies to all vocations and walks of life. Whether you are a painter, politician, or preacher, the mission is the same. Take your innate skill and vision, and try to scale it to as many people as possible. There is no reason to stop where social proximity begins to flat line…
P.S. my brain is basically fried after trying to quantify this concept, but I’d be interested to run well known entrepreneurs through this model, in an effort to try to power rank the top 10 entrepreneurs by Total Net Impact. I.e. how does Bill Gates stack up to the guys who started Kiva, etc…good luck weighting the scale. Please post results if you are masochistic enough to take this on.
Read Full Post | Make a Comment ( 4 so far )Consumer Liquidity, Fingerhut, and Good vs. Evil
I remember the first time I truly understood the power of credit. I was 22 years old, working in leveraged finance, and I came across a company called Fingerhut (backed by Bain Capital Ventures and Battery Ventures). Fingerhut may be one of the most elegant and evil business models I have ever seen. Essentially, they are a catalog retailer, much like LL Bean or The Sharper Image, selling consumer electronics, jewlery and other semi-luxurious indulgences. Based on that description, who would you think is their target customer? Probably middle to upper middle class professionals with large amounts of disposable income, right? Wrong. Just the opposite. Fingerhut’s mission is to get their catalog into the hands of sub-prime (low income) consumers, under the tagline “Now You Can.” Basically, they have an embedded sub-prime credit vehicle which extends loans to their customers, who otherwise can’t afford the items in their catalog, so that these luxuries become attainable. That practice, in and of itself is not so offensive, but here is where it gets fucked up. The same Sharp 37″ Aquos LCD HDTV selling on Fingerhut right now for $999, is widely available on Google for $859 or less if I actually felt like sifting through all the results. So Fingerhut charges sub-prime consumers a 15% plus premium for goods they shouldn’t really be buying, and their customers don’t blink. Why? Because Fingerhut extends a semi-usury line of credit to their shoppers who don’t have the cash (or credit) to buy the cheaper good elsewhere. Now, insert all the nightmares you have already heard about sub-prime lending into the model, and you have a pretty good sense of how these consumers are getting raked.
So, here’s what’s interesting. When a sub-prime consumer is going to default on some outstanding debt, they typically have more than one creditor chasing them for money. So how do they choose who to pay and who not to pay? With company debt, there is a very clear capital structure where senior lenders (low interest rate lenders) have a liquidation preference (right to collect 1st) over junior lenders (higher interest rate lenders), and both types of lenders get their money before equity holders (owners) ever see a dime. But consumer debt doesn’t work like that. If I have $100 in the bank to pay my creditors, but I owe $75 to HSBC, $75 to my landlord, $75 to AT&T, and $75 to American Express, it is up to me to decided who I pay and who I don’t. Now, a rational consumer will pay the debt that carries the highest interest first, but it’s almost a coin flip if they are going to completely default on HSBC or Amex. In fact, they will probably pay AT&T before they pay either credit card company, because the immediate impact of losing their cell phone is more “real” than the thousands of dollars they are going to rack up in debt by not paying HSBC (even though if you said, turn your phone off for a month and I’ll pay you thousands of dollars, they probably would do it). Anyway, the point is: where do you think Fingerhut’s debt fits into this decision making process of who to pay? Let’s just say the landlords of Fingerhut customers are not happy campers. And there is where I first understood what it meant to make a consumer more liquid. There will always be demand for a credit product that makes a consumer more liquid, especially if that liquidity is not available anywhere else.
Now obviously, whenever a lender is able to create a credit product that no other lender is offering, they are exposing themselves to a higher default risk, but in Fingerhut’s case, they have subsidized this higher risk of default (or rather they can tolerate a higher default rate) through the increased margins they are able to realize on the retail catalog sales.
When the economy tanked, and before I started to work on JumpPost, I spent about 2 months (with the help of a west coast venture capital firm), trying to figure out how I could make a now cash-strapped American population more liquid. My energy turned to consumer finance and credit products, as that seemed to be the best way to put a little extra cash in people’s pockets, but amongst other very serious business risks, I learned that businesses in this space tend to dip their toes in murky waters. I think most people, at one point or another in their career, are faced with an inflection point where they need to decide “Am I on the side of good, or the side of evil?” It’s not necessarily quite so binary, and everybody’s definition of good and evil is different, but I think you need to be able to wake up in the morning and like the guy who you see in the mirror. So, I found another way to put cash in consumers pockets: JumpPost. We’re heads down getting an alpha product up and running, but as early as January, we’re going to start helping consumers earn a little extra spending money…And that feels pretty good. Dudes at Fingerhut, probably not feeling quite so good.
Read Full Post | Make a Comment ( 5 so far )Talking to $1 Billion CEO’s
Auren Hofmann (CEO of Rapleaf) wrote an interesting blog post recently about the common traits of “A-Players”. Along with hard work, resourcefulness, rule-hating, punctuality, and a few others, Auren has observed that top level talent tends to be highly responsive. He writes:
“Most A-Players get back to people quickly. Usually within 24 hours. On the few occasions that I have emailed Steve Jobs, he’s gotten back to me in about 2 hours.”
While Hofmann was largely referring to speed of response, it has been my observation that frequency of response and willingness to engage are both directly correlated to level of success. In other words, the most successful entrepreneurs and executives are the most likely to respond to cold calls, solicitations for advice and guidance, and even business propositions. This is an extremely important piece of data for early stage entrepreneurs, as it is a bit counterintuitive.
Let’s take an example. Jumpost is building a business around online classifieds in the real estate vertical. There are probably 20 companies housing executives who could add outsized value to our efforts, whether in the form of unique domain expertise (advice), distribution (partnership), talent (recruiting), capital (investment), or credibility (mentorship). The shortlist off the top of my head might be Craigslist, Ebay, Redfin, Kayak, Prosper, Rent.com, Zillow, Facebook and Twitter. I’m sure if I put a little more time into it, this list would change, but it’s relatively accurate. As a very early stage startup (probably pre-product, definitely pre-scale), you are typically on the “need” side of any interaction you might have with executives at companies of this size. You are not capable of delivering value to people at established companies before you at least partially turn your early vision into reality (whether reality means a product/service that will enhance their business, or a customer base that they are interested in reaching). That said, I wrote in a previous post about the importance of learning from people who have achieved that which you aspire to, so what is an entrepreneur to do?
Intuition would say that the guys at the top of these companies have so many people calling on them with “needs” and not “gives,” that it is not worth trying. So two options seem apparent: 1) move down the org chart at these companies, and see if you can get in front of the guy under the guy under the guy you really want to speak with, or 2) target less successful versions of the companies that you really want to connect with (so if the $1 Billion classifieds CEO seems inaccessible, maybe his counterpart at a $10M company will be easier to reach). Both of these “networking” strategies are effective and should be implemented, but not before or in place of taking your shot at the “big dogs”. I have found that the $1 Billion stars are more likely to respond and engage than are their $10M counterparts. Why? I don’t really know, to be honest. I have hypothesized a few reasons:
1) The guys at the top have been around long enough that they have learned that networks are unpredictable. Value mysteriously emerges from an executive’s network and even extended network in impossibly serendipitous ways. Members attempting to enter an executive’s network may not present any immediate value, but for every piece of good will one builds, there is a decent chance it will yield fruit 1, 5, or 20 years later. The fledgling entrepreneur in 2009, becomes Mark Zuckerberg in 2012. Ambition and effort are strong postive indicators of future success, so if you have the balls to email Sergei Brin and ask for a meeting, there’s a good chance you are gonna make something of yourself down the line.
2) The guys at the top have nothing to prove. There is a bizarre currency that exists between executives at all stages of business. As human beings, we use a series of metrics to measure our success relative to our peers. Compensation is one metric that many rely upon (I am making more than Jim, so I am successful), but the “company you keep” is definitely another. Executives want to interact and associate themselves with professionals they perceive to be of a similar caliber or quality, and tend to avoid association with those they perceive to be less successful than themselves. This phenomenon is largely influenced by a voice of insecurity, and frequently manifests itself in the mentality of “I’m too important to take calls, meetings, emails, etc…). Granted, successful people are also extremely busy, so this is not always the case, but often the guys who still have something to prove take this tact. Once you “arrive” and you are the CEO of Ebay, you don’t have anything to prove to anyone, and that’s when insecurity doesn’t influence accessibility.
3) Fundamentally “good guys” tend to get to the top more frequently then ass holes. If you’re a good guy, sometimes you just make time for people when there is little to no value in it for you. Call it charity, giving, volunteering, etc…if you’re in a position to help, and your a “good” guy, more often than not you do.
Whatever the reason, or combination of reasons, my advice to entrepreneurs is “don’t be shy.” This is not to say you should go out and spam John Donahoe at Ebay (who by the way, is an example of someone who is responsive, albeit hard to reach), when you have an idea for a new online marketplace. It is critical to be responsible with this strategy. Create a context that is extremely thoughtful, and explain exactly why the person you are trying to reach is uniquely capable of providing the value you seek, AND…be extremely respectful of the that person’s time and accomplishments.
Lastly, if you do decide to call on the type of people I’m talking about, you damn well better give back as much as you take. Someday, whether presently, or in the future, there will be a class of people who are in “need” of your attention. When those people present themselves, and ask for your value, do everything you can to be accessible and give. It’s sort of a goes around, comes around kind of thing…and who knows…maybe there is even a causal relationship between giving and becoming a “top dog.”
Read Full Post | Make a Comment ( 4 so far )NYC Venture Capital War
I took a trip out to Larchmont, NY a few weeks ago to catch up with my friend and former board member, Rob Stavis. Rob is one of the most thoughtful, down to earth VC’s I know, and extremely direct in his communication style. After spending an hour fumbling through an unformed description of what I’ve been working on (developing a pitch is iterative…you need to cut your teeth and learn with the people who already think you’re smart, before perfecting it and exposing it to new ears), the conversation turned to recent developments in the New York startup community. I argued that there is a fierce turf battle emerging amongst investors in this market, and that it is largely being won in the blogosphere/twittersphere. Pioneered by Fred Wilson at Union Square Ventures, there is an emerging class of blogging investors who have realized that a blog is more than just a forum to express your thoughts and ideas, but rather it is a “must have” enterprise tool. Fred recently posted some of the metrics around value USV has extracted from his commitment to blogging, and the points on the scoreboard are indisputable.
Stavis, much like my friend Neil Sequeira at General Catalyst, said that his firm has recognized the opportunity that a real social media presence presents, but still neither firm has really committed to it. My guess is whether now, or two years from now, you will see most already established top-tier VC’s like Bessemer and GC come around to this new requirement. In the meantime, newer firms like Spark Capital, Union Square Ventures, and First Round Capital are winning the war by capturing entrepreneurs’ mind share through the creation of insightful online content (both short form through vehicles like twitter, and long form through blogging platforms like wordpress, blogger, tumblr, etc…).
Venture Capital firms live and die by the quality of their deal flow. In the last 18 months, Spark Capital, General Catalyst Partners, Polaris Venture Partners, First Round Capital, Matrix Partners, Flybridge Capital Partners, Venrock and a handful of other out of town VC’s have stepped up their commitment to NYC. Some of these firms have put a “man on the ground” here in New York, as a means of sourcing the best deals, while others have joined together to sponsor Y-Combinator style collectives like First Growth Venture Network (architected by mover and shaker lawyer Ed Zimmerman). The physical presence that many of these firms have recently established is significant, but one body on the ground is not nearly as scalable as one voice in the blogosphere/microblogosphere.
The most basic play book that I see blogging investors execute is dissemination of practical fundraising tips. Basically, investors share their domain expertise around term sheets, pitching, and preparing for VC funding as way to deliver value to aspiring entrepreneurs. Although this is a real service to entrepreneurs, and a great way to build an “entrepreneur friendly” brand, it just the first step in what can be achieved through this medium. The more creative and insightful investors are using blogs as a way to communicate to the entrepreneurial community that they are smarter than their competitors. That they “get it,” no matter what “it” might be. They take stances on markets and trends and share opinions which distinguish them as capable of adding real value and expertise to a young company.
The most successful VC blogs, like Fred Wilson’s AVC, have gone even one step further than creation of insightful content. They have actually created an online community around their blog, where ideas and insights are not just flowing from the author of the blog to his/her readers, but also from readers to the author, and most impressively from one reader to another. The dialog that occurs in the comments surrounding Fred’s posts is what makes his blog special. 10 years ago, an entrepreneur would have had to attend a conference in some physical location, and potentially buy a $400 plane ticket, in order to enjoy the type of collective learning and discussion that occurs on Fred’s blog every day. My hope is that this blog will turn into a forum for readers to communicate with each other as well. I love reading everyone’s comments and responses to my posts, but I’m even more excited to see when readers comment on each other’s ideas. So please do establish a voice in this community. No idea is too small or stupid. Just throw out your thoughts and questions and hopefully we can make some progress together.
Read Full Post | Make a Comment ( 4 so far )Minimizing “Freak out” execution
People frequently refer to my first entrepreneurial endeavor as a learning experience. They say “well you must have learned a ton,” or ask “what did you learn from that failure that you can apply to this new company?” For the first 4 months after we shut down Untitled Partners, I would try to generate sweeping “lessons learned” and identify mistakes that I made that I will never make again. I wrote a post mortem on the Company very soon after and it was largely in that vein.
It was not, however, until I started working on my second company that I was able to identify the true efficiencies of having gone through my last experience. Caterina Fake wrote an interesting blog post a few months ago, where she described her experience building Hunch relative to her previous experience building Flickr. Reflecting on Flickr, she said:
a lot of what we then considered “working hard” was actually “freaking out”. Freaking out included panicking, working on things just to be working on something, not knowing what we were doing, fearing failure, worrying about things we needn’t have worried about, thinking about fund raising rather than product building, building too many features, getting distracted by competitors, being at the office since just being there seemed productive even if it wasn’t — and other time-consuming activities. This time around we have eliminated a lot of freaking out time.
As I build my new company, JumpPost (we’re hiring), I find myself experiencing a similar level of reduction in “freaking out time.” The best analogy I can draw is to a post-game interview after a lost 6th grade basketball game. The announcer (investors, colleagues, family) asks a 6th grader (first time entrepreneur) on the losing team “what went wrong, what are you going to do differently next game?” The player, responds, “Well, we shouldn’t have played a zone defense in the second half, they were killing us from 3 point land.” I would equate his response to the “sweeping lessons learned” analysis I referenced earlier. While true, this strategic error was not necessarily the biggest lesson of the game. It turns out, during the 3rd quarter of the game, said 6th grader learned how to comfortably dribble with his left hand. 6 months later, the teams meet again, and said 6th grader scores 10 left handed layups without thinking twice. They win, and the announcer asks him “what went differently, how did you guys plan for this game?” The truth is, the team played the exact same zone defense as the first game, but said 6th grader had developed a proficiency and comfort that allowed him to stop thinking about dribbling, and start focusing on the hoop.
This time around, I am not thinking about dribbling. Decisions that I agonized over for a week, I make in 5 seconds, and then move forward. A good example is our name, JumpPost. With Untitled Partners, we spent weeks trying to think of the right name for our Company, because our brand was “extremely important.” We even ended up hiring a “brand consultancy and design firm,” who charged us $25K to come up with a name, logo, and “brand” for our company. We wasted a ton of time and money ($25,000 is a lot of money when you only raised $560,000) at a time when we should have been focusing those resources on more core issues like “what does our customer want?” So the efficiency gained from that lesson, while impossible to zoom in on and identify when asked “what did I learn from the last company,” I was able to realize when naming JumpPost. I needed a name to incorporate, I spent 10 minutes on GoDaddy brainstorming URLs, and then I picked it. If it stinks, or becomes more important down the line, I’ll change it. No need to “freak out” or get distracted. Similarly, I’ll probably use CrowdSpring to develop a logo. Again, 5 minutes replaces thousands of dollars and wasted management bandwidth.
The first time around, everything is unknown, so you don’t know what’s worth digging into, and what is completely irrelevant. Did I really need to spend a day dilligencing my lawyer’s recommendation for a C-Corp vs. an S-Corp? Absolutely not, but I how could I know that the first time around?
This brings me to a more fundamental practice that I implemented well during our first company, but that I am doing even better on now: listening. Right now, I have achieved what would have taken 6 months and a round of capital my first time around, in 3 months with no capital. This efficiency is largely due to a non-“freak out” style of execution. But every entrepreneur’s expertise and play book has gaps. It is why we hire others with complimentary play books and knowledge to streamline the execution toward a goal. But in the absence of financial resources to fill in these gaps, actively seeking out advice from those who have accomplished what you set out to achieve AND being an excellent listener, are critical to pushing the ball forward. Some people think that “running a company” is about being the leader with all the answers. In reality, I am learning that running a company is about being a “student,” recognizing the experience and genius in yourself (where it exists), but more importantly finding it within your team and extended network. Listening to that collective body of knowledge and understanding how to incorporate the learnings into a play book in real time is where it’s at.
Read Full Post | Make a Comment ( 4 so far )The Gmail Hoody: Breaking down offline communication dropoff
Spectrum of commitment in communication: It is a lot easier to observe than it is to lock eyes. It is a lot easier to lock eyes than it is to smile. It is a lot easier to smile than it is to wave. It is a lot easier to wave than it is to say hi.
Note: sorry in advance for the first paragraph below, but push through…you’ll see the point
Each step in the above spectrum requires an increased amount of commitment when interacting with a stranger. The spectrum begins with a observation, which is a complete lack of communication. There is minimal social risk to engaging in this behavior with a stranger, short of getting noticed. If the average new yorker comes into physical proximity with 10,000 people in one day, they might engage in this level of interaction with up to 75% of them. As you progress along the spectrum, to eye contact, the percentage declines significantly. When our new yorker makes eye contact, they first take the plunge from an absence of communication into the world of non-verbal communication. The significant event being a bidirectional interaction. Even within eye contact exists a sub-spectrum defined by duration of connection…a staring contest is much greater commitment than an immediate aversion of the eyes upon contact). From eye contact, the leap to smile is even more rare. It exposes the smiler to potential rejection, along with the wave, which is marked by an even greater commitment as it increases the likelihood that such rejection will be noticed by others. Between a wave and the utterance of a word to a stranger exists a grand canyon of commitment, and therein lies the inefficiency of communication within a local environment. Online retailers measure a customer’s commitment to them in terms of “drop off.” If 100 people come to Amazon’s home page, only 50 click on a product, and only 25 reach the check out screen, and only 10 enter all of their credit card information and complete a transaction. At each step some people “drop off.” Each step in the spectrum from observation to verbal communication represents a point of drop off as well.
While the volume (let’s say volume = richness x duration) of communication with strangers is extremely low in the physical world, it is growing, i’ll guess exponentially, in the digital world. By reducing the commitment required to engage another person, largely due to reduction in the possibility of physical harm as an outcome, interaction with strangers is extremely common in an online environment (blog comments, craigslist sales, twitter interactions, etc…), yet extremely uncommon in an offline environment. The downside of this disparity is that we are throwing away valuable non-verbal data that should be a leading indicator of richness of interaction. Aside: If you wanted to get really heady, you could say that the goal of maximizing volume of communication is a furtherance of our species from an evolutionary standpoint in so far as increased communication equals increased rate or reproduction.
Let’s take the example of an uncrowded subway car from soho to park slope in brooklyn.
Occupants:
2 men in suits reading the WSJ
2 women with strollers
1 hipster with skinny jeans and a mustache
1 single girl listening to her ipod
If you had three separate rooms, and you were going to place 2 occupants of this car in each room with the goal of maximizing the volume of communication (as measured by richness and duration in the present as well as any future communication between occupants), who would you put in a room together? Obviously, the two guys reading the WSJ are going together, the two moms are going together, and the two young singles are going together, right? If we were in the online world, that’s how they would be paired: the two WSJ guys might interact in a forum on the WSJ website, the two moms may exchange parenting tips at cafemom.com, and the singles might flirt on Facebook…
BUT, what the online environment does not account for, is that the girl listening to her ipod has been smiling at one of the guys reading the WSJ for 5 stops, and he is smiling back, and they are both carrying bags from TheStrand used bookstore (and they happen to be soul mates)…but what happens today?…the guy gets to his stop, he looks at the girl one last time, and gets off, never to see her again…why? because almost everyone “drops off” in that leap from non-verbal to verbal communication. The solution that seems natural, which some location based services companies are going after, is to add a digital layer, on top of this physical layer, and enable strangers to interact non-verbally (but much more richly than smiles and body language) through the use of text based communication. In this case, text based communication (IM/direct message/text/email) is the bridge between non-verbal and verbal communication within a physical proximity. The problem, however, is that the requirements from a network effect perspective are so great, that these two soul mates don’t stand a snowballs chance in hell of realizing their life together (which would result in the maximum net volume of communication possible in the subway car). Some sort of near field communication technology, where you can point and aim tex
tual messages to strangers in a physical proximity would be rad, but in the meantime, I decided to run a little experiment to see if I couldn’t lower the “drop off” by converting my physical proximity strangers into the safer world of online communication. I present to you, my Gmail hoody. I have worn it about 5 times, and every time, I have gotten at least one email from a stranger. What’s more, simply by signaling that I am open to communication, 3-4 strangers per day approach me and engage in verbal communication (i.e. is that your real email? etc… etc…). Obviously, people are not going to walk around displaying their digital identities on their clothes everyday, but I think the potential for display of online identities based on real world physical proximity has some real room for improvement… If you want to make your own Gmail hoody, I recommend this place in DUMBO
Idea, Execution…and Gumption
It’s 10:43pm. A former colleague of mine is sitting across the table from me in the Think Coffee on Mercer and West 4th Street. We’ll call him Jim (for privacy’s sake). The rings under his eyes are visible. He hasn’t cracked a smile in two hours, and he can’t get onto the internet. My man is beat. To understand the gravity of his situation, perhaps it would be helpful to share a little context on the events leading up to this evening. If I look at the economic trajectory of his 30 years on this planet, it would look something like the letter n. He came from nothing and clawed his way to a prestigious undergraduate degree, a high paying job on wall street, a fund of funds career, and a stint at a top tier venture capital firm. He is a worker and always has been. By the time I met Jim at General Catalyst Partners, he had worked over 25 jobs, ranging from waiter, to beer guy for the Arizona Diamondbacks, and everything in between. I watched this guy support himself, his older brother, and his mother, quietly and selflessly, and it was clear that he had been doing it for a long time. So General Catalyst was the arch at the top of out letter n, but not without a fair bit of spilled sweat.
Fast forward to the sharp little point on the bottom right of our n. Tens of thousands of dollars in debt, cancelled a first date with one of the most beautiful women I’ve ever seen because he couldn’t buy her a drink, and you might ask yourself how did he get here only 18 months. Drug addiction? Gambling problem? Unexpected child? Nope…entrepreneurship. He has been financing a relatively involved software build on savings, and credit cards, and a bit of friends and family money.
So, to the present. You might think the dark rings under his eyes are attributable to the countless hours an entrepreneur must spend creating something from nothing. And no doubt, those hours are adding up, but these rings are dark. Why? Because Jim just took a full time wait job, on top of his full time Founder job, less then a month from his product launch. He doesn’t have another choice, New York is an expensive place to live while your bootstrapping something. Jim could break, and get a job that pays $200,000 tomorrow, instead of running himself ragged like this, but he is driven by a burning desire to fix a problem that needs fixing. It has consumed him to the point where he has sacrificed his wealth, his health, and any sembilence of a personal life for his company, and in 3 weeks he’s going to get to see the flop.
I wrote yesterday about the qualities Michael Jackson embodies that I wish for in a VP of Product, and today I put forth Jim as an example of what I look for in a founder, or a co-founder for that matter. With the last company I started, I picked my co-founder almost entirely on character (and of course competence and intelligence), because starting a company is fucking hard. You need to run through wall, after wall, after wall, and keep on running, no matter how hard it gets. People often site idea and execution as the two factors that dictate the success or failure of a startup. Perhaps I’ll tack on gumption as a third, and say if you have the drive of my buddy Jim (and you’re the MJ of consumer internet products)…holler, I’m working on something kickass…
Read Full Post | Make a Comment ( None so far )Michael Jackson: VP of Product
There is this illusive animal in startup land that every consumer facing internet company is searching for. The mystical VP of Product, who has such a profound understanding of how the consumer will perceive your value proposition that they can sculpt a user experience to perfectly achieve the desired behavior and interaction. Ask any venture capitalist what is the hardest position to fill with A-level talent, and they will speak of this unicorn hire. As I develop my own sense for what I am looking for in a product hire, I find myself strangely attracted to…Michael Jackson?
Despite a true sense of ambivalence toward the King of Pop and his recent departure, last night I went to see This Is It. For those who haven’t seen it, the film documents MJ’s preparation and rehearsal leading up to what was supposed to be his sold out comeback tour after 10 years in hiding. I guess I was expecting to watch a two hour window into the disturbing train wreck that was Michael’s life, but what I saw was a professional with amazing product vision and a maniacal focus on perfect execution. It is apparent that he was able to experience his own product through the lens of his consumer (in this case ticket holders). More impressive, was that he was able to drop in and out of that lens during his rehearsal (product development) and modify his product in real time without any user feedback (audience response). It was as though he was experiencing his own product as he was creating it, with a preternatural understanding of how seemingly minor modifications would mean all the difference between a good user experience and the best user experience his consumer never expected. This type of intuition is an intangible which is challenging to identify in an unproven product hire, but I think it is the “magic” from a talent perspective.
But talent alone is not enough to win on a product level. Knowing nothing outside of this film, my guess is that the success of MJ’s product (measured strictly by impact, not dollars, although there were plenty) was as much a function of his motivation as it was of his talent. Why did he care so much about creating this perfect product? The tour was already sold out, he had nothing left to prove on a professional level, and he couldn’t possibly attain any greater fame. Rather, his pursuit of perfection seemed to be entirely organic, motivated by a genuine desire to delight his audience. This is what I dream about in a product person…Someone who gets off on getting our users off.
Lastly, I was amazed by the infrastructure that Jackson’s creative partner and stage director, Kenny Ortega, built around his product luminary. For purposes of this startup analogy, we’ll call Kenny the CEO of the “This is It” tour, which would have been a $80M+ revenue enterprise just on London ticket sales. Ortega’s entire function, in coordinating and managing what I’ll estimate to be about 100 contributors to the production (employees), was to eliminate the friction in Michael’s translation of his vision into an actual product. Perhaps the lesson to take from this is that a great consumer company is built on the back of a great product. Marketing, Bus Dev, Sales, Fundraising, and every other function deserve strong, but supporting roles.
So yea, if you’re the MJ of consumer internet products…holler, I’m working on something kickass.
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Jordan Cooper's Blog: startups, venture capital, etc... 