Socializing

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DILBERT DOES IT AGAIN I am lucky to work with a lot of startups across many different industries that are attempting to solve a variety of pain points, both big and small. Through these interactions and having seen a few life cycles, I have changed my outlook over the 5 or so years I’ve been in the startup community as to what businesses I find interesting. My money is on startups that are trying to do one of two things: (1) changing the paradigm of an existing business (usually a big business with slow moving participants) (e.g. Infochimps - creating an online marketplace for data that will appeal to businesses, academics and individuals) or (2) filling a void (which may or may not be a short term play) (e.g. Nutshell Mail - email-based web account overload management). I like these models because with (1)’s you can attract venture capital and really hit it big (think Amazon), and with (2)’s you can make a lot of money in a short period of time, either by charging for your service or getting acquired (think xobni). Obviously these have their risks, with (1)’s the risk is failure (think Webvan), and with (2)’s time is your enemy - if you are making money the space will get crowded and someone may solve the problem better than you or you will eventually be outdated (think redbox). The worst thing you can do is be a me-too business. That is what the Dilbert cartoon is referring to, and that is where veoh failed. At least they went big. Don’t be just another me-too iPhone, twitter or web app, unless you are really filling a void and someone will pay big for you to solve their pain (think salesforce).

DILBERT DOES IT AGAIN

I am lucky to work with a lot of startups across many different industries that are attempting to solve a variety of pain points, both big and small. Through these interactions and having seen a few life cycles, I have changed my outlook over the 5 or so years I’ve been in the startup community as to what businesses I find interesting. My money is on startups that are trying to do one of two things: (1) changing the paradigm of an existing business (usually a big business with slow moving participants) (e.g. Infochimps - creating an online marketplace for data that will appeal to businesses, academics and individuals) or (2) filling a void (which may or may not be a short term play) (e.g. Nutshell Mail - email-based web account overload management). I like these models because with (1)’s you can attract venture capital and really hit it big (think Amazon), and with (2)’s you can make a lot of money in a short period of time, either by charging for your service or getting acquired (think xobni). Obviously these have their risks, with (1)’s the risk is failure (think Webvan), and with (2)’s time is your enemy - if you are making money the space will get crowded and someone may solve the problem better than you or you will eventually be outdated (think redbox). The worst thing you can do is be a me-too business. That is what the Dilbert cartoon is referring to, and that is where veoh failed. At least they went big. Don’t be just another me-too iPhone, twitter or web app, unless you are really filling a void and someone will pay big for you to solve their pain (think salesforce).

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“If you are not embarrassed by the first version of your product, you’ve launched too late.”
— This quote by Reid Hoffman, founder of Linkedin, has an equal number of supporters as it does dissidents. There are many examples of startups who took this advice only to be ushered more quickly to the deadpool. To me, this is OK. I am a believer in Mike Maples Jr.’s philosophy to fail fast and fail cheap. That is our only downside risk with 2taps, a simple bookmark app for the mobile web. That being said, in the face of failure, it is important to recover intelligently. The user knows best and will let you know what features should be on the roadmap and in what order. If you can take that information and execute on it, your users will reward you. (They will also forgive you if you are open and maintain a dialogue. Participation chains keep the conversation going.) In short, have the cojones to release fast and iterate often.
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I saw this cartoon thanks to a tweet from the folks at  http://www.economistsdoitwithmodels.com/. This pretty much sums up what I am talking about here and here. Don’t be the “egg carton”, be the creative environment that values the individual. Just because you have a game room doesn’t mean you have a great company culture. Follow these tips for startups.

I saw this cartoon thanks to a tweet from the folks at  http://www.economistsdoitwithmodels.com/. This pretty much sums up what I am talking about here and here. Don’t be the “egg carton”, be the creative environment that values the individual. Just because you have a game room doesn’t mean you have a great company culture. Follow these tips for startups.

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“You don’t have to read a book to have an opinion.”
—

Tom Townsend from the 80’s teen angst film set in Manhattan’s UES (an especially interesting film when juxtaposed against John Hughes’ typical setting in suburban Chicago), Metropolitan, prefers good literary criticism because you get both the novelists’ ideas as well as the critics’ thinking. In this post I am going to provide my thoughts on a book I have only read the review for: Freedom, Inc.

The reviewer boils it down to the following theme: corporations’ rigid, top-down management style too often makes workers miserable, stifles innovation and, not least, leads to economic distress for employees and stockholders alike.

Reading this sentence made me wonder which of those factors are causes and which are effects. Productivity is a function of motivation which is a function of incentives. When there are no incentives, or worse, negative incentives, people will not be motivated to work hard. Productivity will thus decrease and profitability will soon follow, eventually making stockholders “distressed”.

On a related point, I recently had an interesting conversation with Josh J-D about how to motivate and cultivate stars, a topic I’ve previously covered here. One take-away was that if you treat your employees like people, and not just resources, that goes a long way towards building loyalty. Bringing employees up in an organization reduces turnover and provides incentives—promotions—which leads to increased productivity and, in some cases, innovation. [Remember: not everyone can be a star, cash cows are OK too.]

According to the reviewer the book talks about two kinds of companies: ’Comment’ in French, or ‘how’ companies, and ‘pourquoi,’ or ‘why’ companies. What about ‘if’ companies? Companies that give their people a long leash and the opportunity to innovate (not only to sink or swim) will build a “can-do” culture. Those companies will see their people stick around when the economy improves. The ones that don’t will see an exodus. That time is coming soon.

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Be thoughtful about your pricing strategy.

I remember a year or so ago asking a founder of an Austin startup what he was going to charge for his SaaS product (which is launching at DEMO) and he said $X.00/month. When I asked him how he came to that number, he replied “that’s what we think the market will pay”. A couple thoughts: (1) don’t “think”…survey, (2) don’t leave money on the table unless you are competing on price, and (3) if you are solving a pain point, price your product or service accordingly.

I would only go to market with one of 3 prices: free, just below market or at a premium to the market. This is an over-simplification and there are many difficulties to making the first two work as price wars are incredibly costly, but if you are anywhere in between the bottom and top, you need a huge marketing budget to educate the consumer why you are worth the price you are charging.

Rupert Murdoch has been struggling with pricing his prized acquisition, the WSJ, which I subscribe to (in print only) and read daily. They clearly have a problem segmenting with at least 5 different rates: online only ($2/week), print only ($2.30/week), print and online ($3.00), mobile only ($2/week) and mobile premium ($1/week if you subscribe to print or online). They need to simplify this as it causes a lot of customer confusion and is hard to reconcile. My sub recently came up for renewal and they tried to triple the price on me. When I didn’t renew, they sent me 2 letters in the mail, each offering a slightly discounted rate to their original proposal. They ultimately retained me as a customer since I googled a rate in line with what I was previously paying but why play the game? I am less happy with the service and they left money on the table. It pays to have a thoughtful (and consistent) pricing strategy.

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Brett Hurt Keynote Speech at Startup Meetup at UT Brett Hurt, CEO of BazaarVoice (my girlfriend’s employer), gave an incredibly motivating speech at the first annual McCombs Startup Meetup. Brett got some laughs by saying that his precocious programming ability was both a blessing and a curse. It was a blessing because he found his passion early but a curse because he was always getting beat up. Bazaarvoice connects customers to one another in ways that drive measurable results – what they call “social commerce”. Brett says their biggest sales hurdle is retailers’ fear of negative reviews. I imagine the response is that if they use Bazaarvoice they can figure out which products need to be fixed or pulled. User generated content is king and the “voice of the market” should be heard, aggregated and analyzed. Bazaarvoice raised $25 million in venture capital including from Austin Ventures and only needed $8.5 million of it to get to profitability. They aspire to go public in the next 18 months and are well on their way to 400 employees. This is an Austin success story and I am proud that Elizabeth is a part of it. Brett inspired the crowd to want to be a part of it too because of their unwavering focus on culture. It’s a rocket ship and every team member is on board. They have a winner culture and Brett allowed that “there is nothing more de-motivating than having B players on an A team.” I couldn’t agree more.

Brett Hurt Keynote Speech at Startup Meetup at UT

Brett Hurt, CEO of BazaarVoice (my girlfriend’s employer), gave an incredibly motivating speech at the first annual McCombs Startup Meetup. Brett got some laughs by saying that his precocious programming ability was both a blessing and a curse. It was a blessing because he found his passion early but a curse because he was always getting beat up.

Bazaarvoice connects customers to one another in ways that drive measurable results – what they call “social commerce”. Brett says their biggest sales hurdle is retailers’ fear of negative reviews. I imagine the response is that if they use Bazaarvoice they can figure out which products need to be fixed or pulled. User generated content is king and the “voice of the market” should be heard, aggregated and analyzed.

Bazaarvoice raised $25 million in venture capital including from Austin Ventures and only needed $8.5 million of it to get to profitability. They aspire to go public in the next 18 months and are well on their way to 400 employees. This is an Austin success story and I am proud that Elizabeth is a part of it. Brett inspired the crowd to want to be a part of it too because of their unwavering focus on culture. It’s a rocket ship and every team member is on board. They have a winner culture and Brett allowed that “there is nothing more de-motivating than having B players on an A team.” I couldn’t agree more.

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Capital Factory Demo Day Today I attended the demo of Capital Factory’s first crop of incubated startups: Hourville, PetsMD, Famigo, Cubit Planning, and Sparefoot. I was surprised by the quality of attendees as all of the top Austin VCs were in attendance (pictured are Tom Ball - AV, Bill Wood - Silverton and Rudy Garza - G51) and some from the Valley as well, including Battery Ventures. Thinktiv, a new venture accelerator, presented Mike Maples, who blew the roof off. Mike was an early investor in some companies you might have heard of: Twitter, BazaarVoice, SolarWinds and Digg to name a few. Mike was nearly brought to tears when talking about the founders he has worked with over the years that “didn’t forget him” when they made it big. It was a very genuine moment and one I will remember. Mike said tech is a winner-take-all-business and you want to be the winner. Second place is first loser. Invest in “Thunder Lizards” which have a few common traits: 1) they have a complete team with a visionary leader, 2) they try to be awesome with no Plan B, and 3) they devour competitors and unseat incumbents. Mike said in tech, it isn’t an 80/20 rule but a 90/10 rule or greater. Since the invention of the IBM PC, 5% of tech IPOs have created 92% of the wealth. My favorite slide was “Maples’ Law” which asserts that you will spend whatever you raise in 18 months regardless of the amount. I met the founder of a recently funded AV company who said they were going to make it last at least 20 months, which I found funny, because I didn’t sense any irony. 18 against 20 isn’t all that different. Mike knows what he’s talking about. Thoughts about the presentations: PetsMD: WebMD for pets. I like the business as the emotional connection to pets makes people spend lots of money on them. I didn’t love the pitch - they will need an outside CEO, and soon. Famigo: My buddies run this company and I think they get the market and are going after it with reckless abandon (which is a good thing). One of the VC panelists said they need to figure out if they are going after consumers or developers, and I agree. They will figure it out and they will succeed. Cubit Planning: If the presenters can’t explain what they do in plain English, I sure can’t. Their website says they automate data gathering for NEPA documents. I liked how Rudy called b.s. on their sizing of the market. Hourville:  Similar to elance, which is a portfolio company of Focus Ventures. I like the idea of a freelancer business platform. This is truly an “execution play” in every sense. They should tie in to linkedin API or ebay so they don’t have to start from a scratch from a trusted source standpoint. Sparefoot: Audience award winner. These guys nailed it. They are an inventory aggregator (think hotels.com for storage) and have a super simple site and model. I like it a lot and apparently so did Bill Wood. They announced a Series A from Silverton which is particularly impressive because its their first consumer internet portfolio company. Thoughts about the VC panel: BIll Wood: Focus on 2 digit (#millions) exit and be super capital efficient. Bill says he thinks about who the acquiror is before he invests. Tom Ball: Be capital efficient put know when to step on the gas. Culture is a sustainable competitive advantage. He was talking about his experience with BazaarVoice, which has taken great strides to maintain its identity even as it approaches 500 employees over the next year. Rudy Garza: Quoted DKR (not surprising seeing as he’s President of Texas Exes) and says luck is what happens when preparation meets opportunity. There was a lot of discussion among the panel about this, but they generally agreed that somewhere between 50-80% is in the entrepreneur’s control. Mike Maples: Austin has a great ability to ego ratio. Yes! All in all, great day for the Austin startup community. Thanks Sam Decker, Josh Baer, Bryan Menell and the rest of the Capital Factory team.

Capital Factory Demo Day

Today I attended the demo of Capital Factory’s first crop of incubated startups: Hourville, PetsMD, Famigo, Cubit Planning, and Sparefoot. I was surprised by the quality of attendees as all of the top Austin VCs were in attendance (pictured are Tom Ball - AV, Bill Wood - Silverton and Rudy Garza - G51) and some from the Valley as well, including Battery Ventures.

Thinktiv, a new venture accelerator, presented Mike Maples, who blew the roof off. Mike was an early investor in some companies you might have heard of: Twitter, BazaarVoice, SolarWinds and Digg to name a few. Mike was nearly brought to tears when talking about the founders he has worked with over the years that “didn’t forget him” when they made it big. It was a very genuine moment and one I will remember.

Mike said tech is a winner-take-all-business and you want to be the winner. Second place is first loser. Invest in “Thunder Lizards” which have a few common traits: 1) they have a complete team with a visionary leader, 2) they try to be awesome with no Plan B, and 3) they devour competitors and unseat incumbents. Mike said in tech, it isn’t an 80/20 rule but a 90/10 rule or greater. Since the invention of the IBM PC, 5% of tech IPOs have created 92% of the wealth.

My favorite slide was “Maples’ Law” which asserts that you will spend whatever you raise in 18 months regardless of the amount. I met the founder of a recently funded AV company who said they were going to make it last at least 20 months, which I found funny, because I didn’t sense any irony. 18 against 20 isn’t all that different. Mike knows what he’s talking about.

Thoughts about the presentations:

PetsMD: WebMD for pets. I like the business as the emotional connection to pets makes people spend lots of money on them. I didn’t love the pitch - they will need an outside CEO, and soon.

Famigo: My buddies run this company and I think they get the market and are going after it with reckless abandon (which is a good thing). One of the VC panelists said they need to figure out if they are going after consumers or developers, and I agree. They will figure it out and they will succeed.

Cubit Planning: If the presenters can’t explain what they do in plain English, I sure can’t. Their website says they automate data gathering for NEPA documents. I liked how Rudy called b.s. on their sizing of the market.

Hourville:  Similar to elance, which is a portfolio company of Focus Ventures. I like the idea of a freelancer business platform. This is truly an “execution play” in every sense. They should tie in to linkedin API or ebay so they don’t have to start from a scratch from a trusted source standpoint.

Sparefoot: Audience award winner. These guys nailed it. They are an inventory aggregator (think hotels.com for storage) and have a super simple site and model. I like it a lot and apparently so did Bill Wood. They announced a Series A from Silverton which is particularly impressive because its their first consumer internet portfolio company.

Thoughts about the VC panel:

BIll Wood: Focus on 2 digit (#millions) exit and be super capital efficient. Bill says he thinks about who the acquiror is before he invests.

Tom Ball: Be capital efficient put know when to step on the gas. Culture is a sustainable competitive advantage. He was talking about his experience with BazaarVoice, which has taken great strides to maintain its identity even as it approaches 500 employees over the next year.

Rudy Garza: Quoted DKR (not surprising seeing as he’s President of Texas Exes) and says luck is what happens when preparation meets opportunity. There was a lot of discussion among the panel about this, but they generally agreed that somewhere between 50-80% is in the entrepreneur’s control.

Mike Maples: Austin has a great ability to ego ratio. Yes!

All in all, great day for the Austin startup community. Thanks Sam Decker, Josh Baer, Bryan Menell and the rest of the Capital Factory team.

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Keep it simple stupid.

Readers of this blog know I preach simplicity. Some of the great companies I work with (popscreen, infochimps, prefinery and nutshellmail to name a few) have developed sophisticated solutions with intuitive and attractive UIs. Their special sauce is not necessarily the underlying technology (though some have filed provisionals and/or patent applications) but rather their “human” approach to resolving real pain points.

With the amazing speed at which the world is a changin’, there is a great need to streamline information.

Very soon I’m going to put my money where my mouth is. Stay tuned and follow us on twitter @2taps, a little web app I’m developing for fun with Jordan Rex.

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TheFunded “Standard” Term Sheet

There has been a lot of blog chatter about TheFunded’s form term sheet, including here, here and here. The sentiment from VCs has been generally positive with some saying that a return to balance for founders has been a long time coming. The WSJ queried whether VCs would put their money where their mouths are. I would be interested in your opinion. I think the term sheet makes too many assumptions and is unlikely to be used as a form.

I wonder what the standard startup looks like that would receive this term sheet as its currently drafted? In my admittedly limited experience (having worked on 20 or so venture financings), I just can’t imagine a VC saying, “we want to invest in this standard startup, let’s use TheFunded form term sheet”. That’s just not how it works. A term sheet consists of many levers, or terms, used to satisfy an investor’s risk/reward investing requirements. For instance, if the company is asking for a valuation that an investor perceives as high, maybe they give and make up the risk with a greater liquidation preference. The point being, these deals aren’t standard.

Some comments on the term sheet: Why did they include registration rights? It is unlikely those will come into play, and for a “simple” seed term sheet, seem superfluous. The net-net is most founders would be happy to receive a term sheet with a 1x non-participating preference and full acceleration upon a change of control while maintaining board control, too bad few are going to receive one.

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Y Combinator’s RFP for Startups Cleverly Called ‘RFS’ Drop what you are doing and start thinking about how to fix the broken journalism model. That’s essentially what Y Combinator is asking startups to do. I hope they fund a micropayment startup or something of that nature and not a crowdsourced journalism concept. The most disturbing part of the RFP is the following request: Groups applying to work on this idea should include at least one writer who can write well and rapidly about any topic. Why not leave the writing aspect to professional journalists? The problem is certainly not the writing, but the monetization aspect. I hope they are not searching for a solution to a problem that doesn’t exist.

Y Combinator’s RFP for Startups Cleverly Called ‘RFS’

Drop what you are doing and start thinking about how to fix the broken journalism model. That’s essentially what Y Combinator is asking startups to do. I hope they fund a micropayment startup or something of that nature and not a crowdsourced journalism concept. The most disturbing part of the RFP is the following request: Groups applying to work on this idea should include at least one writer who can write well and rapidly about any topic. Why not leave the writing aspect to professional journalists? The problem is certainly not the writing, but the monetization aspect. I hope they are not searching for a solution to a problem that doesn’t exist.