venture capital
The Blurring Line between Commerce and Ad Models
A lot of different ideas are converging in my head right now, largely as the result of two discrete conversations. The first, is more of a broad thesis I am developing about alternative revenue streams for publishers, and how niche publications are thinking about monetizing their audience and assets beyond “ad models.” The second is a thesis I’ve been kicking around in the realm of Charlie O’Donnels NextNY conversation last night on “Disruptive Commerce Models” or “E-Commerce 2.0.”
Until last night, I largely viewed realms to be separate, but a conversation this morning with a very bright guy named David Cho made me realize that one of the fundamental drivers influencing my thinking in both realms is related to a broader phenomenon:
Phenomenon: The line between commerce and advertising is blurring. Think of the relationship between the below monetization mechanisms as a spectrum, where both ends of the spectrum are losing $ volume to the middle:
The Commerce/Ad Spectrum
Commerce 1.0 (buying inventory, taking risk, reselling at a premium to consumer)
“Commerce light” (no inventory, really brokerage between suppliers and consumers)
CPA (performance)
CPC (performance)
Brand Advertising
I see tons and tons of niche publishers looking to “transform” their model away from “ad models” toward “commerce models” (largely chasing what they perceive to be the strategy that made Gilt grow like a weed). David Cho was the first niche publisher I have met since I started investing who said “fuck that, the ad-model isn’t broken, I just need better units to monetize my base.” I actually think he may be right…but those better performing units are going to start to look more and more like commerce functions. Kayak.com is a perfect example of an ad based model that really operates and feels like a transaction/commerce model to consumers…now, think about a world where widgets being distributed onto publishers sites, are capable of performing transactions and transaction like events within the ad unit…and you start to see where I’m going with this. So that’s advertising bleeding up the spectrum into commerce…
Now let’s look at commerce bleeding down spectrum to advertising. Last night’s conversation at NextNY was theoretically about Commerce startups, but in reality, I didn’t know how to define “Commerce” or an “e-retailer” any more…the reason is because so many of the folks in the room pursuing flash sales, group buying, etc…aren’t really retailers at all. They are more like brokers, bringing together suppliers and consumers. Is a broker a retailer? Because these brokers are similar to retailers, but brokers also look an awful lot like ad units…bringing together suppliers and consumers for a fee (without taking inventory risk).
All of this is to say I don’t think there is a hell of a lot of difference between Ad models and “commerce light” models when applied to an audience aggregated through some sort of editorial voice…so I’m interested in talking with people who are pursuing the nexus point of these two worlds, especially if you are packaging that together into a “turnkey” monetization mechanism and selling into publishers. If you are…and you’re smart…I’m interested in learning from you and maybe even investing in you.
Read Full Post | Make a Comment ( 8 so far )Stress = |Expectation – Actuality|
It’s 1:14 AM on the morning of my company’s launch. I am sitting at my desk, in a giant empty office…more or less waiting…everyone has gone home for the night, there is no panicking, no last minute hiccups…a couple loose ends to tie up with our lawyers, but oddly enough…we are ready. This is what’s boring about working with Doug Petkanics… he is painfully reliable. 30 days ago we designed a product development roadmap that predicted we would launch our company today, and sure enough…we are launching our company…today. Not 1 day late, not 1 hour late…right on freaking schedule.
I often write about the ups and downs, the unpredictability of startup execution, and stupid Doug Petkanics is screwing up my whole shtick. Prior to bringing Doug on, an early member of JumpPost, Mike Weaver, defined stress to me as “the result of any disconnect between expectation and actuality.” He said it is in these moments where an event occurs contrary to expectation, that stress is born. Finally, Mike argued that in order to live a stress free life, we must shed all expectation, and simply live in the moment. I thought about this for a minute, and then rejected his argument in favor of another that also seemed consistent with his definition of stress. I said “in order to live a stress free life, you just need to be accurate when defining your expectations. ”
Doug seems to have mastered the alternate theory I put forth, and it is reflected in his consistently cool demeanor under pressure. I’m not sure I’ve ever worked with someone with such a firm grasp of their own capabilities, but day in and day out, he perfectly calibrates our collective expectations.
Our value proposition is going to hit ~250,000 in boxes in the next 24 hours…should be an interesting first day live for JumpPost.com 🙂
Update: well, not quite 250K…about a 1000 people clicked through to a shared listing we had in NYC’s Thrillist…it’s a start 🙂
Read Full Post | Make a Comment ( 5 so far )“Minimum Viable Lawyering”
So today I was talking to a new lawyer at my law firm, Cooley Godward, about a terms of use for JumpPost and things started to go down the road of a custom contract. I said to him “Eric, are you familiar with the concept of a minimum viable product?” He said yes, to which I replied “That is what I am releasing on Monday. I want the ‘Minimum Viable Terms of Use’ that will support my minimum viable product. When we get to the point where it makes sense to have something more elegant, we’ll refine it.”
For founders, working with lawyers can be extremely challenging…if done properly, there is a tremendous amount of value in the time you spend with your lawyers…if done improperly there is a tremendous cost.
When I first started to engage with counsel (in my last company), I was constantly worried about the ticking clock (“this guy is $600 an hour, we’ve been on the phone for 30 minutes…I just spent 1% of my monthly burn in the blink of an eye”). Unfortunately this mindset causes founders to try to speed through calls, avoid asking important questions, and generally fosters a dynamic that is “watchful” as opposed to “collaborative.” Although the legal line item can often be the largest expense in an early stage startup’s budget, I have found that getting comfortable with this expense and being conscious of it, as opposed to fearful, will maximize value and minimize waste.
Before we get into how to manage cost, let me start by saying that one of the most important things you can do when working with a law firm is invest in building a real relationship with your lawyer. Don’t worry about the clock, just worry about getting to a point of real trust and mutual respect. It will pay for itself 10x.
Then, once you have gotten to know your lawyer, don’t incur costs until they are absolutely necessary. You may have a “legal roadmap” that requires an incorporation, option pool creation, terms of use, privacy policy, proprietary contractual agreement with a vendor, etc…and the cost of all of those efforts may total $50K. Most founders just want to check every box on their plan, so they dump all the work on their lawyers desk and say “go.” A month later they get a $50K check and then have to explain to their investors why their first months burn is so high. What I’ve learned is that you can line up these expenses with your operating plan, and only ask your lawyer to begin working on them when they become a stop gap to further execution. So, day 1 you need them to incorporate (free to $1K depending on the firm), but hold off on that option pool until you have a better sense of your hiring timeline. Why spend a $1 today, when you could wait until tomorrow. When building my first company, I said “go” to a $20K customized legal contract in the first two months of operation. I knew we wouldn’t need that contract until our product was live 6 months later, but I wanted it “in place.” That contract never got used once.
So the lesson is, don’t invest in a whole lot of legal infrastructure ahead of need, but rather approach your legal strategy the same way as you would your product strategy. Only spend what you have to when you have to. Get something out the door, acquire new data, and then iterate on what you have in place.
Note: There is an element of “protecting against future occurrence” when it comes to the law that sometimes commands more of an up front investment than is consistent with lean product development philosophy, but this is where having a lawyer you categorically trust is extremely important. Pat Mitchell at Cooley understands my lean startup philosophy and only advises me to spend when it is critical. Make sure your lawyer is giving you the advice that’s best for your company, not his/her near term cash flows.
Read Full Post | Make a Comment ( 10 so far )The Emergence of VC/Angel Syndicates
So I’ve been spending a bit more time than usual talking to entrepreneurs raising capital and venture capital firms investing in early stage companies, and there is a trend that I am trying to wrap my head around.
The trend: large venture capital firms are issuing term sheets committing to invest between $500K and $1.5M in early stage companies, and then offloading anywhere from $100K-$500K of the round to professional angels and seed funds.
So the question is, why are they doing all the work to find/negotiate/invest/and then shepherd these investments, only to let smaller guys piggy back on their deals?
I’ve got a couple potential answers:
1) They want to reduce their exposure to the investment by syndicating the deal, but as capital requirements come down for building companies, there isn’t really room for the syndicate of yesteryear. It used to be that a Series A round would frequently be split between two large venture firms, each invest half the capital with the confidence that future funding requirements would be high enough that they’d both be able to put real money to work behind their bet. But now that the $2M A round is being replaced by $500K seed rounds, and the $10M B round looks more like a $2-5M A round…VC’s are choosing to syndicate with partners who can afford to invest in the first round, but whose coffers aren’t deep enough to go heads up in the second. What that means is that the VC leading the deal, should this deal be a winner, doesn’t have to fight with another deep pocketed investor for an outsized portion of the next round (read: they’ll have an early option to increase their ownership).
2) They see the level of activity occurring in seed stage financing, but haven’t found a great way to participate in it. A VC with a $600M fund and 5 partners has a very hard time making small bets, getting small bets through their process, and putting proper internal resources (partner bandwidth) against those bets…so now, if they are no longer the first investors to not only see promising new companies, but also see the data on which promising new companies are “breaking out,” it is becoming increasingly important for them to “make friends” with the investors who are seeing those companies and data. The notion that angels and seed investors are a source of VC deal flow is not new, but the change in funding landscape and emergence of seed/feeder funds and super angels is cutting into VC’s deal flow. So when they do find a deal they want to put real money behind, they invite some smaller guys in as a sort of barter chip which says “I give you a piece of my deal, and you give me an early heads up on which of your deals are breaking out.”
3) They perceive some unique value, domain expertise, or relationships unique to the angels/seed guys they let in that will increase the value of the asset they have just invested in. Example: Big VC commits $2M to a mobile payment company, the former CEO of Paypal is an angel investor, it’s worth giving up a piece of my deal to have his expertise and relationships behind my new investment.
4) 5 networks are better than one. No matter how good a VC is, no fund’s network is complete. Expanding the number of networks a founder can tap, assuming the angels or seed investors will be active, can only help.
5) The founder/entrepreneur sees the value in #’s 3 and 4 and requests/demands the carve out.
My guess is that it’s probably a combination of all of these, but regardless of the reason, I think it’s a positive trend in the fundraising landscape for all parties involved…always nice to see a market evolve the way it should.
Anyone see downsides to this trend or other potential causes?
Read Full Post | Make a Comment ( 9 so far )5 Reasons Founders Hate the Question “So What Do You Do?”
I was at dinner last night with my family, my cousin (who is a PhD biologist), and a friend who is building a very cool tech startup here in New York. My cousin asked my friend what he did, and the response was as follows: “I have a startup in the advertising market.” Obviously this response told my cousin absolutely nothing, and so my cousin began to “pry” a bit… “can you tell me what the model is, how does it work?” Again, said entrepreneur sort of deflected the question: “I help take an offline process in the advertising market online.”
Watching that interaction, I realized something that I have found to be true in my entrepreneurial endeavors: founders don’t like talking about their companies with what Chris Dixon would call “normals” (non-startup/tech types). If I think about why this is, a few possibilities come to mind:
1) We assume that an audience of non-startup types (in this case a biologist, a psychologist, a real estate guy, and a fashion guy) doesn’t have the context around our market to appreciate the “coolness” of what we’re doing.
2) Because of 1, we’re faced with this choice of the elevator pitch which tends to draw a bunch of shoulder shrugs and “sounds cool(s).” Or a half an hour explanation of the supply chain in our market and where we fit into it. We assume nobody wants to hear about our work for 30 minutes (there are more interesting conversations to be had).
- The problem with this assumption, is that “normals” are actually fascinated by the idea of a startup and entrepreneurship (it’s a dream that many, many people have), so when a founder chooses not to engage in this conversation, it can come across as rude or aloof
3) Especially with early stage startups, there is no brand equity attached to our companies. When meeting for the first time, people typically want to come across as being successful or impressive (basic human need)…this is easy to do when you have a brand like Goldman Sachs behind you…all you have to say is “I work at Goldman Sachs” and you have satisfied this human desire to be perceived as successful…Even if Philip Kaplan says “I work at Blippy,” which in our community would satisfy this need, in a room full of “normals,” this statement requires some qualification.
- The level of qualification required then depends on how much shared context exists between the “normals” and the founder. Obviously a founder focused on building optical networking infrastructure is going to need more qualification than a founder building “an ebay for food,” and it is in this volume of qualification that we start to become a bit self-conscious.
4) Founders spend an inordinate amount of time every day thinking about, talking about, and really pitching our companies to investors/partners/customers/etc… Sometimes at the end of a long day, the last thing we want to do in our “socializing time” is run through another pitch.
5) Founders end up having extremely similar conversations over a period of time. People tend to respond to startup ideas in 3-4 distinct ways…and once you talk to 500 people about what you’re doing, 80% of conversations about your company fall into one of those 3-4. When focused so singularly on one subject, founders have an outsized appreciation for new conversations and stimulus…
What I have learned is that it is important not to assume a “normal’s” level of interest or context around your project. If you really don’t feel like getting into it with someone new, extend an invitation to talk about it in the future: “I run a startup in the ad space…it’s a longer conversation, but if you are really interested, we can get into it later.” Now, if someone you meet wants the 30 minute version, they’ll remind you later, and you can go from there. My advice to founders is go the extra mile to evangelize your company to anyone who is willing to listen…it makes you better at selling your product and every person you talk to has the potential to provide unique insight into what you’re doing.
Read Full Post | Make a Comment ( 13 so far )For Every iPhone User in NY, A Conspiracy Theory
So this is not another rant about AT&T and the absolute shit service/coverage that I have with my iPhone. Nor is it a complaint about the customer service ping pong that these two companies are playing, passing the buck to the other and sending consumers back on forth without taking any responsibility for what I view to be a breach of contract at this point. These stories have been beaten to death…I’ll just leave it at “I agree” and now tell you a story that is way more intriguing:
But first, I’ll outline an explanation (admittedly coarse and unnuanced) for why we all don’t get the service we are paying for. AT&T has built a physical infrastructure of cell towers that supports all of their customers’ phone/data usage. When we try to make a call or view a webpage on our phones, we are requesting a portion of this fixed infrastructure. There is a limit to how much data one node in the network can support, and when that limit is reached, we as consumers are either routed to a different tower, or simply can’t pull data (failed call/failed page view/etc…)…
So picture the infrastructure as a single pipe carrying water to a village of 100 people. The amount of water that village can consume in a day is defined by the diameter of the pipe and the speed at which the water is pumped. That pipe was built to support the villages cooking and bathing needs, and it did the job for many years. Now imagine that almost overnight the village grew from 100 people (AT&T customers pre iphone/smart phone penetration) to 10,000 people (AT&T customers post iPhone/smart phone penetration), and each person decided they were going to install a swimming pool in their hut, and water their lawns 24 hours a day. Obviously, demand for water will outpace the speed at which the town can build a new, fatter pipe, and all of the sudden…not only can they not fill their pools (mobile internet usage), but now they can’t even rely on a steady shower in the morning (calls/texts)…
So now imagine that the Company that owns the pipe (AT&T) can decide which homes in the village get water first, and which don’t. How do they decided which villagers deserve priority. We, as AT&T customers, assume that as we try to pull data from the network we have an equal priority to all other users, and everyone is having the same shitty experience as us. Having been through the customer service ringer with AT&T and apple for the past 5 months, I have an alternate theory, and at the route of this theory is Apple’s iPhone return policy (reprinted below):
If you are not satisfied with your iPhone purchase, please visit online Order Status or call 1-800-676-2775 to request a return. The iPhone must be returned to our warehouse within 30 calendar days from shipment to avoid an $175 early termination fee. The iPhone must be returned in the original packaging, including any accessories, manuals, and documentation.
Apple will assess a 10% restocking fee on any opened iPhone. Shipping fees are not refundable.
Note: iPhones must be returned to the original point of purchase (e.g., Apple Online Store, Apple Retail Store, AT&T, Apple Authorized Reseller) with a proof of purchase (e.g., Shipment Notification, Invoice Receipt).
Service Cancellation
By returning your iPhone purchase within 30 days from shipment, your wireless service will be cancelled automatically. You will be responsible for all applicable usage fees, prorated access charges, taxes, surcharges, or other charges through the termination date. Please contact AT&T for more information about applicable fees.”
So, when Apple seduces you to trade in your Blackberry/Verizon set up for a shiny new iPhone, they force you to sign an AT&T contract, and assuage your concerns around the horror stories of service outages with the following statement “if you don’t like it for any reason, you can return it within 30 days, cancel your AT&T contract, and it won’t cost you a dime.”
Now here’s where it gets fucked up. Over the past 4 months or so, I have spent an estimate 6 hours on the phone with AT&T customer/tech support, trying to solve by service problems (at a very high cost to AT&T…those tech heads are not cheap)…finally, although it had never been mentioned previously, a few months ago, a customer service head said “have you tried a new Sim Card?” When I replied no, he said “I can’t believe we haven’t done that. Go to the store, they’ll swap out you Sim Card, and that should solve your problems.” Sure enough I did that, and for about 1 month and a half, service was noticeably better…then, of course, calls started to drop/fail again, No Data Service messages returned, and I was back where I started….I went to the store, asked for a new Sim Card again, and once again service returned.
So my theory is that AT&T is identifying the iPhones that have new Sim Cards as “new customers” and prioritizing the data packets being requested by those phones for the first month or two of service (until they exceed the 30 day return window when the phone and service can be cancelled), and then they push those customers into the general pool to make room for new accounts that Apple is funneling into them. Obviously, I am not an engineer, but my understanding is that this is technically possible, and my business mind says that this is incredibly evil, but also incredibly brilliant…anyone who understands this stuff better than me, please chime in. Steve Jobs (CEO Apple), Randall Stephenson (CEO AT&T)…responses welcome…everyone else, poke holes in this theory if it’s wrong/not possible.
Read Full Post | Make a Comment ( 6 so far )35 Gut Checks When Founding Your First Company
If you are thinking about founding your first company, standing at the edge of the entrepreneurial swimming pool, trying to decide if you should dive in, here is a checklist (sort of a Meyers Brigg for founders) to help you figure out if this life is for you. It is based on my observations of the thousands of entrepreneurs who I have gotten to know over the past 4 years. I would say, if you’re answer is “No” to more than 10 of these statements, think very carefully about making the jump. There is no science or data to support this checklist. Strictly my own observations of what is required to enjoy and excel in this experience.
1) I tend to thrive in an unstructured environment
2) I am capable of teaching myself almost anything I want to learn
3) I do not need positive reinforcement from others in order to be happy/effective
4) I am primarily competing against myself
5) I am completely self-motivated
6) More often then not I get what I want
7) Money is not the primary metric by which I measure my professional success/progress
8) I am comfortable living a life that most of my friends and family will not understand or be able to relate to
9) I am a fantastic listener
10) I seek out help at the first sign that I need it
11) Work is by far and away my greatest passion
12) I handle disappointment well
13) I have more energy than most people
14) I love to win and hate to lose.
15) The concept of “the path” revolts me
16) I am above no task or role
17) I have friends and family who will support me even if I do not give them as much attention as I should
18) I have no fear of running out of money
19) The word “can’t” is not in my vocabulary. There are things that are extremely difficult to achieve, but nothing is impossible
20) Pressure does not derail me
21) I am not intimidated by anyone
22) I enjoy solving hard problems
23) I do not frustrate easily
24) I exercise regularly
25) I fundamentally believe in myself
26) I am highly experimental
27) I am a doer, not a manager of doers
28) Laziness and complacency disgusts me
29) I am an excellent judge of character and talent
30) I am rarely tricked. It is very difficult to deceive me.
31) I have an extremely low tolerance for incompetence
32) I have an extremely accurate perception of my strengths and weaknesses
33) I am not too proud to admit what I don’t know
34) Everyday accomplishments bore me.
35) I am going to change the world
Read Full Post | Make a Comment ( 31 so far )Charles Darwin Would Have Loved the Mobile Internet
Lately I’ve been thinking a lot about the human population as a system. I’m assuming there is a large body of work and thought that has been devoted to this subject matter. I have read none of it. I tend to subscribe to the concept that our species is acting as a whole, and from an evolutionary perspective, most of the changes/advances that we are experiencing are the result of our mental (as opposed to physical) capacity. So instead of growing a longer beak to adapt to secure food in a changing environmental context, we are genetically engineering corn to secure food in a changing environmental context.
With that in mind, I can see no greater step function in the advancement of our species than the rise of an information architecture that enables seamless transference and sharing of learnings between individuals and groups within our broader 7 billion person population. I’ve been thinking a lot about how the existence of this central data infrastructure is impacting our individual experiences and contributions to the system as a whole, and at the simplest level I’m arriving at the subject of decision making.
I’ve asked a bunch of people to estimate the number of decisions that a human makes in a day, and the responses have ranged from 100 to 1 Billion. I’ve googled this question and can’t find a generally accepted answer, largely because it hinges on one’s definition of a decision. These conversations quickly arrive at the question of conscious vs. unconscious “decisions,” and for the purpose of this discussion, let’s say that a decision requires conscious thought. Even by this definition, life looks a lot like one giant decision tree, and by that thinking, the optimization of decision making is an optimization of human life (and if the species is a system made up of 7 billion human lives, the optimization of individual decision is an optimization or evolutionary advance that will sustain our species)…I think
So I would argue that the development of a central information system shared by all humans within our system has fundamentally changed the way we make decisions…It used to be that there were two fundamental inputs into the decision of an individual: 1) that individuals prior/internal past experience and knowledge, and 2) the data readily available in his/her physical environment. So a caveman is deciding where to hunt for food: he 1) references his past experience of where the animals tend to hang out, knows he needs to find a watering hole, etc… and then 2) surveys his physical environment for data to inform his decision. The data readily available in our physical environment is absorbed through our senses, and manifests itself primarily in audio/visual/olfactory inputs. So after referencing his internal experience/context he looks for animal tracks (visual data), listens for calls or rustling in the bushes (audio data), and smells for scents and their relationship to the direction of the wind (olfactory data). The combination of these physical data sources and step 1 leads him to a decision to walk North.
Now let’s take the Cave man’s experience in 2010. Same goal: find a place to hunt…what’s his process for decision making? He still engages in step 1, and references his past experience and knowledge, still engages in 2 and take in the data readily available in his physical environment…but all of the sudden there is a 3rd readily available data source on which he can rely to find the animals. The mobile device in his hand is a gateway into a shared information system in which he can reference the real time experience and learnings of the other hunters in the area. He read’s his twitter feed, and see the Caveman 2 just killed a zebra 700 yards west of him, references his internal experience to know that zebras move in packs, and now he is in a position to make a better (optimized) decision on what direction to walk. Blow this experience back up to the system level, and now our species is more efficient in securing food and sustaining itself.
So now, there are two types of data ingestion that impact the optimization of our decision making processes and our lives: 1) a “pull” scenario like the caveman and the zebra, where we are actively seeking a piece of information to influence an immediate decision (the most clear example of the information architectures impact on our decisions), and 2) the “ambient data ingestion” scenario, where in the absence of a data requirement for a specific decision at hand, we are pulling on data with our excess bandwidth at any given moment (we can process something like 126 bits per second) that while not applicable to an immediate decision, is applicable to future decision within our day/week/month…An example being, I have a minute that I am waiting for the subway, I may be consuming less data in my physical environment than I am capable of, and I decide to read my blog reader. I ingest textual data in the form of a restaurant review, and when I get home an hour later, and it is time to make the decision of where to eat, I am better equipped to do so (with that piece of data pulled from the central and shared database). So the presence of a central data source is optimizing present and future decisions.
I think subconsciously, it is the availability of this data and it’s impact on the decisions in our life that is driving the “addiction” to mobile devices, and to a lesser extent the internet at a whole. Watching for that red light on your blackberry, waiting for the next email, is not necessarily a human waiting for an answer, but maybe just a human looking for a new piece of data, and a new decision to address. Which brings me to a broader question of the effect of this central database on the volume of conscious decisions we make in a day (my guess is it has increased that number), and more broadly the effect of an increased volume of decisions in the system on the output of our species as a whole…
anyone have any good reading on this stuff (ideally articles, not books)?
Read Full Post | Make a Comment ( 3 so far )Founders Beware: True “Advisors” Don’t Ask for Free Equity
Fred Wilson wrote a post over the weekend about the importance of role models to early stage founders. The discussion around this post led to the subject of Advisors and Advisory Boards, and I thought I’d take a minute to shed some light on the bright and dark sides of startup advisors. This post came on the heels of a meeting I had on Friday with a young entrepreneur here in New York with whom I was sharing some fundraising ideas. At the end of the meeting, we agreed that I’d spend a little more time reviewing his pitch with him and maybe making some introductions to angels, to which he responded “okay, so let me know how you want to structure that and we’ll go from there?” I asked what he was talking about, and it became clear that he expected to pay me for my advice/help. I further learned that another now-well-known entrepreneur/investor here in New York (for whom I sort of had respect) had taken a piece of his equity in exchange for “formal advisory services,” and although I didn’t say anything at the time, I was thoroughly disgusted by this “advisor’s” behavior.
Here is my advice to startups trying to secure advice and mentorship from experienced entrepreneurs and executives: advice and guidance in our community is abundant and free…equity in your company is not. This is not to say that you shouldn’t use early equity as a form of compensation to get your company off the ground, but be watchful of the scenarios in which you do so:
Scenario 1 (Complete Bullshit): You meet with a guy/girl who you think could add a lot of value and/or credibility to your project. At the end of the meeting, they say “I’d love to get involved. Typically I’d look for 1-2% of a company at your stage, and that 1-2% gets you an hour of my time every week and some great introductions and relationships.”
Savvy founder’s response: Run for the hills. This “advisor” is a complete predator. The value they add will not be worth the equity they are asking for, but more importantly, they are trying to take advantage of your lack of experience in this world. General rule of thumb: anyone who directly asks you for equity in your company without investment is a scumbag. Stay away.
Scenario 2 (Better, but still not good): You meet a guy/girl who you think could add a lot of value and/or credibility to your project. At the end of the meeting, they say, “Good luck, let me know if I can be helpful.”
Savvy founder’s response: Build a relationship with this person, continue to seek whatever amount of guidance they are willing to provide out of interest and belief in your project. If you find you are asking more of them than they are able to give, perhaps offer them the opportunity to invest on favorable terms in your company. If they believe in what you’re doing, and they have made enough money to part with $25-50K, they will be honored that you are asking…don’t be afraid to. But, if they say no, don’t say “okay, can I give you some equity to be formally involved?” If they aren’t going to pony up as an angel investor, a couple fractions of a point (point=1% of equity) is not going to incentivize them to go beyond what they are already willing to give in terms of time/advice/introductions. Granted, if you make this offer and they accept, they are not a scum bag (as is the case in scenario 1, but the truly righteous and high quality mentors in our community will not accept your freebee. So there is an adverse selection process that occurs when you try to build an advisory board through free equity allocations.
Scenario 3 (Makes Sense): You are missing a key piece of DNA in your company necessary to execute on your plan (i.e. non-technical founder engages outsourced development shop and does not have the domain expertise to effectively manage the project).
Savvy founder’s response: This is actually a scenario where I would advocate parting with some equity to get a “technical advisor” to help manage the project. But this is not really an advisor at all. The person you bring on will be performing a day to day role within your company. In reality, they look more like an independent contractor who is willing to accept equity (as opposed to cash) as payment.
My argument is not that an early stage founder should be stingy with his/her early equity…in fact quite the opposite. At the onset of a venture, the financial outcome of your company is pretty much binary: either you build something and successfully exit (make a lot of money), or you fail…a couple of points allocated toward increasing the likelihood of a positive outcome are well spent…just make sure they are being spent on actual work and output, as opposed to advice and guidance.
Read Full Post | Make a Comment ( 14 so far )Twitter Slows, What Blippy Thinks It Knows
Premise: Twitter’s fundamental innovation was a lowering of the effort required to establish a public voice.
So if you looked at the universe of public content creators, imagine a series of concentric circles, each representing an expansion in the volume of published voices.
Concentric Circles of Publishers
The inner circle would represent traditional journalists and authors. It used to be the comittment and effort required to publish your voice was a dedication of your entire vocation to that effort. Blogging platforms like wordpress and blogger then came along and lowered the required commitment from a vocational dedication to simply creation of long format articles that mirrored the structure of professional content creation, but without the effort of establishing employment/partnership with a 3rd party publisher for distribution. That innovation increased the universe of content creators from XX professional writers (lets call it hundreds of thousands), to XX+YY writers+bloggers (I just read an estimate that in Feb 2006 (pre microblog explosion) there were an estimated 200M blogs in existence). The addressable market for blogging platforms like WordPress and Blogger was constrained by the effort/time required by a user desiring a voice to consistently create long format (multi paragraph) content. At some point, their penetration reached a market of consumers who fundamentally desired a public voice, but who were not willing to put in the time and energy to maintain a blog. Then along comes Twitter and other mircroblogging platforms with an innovation that reduced the comittment required to have a voice from hours per week (on blogging platforms) to minutes per week. Twitter established the next concentric circle of publishers who desired a voice and were willing to put in a few minutes a week, but not a few hours per week, in order to maintain it and reach an audience.
Which brings us once again to the limits of Twitter’s addressable market, as defined by the population of people who may still desire a public voice, but who are not even willing to allocate the amount of effort/time that twitter requires in order to establish and maintain it. So Twitter’s addressable market of users in confined to the total number of people in the world who desire a public voice and the percentage of those people willing to put in the required active effort to maintain it (leaving aside the user who is only consuming content on the site but not creating it…which is a whole other discussion). I have no idea if the graph below is indicative of the company pushing up against those limits, or if there is some other explanation for the slowing in their growth curve, but I have no doubt that there are services on Twitter’s heels that seek to reach the next concentric circle of consumers desiring a voice, but who are too lazy even to actively engage in a microblogging platform.
One such service that seeks to reduce the active effort required to publish a “voice” is Blippy.com. Amongst the venture/startup world, I would say there is a lot of anticipation around blippy, which I believe many are incorrectly viewing as the platform which could create the next concentric circle of publishers by making a feed of content that is almost passively (read: zero active effort) broadcast to a user’s “reader base.” Once you sign up to Blippy, a feed of your purchases is published to followers. So the user does not have to actively put any ongoing effort into publishing content (not even writing 140 characters), so long as they let Blippy pull transaction level data from the creditcards, online accounts, etc…While that may be interesting to a body of readers in a similar way as to how ones tweets are interesting to followers, I would argue that a stream of purchase data is not a true “voice” and does not empower users on the publisher side to “speak to an audience,” which is the value that I think sustains blog and microblog platforms. So Blippy might look like a “micr0-micro blog” that would blow out another concentric publishing circle, but I don’t think that’s gonna be the case. Now, there may well be other forces that contribute to Blippy’s growth and allow it to become an interesting consumer service, not the least of which, is people’s general desire to communicate their consumption behavior (“i bought this expensive thing, and i want everyone to see that I did because it says something about my success and ability to spend”), but that type of value proposition does not seem to have the same potential scale as a true innovation in the race to give a wider universe of consumers a public voice. If anything, I’d guess that this type of passive data capture (also at the core of the burgeoning location based services market) will end up being a feature/input incorporated into true “voice providing platforms” like WordPress, Twitter, and whatever is after Twitter, as opposed to standalone replacements to the existent publishing platforms.
Read Full Post | Make a Comment ( 8 so far )FundlessFund Hijacks My Blog Today
Since my blogpost on Friday introducing The Fundless Fund (FundlessFund@Gmail.com), a lot of folks have stepped up with interest in contributing to the Fund, and a lot of folks have been asking exactly what The Fundless Fund is….the short answer is…The Fundless Fund seeks to add as much value to the growth and development of early stage companies as a Y Combinator or seed stage investor, without any equity or payment in return…it’s an accelerant powered by fellow entrepreneurs, created in the vein of furtherance of our collective effort.
Based on the response I’ve seen so far, it seems like there are a bunch of related parties (investors, lawyers, accountants, established companies) that would like to pitch in. That will be awesome for our “fund”, we just need to figure out exactly how to incorporate these parties into the mix without diluting one of the main values of The Fundless Fund, which is a complete alignment of incentives between the Fund and our entrepreneurs. What I don’t want this to become is another “me too” organization sponsored by Sillicon Valley Bank or some law firm who’s primary purpose is simply to get a bunch of decision makers together in the same room (a room that happens to don the banners of those service providers). I also have no interest in recruiting the 5 sexiest names I can get to sit on a panel, inviting a bunch of people to listen to a dog and pony show, and then prove to the 400 people who attend that my platform is strong enough to get 5 sexy people and 400 others to attend my event. Rather, The Fundless Fund will take those 5 sexy people who are willing to donate an hour to our platform, identify the 5 most promising entrepreneurs who will benefit from an hour of their time, and we will use our “bullet” with those sexy people to get the 5 entrepreneurs into 1 on 1 meetings where progress can actually be made. There is a place for networking events, and those groups and events are undoubtedly adding value to the New York Startup Ecosystem, but that is a saturated market that we’re not interested in playing in.
What we’re interested in doing is focusing a ton of high quality resources and attention on a much smaller number of people/companies…our goal is not to generate as much deal flow as possible, or to build the biggest community of NYC startup people…it’s rather to identify the brightest stars (whether first time or experienced) in our community and give them a leg up on fundraising, recruiting, and job search (if they’re not yet with a startup), all the while focused on a general transference of knowledge across the fund. We want to help the best of the best to not get lost in the shuffle and noise of a not-fully-networked New York Startup community. Why? Because it is our belief that those people with the most potential will build the biggest, most sustainable companies in the long run (but not without help). Our city needs to birth a few multibillion public technology companies to cement an enduring infrastructure around this burgeoning startup energy, and it is our responsibility as entrepreneurs to maximize the likelihood of that occurrence. Our fund is not a flash in the pan, looking for the next deal to bank/lawyer/account/invest in. We have a long term view of this city’s ecosystem and we’re going to do our part to make it as easy as possible for resources (capital, talent, advice) to find the stars that are going to build New York’s homegrown Facebook, Google, Amazon, etc…
There’s a lot of plumbing that still needs to be worked through, but we’re off to a good start. What you can do today to participate is as follows:
If you’re a startup/pre-startup that has raised less than $500K in the New York area, there are 2 actions for you to take today:
1) Email fundlessfund@gmail.com with a short description of you’re company or future company, a link to some online public presence (site if you have one, linkedin profile, blog, etc…), and a brief description of your needs:
- People: (description of hires you’re trying to make)
- Capital: (no details needed, just are you going to need to raise money in the next 6 months)
- Advice: (general guidance and mentorship)
2) Email fundlessfund@gmail.com and request to be added to our distribution list. Even if you’re not in a position to join the fund’s portfolio today, stay connected and we’ll keep you up to date on how the fund is evolving and the best ways to get involved.
If you’re a venture/angel-backed entrepreneur or if you used to be and can still speak to the experience, and you’d like to be involved in the operations of the FundlessFund (i.e. sit on the “investment committee,” donate your time to meeting with applicants and accepted people/companies, etc…):
1) Email fundlessfund@gmail.com with a link to some public presence online and description of what type of value/resources you’d like to contribute:
- Introductions to investors
- i. Angels?
- ii. Seed/Feeder Funds?
- iii. Venture Capital Firms?:
- Strategic Advice/Guidance & general mentorship of high quality early stage entrepreneurs
- Career Placement: do you want to help high quality talent land at your own startup or another startup in your network?
2) Email fundlessfund@gmail.com and request to be added to our distribution list. As we figure out the best ways to work with established entrepreneurs and executives, we’ll keep you in the loop and you can decided if/how you’d like to be involved
3) Email fundlessfund@gmail.com if you’ve build a platform like this in the past and would like to advise on the construction and implementation of the fund
If you’re an Angel Investor, Seed Fund, or Venture Capitalist spending time in NYC:
1) Would love your input and ideas: fundlessfund@gmail.com
2) If you want to interact with us going forward, request to add your name to our distribution list
NOTE: Thanks for your patience as we play catch up to demand…we subscribe to the concept of customer development…first step is to figure out what everyone wants, next step is to productize it and begin to scale up
Read Full Post | Make a Comment ( 1 so far )Introducing the Fundless Fund…get involved
I remember talking to Chris Dixon a while back about balancing his seed investing activity with running Hunch…at the time I looked at this from an investor’s perspective and thought to myself…”I would want my founder to be spending 100% of their effort and energy on the company that I put dollars behind.” He explained that his activity as an investor is what keeps his thinking fresh, and that the stimulus of these conversations and data points made him a better CEO.
I didn’t really have a chance to understand this phenomenon in my last company because I was playing in a market with little or no overlap to most venture ideas/startups. So even though I still thought like a venture capitalist, meeting with entrepreneurs and executives to discuss their companies and ambitions didn’t really present a whole lot of value to Untitled Partners. Now that I am building a true consumer internet company at JumpPost (where other founders’ thinking enhances and is directly applicable to my own efforts), I find myself engaging in and building a body of “investor like” interactions (despite the fact that I don’t have a fund to invest). I understand exactly what Dixon was talking about, to the point where I am actively allocating cycles of my week to meeting with entrepreneurs and people thinking about becoming entrepreneurs to discuss their businesses, pitches, products, fundraising strategies, etc…I don’t stand to gain financially from meeting with the next big thing (as I would if I was making angel investments), but I really like helping other entrepreneurs achieve their goals, and I get a ton of non-financial value from these meetings.
Charlie O’donnell wrote a post recently in which he called First Round Capital a “feeder fund for larger VC firms.” Meaning First Round, although a relatively small fund, has established great relationships with larger venture capital firms that are capable of writing the big checks that their companies might need. So the idea is, you join First Round’s platform and then one of the big guys (Sequoia, Benchmark, Accel) follows. Feeder funds, or seed funds, are the flavor of the month in the Startup Funding Ecosystem (see Dave McClures breakdown of this evolution in the market). I’ll say they are largely accompanying/taking market share from professional angels who perform a similar “feeding” function into other Angels, Seed Funds, and Venture Capital firms. This is all just to say that the startup investment landscape is largely driven by the referrals of trusted relationships. Investors rely heavily on signals to determine what is and is not worth their time, so the opinion of someone who’s judgment they trust (as signaled by an early investment in a company, or even a “hey, you should take a look at this…met the founder…it’s interesting”) is how investors decide which 10 of every 100 potential investments that come through their inbox, they are going to explore.
You might say that over the past 5 months I have been building a feeder fund…minus the fund…This was not a calculated move on my part, but rather a pretty organic evolution that has increased in scope as I have watched the yield derived from building my own company on top of a “platform”. A “platform” is any vehicle that creates a center of activity around a specific person or group of people. In the case of a venture capital firm, the actual fund is the platform that serves this function…So when you have $1 Billion behind you, a gravitational force pulls entrepreneurs, executives, and opportunities toward the people operating on top of that platform (investors, EIR’s, etc.). With exposure to all these parties gravitating toward the center of the platform, a VC is in unique position not only to identify relevant business opportunities, but also to realize those opportunities swiftly through the injection of capital or resources on hand. This is why being an EIR is such a cool way to build a company…the platform of a fund provides tons of exposure to interesting data/people/ideas provides fertile ground to develop a company.
In the absence of a fund, there are other types of “platforms” that an entrepreneur can leverage to increase exposure to opportunities and people. Polaris’ DogPatch Labs (great job at Hackers & Founders last night) is an example of a platform, where if you sit in a shared space attached to a brand worth $1 Billion (even if you are not the one deploying it), you catch some fraction of the gravitational force that the Polaris itself commands. Affiliations with networks of entrepreneurs like First Growth or even Meetup (to a much lesser extent), are ways of tapping into an existing platform’s pull, and hopefully using that pull to propel your startup further than it would go independent of any platform.
I have decided to build a new platform, Fundless Fund, and I invite you to participate in it. This blog is one of the cornerstones of that platform, insofar as it has reduced the cost and effort required to market the value proposition of a young platform to a wide audience. I’ve combined that marketing channel with some embedded pieces of value that I have managed to acquire through my experiences in venture capital and entrepreneurship, and now I would like to roll them into what I will call my “fundless fund.” At some point in the future, perhaps when I make enough money to fund this “fundless fund,” (or perhaps when I establish enough credibility to have others back it), maybe this platform will be strengthened by the financial resources to accelerate growth within it, but for now, I am happy to announce the first day of The Fundless Fund. The core values and opportunity that the Fundless Fund presents are as follows:
1) integrity
2) extreme candor
3) information not readily available elsewhere
4) exposure to potentially accretive ideas
5) exposure to a body of entrepreneurs and executives who have been filtered through the perspective and rigor exemplified by my posts (I’ve basically built a map of the smartest people I like in this world…which I think I will publish in a couple of weeks)
6) jobs: if you’re a star, we’ll give you a job or introduce you to some cool people who are looking to hire stars
7) money: if you’re company is fundable, happy to introduce you to as many Angel Investors, Seed Funds, and Venture Capital Firms as we can…If not, we’ll try to tell you what you need to do to get to a point where you are fundable.
This is pretty much an experiment in adding a new layer to Dave McClure’s Startup Funding Ecosystem. I’d imagine it is a layer in which any entrepreneur or executive who would like to further the entrepreneurial movement as a whole might be able to contribute (independent of whether or not they have yet made the bucks to do so economically). If there proves to be value in fomalizing this already existent layer in the stack, I will try to bring on some great people and partners to strengthen the effort.
As this fund is fundless, we’ll be very psyched to receive anyone who wants to throw some value into the mix. If you’re great at organizing events…awesome…if you want to hack together a shitty website for the “fund”…awesome…if you want to meet young entrepreneurs and are in a position to provide the types of value I outlined above…awesome…if you have ideas on how to actually do this well…awesome. If you want to vote this up on HackerNews, post it on Digg, or do anything else to get the message out to entrepreneurs and would be entrepreneurs that help is available and 100% free…donated by people who are trying to further out collective effort…awesome…Get involved by emailing FundlessFund@gmail.com (ideally with some link to your public presence online).
Note: I still spend 90% of my cycles on JumpPost, so patience with the speed of development/action is appreciated until we “staff up” a bit.
Second Note: If you think this is a dumb effort, or have any ideas about how to make it less dumb…please comment
Read Full Post | Make a Comment ( 15 so far )Effects of Entrepreneurship of Savings (Graph)
I’d like to appologize in advance of this post to my parents, and especially my mother, who is going to freak out when she sees this graph… sorry mom.
In March of 2008 I left the posh world of venture capital to become an entrepreneur. I told myself at that moment that I didn’t care about my personal comfort or the luxuries to which I had become accustomed…in fact, in some perverse way I actually hungered to “go to $0.” I remember thinking that in order to truly understand mainstream America and the masses of our population, I needed to experience some sort of financial struggle. Turns out I was right. A huge part of JumpPost is about increasing consumer liquidity and putting a little extra cash in people’s pockets. Doubt I would have arrived at this concept while making gobs of money. Anyway, below is a graph of what entrepreneurship does to your bank account. If you’re not prepared to ski down this run, you might think twice about getting on the lift…
Sorry about resolution: image is clickable, so you can expand to see the gory details:
5 Reasons Why Lying is Stupid in Startups (and Life)
1) You spend more energy/bandwidth maintaining a lie than you do dealing with the adverse effects of telling the truth: This is the main reason why I have categorically banned mistruths from my life (I’d say, by the way that 0% mistruth is almost impossible, but I have gotten damn close over the past 6 months or so). In the near term, there are so many opportunities to “facilitate your path” through a small mistruth. I challenge you to count the number of mistruths you tell in a day (I’ll bet it is north of 5)…It may seem like these mistruths are making your life easier (getting out of meetings you don’t want, getting meetings you do want, etc…), but I would argue that even the mistruths that are intended to make life easier end up requiring more energy than their truthful counterparts. Let’s take the example of a friend who would like to work at your startup, who you don’t think is the right fit. When they email you to ask for a coffee and you have 15 other things on your plate, the near term easiest solution would be to say “I’m slammed this week…can we try to catch up next?” That clears you inbox in 10 seconds and you can move on to areas where you’d like to focus. But what happens when that person email you again next week? Now you need a new excuse, so you say “hey man, I’m traveling this week…I’ll ping you when I get back.” That’s an additional xx units of bandwidth you spent creating a more complex excuse not to meet. Then, when you do bump into this friend a month down the line, and he asks how your trip was, the entire balance of your interaction, and every interaction that follows, must exist with maintenance of your initial mistruth about being out of town. That’s a lot of mental bandwidth to expend.
Now let’s think about what the case where you had taken 2 minutes, instead of 10 seconds, to address your friend’s initial request honestly but respectfully. That’s 60 seconds of analysis as to why this person is not the right fit, 30 seconds on what you’d like to communicate to them, and 30 seconds to write, “hey man…the first 6 months of this company, we have very specific needs with regard to domain expertise. If something comes up that seems right for you, I’ll let you know, but happy to grab coffee and talk about who else I know that might be looking for someone like you.” Now, you won’t feel uncomfortable seeing this person, you don’t have to maintain any mistruth, and although you may not have given them what they really wanted, you are still being a solid friend and helping out where you can. Life is FULL of these opportunities to take an extra pause to think about what you really want to say, as opposed to what’s easiest at first glance.
2) Interesting ideas and conclusions occur at the point where you analyze a temptation to lie: Simply by training yourself to pause before delivering a mistruth, you will begin to think more deeply about the points of friction in your life that evoke such an inclination. Analysis of these points of friction can lead to proactive reduction in occurrence. Pay attention to these points instead of glossing over them with an easy lie and you can begin to consciously influence their frequency. For example, when an investor asks you “so what worries you? What keeps you up at night?” you could either give the stock answer which reveals a minor concern and represent it as your largest concern, (and then repeat this answer every time someone ask you this question)…or you can tell them the actual greatness weakness in your model…you might think that you are hurting your chances of raising capital, but in actuality revealing this weakness will force you to resolve/strengthen it (maybe even through a dialog with said investor). Once strengthened to the point where this weakness does not prohibit investment, you will no longer feel inclined toward dishonesty when faced with the question. Short term you may increase the risk of securing fundraising, but long term you are decreasing the risk of failure….
3) You set a context for interaction that results in other people telling you the truth (better data): If you make it clear that you will never lie to a party with whom you are interacting, that establishes a plane of trust that is usually reciprocated. People feel much worse about misleading someone who they know is being completely honest with them (as opposed to a dynamic of gamesmanship in which misdirection and indirect communication on both sides is understood). You would not believe how frequently professionals set this indirect tone when engaging with external parties…waste of time, energy, and generally a very myopic approach to maximizing value of relationships. By establishing an environment of honesty and direct communication in any interaction, personal or professional, you will receive a flow of more accurate data on which to base decisions and opinions. Better data equals better decisions.
4) Being direct about what you want usually gets you want you want: Ask for the order, whatever it might be. Trying to extract value through indirect communication takes longer and often fails. Example: When I began to raise my first seed round I met with a friend who is an entrepreneur and seed investor. I hadn’t really asked anyone for money yet (and I felt a little uncomfortable doing so), so I pitched him under the guise of “seeking advice.” When the meeting was over, he said “I hate it when people aren’t up front about what they want. If you are asking me for an investment, ask me directly.” He forced me to “ask for the order” and from that point forward I had no problem doing so with everyone else. After that I started asking people for investment instead of advice and guess what I got?
5) Sometimes you get caught: this one is straightforward…when you get caught in a lie you lose credibility and damage your relationship with the recipient as well as your overall credibility.
There are many more reasons (ethical, karmic..etc…) why setting a personal goal of zero lies per day is a righteous endeavor. The purpose of this post is simply to outline some of the more practical and tangible effects of eliminating mistruth from your existence. So now I have established a plane of truth with every one of you. Anything I tell you and anything you ask me (professional or personal), my response will be 100% truth. Fire away.
Read Full Post | Make a Comment ( 5 so far )Give us your [rich], your tired, your huddled masses longing to be free
Yesterday I dropped into office hours at a venture firm who I didn’t really know, but wanted to meet…the format was basically 5 or 6 entrepreneurs sit down and chat with the investors for 30 minutes in an informal conversation about everyone’s efforts. My understanding is that if the venture firm thinks you’re high potential, they’ll give you a desk for 3-6 months. That desk comes with free internet/coffee/conference rooms and the opportunity to collaborate with a bunch of other startups and share learnings and ideas…there’s also one dude from the firm who sort of hangs out there and spends time working on his own projects, but also providing guidance to the folks in the space…this model is a great contribution to the NYC startup community, and one which I think will yield fruit for the firm. What amazed me, however, was not the new presence of this firm in NY, but rather the backgrounds of the other entrepreneurs in attendance.
For the last year, I have been listening to members of the New York startup community speculate about the migration of talent away from wall street toward entrepreneurial endeavors post financial apocalypse. I largely viewed this thesis to be wishful thinking, as having worked on wall street myself after college, “investment banker” is not exactly the psychological profile I envision when i think of early stage entrepreneurs…but yesterday was the first real data I have absorbed which makes me question my skepticism. It’s one thing for talented engineers who were engaged in algorithmic trading pre-meltdown to be recruited away to established venture-backed startups that could afford their 6 figure salaries. But it is entirely another when 4 of the 5 early stage founders with whom I met hailed from Merrill Lynch, Citigroup, Morgan Stanley, and DE Shaw respectively (amazing btw that when I went to link to Merrill’s website using Google Chrome browser, I get this message:
| An incompatible browser has been detected and your page layout and/or functionality may be effected. |
| This Merrill Lynch website (www.ml.com) is designed for viewing in the below browsers: |
| Microsoft Internet Explorer (I.E.) 5+ | Download |
| Netscape 7+ | Download |
| Firefox 0.8 + | Download |
| Anyway, these are not guys who grew up programming in their garage before being scooped up by wall street recruiting at MIT (in fact one of them had spent $100K of his own hard earned wall street cash on an outsourced website for which he did not even know the language in which it was written…note: i actually liked that guy and thought he was pretty smart despite this shocking stat). Rather, they were bright and ambitious young guys to whom Wall Street had obviously fallen from grace. |
Through an investor’s lens, I think there will be some winners out of this generation and profile of NYC entrepreneur, but if I had to guess, I’d say it may be a little early to put my dollars into this group of folks. I’m more interested at the point where this class of wall street emigrants matures over the next 12-18 months (and natural selection/financial recovery seduces the ones who aren’t cut out for it back to wall street). Those who remain, will likely represent the conversion from would-be lifetime financiers to would-be lifetime entrepreneurs, and they will be the ones to create companies that contribute to the renaissance of NYC entrepreneurship.
So, I know the sample size is relatively small, but I was excited to see the talk of a talent transfer in NY manifested in real life. I’m assuming venture firms have had this empirical data point for quite some time, which can only hearten their recent commitments to our geography (see “NYC Venture Capital War” for more on that), but it was strange and refreshing to experience potential history in the making first hand.
Read Full Post | Make a Comment ( 8 so far )Newsflash: Your Startup Is Not In The Playbook
A former investor of mine, Fabrice Grinda, recently wrote a blog post enumerating the reasons why businesses that are started with two co-founders are more likely to exit big than are those with a single founder at the helm. That line of thinking seems to be the common sentiment at least in the venture world, and one which having seen more than a thousand founder/cofounder setups while on the venture side, I think I would tend to agree with. When I started thinking about leaving General Catalyst to start my first business, I mapped out a progression of events necessary to take the plunge and build a company. The planned progression of events went something like: 1) idea, 2) diligence, 3) cofounder, 4) quit job, 5)raise capital, 6) build product, 7) achieve seed stage milestones, 8 ) raise more capital and scale.
This play book is sort of a standard one that I had heard many entrepreneurs and investors tout, and not having been through it before, I largely executed according to plan (minus 7 & 8 that is). What I’ve learned, however, is that someone else’s play book is only a guide, and to execute against it without flexibility and recognition of your own context/data is a mistake. Nothing in startup world happens exactly as you expect it to. Sometimes a recognition that you need to write your own play book can prevent what I’ll call “inorganic progress.”
“Organic progress”, to me, is when the events in an operating plan occur as the result of successful completion of tasks/goals/learning on which that new event is dependent. In other words, progress that occurs naturally or without force. An example of organic progress would be when a management team builds a product, puts it out to consumers, people buy this product, and THEN they design a customer service program to support their newfound customers.
“Inorganic progress”, then, would be occurrence of an event ahead of completion of the tasks/goals/learning on which that event is dependent. Or, forced progress. The company builds a product, puts it out to consumers, and then designs a customer service program in anticipation of its first customers…although it may seem that management is getting ahead (or making progress) by finishing their customer service design quickly, they are doing so without the data/learning of customer feedback, and thus an event (the customer service design) occurs before it’s antecedent (inorganically).
It has been my experience that when progress is forced, although potentially forward moving from an aesthetic sense, this is progress in a wrong direction. The customer service design, when created through inorganic progress, will not address the needs of the company’s customers, thereby creating an operational inefficiency that would not have arisen had management allowed this piece of progress to develop organically.
As it turned out in our last company, steps 1-4 were in line with the concept of organic progress. My immediate instinct when starting JumpPost was to replicate a known play book: 1) idea, 2) diligence, 3) co-founder, 4) give up job opportunity in venture capital (replaced quit job), 5) raise capital. What I realized when I began executing on this play book, however, was that I had a previously non-existent understanding of the difference between organic and inorganic progress. Steps 1 & 2 were the same, but as I began to work on 3, I realized that recruiting A level talent, and especially a cofounder, could be a 6 month cycle. A number of people I am close with expressed an interest in cofounding the company, and had I been executing to “plan,” I would have taken one of them on before moving forward to step 4, but this didn’t seem “natural.” Why? Because I was missing two antecedents to this decision. The antecedents, in this case, being 1) an understanding of what domain expertise would become most important to our company, and 2) an understanding of what caliber of talent I could expect to bring on board pre vs. post venture financing.
So…I sort of tabled the old play book, continued to meet with interesting people, but began executing the subsequent steps before completing step 3 (cofounder)…As soon as I moved past step 3, another deviation from the play book arose. The play book would have said I needed to raise capital in order to develop the JumpPost product (especially without a technical cofounder), but again it didn’t seem natural…what I realized was that I wasn’t ready to commit to investors a single vision for the Company without the data of product/market fit behind us. So I read a lot about a new play book, rooted in the philosophy of customer development, and then began recruiting a team to build something ahead of financing. Now, we will begin to acquire the data needed to complete step 5 (fundraising) organically.
I ran into Chris Dixon on the street in our neighborhood a few weeks ago, and after chatting for a bit about this blog, he asked about JumpPost. His first question was “how are things going? still searching for a technical cofounder?” From an investor’s perspective (and Dixon is another example of a guy who has seen a thousand startup teams, and subscribes to the “cofounder law” for many of the reasons Fabrice articulated), acquisition of a cofounder (step 3) was a data point that would indicate where I was in the progress of a conventional startup play book. Although my answer to his question was, “yea, I guess so,” the reality was I was well beyond this step in the play book, but only because I decided a while ago that I would design a new play book, drawing on conventional wisdom for sure, but not without a few of my own creative plays mixed in.
So all this talk of organic and inorganic progress is just to say that while I recognize Fabrice’s points about the benefits of a cofounder, I will not take on a “cofounder” until it organically presents itself. As JumpPost progresses, I view every early hire, part time contributor, and even advisor as a founding member of our company and I rely on them all as a sort of “aggregate cofounder.” The interesting part is we are going to hit step 6 (product) and have a real good shot of hitting step 7 (achieve seed stage milestones) of the old play book, before executing on steps 3 (cofounder) and 5 (raise seed round). It just happens that this was the most organic and natural path of progress given all the events/goals/learning that we have experienced to date.
So, I guess my advice to entrepreneur’s considering Fabrice’s (and common wisdom’s) suggestion that “2 [founders] > 1” would be, “yes, a cofounder does represent a huge amount of value when starting a business…BUT there are many ways to skin a cat, just make sure you don’t do it inorganically.”
Read Full Post | Make a Comment ( 5 so far )Progression of Thoughts in an Entrepreneur’s Day
(Wake up) whoa weird dreams, what does it mean when I am pitching my value proposition to faceless people in my dreams, fuck it, time to work…I’ve got to stop working in my dreams…wait, I wonder if I make progress in my dreams…probably not, or at least I can’t remember any specific insights that I arrived at in there that are applicable out here…whatever…(scanning emails on my iPhone while still lying in bed)…junk, junk, junk…fuck this is a weird angle that I need to hold my iphone at to read while still keeping my head on the pillow, interface keeps switching between landscape and profile…I really need to stop subscribing to all these daily newsletters, I never open them anyway…but my friend runs this company, he gets paid $300 for every 1000 people who open this fucking thing…300 divided by 1000 is 30 cents…i want to keep contributing to his success, $.30 at a time…(continue scanning emails) where’s the good news? Where’s the good news?…oh shit, that guy actually wrote back to me…come on baby,,, come on baby….yes, he’s willing to meet me….junk…junk…email from friend….oh yea, I should probably stop working and go hang out with my friends one of these nights…switch to calendar…this calendar on my iphone sucks compared to my old blackberry…one more reason to switch back…fucking AT&T…but I do love my iphone…tonight? No…tomorrow night? No….one week from Tuesday? Yes…return to inbox…hey dude, sorry I’ve been super busy…want to get dinner next Tuesday? Switch back to calendar…Tuesday, December 26th, “Hold for dinner with Alex”….back to inbox…junk…junk..junk…shower time.
(go turn the shower on)…brush my teeth, run back to iPhone to see if anyone has emailed in the last 30 seconds…(get in shower)…what are the 3 most important things that absolutely must get done today? 1, 2, 3…start thinking through one…
(out of shower), dry off, check iPhone again….(getting dressed) what do I need to wear today…no meetings…ah that’s nice…jeans, hooded sweatshirt…(eating breakfast at the new café on my block)…god this place is empty…I really hope they stay open…food is so good…tough when you aren’t on the main drag of 5th avenue…I wonder how I can help this guy? Customer acquisition in a physical landscape…new product…must deliver free value…highest margin product is coffee…cost of goods for cup of coffee = $.40, average ticket price of customer is $5.00….lifetime value of customer = hundreds of dollars…1 in 10 customers who redeem free coffee will convert into $5.00 customer, 10 customers x $.40 = $4 out for $5.00 in near term revenue and some percentage of leads convert into life time customer…wait but $4 is rev, not profit…ahhh…feels like the math should work…”hey dude, I’ve got an idea for you to get some new customers in the door….
(sit down at computer) okay…time to clear inbox…”mark as unread” “mark as unread” “mark as unread” no…you procrastinator…respond now…reply, reply, reply…(one hour later) at last…i can get to what I want to accomplish today…[insert first random fire drill here] fuck…this is not good…(wait 2 minutes)…actually this is doable…not a big deal…[insert solution here]…attack number 1 from the shower (i.e. “how do I seed the community with inventory pre-alpha release so that UX and design is pretty and alpha users will have best possible experience even though they are my closest friends and colleagues and they will tolerate a shitty experience”)…
god I’m getting hungry…where’d the last 3 hours ago…if I could just quickly respond to a few emails…(an hour later)…well, it’s 2:00…I’m barely hungry any more…better go for a run…unwind…(put on ridiculous long underwear with shorts on top)…I look like a complete idiot…but I don’t care…probably won’t run into my soul mate in Prospect Park at 2:00PM on a Thursday…what am I going to think about on this run…I love getting work done while I’m running….takes my mind off the physical pain, and feels like killing two birds with one stone…gotta think about a new blog post…okay…what’s happened over the last few days? Met with this guy…learned something cool here…this is such a high yielding hour that I am spending…staying in shape…building energy…and thinking about a new blog post…hmmm…that’s interesting…I wonder if other people measure their hours in terms of yield? I could write about that…yea…and talk about hours in my week that are surprisingly high yield…like the hour I spend on exercise…or the hour I spend on writing a blog post…both are higher yield than an average hour I spend in front of the computer…okay….blog post done…still another 2 miles to go…what else can I accomplish…eh…it’s actually really beautiful in the park right now…I think I’ll just zone out…(2 minutes later)…that girl is trying to run faster then me…eh, who cares…run at your own pace….(2 minutes later) she thinks she’s beating me up this hill…I don’t think so (start ridiculous spring up the hill and leave girl who was probably not trying to run faster than me in the dust)…well, that was a nice run…
(arrive back at computer) Okay…lots of energy now…time to bang through this to do list…task…complete…remove…task…complete…remove…task…complete…remove…breath…breath…breath…read a bunch of blog headlines in my Google reader…pick the 10 things that look the most interesting…read…read…read…need a change of scene…pick a new café…okay…to do list under control…time to write post…god this was a busy day…what did I want to write about again…fuck it…I’ll just write about today
Sound familiar?
Read Full Post | Make a Comment ( 11 so far )The 3 Most Important Words in a Founder’s Vocabulary
I have always been amazed by people’s unwillingness to utter the words “I don’t know.” These three words have been, by far, the most important words in the course of my professional development. I remember working for a Hedge Fund when I was a sophomore in College, and being tasked with maintenance of a model that one of my bosses had developed to track financial performance of distressed public companies. I had “sold” my way into this internship leaning heavily on my previous “experience” interning at a Broker/Dealer in high school, but the truth of the matter was, I had no fucking idea what the numbers in this model meant. My high school internship had consisted of running tickets on a trading floor and picking up breakfast for a bunch of Boiler Room brokers. While I did get a taste for the “excitement of the markets,” I received absolutely no background in accounting, could not read a financial statement, and was ill equipped to be updating and “analyzing” the data in this model.
I spent about 2 weeks faking my way through this task (while working hard to add value in other places where I was more confident), and then I realized how inefficient it was for me to be performing it with my limited knowledge. I remember coming clean with my then boss, and saying, “I don’t know what any of these numbers mean.” I expected him to be extremely disappointed, but instead he sat down with me, spent a few hours explaining the basics, and I became infinitely more dangerous and valuable to the Company. I internalized that lesson early, and now I apply it on a regular basis.
Admitting that you don’t know something is by far the fastest way to learn it. When I got to General Catalyst Partners, I literally did not know the difference between an application and an operating system. I had to learn a whole new language, and the way I did it was by writing down every single word and concept I didn’t know, most of which were extremely basic and revealed my complete lack of experience, and then I would corner people in their offices and ask them to explain the items on my list. For about three months I was the kid who didn’t know anything, and then for the next two years I was able to speak intelligently across just about every industry and market to which we paid attention. I remember watching the learning curve of one of the guys who joined our team after me, and it was so much slower than it should have been. I realized the reason was because he never asked for anyone’s help. Never admitted when he didn’t know something, but instead sort of nodded his way through conversations about subjects he hadn’t learned. Had he sucked it up and admitted what he didn’t know up front, his learning curve would have been much steeper.
Especially as a non-tech founder (and as a tech investor) I am constantly dealing in realms where my domain expertise is a fraction of the folks’ with whom I work. SEO is a great example of an area where I lack the necessary domain expertise to be dangerous. I could either keep on referencing SEO as a strategy we are going to implement at JumpPost, without understanding how it works, or admit that I get conceptually why Search Engine Optimization is important, but to be honest, I have an extremely cursory understanding of how it works. As soon as I admit that, while potentially unimpressive to the investor with whom I am speaking, or the potential hire with whom I am recruiting, I am now able to sit back and listen as they explain the three pieces of “low hanging fruit” we can achieve while knowing nothing about SEO, as well as the three more complex concepts around the relationship between SEO and Product architecture that I can now implement during the build of our product. The alternative, of course, being that I could gloss over this “blind spot,” notice in 6 months that we are stinking it up on organic search traffic, and then admit that we don’t really understand SEO, at which point I’ll have to explain to said investor why I just wasted $XX of his investment building a non-SEO friendly product that now needs to be rebuilt/augmented at an additional expense to the Company.
When you expose a “blind spot” in your skill set/knowledge base, those who are in a position to teach don’t feel any need to impress you with their knowledge. Rather they speak to you like they would a first grader, which is exactly where you need to start when you are learning a new language. Imagine trying to learn Italian by sitting in an a 3rd year Italian course. It would be nearly impossible and you would immediately raise your hand and say “I think I’m in the wrong class, where’s Italian 1?” If you’re a non-tech founder, for example, not raising your hand when designing a product with your lead developer and saying “Where’s PHP 101?” is simply stupid. Your job may not be to write the code, but if you don’t understand the basics behind every layer of your product, how can you recruit intelligently, weight the effort of your design against internal resources, and contribute ideas to the development process in a method that is easily digestible to the rest of the team. Even in areas where you don’t need to become an expert in your Company, taking the time to learn the basic principles behind everyone’s efforts is essential for effective communication both within your Company and with parties outside of it.
Beyond product, this practice applies to marketing, fundraising, business development, and every other effort that you are pushing forward in your Company. I remember negotiating a business development agreement with Citigroup in my last company. I identified a natural partner for our business, got in front of the right people to pitch it, and got their verbal commitment to move forward with a deal. We sort of lingered in that realm of “ok, so we want to work together” for a couple of weeks, and then I realized that I didn’t know how to turn that sentiment into action. I remember calling Brad Handler, who is the founder of Exclusive Resorts (and at the time a very important potential investor and business development prospect himself) and telling him “listen, I have this deal with Citigroup that is within reach, but I don’t know what to do now.” He taught me how to write and deliver an LOI (Letter of Intent), described the process of turning that LOI into an Agreement, and coached me on how to get the deal across the finish line. Now, in the course of acquiring this knowledge, I exposed our inexperience to one of the most valuable companies for the future of our business, but I only had to do that once, and every business development effort I encountered from that point forward I came at from a position of strength.
So the moral of the story is, don’t fake it. When you don’t know something, admit it confidently, learn it, and move forward.
Read Full Post | Make a Comment ( 2 so far )Gilt, Groupon, One Kings Lane, Oh My
When I shut down Untitled Partners, before returning half the money to our investors, I went through the
analysis of potential pivots we could make in light of the change in macro environment post meltdown. As prices in the art market plummeted and volume of transactions evaporated, what the art market really needed was an effective liquidation model to help suppliers free up cash by delivering deep discounts to buyers who would not buy on any other terms.
At this time (early 2009), Gilt.com was about two years into their business, showing meteoric growth, largely because luxury clothing retailers (suppliers) were experiencing the same inventory management and liquidity issues that were luxury suppliers in our market. For those not familiar with Gilt.com, they are basically an online T.J. Maxx (or “sample sale” if you want to get cute about it) for high end fashion apparel. Consumers are able to purchase luxury goods online at 50-70% discounts during short window sales. Retailers sacrifice margin (through discounting) in exchange for volume (through online marketing) while still protecting their brand and price point due to the one-time, short windowed nature of the sales. Gilt, although they couldn’t have known it from the start, timed the market perfectly.
In a boom market, the effort of convincing these luxury retailers to give up this kind of margin, and to potentially dilute their brand, would have been a heavy sales effort. But when people stopped buying $2000 handbags in Bloomingdales, manufacturers of said handbags were much more willing to take risks in order to keep their cash flows above water. Like any marketplace, with supply, demand will follow, and in a market where even the wealthiest consumers are cost conscious and scared to spend, the value proposition of absurd discounts resounded greatly. The result: Gilt did $25M in revenue in 2008, claims to be on track for $125M this year, and was just valued at $400M in a $40M venture round led by General Atlantic and Matrix Partners.
The logical startup move for our company, given the success of this liquidation model in an analogous market, would have been to pivot toward a Gilt model in the high end art market…but an illogical supply chain and status-conscious consumer in our market ruled this move out.
So we weren’t able to leverage the beauty of a liquidation model in a down market, but many others were. Multiple “me too” Gilt competitors experienced similar growth trajectories. Gilt’s market crowded with the presence of Rue La La, Ideeli, and others, but to date, there has been enough volume to go around. I hear a lot of new startup ideas, and I can’t tell you how many aspire to be “the Gilt for this” or “the Gilt for that.” Gilt, itself, even funded an extension of their model in the travel market (now called Jetsetter.com). Kleiner Perkins and First Round Capital just backed a similar model called One Kings Lane in the home furnishings market…and modifications of this liquidation model have even been implemented with great success in the local SMB market (i.e. Groupon, which just took $30M bucks from Accel).
So here’s my question…all of these models experienced their growth when they were able to provide fledgling businesses with an avenue to move inventory in illiquid markets. But what happens when the economy fully recovers, retailers are able to move their supply without deep discounting, and the already saturating market full of liquidation companies begin running into stiffer competition for inventory? The consumer side of their model shouldn’t change. Consumers will always want deals and be happy to by at discounts, but the breadth and quality of inventory that these companies can offer will decline. Perhaps stupidly (I have only the most superficial data to support this thesis), I am guessing that most of these models will shift onto a trajectory of more linear growth in the next 18-24 months…
This is not an argument that all the venture investment that has gone into the space was poorly spent. The growth that has already occurred will sustain these early winners for years to come, and the macroeconomic picture isn’t going to 180 tomorrow. My caution, is more for entrepreneurs and very early stage startups that are contemplating this type of model now and going forward. Seems like the perfect storm for liquidation models is close to or already behind us.
Read Full Post | Make a Comment ( 2 so far )The “Real” Behind Online Analytics (Entrepreneur’s Therapy Session)
Being an entrepreneur or an investor in consumer internet land, it is very easy to become jaded by 
big numbers. The metrics we use to track engagement with an online product or content are dehumanizing. People who interact with an online site are immediately transformed into statistics like “active users,” “clicks” and “page views,” and somehow they become less real. Mark Zuckerberg announces that Facebook has surpassed 350 Million “Users” and I am conditioned not to internalize just how many people are engaging in the action of Facebooking. I guess when I hear a number like that, I try to benchmark it against big numbers I am already familiar with, to get a sense of scale. I’ll say, “350 million people is 5% of the World’s population,” that is amazing market penetration. But still, that number may as well be written in cotton candy, hanging from a tree in The Cat and the Hat, puffing out plumes of saffron colored smoke into a balloon shaped like the letter R. That’s how far my perception of “350 million users” is from the reality of 350 million people performing one single and common action.
This only really dawned on me yesterday, when I stumbled into Madison Square Garden, sat down in the 8th row, and looked up into an endless sea of Knicks fans. I thought to myself, “there are a ton of fucking people, packed into this arena, all concentrating their attention on the same thing.” I leaned over to my friend, Phin (who has been kind enough to bring me to these games for the last 15 years), and for the first time I asked him “How many people does MSG hold?” Phin answered 19,763, and I was paralyzed. I thought to myself, “on any given day, I can write a blog post that reaches half of this arena, and it would be equivalent to calling a time out, handing out a piece of paper to the entire left side of the Garden, and having them read it in silence for 30 seconds, before the game resumes.”
Something is lost in the translation from a physical crowd to an online crowd. As I try to identify what it is about that arena that I find so impressive, despite the relative size of its audience compared to online crowds, I am drawn toward a few concepts: 1) concurrency, 2) time, and 3) friction.
1) Concurrency: I guess I have a newfound respect for a product that captures a high volume of concurrent users. The trend toward On Demand information consumption has removed a key constraint in attaining a volume of consumers. Live (in person) entertainment is one of the last frontiers where the concept of On Demand consumption is impossible. An event is only consumable in person during a specific window. Therefore, 19,763 represents a much larger market share (of attention) than does the same number in the online sphere. The potential volume of attention during the hours of 12:00-2:30PM is 1/12 the addressable attention of a piece of online/on demand content. Think about how asynchronous consumption has expanded the addressable audience of a television show. Between DVR, DVD, Hulu, and Cable On Demand, an episode of television has a near infinite number of opportunities to reach a consumer, as opposed to 10 years ago when an episode of Seinfeld could only reach the number of people sitting in their living room from the hours of 8:00-10:00 on Thursday nights. Madison Square Garden is still living within the constraints of concurrent consumption.
2) Time: this is a metric that actually translates well between the physical and online realms. A minute of someone’s time is a minute of someone’s time independent of whether it is spent consuming a product in the physical or online realms. The product of a live basketball game is significantly better than the product of a blog post, which is why the Knicks are able to capture a full 2.5 hours of 19,763 people’s time. I would have a very hard time convincing a reader to spend 2.5 hours reading this blog. Time on site is actually a great metric to bridge the disconnect between the online and physical worlds.
3) Friction: by far the most amazing thing about filling an arena with 19,763 people is the amount of friction the Knicks are able to overcome in order to reach their audience. Getting a consumer to move his physical location is probably 10,000 times harder than getting a consumer to move his online location (from one site to the next). Consumers drop off from any product when they encounter friction of experience. The amount of value on the other end of that friction determines how much friction a consumer is willing to endure before giving up and reallocating their attention/effort to an alternative. When you load a webpage and it doesn’t render properly, you will hit refresh. If you try again, and it fails, you might hit refresh. Try a third time and almost everyone will give up on that piece of content. If it was raining yesterday, I still would have gone to the game. If the subways weren’t running, I would have taken a cab. If there was a riot outside MSG, I probably would have passed. The fact that the Knicks are able to mobilize this volume of people to stand, clothe, travel, and congregate is a testament to the quality of their product relative to alternatives (Sunday afternoon football on TV, shopping at the Apple Store, etc..)
All that being said, Facebook destroys the Knicks with the time lever alone. It is a far superior product. The aggregate volume of human time that their 350 million people devote to a single experience is breathtaking (with or without the crutches of a low-friction environment and asynchronous product consumption). To all the web entrepreneurs out there, living in the analytics behind your product (especially if you haven’t broken out from 50,000 users to 350 Million): start visualizing your audience in the physical world. Size up a crowd in the most densely populated area in which you find yourself, and then remember that it is likely a fraction of the number of people you reach on a daily basis. It will make you feel good.
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