Referrals Get My Attention

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Lately I’ve been going through my info@ email address which I put on my site. It’s a throwback to when it was proper to put a contact email address on your website to be a good netizen. However, whenever I check it, it’s always filled with cold calls: random emails with business plans (often from Nigeria!) and then there are some that are totally not within my stated interests on my website. Occasionally, I do get the important email from someone who is trying to get hold of me, like an old colleague or some organization that wants to get hold of me. But most of it is unfortunately tends to be cold call emails asking for my investment.
This morning I saw @davidhornik tweeted:
Spending the morning talking with students about the power of networking. Cold calls are for suckers.
That last line says it all: “Cold calls are for suckers.”
It is so true. Those emails I get in my info@ inbox are just that: cold calls which I will never engage with. I know that sounds cold and uncaring but it’s true. Why is that? It’s because I use referrals as an effective filter to be able to tell whether or not somebody has some sort of legitimacy or not. Otherwise, I would get deluged with a ton of meetings that would inevitably be a waste of time for both me and the entrepreneur.
Thus, 99% of my deal flow comes from trusted sources: friends, fellow investors, other entrepreneurs, etc. These are sources with whom I’ve worked and know that they value the judgement call they place on sending a referral over to me. That’s because giving great referrals is a relationship building tactic, and giving bad ones is definitely not.
Then @bfeld published an article on the Business Insider called If A VC Turns You Down, Don’t Ask Them To Refer You To Someone Else which also talks about how not to ask for a referral. His last paragraph hits home:
Venture capitalists take referrals seriously. If someone I trust e-mails me a referral, the first thing I do is ask the VC for more information about the person being referred and whether the VC is interested in investing in the person. If the VC doesn’t know the person, I immediately question the validity of the introduction. If this happens regularly, I heavily discount the value of any introduction from the VC. This is a self-correcting phenomenon. Good VCs are careful with introductions because they want to make sure both parties view the introduction as valuable. Hopefully entrepreneurs understand this dynamic.

Smart relationships know and live Brad’s comment. They know that there is value in giving great referrals and know when not to give a referral.
To get my attention AND if you don’t know me, find someone who does know me; entrepreneur circles in the Bay area are pretty small and I think it would not be hard to network to someone who is connected to me. If you pitch them well, you’ll get a referral to me and, thus, my attention. But don’t send me random emails to my info@ inbox.

Can’t Escape Sex Appeal

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I’ve come to realize that startup investing is very much like my experience with online dating sites. Despite dating sites attempting to match people via their personalities, attributes, and interests, it still really boiled down to one thing: how they looked in their profile pictures. I know that sounds incredibly lame, but after trying dating sites and also talking to others who have used dating sites more than me, the main reason why someone responds is if you like how they look in their profile picture and whether or not you’re attracted to the way they look.
I have found that a major reason why I invest in a startup is if I feel some kind of personal attraction to it. Some of those personal reasons are:
1. I’m personally interested in the area that the startup is working in.
2. I have some emotional connection to their project, perhaps due to some similar project I had worked on in the past.
3. It tickles some intellectual part of my psyche, and my desire to learn more about their space.
4. There is some inherent coolness to their project, and that coolness may rub off on me from a brand perspective of being associated with it.
…and so on.
However, none of these reasons have any kind of relation to whether the startup makes any kind of business sense. A startup could very well have a strong business case, even up to the point of having lots of traction and revenue, but yet be unsexy to me. I think there are many untapped business areas that aren’t all that sexy and therefore ripe picking grounds for new entrants to disrupt old businesses in those areas and do very well. In fact, I’ve met some, BUT…have found that I just could not pull the trigger.
I’ve come to realize that it just boils down to personal attraction. On a dating site, I found that if a profile picture wasn’t attractive to me no matter what the site said how much her attributes were compatible with mine. The same goes with startups; if for some reason the project isn’t all that sexy to me, I just can’t seem to bring myself to do it.
As an angel with limited resources, I need to deploy them smartly and maximize their value to me, which also includes a sexiness component. That’s not to say that there aren’t angels out there who would take a chance on something unsexy to them; I think that for them, it’s more about being part of a great business and building it then the inherent product area they are working in. Me, being a product and UX guy, I love being associated with products I love, which introduces an inherent sexy bias when deciding on whether to invest or not.
I think that if I were running a fund, my decision process would be broaden to less sexy projects. Still, we have limited time and resources and need to make sure value can be added to the startups even in a larger portfolio and need to pick wisely for the reasons we have. I think that when you’re investing someone else’s money, you’ll have to think twice about passing on something that can produce a gain for your investors.
However, all this sucks for entrepreneurs who are working in business areas that aren’t part of what’s hot right now. Real time? Ride the excitement of Twitter and Ashton Kutcher! Social? Maybe that’s so yesteday. Social gaming, now that’s sexy! Virtual goods yeah! Processing waste? Yech, even if it is profitable. I think you get the idea.
How does an entrepreneur combat unsexy? I think it’s like improving your chances on a dating site:
1. Some people just aren’t attracted to you, so you’ll just have to get over it. There will be some investors who just don’t think your project is interesting enough to them and you won’t be able to convince them otherwise.
2. Improving your profile picture helps a lot. So how do you improve the way your startup looks? You may introduce some interesting component to your plan that makes your project more sexy. You might actually increase the sexiness of your visual/interaction design. That in itself may be enough to sway an investor to like you versus not.
But beware of pursuing sexy for sexy’s sake. Even though we may look for dates of attractive people and they may be eye candy to us, in the end, it’s what’s underneath that drives whether we will go out with them again. So even as you dress up your project, it may take you down a path that is detrimental to your future. It may even waste your time as you should be working on your core product.
3. You could rewrite your profile description to be more fun and engaging, which in theory is a reflection of how cool and fun you are. This is like creating a better pitch deck, or sexy prototype, or some kind of cool new UX for your product.
4. You could learn how to chat better and be more interesting and fun, which is probably a skill that is more for men than women and sort of like learning how to pick up girls. This is worthwhile both before the actual face to face and during the date. If you write an engaging first message to a prospective date, that can solicit a response better than a boring, lame one. Certainly chatting up someone better during a date will have a great effect on whether you get another date. This is like when you may simply just pitch better and that can be sexy in itself when the sales job is so good you can’t resist falling under the spell of a great pitch guy.
5. Go and find someone who likes you the way you are, which means that being on a free for all dating site like Match.com is not right, but maybe eHarmony is more for you. Tackling a non-sexy business in the world of sexy can be tough, even if the potential benefits are clear to you. As in dating, you should probably go and find someone who loves you the way you are now, versus trying to put on a different dress or suit, or changing your make up or hairdo.
Thus getting introduced to the right investor, who actually does know something about your industry, can get you the resources that you need.
Still having said all that, it may not be enough to convince me to invest in you. I just may not find you sexy enough even if you are wearing a thong bikini…

Why Won’t My B2B Client Sign Up for my Awesome Service Today?

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Lately, I’ve encountered more B2B startups. I think it’s a sign of the times, where B2B startups can provide some early revenue much sooner than for consumer startups who have to chase dollars out of elusive internet surfers.
However, I’ve noticed that there is no lack of frustration in the length of time it takes to close a B2B client. This is definitely due to the fact that many entrepreneurs are young and have not worked in big companies before, or certainly not in their current clients’ organizations.
Having worked at IBM, Apple, and Yahoo!, I can tell you that big orgs have their peculiar quirks with respect to doing deals with service providers. Let me take you now into the mind of a big company person whom you’re courting to buy your service…
Meet Mr. Big Company. He might be in any number of occupations, but let’s talk about two types of Mr. Big Company: the IT guy and everyone else. Why do I separate IT guys? They have special anxieties about signing up with your service over and above anyone else in the org. More on that later.
Let’s say Mr. BC (for Big Company) is not the IT guy and discovers your service. He loves what you’re doing; he sees instant value in making his job easier, better, faster, stronger, whatever. But typically, he has no engineering at his beck and call. So he is forced to either sit frustrated or go outside the company to find help. But if he decides to try to implement you, here’s what he’s working with…
Based on where he sits in the management hierarchy, he has the ability to pre-approve up to a certain amount of expenses before having to get approval up the chain. Ideally, whatever your service costs is under that amount, or else he needs to go to his manager, and potentially his manager has to go to his manager, and so on and so on.
Mr. BC’s department has a budget, and the budget is broken out into several categories of expenditures. Woe to he, if he did not ask for the money at the beginning of the quarter, or even potentially at the beginning of the year! If it can be fit into some category of his budget AND he has funds in that budgeting item, then he can potentially spend money for you.
Funny thing is, if he has a budget for something and he didn’t spend it the last year, he may lose the ability to gain budget for it in the next accounting period AND even have a reduced ability to argue for it! So if you can find someone who has to spend his money or lose it, you’re in luck!
If it’s not in his budget, then he has to go through a potentially vigorous process of asking for more money. This can be an extremely time consuming process as he convinces his manager, and then they go and try to convince their manager, and then even potentially the finance person who oversees their department, or even the CFO if it’s a small org.
The more levels of approval it takes, the higher the chance it will get killed. The more skilled the person asking for the money is, the higher the chance that it will succeed. All of this presupposes there is a bucket of money to pull from when they do get approval. Also, the more levels of approval it requires, the more time it takes. This is why it can take the better part of a year to get approval to do seemingly something small.
If Mr. BC is part of a matrix org which depends on other departments to cooperate, then he must also sell all the other department heads on implementing the service. If some marketing guy wants to implement some traffic driver onto the web pages of their website, then he must convince the web team to take some of their valuable time to implement the service. If the visual design of the service needs to be customized, then the design department and brand management may need to review it to make sure it is done to standards.
This will inevitably cause delays both in approval and in implementation.
Mr. BC is excited about your service, but he is also paranoid about you making him look bad. Thus, he will do some due diligence to ensure that you are reputable and that you won’t screw him later on, and that you’ll be worth all the time he put into fighting for budget and other parties’ agreement to implement the service. At any moment, he feels like he doesn’t trust you to do well, he’ll bolt and not bother with you.
However, it can and will take time to build his trust. He may drag his feet to see how your service performs with other clients. It’s no loss to him; he’s not any worse for NOT implementing your service.
OK let’s say he’s a special class of Mr. BC called the IT guy. He’s both the go-to guy and the guy people yell at when things go wrong. He’s never fast enough to fix anything, and he gets blamed for everything that goes wrong. So after a couple months of this he says f**k this and he becomes ultraconservative simply for job preservation.
Along comes you and your awesome service. He may be the one who wants to implement your service, or worse he may be the guy whom SOMEONE ELSE wants to implement your awesome service. If he wants your service, he’s at least like the other Mr. BCs and has to go through items 1 thru 4 above.
But if he’s being asked by someone else to implement your service, then that raises the level of conservatism. Now if you fail, he gets to fail AND gets yelled at by a whole bunch of people.
So he takes his time in evaluating you and your awesome service, tapping into every little bit of your business and product, trying to find any small reason to say you guys suck and that his company shouldn’t implement you. This means more delays, which just overall increases your frustration as your bank account runs lower, and increases the chance that it will just die through the approval process in the company.
If it dies, he’s still OK; problem averted – he’s covered his ass and doesn’t have to take a chance on risking his career and his blood pressure on supporting and implementing you.
But IT guy isn’t done with you after launching your awesome service; he’s gotta watch you forever or at least until your contract ends. He gets to be stressed about you for the life of your relationship with the company. So he’s not only doing his due diligence on you to ensure good service at launch, he’s worried about you providing good service for years to come. Otherwise, it will fall to him to fix whatever mess you got him into by screwing up.
Hopefully by now you can see why the Mr. BC you’re dealing with seems to be dragging his feet. It sucks and it is very, very rare that you encounter an org that moves differently.
How do you combat this?
First you must sell well. The basic benefits must be bought into and hopefully you’re good at this or else your company is doomed anyways.
Second, you gotta go in with the attitude that you will do everything you can do not make your benefactor look bad. How this happens is by:
1. Creating a service that is bulletproof. It doesn’t crash, and will work 24/7 for years, even after a nuclear bomb hits your building. Remember that if you become a key part of someone else’s business, every second that you are down could mean that you are losing another company thousands, if not millions of dollars in revenue. (If you don’t believe this, consider that whenever the Yahoo ad server went down even for a couple of hours, it meant huge swaths of revenue not recognized because ads were not delivered. It could affect quarterly earnings outlooks and incur the wrath of your best customers who may not come back!)
2. Delivering on what you promise and what the service promises. There are two things here. You, as the company rep, are make some assurances that your product is going to deliver to Mr. BC’s expectations. He’s going to buy into this based on his relationship and trust to YOU. Then it’s up to the service itself to deliver to whatever expectations you set for it.
3. Providing great customer service, 24/7 if need be. If a problem happens at 3am, someone needs to get up and do whatever it takes to get the service up and running. You must answer emails and phone calls ASAP. Responsiveness on all fronts is key.
4. Building a reputation of trust, which can be through happy existing customers but also through your own personal handling of the relationship.
Third, you can also do other things like providing as much ammunition for Mr. BC to use within his org to get it approved as fast as possible. Help him sell it within his org! Case studies, stats, referrals, whatever info he needs – you should gather it and send it to him ASAP.
Doing all of the above and having a sensitivity towards the issues that Mr. BC faces within his org will result in better understanding of the issues and hopefully a speeding up of getting your B2B client to sign up for your awesome service as soon as possible.

Tips on Demo Day and Afterwards for YCombinator Startups

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These last few weeks I’ve been part of the Ycombinator Mentors program where we get a few of the YC startups to hang with and help them, as Paul Graham puts it, “convince us to invest in them.” It’s been a great experience going through product and business issues, and helping them shape something meaningful and hopefully world dominating with their initial ideas.
I just completed this email to send out to my mentees (is that a word?) as I realized that, after attending several YC Demo Days, that I have seen a remarkable number of the teams not take advantage of the opportunity to really engage with the audience of investors, reporters, and corporations. As both a reminder and a call to action (mostly to make introverted engineers break out of their shell!), I listed some items that might help. I think it also helps to know how we feel on our end, as we sit through 20+ fast paced presentations and then enter a whirlwind of conversations after.
Here’s the email:
I thought I would send some thoughts on handling Demo Day and its aftermath (if anything to be a good YC mentor..!) as I’ve seen some YC teams really handle it poorly. This is not about the presentation as I’m sure that PG and others are hammering you guys on getting that good. Rather, this about what happens during Demo Day after the presentations and how to manage the crowd, and even afterwards.
BEFOREHAND:
1. If you don’t have business cards, get some made now! Go to FedEx/Kinko’s and give them an illustrator file. They can make business cards overnight.
2. PG undoubtedly has an attendee list; can you get that from him? Review it beforehand and try to prioritize those people to meet. Keep it in your pocket and check off people that you meet and make quick notes on interest, experience, follow ups, next steps, etc.
If you can, prepare beforehand a little about what you may talk to certain people about. This can be as simple as knowing a few of the recent investments an investor has made, or how you can help Google build one of their products better. Or perhaps you’d like to get in touch with someone’s portfolio company. This can be as simple as a conversation starter to break the ice, or as big as trying to do a deal with Google to integrate your technology.
3. Think about your own status. Are you raising money now? Soon? Or not? Have you raised money already? Looking for business partnerships? Want to sell out or get acquired right now?
Make sure you decide as much of this beforehand as it will undoubtedly affect your conversations. You will inevitably be asked, “are you raising money now?” and you should have some sense for yes or no, and if yes, for how much. You want to be confident in your progress and in your answers, not wishy washy. The worst thing you could say is, “well, I don’t know…maybe…we’re not really sure yet…hem haw…” But also, don’t lie or make things up. This is more about anticipating what questions will be asked of you post-presentations and just taking a bit of time to prepare your response.
4. Try to get a good night’s sleep the night before. Try to arrive at the top of your game, not sleep deprived and/or over-caffeinated.
AT DEMO DAY, AFTER THE PRESENTATIONS:
1. The crowd as you can imagine is filled with reporters, corporate representatives (typically from venture arms), angel investors, and venture capitalists. It is really like speed dating; you should get out there and meet as many people as possible, getting their contact info and gauging their interest in you.
It will be, and expect it to be, overwhelming. It is definitely overwhelming to us. We’ll have been overloaded by the quick machine gun set of presentations and trying to absorb it all, and then we’re thrown into fast smoozing with those startups that somehow have grabbed our attention. We’ll be scribbling fast notes on our Demo Day sheets and then we’re going to try to go back and figure out who we want to meet first before we have to leave.
2. Don’t be a wallflower! I’ve seen some teams hang on the sidelines and not mingle. This is bad! This is a chance for you to meet and try to woo some investors to be interested in you! If you don’t meet them now, you may never get a chance to interact face to face with them again. If you have more than one founder, split up and meet more people! There are 20+ teams this time; everyone is going to be competing for attention of the audience. Get in there and meet!
3. As you get business cards, make notes on the back of their cards as well. Stick them in a safe place and don’t lose them! I’ve met many people who simply lost my business card and somehow found me later. Bad!
4. Regarding reporters: you probably have never gone through media training but it’s not hard. You should just prepare some great sound bites for reporters to hang onto and include in their writeups. These are simple sentences that sound great, and of course promote your product/company/service.
5. Be lively, upbeat, friendly, excited about what you’re working on, and excited about future prospects. I think that engineering types tend to be very introverted. Unfortunately, this doesn’t serve you well here! So go out and be an extrovert. Force yourself to go out and meet everyone and to be Mr. Fun and Cool with the best product in the world to talk about. People react to and engage with people they like; boring, uninteresting people get left behind. It sucks but it’s true.
So psyche yourself up for some power smoozing and have a positive attitude about it. This won’t be the last time you’ll be power smoozing for your business!
6. Gauge whether a conversation is going nowhere or somewhere. Lack of interest, conversation seems to slow down or feel strained, etc. all are signs that you should disengage gracefully and move on to the next person. Shake their hand, make eye contact and say nice meeting you and move on!
Definitely stay with someone a bit longer at least if they are interested in you and what you’re doing. But don’t extend the conversation too long as you only have about 2-3 hours after the presentations end to talk to all the people you want to talk to. People start trickling away after an hour of smoozing; remember many people have other meetings and places to go. It’s very rare that people stay all the way to the end! Again, disengage with set action items to follow up, and with contact info exchanged.
AFTERMATH:
1. Write a follow up email to everyone you met! Say hi, it was nice meeting up and you’d love to get together to talk further. Remind them with what you and he discussed.
Keep in the mindset of the folks you meet – remember that we’re going to be totally talked out and our brains won’t be able to remember all the conversations and people we’ve met. We’ll have gone through so many people in so little time; it’s overwhelming and you will want to rise above the noise by following up.
2. Keep an email list of everyone you met for updates. This is to keep reminding everyone of the progress you’re making. Don’t spam this list; just put out an update once a month or every two months. This is also to keep in everyone’s mindshare. Even if someone doesn’t invest in you today, they may invest in you tomorrow when you’re bigger. Or they may contact you for a deal, or to acquire you. They won’t do any of that if they forget about you.
3. Pursue those follow up meetings! Get feedback on why someone isn’t investing and improve yourself, your product, and your pitch. It’s amazing how I’ve had to contact people afterwards and chase them down. But that also signals poorly; aggressive fund raisers who don’t give up are those who succeed in raising the money they need. Passive entrepreneurs only increase the risk that they will fail, because they aren’t aggressive.
A lot of this is basic smoozing, or “How to Work a Room” 101. I just wanted to bring it up because while some of this is basic, it’s been obvious to me from attending past Demo Days that many YCers either haven’t learned it, or maybe forgot about it in the heat of prepping for Demo Day.
Looking forward to Demo Day next week!

Hiring and Succeeding in a Multidisciplinary World

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Decades before the coming of the Internet, we could confidently go to school, get a major, and then get a job in that discipline. I could get a BS in Marketing and find a marketing job at a great company, and know I had learned the basics of what I needed to know to start at a job and suceed from there.
Along comes the Internet which turns this all upside down. I see this everyday in the job postings that internet startups post. Some typical ones:
1. UX Designer – Someone that can do visual design, interaction design, usability testing, and also translate visual designs to HTML/CSS code or Flash.
Internally I cringe when I see this kind of post; when people ask for my help in finding this person, I tell them that they should either 1) prepare for a long wait, or 2) prepare to really be hiring four people. Why the long wait? Because it is almost impossible to find people who can do all 4, let alone even 2 of the job description. Visual designers are trained in visual aesthetics, a discipline that is decidedly non-technical and totally subjective in nature. Interaction designers are experts in structure and how users interact with products and interfaces, which has a relation to but does not need to include visual design. Usability testing requires knowledge and training in statistics and testing protocols, which are even more different than the basic skills required for visual and interaction designers. Argubly, usability testing professionals could require no design sensitivity whatsoever to perform their job well.
In years previous, universities have not adequately cross trained people on all the design disciplines. Certainly even peoples’ brains aren’t generally wired for creativity and technical disciplines together; you more often find a propensity towards one or the other but rarely for both.
2. Internet Marketing Expert – Someone who can do SEM, SEO, Word of Mouth blog marketing, brand management, marketing materials for sales, public relations.
Let’s see, that just about covers the entire old discipline of marketing plus the new ones of SEM and SEO! Even CMOs can rarely say they’ve worked in each of the old marketing roles. If we split it into technical and non-technical, we find that SEM/SEO are on one side, and the remaining on the other side. Now we’re requiring marketers, who aren’t really technical and numbers people, to now engage with numbers and to be experts at it. If we add SEO into the mix, now they have to understand what drives search engine ranking and how to wrangle HTML to make it more search engine friendly.
Again, we mix multiple disciplines, with creative and technical angles, into one person who can do it all. Many more examples exist: SEM Engineer, Web Designer (HTML/CSS + Design), Flash Designer (which requires true programming skills to create Actionscript) – the list goes on.
So why do we have this problem now?
In years past, we would go to college and get a degree and be able to find a job. If we had some area of expertise, like in consumer electronics or fashion, then it would make it easier to find a job in that industry. But crosstraining wasn’t required; corporations would hire people good for a task and there were enough headcount to do so.
Along comes the Internet which screws all of this up. So many changes:
1. Marketing becomes measurable! Now marketing isn’t just about getting awareness out there or subcontracting that out to advertising agencies. You could actually setup technology to get you response information on your marketing efforts. Optimization becomes possible on cost, targeting, and effort. Now you can compute the ROI of a campaign and know which campaigns gave you the most bang for the buck. Given the data of viewers of a campaign, you could target only those customers you wanted exactly (more or less) and be much more exact than saying “approximately 35% of the people who pass this billboard on a given day is a woman”. Effort could then be optimized to those channels and programs to maximize ROI with the least amount of effort. Being a marketing quant is now a requirement or else people don’t like you for the fact that you can’t judge the effectiveness of your own campaigns.
2. There is still confusion on where the new roles lie. Even though there is an M for marketing in SEM, does it belong in marketing or is it more a technical function? Marketing departments now require engineering sub-departments to help them function! What about SEO? That has a marketing application, which is to help drive users to a site through search ranking, but it is a highly technical endeavor, and marketing people don’t have access to a site’s code to alter it. However, traditional engineers aren’t even sure how to perform good SEO. So does it belong in engineering or marketing?
There is even confusion amongst design. In many companies, site design reports to marketing. But designers need to work closely with the product teams in order to be effective. And some design roles require even working closely with engineers to implement design. So should design be in the product organization? The engineering organization? Back to marketing? Even usability testing professionals have a heavy research bent; should that be part of the corporate marketing research group or product group?
Dependent on where the multidisciplinary folks end up, the roles they play and how well they play them are heavily influenced by the orgs in which they sit.
3. Startup fever rises, and everyone needs to be cheap and hire the least amount of folks. So they always look for that one guy to do everything design, or all marketing. Add to that the fact that many entrepreneurs are young and are encountering multidisciplinary roles for the first time, that they do not know that there are multiple areas of expertise that encompass some of these single title occupations.
Even experienced entrepreneurs have to stay cheap, and still try to find that one guy who can help do it all.
4. There is a lack of understanding of these multidisciplinary roles. I find that for design, people want someone to just take care of it all but I end up explaining to them that each part of the design requires different sensitivities and skills and that you can spend 4 years of college and 2 years of grad school becoming an expert in only of the areas, without ever touching the other areas. Even all those disciplines that are lumped under the generic term “internet marketing”, they touch on so many other areas and are sometimes even done better by those who have trained first in another discipline, like engineering.
Yes I’ve been harping on marketing and design, but this also applies to many other disciplines:
Customer Service – traditional customer service department, or marketing communications, or feedback for product team, or customer service via social media?
Engineering – “I want a database engineer that can also do front end engineering…”
Sales – “I want a sales guy who can also do business development, so selling online advertising and also calling on B2B customers…”
…and the list goes on….
The fact of the matter is, for Internet companies, it is almost a must that you be conversant in more than one discipline in order to be successful. Consider two design folks that I know, Irene Au (@ireneau), Director of Google User Experience, and Jason Putorti (@novaurora), formerly of Mint.com and now a Designer in Residence at Bessemer Venture Partners.
Both of them are accomplished designers. Yet both of them have engineering degrees and later got into design. In watching both of them, they were successful because they were able to bridge the gap between design and engineering and create success by melding the two on a variety of fronts, from implementation, to technical understanding, to being able to integrate design and engineering, and being able to simply communicate better with their engineering peers.
Contrast that with some designers on both my old team at Yahoo and in Irene’s team at Google. We both have seen designers who were very talented in their own right but simply could not either survive working on internet projects and/or interact successfully with their peers in engineering and product management. Chiefly we saw this happen to folks that were not able to acquire enough knowledge of other disciplines to be successful.
We can say the Internet has disrupted many old traditional businesses and business models, but I think that the Internet has also disrupted traditional occupations. Companies and their managers need to realize the difficulties of finding multidisciplinary folks and balance that with finding someone with fewer disciplines or doing more internal training to take talented people and adding to their skills. Universities hopefully are adjusting their curricula to reflect that you can’t just teach disciplines the old way; you need to teach them all those new ways that today’s working world requires and demands from its workforce. Workers today should also go out and cross train themselves in multiple related areas, whether it’s on the job or through secondary or self education. Otherwise, you’ll quickly find yourselves out of the job and unable to find a new one…

Playing the Volume Investing Game

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Over the last few months, I’ve spoken to a number of investors who work in the early stage startup space. It seems that many of them have come to the same conclusion I had in my earlier blog post, Angel Odds vs. Venture Odds, which was that they really had to go broad in investing to try to find those few Google super-investments to generate the bulk of the fund’s returns.
The numbers they propose are staggering: 50-100 investments over the life of a fund! If 100, that’s 20 investments per year if spread out over 5 years (typical life of fund). Some of them may even try to front load the investments, exceeding the 20 and perhaps going up to as much as 30-50. That’s about 1 investment accepted, negotiated, gone through due diligence, lining up a wire, and docs signed and delivered every 2-3 weeks. If you’ve ever invested, you know how difficult that process can be.
Some thoughts on this, from the perspective of working on the measly 16 investments I’ve done over the last 3.5+ years:
1. Investor management of this number of startups will be challenging. What will it mean to have 20+ startups emailing you for help, meetings, introductions, advice, etc? Time management will be very difficult.
Entrepreneurs will have to be prepared to find ways of capturing dwindling time slices of the investors, and working hard to deserve more time. By deserving more time, I mean it is natural that the more successful startups will get more time as they have the best chance to return the most money to the fund.
2. Investor teams will need to increase, but paying for them may be difficult as early stage funds are typically smaller in size, and thus management fees collected will also be proportionally smaller.
3. It will be interesting to see how the money being moved around can be optimized. Typically capital calls are made to limited partners when an investment happens. If there are a lot of capital calls, making and collecting a huge volume of capital calls can be a lot of work on the fund personnel and limited partners. Capital calls may work differently for these early stage funds.
4. In this world of proliferating me-too products, it may be impossible to not invest in startups which overlap in plan. Many investors and entrepreneurs worry about their plans being discovered by competitors or near competitors. This is why we don’t like investing in startups who are competitive to one another. But if they are investing in 50-100 startups, I wonder how they avoid competitive conflicts? Or should they even care?
5. Can 50-100 quality startups be found in one area even if it is in the Bay area, the startup capital of the world? It may be that going far afield will need to happen in order to find quality startups. This will strain time commitments for investors to travel and keep tabs on investments far away. It will also mean entrepreneurs may only get as much help as they can remotely.
6. Entrepreneurs should be prepared for what I call “survival of the fittest” and “ruthless culling”. Given the limited attention time of the investor in the face of overwhelming numbers, entrepreneurs need to work extra hard to prove they deserve more investor time. The best will get more help, and get follow on investment. Those that do not get follow on investment may find this is a detriment to them getting more money.
Entrepreneurs will have to get over the fact that while they think they are the coolest kid on the block, in the face of being in group of cool kids, their own coolness will be the norm and therefore commonplace and they will have to find ways to be even cooler than their peers. Being commonplace in a group of equally cool kids could mean neglect as the even cooler kids get more attention and help.
Despite all this, I firmly believe this is the way to play the early stage startup game from an investor point of view. It is the only way to raise the probability that they will find the Google super-investments that will create the oversized return of the fund.

Mark Fletcher at Startup2Startup and the Evolution of Startup Business Strategy

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I went to Dave McClure’s Startup2Startup last night and we listened to Mark Fletcher recount his current startup commandments. Mark has had a great history in startups, having built ONElist back in the day which merged with eGroups and got acquired by my old alma mater Yahoo. Then he built Bloglines which sold to IAC in 2005. Now he is working on another startup called SnapGroups, which got announced and was supposed to launch last night, but unfortunately also came out with a nasty bug and kind of stifled the launch..!
One of his slides had to do with startup business models, which was more in the area of talking about startup business building strategy than just strictly revenue models. For his 3 startups, including his current one, he listed his startup strategies (me paraphrasing here and imperfect memory at work):
ONElist: Raise lots of money (~$46MM), grow big fast, hire a lot of guys, dominate the market before anyone else, go IPO
Bloglines: Raise a bit of money ($200K), hire small team, build great product, flip it.
SnapGroups: Spend as little as possible ($6K) using lean startup methods, outsource everything, work on something he’s passionate about, no exit strategy to shoot for.
It was a trip back in history for me, as I came into the startup world via Yahoo, and lived through the times as Mark had. What was amazing to me was the difference in strategy given what was in vogue at the time.
During the dotcom boom years, it was just build as fast as possible and get huge before everyone else, and then go for IPO. This of course didn’t work anymore after the dotcom bust, and the introduction of Sarbanes Oxley which basically killed the IPO market even as it attempted to fix the bad accounting problems and protect the shareholder. Also, the excesses of the dotcom era were completely gone, and also gone with it the ability to IPO on little or no revenue.
Then along came the post dotcom bust years and it seemed that the M&A market for startups heated up. So now it was cool to get a bit of investment, and then build something that a Yahoo or Google wanted, and then get bought. At this point, we saw that it was getting cheaper and cheaper to launch web products, and over time, a lot of people jumped on the flipping bandwagon.
Soon, flipping became tough also because it was easy to copy somebody else and now the market was flooded with me-too products. Everybody called on the corporate development teams of the Googles and Yahoos of the world and it became impossible to get their attention. They didn’t want to hear about you if you were too small; they only had so much time and only could focus on those opportunities that yielded the largest results for them. Yeah you thought you were cool, but against that kind of competition you weren’t cool enough.
Somewhere in there, along came Ycombinator who proved that you could build something with so little capital and get it launched that it started being copied everywhere. Also, the world shifted to providing so many outsourced services and resources that you could build something by using other peoples’ servers, open source code, and even excellent coders from other parts of the globe. Other companies would do the heavy lifting on commoditized services while you could focus on the core differentiator of your service.
Enter the economic downturn of 2008 and now M&A was difficult because major companies were pulling back to conserve cash and survive. They were also questioning their M&A strategies prior to this because they were buying startups for huge sums of money but wondering where all that hockey stick growth had gone to, after destroying the incentives of the brainchilds of the startup by making them rich and then watching them leave. Flipping became not so easy.
College kids couldn’t find jobs any more; nobody was hiring. Plus, they keep hearing from their peers that working at large corporations sucks. Enter also the rise of a ton of resources like Ycombinator to jumpstart tech startups in a number of locations. Starting up became the in-thing and now we see tons of people trying to do this in a super cheap, fail fast, be adaptable way.
Despite the obvious indicators, I have found that entrepreneurs still are sticking to last era’s strategies. Mark was smart; he watched the market and then built quickly to exploit the advantages of the era he built in. But today, I still meet entrepreneurs who are building to pre-dotcom bust year concept of building users fast and then thinking they can raise money later!
Even investors are stuck in last era’s strategies. The consequence of raising ever larger funds meant that they were hoping for the huge deals that were present in dotcom boom years, but now that strategy doesn’t work so well with the IPO market so slow and the presence of large enough startups worthy to put that much capital in so scarce. They add in the fact that initial capital requirements are so low, that often they find great startups who don’t need or want their enormous amounts of cash.
I also changed my investment criteria. Many startups I funded before the 2008 economic downturn still had dotcom boom year or flipping strategies, and had burn rates to match. But then as we crossed into 2008, I started seeing that either strategy now created enormous downside risk of failure, and so had to now go for startups who were smaller, followed the lean strategy, and looked seriously at producing revenue sooner than later.
Mark’s message was incredibly insightful, which is that this world is a constantly shifting place, and that you have to be nimble enough to switch strategies when the world changes on you. You also have to be observant enough to know when to make those changes, and not get locked into past views which may not be valid in today’s world.

Advising with Influence and Resonance

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Being an advisor is tough. It’s all about influence. None of the entrepreneurs I work with have to do anything I say and it’s all about convincing them that something I say is worth listening to and executing on.
I had breakfast with my life/executive coach yesterday to catch up and she mentioned she was working on how to be a more effective influencer. In doing some research on the topic, she found that it is actually more about personal charisma than just straight intelligence and knowledge. For example, she related to me that smiling a lot and charm have a great effect on whether you are successful at influencing somebody or not. So it’s a lot like what effective salespeople are good at, which is using their personality to charm you while you inadvertantly hand over your wallet!
Towards the end of my tenure at Yahoo, I managed to land into two roles that were all about influence. The first one involved getting all the product teams to revamp their site designs to implement larger more monetizable display ads. The second role involved implementing worldwide a more disciplined and quality oriented product development process. Both required me to become a salesman and evangelist, two things I was definitely not. But I learned about how to get things done via influence and how much I still had to learn.
If you’ve ever worked in a role where you had to get things done with influence, you will agree with me that it can be very frustrating. Nobody ever reports directly to you and so you can’t force people to do anything. They may even agree with you at a meeting but then when everyone walks away from the meeting they go back to doing their usual thing and not what you asked them to do. In fact, I had even vowed that if I were ever to take another permanent role, that I would only do it if I had direct control of the team and my destiny.
But here I am, thriving as an advisor to 20+ startups over the last 3.5 years and enjoying my work solely built on influence.
A lot of entrepreneurs look to me to give them the answer. In fact, in times past I have delivered an answer but I have found problems with this approach:
1. The answer is often “my” answer but not the entrepreneur’s answer. This is because, given my experiences and expertise, that I would tackle the problem in a certain way and because it was me executing, I could probably make something out of it. However, if an entrepreneur doesn’t have similar experiences, then they have a greater chance of failure.
2. The early stage world is incredibly random and I have often found answers that I would not have done but yet have been successful. So what exactly may seem an answer today may quite often not be where you end up.
3. There are often many answers to the same problem. Again, back to point 1, what may be the answer for me may not be the answer for you.
This is why I hesitate to throw an answer out there unless someone is smart enough (like yesterday!) to ask the right question, which is “if this were you, what would you do?” This is important to frame the answer correctly so that the questioner realizes that my answer to the question is more about me than him. If I were the entrepreneur, this is how I would do it – but you’re not me!
My approach has morphed to a more “throw ideas out until one sticks” method, basically putting so much out there until something resonates with the entrepreneur and team.
This resonance is very important. Everyone comes to the table with strengths and weaknesses and all the experiences they have. Thus, whatever idea they run with has to be something they are resonant with and can run with because they will be the ones living with it day and night to make something worthwhile out of it. I am only there intermittently but can’t direct them every minute; it’s their project so they have to own it through and through.
The unfortunate side effect of this is sometimes I can sound vague or perhaps even dodging their question of “what should I do next?” I have found over the last 3.5 years of advising that my biggest help to startups is to guide them like a teacher, teach them general concepts and help them translate them to whatever they are doing now, and to help expand their thinking as a lot of entrepreneurs tend to get very myopic in what they are doing and have a hard time keeping track of innovation outside their own project. So instead of providing them with “the answer”, I provide them with ways to look beyond themselves and perhaps find an answer for themselves within that process.

Nexus One First Impressions

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About two weeks ago I managed to score a Nexus One. Having been an iPhone user now through 3 iterations, I was curious to see what Android was like and whether or not it would kill my iPhone love.
I started playing with my Nexus One without a SIM card. I just turned on WIFI because I was most curious about the app and operating system experience; I assumed that calling would be about the same as another mobile phone, which would probably mean that was better than my crappy AT&T iPhone experience.
Although I did not perform an exhaustive use of the phone, I did form some pretty quick impressions that I’d thought I’d share:
1. Their app store didn’t connect when I tried to buy something while connected through WIFI. My expectations through 3G would have been much less as connectivity could have hampered a purchase, but through WIFI it shouldn’t have had a problem. On my iPhone, I’ve purchased many things and it has never failed to connect.
2. Surfing through their app store, it is clearly early and the amount of apps available here is growing but nowhere near the breadth of Apple’s app store. Until their app store catches up, this is going to be a huge hinderance in my adopting the Nexus One.
3. I couldn’t figure out how to sync with anything on my Mac. IPhone shines here of course being an Apple product.
4. All Google related services were very nicely integrated. But annoyingly like the mail app on the iPhone, they don’t cache messages. This is something I hate from the iPhone and they haven’t fixed it here. This is also something I loved about my old Treo 680 where I could download and hold cached email and read/access it offline.
5. The Nexus One touch screen doesn’t seem as responsive as the iPhone. Many times I have to multi-hit an icon to get it to respond. This is annoying.
6. As far as the UI is concerned, I don’t see anything that stands out so much that would make it more or less usable. It is elegant in its own way, and I think that while the differences are a bit disconcerting now due to my unfamiliarity with it, I think that I would get used to the small differences between the iPhone and Android and be OK with it.
This is not like Windows and OS X where the differences and issues are so glaring despite the similarities that I find myself constantly wondering why Windows sucks and OS X is just better.
The back button is pretty cool though. Sometimes I wish the iPhone had one.
However, I think my biggest issues are the lack of integration with a desktop platform and the brand value of owning Apple.
The iPhone’s easy integration with my Mac and OS X is of tremendous value to me. I remember spending an incredible amount of time figuring out how to sync my Treo 680 to whatever I was using. It sort of worked eventually, but it also just seemed very Borg-like and not an elegant integration. I suppose if I lived completely in the cloud, maybe Android might be OK. But, being a stodgy old timer in the computing space, I don’t trust the cloud and like backing up to my desktop, which is further backed up elsewhere.
The other big thing is brand value. It’s about owning a device that is beautiful and calls attention to not only it, but me also. Apple has done an amazing job creating products that are not only usable and useful, but beautiful and objects of desire. Somehow the Nexus One just falls short in this area in a big way. I don’t feel brand connected to anything with this device. Should I be connected to Google in that way? But Google doesn’t have that kind of brand that Apple has, which is fashionable, sexy, techie but easy and elegant to use. Google is pure tech and geek to me, which is fine but I think getting geek and high fashion is better.
I expect the Nexus One and their app store to catch up to the iPhone in many ways, but the brand value is something that Apple owns and that Steve Jobs and his team have done an amazing job of cultivating, and is one that unfortunately I can’t see Google matching in the same way, assuming they even want to.
In the world of feature parity for any kind of product, what else is left to compete on? Style and brand.

[UPDATED] If We Meet, I Will Ask You…

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After blogging about a variety of topics, I find that they form the core nucleus of the things I care about before investing in a startup. Yes, I also care about the usual stuff like smart entrepreneurs, great idea, etc. But I think there are things that I’ve been focusing on assuming we get past the basic stuff.
So if I meet with you, you can expect discussions on:
1. What’s your world domination plan (and more on why it’s important to have one)? How can you avoid just becoming another small business which is not a reason for not existing, but does bring danger to us investors?
2. I’m most likely going to try to talk you out of being an entrepreneur.
3. Most startups I meet are working on me-too products, even if they don’t think so. How can you not be about just developing a me-too product?
4. Are you planning on lasting two years? If you aren’t and you need time and money to pivot, you won’t be able to raise money in this climate because second chances are impossible to come by.
5. How are you going to make money? Please, no more projects that are just going to gain lots of users…
6. If I were to envision the The Ultimate Product (and Part 1.5), would what you’re building be that product, or on the path to that product?
7. How are you going to gain customers – distribution is by far the number one problem facing internet startups today (see me-too post and my combining startup investing and distribution post).
8. [UPDATED: 2/4/11] How will you get to $100,000,000 in revenue per year?
9. [UPDATED: 6/14/11] Study past startups and competitors and learn from their mistakes and successes. Tell me how and why you’re not going to let history’s mistakes repeat themselves.
My hope is that not only you will have great answers to all these questions, but you will also internalize and truly believe in those answers yourself, and that your answers aren’t just lip service. Hope to see you soon at a cafe near you!