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The iPhone – Virtualizing enterprise market share

April 8, 2009

It’s always good to state the obvious:  there is no way Apple will ever make a dent in overall PC market share, much less get into the enterprise desktop or server business in a way that’s relevant.  The reasons are so obvious most people don’t realize it.

The Mac will never duke it out at the low end, much less hang out with the netbook crowd because the lower margins don’t work with Apple’s business model.  HP, Dell, Lenovo – they get to have all the “fun” sorting out the volume/margin voodoo.  Lucky for Apple there’s a large enough segment that will gladly pay a premium for an elegant, integrated, and stable computing experience. 

And guess what?  Apple gets nicely rewarded:  in the fourth quarter of 2008 Apple’s operating profit was 11% while HP’s was 5% (for their personal systems division). 

But what about the corporate market?  What about all those enterprise customers who you can build lucrative, durable, “sticky” relationships with?  Businesses built from hard-fought battles over market share, premised on whoever sells the most laptops/desktops/servers to corporations reaps the rewards of valuable added services that run on them.  Has Apple really just punted on this?

No, they’re smarter than that.  They’ve realized in a world of cloud computing and web delivered applications, their leverage into this market doesn’t come from desktop unit volume.  It comes from inserting the iPhone into the information flow between businesses and their workers. 

But hasn’t every big mobile device supplier tried this already?  Didn’t Nokia bet a huge part of their farm on this with various “Communicator” handsets? 

What about Microsoft with Windows Mobile?  Wasn’t that supposed to provide the worker/enterprise tether?  It was but it never did.  It neither generates significant revenue for Microsoft, nor has it gotten durable traction with business users.  Dan Frommer of Silicon Alley Insider does a great job explaining why it’s a tweener in the worst way.  I can tell you that my two years using a Motorola Q were the longest mobile “computing” years of my life.  One of my partners compared it and an iPhone to “showing up on horseback (Q) when everyone else is arriving by jetpack (iPhone)”.

And as Network World pointed out, Blackberries are great at corporate email and “legacy” enterprise applications but are not great mobile internet experiences.

These companies forget that it’s not about them and protecting their business franchises, it’s about the user experience.  Apple is the first company to get the complete mobile internet user experience right.  Microsoft, Nokia, even Blackberry/RIM probably have done a better job getting mobile computing right, but in a world of web services, I think the operative term is “internet”, not “computing”. 

So how does Apple become relevant in the enterprise?  By virtualizing its market share.  The battles to be fought in enterprise computing over the next 5+ years won’t be over email and ERP, they’ll be around cloud-based services, web-delivered applications and mobile interactions with them.  Market share leverage will be measured in mobile devices, not desktops. 

And until the iPhone arrived, no one had a compelling mobile internet experience.  Hundreds of millions of other phones shipped, and they all suck at the mobile internet.

In an April 2008 report, Gartner found the iPhone is clearly having an impact on IT strategy.  Of their survey respondents, 65% were responsible for supporting, managing and/or provisioning enterprise mobile solutions.  Of these, 13% said they either currently supported the iPhone or had planned for it, 64% said they were currently researching/evaluating support for the iPhone. 

This is brilliant.  By having major corporations enable iPhone support Apple can get a meaningful share of enterprise users without having to sell a single desktop, laptop, or server:  13% share of mobile support is 10x+ Apple’s share of enterprise desktops.

No one is focused on this, and it makes me wonder if Apple likes it that way.  Keep the “iPhone is a consumer product” head-fake going long enough to get a strong foothold with enterprise users.  And if Apple can instill in those users the loyalty they’ve instilled in consumer iPhone and Mac users, well this could be brand new territory in enterprise business.

The reasons are so obvious most people don’t realize it..

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Posted in Business planning, fear of not succeeding, geopolitics, Intellectual curiosity, Strategy | Leave a Comment »

The next big thing

April 7, 2009

“What’s the next big thing?” I get asked this a lot, and a lot of VCs get asked the same question too about what’s the next big trend/device/web-service/… and that always makes for an awkward detour in whatever conversation preceded the question.  The truth is “I don’t know.” And it’s a great answer, because none of us do. 

The next big fill in the blank only becomes apparent in hindsight.  It’s not that I’m not smart nor anyone else who gets asked this question, it’s just that you can’t really tell.  Sure, I’ve got favorites (twitter is now at the top of my list, but I wouldn’t have said that a year ago). 

Remember when Google actually was in beta, in 2000?  It began appearing on people’s desktops where I worked at RealNetworks.  We thought it was cool and efficient, but there were ZERO people talking about it being the next big thing.

Last Thursday’s NY Times had an interesting article about the rising popularity of “netbook” computers, and how these are a big emerging phenomena enabled by a structural technology shift in the computing landscape: we no longer need Microsoft, and probably Intel.  The next big thing?  Maybe.  More on that in a second.  Let’s look at newspapers.

Clay Shirky did a phenomenal job explaining the collapse of the newspaper industry on his blog, pointing out it too results from a structural technology shift – the internet.  Clay references Elizabeth Eisenstein’s book, The Printing Press as an Agent of Change, where she observes that during these technological transformations the only obvious effect in the moment is the destruction of the status quo.  What transcends the status quo takes time to emerge.  Clay sums this up well: “That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place.”

In the case of netbooks, we’re about to see a lot of old stuff get broken, but it’s not clear if netbooks are the transcendent replacement, or just one of the convulsions of the revolution.

But netbooks are significant because they’re exploiting the growing vulnerabilities of Intel (price, performance) and Microsoft (price, legacy support, integration) at the low end in the same way that Apple is (more elegantly) exploiting them at the high end.

Netbooks have traction because they focus on where people spend the majority of their computing time: web-based documents and services, and the consumption of digital media.  That’s it. 

Whether or not someone buys one, netbooks educate the average citizen that GoogleDocs and a browser are all you need, and that MS Office is both irrelevant and overpriced.  My belief is the impact of netbooks will not be felt so much in unit volumes, but as catalysts speeding the unraveling the Office franchise. 

But wait, there’s more.  How much distance will separate the Office franchise “unraveling” from prying MS’s grip off the operating system?  Apple can’t do it, and is smart enough to steer clear of this outcome.  Will Android and Linux be good enough at the low end?

We’ve already seen the indifference that’s greeted Windows7, and the reluctance to even adopt Vista, with people scrambling to stick with XP.  My family did exactly this in February when our five year-old XP home computer died, and we scrambled to find someone who could sell us a new XP machine (we succeeded).  It was an intelligence test.  XP or Vista…hmmm.

Maybe this reveals a nuance to Clay’s “revolution” observation.  Perhaps the path to destruction takes you through the terrain of irrelevance.  What netbooks show us is how irrelevant the once mighty Microsoft and Intel platforms are to the needs of people today.  They may be lucrative businesses but they just no longer point to the future like they used to.  They’ve become what’s broken in the revolution. 

It’ll be exciting to see the new stuff that’s put in place.  I’ll be sure to blog about it, after we all see what it is.

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Posted in Business planning, Failure, meaningful failure, Success | 1 Comment »

Man On Wire – Best Startup Movie Ever?

April 1, 2009

I saw Man On Wire for the first time in February; I’d read a snippet somewhere about this being the story of the man who tight-rope walked between the two World Trade Center towers in 1974.  And at a certain level, that’s exactly what this movie is about.  It’s exquisite.  The tight-rope walker, Philippe Petit is almost a caricature, his vision and ambition equal parts boundless and focused.  I’ve seen the movie three times now, and each time it’s more revealing.

What viscerally strikes me is how it tells the story of starting up a company.  This is all about having an idea so audacious it’s almost not believable to someone who hasn’t drunk your kool-aid, yet.  It’s about staying focused on the one reason why you will succeed and not the 10,000 reasons why you will fail.

Man On Wire reveals four super-compelling principles that underscore what it’s like to be in a startup, and if you haven’t been in one, it’s a wonderful way to get a sense for what it feels like to be there:

  • A meticulously constructed plan, discarded.  Philippe Petit spent six years planning this act, including building scale models of the towers’s roofs, constructing a tight-rope the same length as the towers in a field, and on and on.  And guess what?  The day of the “coup” huge elements of the plan had to be thrown out, the real world just didn’t cooperate.  This is “why the numbers in your operation plan are wrong” writ larger than life.
  • Repeated visualizations of the outcome.  This is one of the critical mechanisms to ensuring you’re focused on why you will succeed.  Philippe from the moment he learned of the Towers construction, visualized walking between them.  For years and years visualized walking that wire, how he would do it and succeed. This is critical when you only get one shot at an opportunity, like he had. 
  • Significant emotional toll.  Getting something done that’s ambitious, with a visionary leader means you will do things that are difficult and way outside your comfort zone.  You will find out who the chicken killers are, who can be relied on and who can’t, and most importantly what you can rely upon yourself for.  It’s messy and painful, and you will be different as a result of this experience.
  • The fear of not succeeding.  Philippe’s obsession was on success.  Startups are all about being laser focused on why you will succeed, and your only fear is success NOT happening.  I just can’t say this enough.  People who are afraid of failure may very well get great things done, but just not at startups.

For me the most piercing and fiercely honest confession of the entire movie is when Philippe describes the moment when he committed himself to walking that wire.  A simple shifting of weight from the foot resting on the tower to the foot resting on the wire.  Silent and internally deliberate. 

Compare/contrast this with the article in this April’s Outside Magazine about why people participate in risky sports, and profiles BASE-jumper Ted Davenport.  Neuroscientist Russell Poldrack asserts that there are three ingredients to risk taking: desire for adventure, relative disregard for harm, and acting on your desires without fully thinking them through.  That last factor strays way, way too far into the landscape of recklessness and separates Philippe from Ted.  There was nothing reckless about Philippe Petit.  Deliberate, honest, ambitious, meticulous.

So see this movie for the reasons I outline above.  Also, let yourself ask the other questions.  Like “how can someone afford to spend six years planning this”?  How “real world” is that?  We’re not getting the full story here, but it sure is enjoyable. 

Before your Netflix delivery arrives watch Philippe break Stephen Colbert out of character on the Colbert Report, and you’ll hear Philippe describe that moment when he shifted his weight onto the wire.  Mesmerizing.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, Intellectual curiosity, meaningful failure, Self-knowledge, Success, Values | Leave a Comment »

Slide decks and spreadsheets

March 26, 2009

This morning I came across an article in mocoNews.net about how Charmin is using a wiki to create a community cataloging the locations of public toilets in ten countries.  As the article points out, it’s not so much the magnitude of the initiative, but the direction it points for how a large CPG organization thinks about its customers and how best to engage them in a conversation about one of its brands.  It’s easy to see when they “get” this transformation and when they don’t.

There’s been a lot written about how brands should be thinking about social media, and our portfolio companies like Wetpaint, Smilebox, and Icebreaker are all deeply engaged in developing products or services enabling a richer interaction between consumers and brands.  I spend a lot of time digging deeply into the trends and subtleties driving and enabling this broader opportunity space, and understanding how important the “understanding of the audience” is to this space.

So a while ago I was asked to guest lecture at a “Top 25” university MBA program on the subject of venture capital and entrepreneurship.  It was at a time when I was travelling a lot, and was really, really busy (which is a cop-out, when are any of us not busy?).  I prepared my talk from a very “inside-out” perspective:  my observations, my points of view, my experiences.  What I didn’t do was spend time examining the course syllabus – admittedly, a brain-dead and inexcusable lapse in not just effectiveness and basic marketing but also common courtesy.

About half way through my talk I made an observation that my job was basically one of digesting information, and that it came in two formats:  slide decks (PowerPoint presentations) and spreadsheets.  I mentioned that between these two documents, you really get the essential information you need from the company, before you dig into the really useful information to help make a funding decision – your own research, your own contacts, your own scar tissue.  

A hand was raised.  The question?  What about business plans? 

I told these students that not only do I rarely come across these, when I do, it’s usually a sign that the entrepreneurs are first-time entrepreneurs, are “old school” in a not good way.  That extracting the salient information from within all that prose takes more time, and in my world, time is a  hard commodity to come by.  I thought this was a useful and helpful piece of “real world” insight.

Except that the class I was speaking to was a few weeks into learning how to write business plans. 

How was it that I was standing in front of 75 MBA students delivering a message that wasn’t “wrong” but clearly was not effective given the context.  Well, with the same arrogance and ignorance large brands who just “don’t get” social media have.

I had completely failed to understand my market and audience.  I hadn’t thought through my objectives for the talk from a perspective any other than my own. I wasn’t thinking “conversation” I was thinking “talking.”

I’m headed back to the same class to lecture again in two weeks.  I know how I will approach the development of my message: a clear set of objectives and a set of messages informed from my point of view and the context of the students and the syllabus.

But back to slide decks and spreadsheets.  As true as it may be that this business is all about digesting information, getting to the point quickly, and that business plans are no longer the mechanism to do this, communication is about by listening, not talking – whether you’re a brand engaging consumers or just someone talking to a group of students. 

I wish Charmin well; that’s not an obvious tactic they’ve chosen, and I hope it’s one based on listening, a lot.  I think it’s brilliant, and reveals an understanding of the audience, the medium, and thier brand.  I plan to be listening, a lot, when I’m in front of those students in two weeks.

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Posted in Business planning, Empathy, Failure, Intellectual curiosity, Self-knowledge, Venture capital | 2 Comments »

Seattle 2.0 Awards – Be Selfish

March 17, 2009

There are a lot of conferences in Seattle right now, and that’s a good sign – it means there’s a lot going on here in the technology sector; it means there’s enough “there” there to justify lots of organizations vying for our collective attention. 

But there are few organizations that focus just on the startup landscape, and the ecosystem that sustains and grows it, from within which we all build our businesses.

Seattle 2.0 is one of the groups that’s focused on startups.  It’s emerged organically like a startup, and it’s filling a void and meeting the needs of a defined target market:  people starting up and growing technology companies in Seattle.

It’s an organization that helps bring people together, helps foster the sharing information.  It helps shine a light on the startup “experience” – a term which was viscerally defined for me by John Jarve of Menlo Ventures as ‘the disaster that doesn’t kill you’.  Yes, experiences get shared, and that just speeds the process of company formation and growth.  A really good thing for us here.

But why should you care about the Seattle 2.0 Awards on May 7?  Well, because you should be selfish, it’s all about you and your startup for four really good reasons: 

  1. Seattle is a startup geography that matters.  We can debate the magnitude, but directionally it’s true.  We’ve created separation from Boston and Austin, and it’s now us and Silicon Valley.  You should want this to accelerate, to create a better talent pool to hire from, better ideas to exchange.  Better everything for you and for us. 
  2. VCs from the valley email me links to the Startup Index because they track it to be on top of the company formation and growth activity of our steadily strengthening technology sector.  You want them here, it’ll help you reduce risk and speed your company development.  More visibility overall, more visibility for you.  You want to be at these awards so you can meet them, you can both learn from each other.
  3. Events like this foster a network effect that’s critical to generating growth through friction-free information exchange.  It’s not just getting people together, it’s getting them together in the right context, with the right tone that enables the sharing of ideas.  Sharing ideas only strengthens them.  Get strong!
  4. And the awards matter precisely because it’s not really important who wins them, it’s the process that brings us all together that matters.  It’s asking you to nominate candidates, talking about them with your friends and colleagues, and then showing up at the event. 

So, you should go to this event, celebrate all the hard work and determination of the companies and people nominated for the awards.  But most importantly, go there to meet the other people like yourself, who are also working their butts off trying to get a company off the ground.  Go there to meet people who are eager for guidance, experience, or encouragement along the way. 

By the way, I have no vested interest, here.  I don’t know anyone at the Seattle 2.0 organization.  Never spoken to anyone over there.  I emailed them about my blog, and they were kind enough to list it, but that’s the sum total of my involvement with them.  They’re just there getting us all together, just letting the information flow.  And I like that.

I plan to be there, and I hope to run into some of you there too.  Register here

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Posted in Business planning, Intellectual curiosity, Networking, Venture capital | 2 Comments »

Failing in Style – Guest post by Jenny Hall, former CEO of Trendi.com

March 16, 2009

Jenny Hall has graciously agreed to a guest post.   Jenny was the CEO of Trendi.com, a social networking destination focused on young women’s fashion that was shut down in October of 2008, and discusses what she learned as a first-time CEO through the startup and eventual failure of Trendi.

This blog focuses on this juncture of success, failure, and finding the meaning from each.  I think you’ll enjoy what Jenny tells us through her first-hand experiences at Trendi.  Thank you, Jenny, for being OpenAmbition’s first guest writer.

——————-

I really don’t like failure, but I know it’s one of the best sources of learning. I learned a lot the past few years working at a startup, and I learned even more as a result of it failing.

I joined Trendi.com in March of 2007 as the head of marketing and I ended at Trendi in October of 2008 as the last employee and CEO. We had investors, a smart team, a fabulous domain name, a popular blog and so much more going for us- so many reasons to succeed- yet we failed. 

When people ask me “what happened?” I usually say we ran out of money. That’s the cop-out answer- running out of money is a symptom of the underlying issues. I think our underlying issues were communication related (unclear communication with each other, of expectations, and with our customers) and experience related (being young, excited, wanting to do it all and getting nothing done.)

I learned lessons from the mistakes we made as a company and my personal mistakes. Of the many lessons learned, these are the ones that stand out the most to me.

Your target audience should be so excited about your product that they’re pushing you to launch, even if it’s crappy when it launches.

I joined Trendi after the founder received funding for his idea. (I know- that never happens! We were lucky.) I talked to my target market occasionally, but didn’t seek their regular input for 2 reasons- 1) I trusted the investors and founder were right in their beliefs that the idea was a winner and 2) I was afraid of the reaction if I discovered we were wrong and proposed changing the concept.

I should have let my market share what they value, even if it differed from what we wanted to create. Sometimes we get caught up in what we’re building, fall in love with it, and fail to realize other people don’t see it the same way. It’s like parents with ugly babies (hey, there ARE ugly babies) that filter out all negative comments because they’re so in love with what they created. Trendi was, in some ways, my ugly baby.

Launching a product your market is begging to use, even with a few rough edges, will have more success than a fully developed site that doesn’t add any value. Plus, you’ll tie your market emotionally to the product. They feel invested and valued and voila- you have your first product evangelists. Furthermore, their input is the ammunition needed when confronting a team, investors, or a board about why a major change needs to take place.

Keep the focus simple and narrow.

Once you know what your audience values, keep your focus only on the features you need. Trendi started out (on paper) as a simple 8-page design. We quickly escalated the site to include a robust back end, picture management system, full social network, etc.

Extra features added time to our launch, increased the burn rate and made the user experience…fragmented. We assumed the users would like what we built only to find out they didn’t like or use all the features and it was difficult for them to figure out the ‘point’ of the site when they arrived.

We over-built Trendi for one main reason: We didn’t have a plan.

Sure, we had some general milestones, but we didn’t have an actionable, communicated business plan. When there is no plan, startup employees turn into hormonal 13 year olds with severe ADD. Anything catches their attention and can change the intended course of action. What are the competitors doing? Why don’t we have this cool feature? Let’s make it pink! No grey! We need a YouTube video STAT! (Get the idea?)

People often ask where our board was during this process and I’m embarrassed to say we didn’t have a formal board. We had our investors who would give us time when they could and we had some friends we would call on informally…but no board to help us keep focus.

Don’t do it just because all the cool kids are doing it.

There were an onslaught of “social shopping” sites in 2006 and early 2007. We jumped onto that trend and while it’s important to know the trends and competitors, it’s more important to figure out what your substantive differentiation is, how that difference adds value and how to make money because of it.

This is a mistake businesses and people make all the time- doing something because everyone else is doing it. Why do we feel more comfortable when we’re doing what everyone else is doing?

I now know questioning the trends and value proposition needs to be done regularly- at least monthly- to ensure the choices made are in the best interest of the company.

Hire only when it’s absolutely needed.

Everyone should be fully utilized before anyone else is hired and increasing the number of employees doesn’t always speed up the launch. For a company like Trendi, we probably only needed a CEO, two developers, and a designer. Ideally the CEO would have been someone who deeply understood the target market, could raise money, inspire the team, and was a stellar marketer, writer or able to contribute another key skill.

Instead, we were almost a year into the project and 15 employees deep before our Angel (who owned the majority of Trendi at that point) stepped in and made a drastic change that involved laying off most of the employees.

Yowza. Hard lesson learned. The team stayed lean and more productive after that.

If it won’t matter in 3 months, don’t spend too much time on it.

We could spend a whole day talking about how our rating system would look or a week bantering back and forth about a press release. I should have asked myself – will this matter in 3 months? If it won’t matter then, why spend too much time on it now? Time is a precious commodity in a startup and should be spent on what matters the most- quickly building a product your customers love.

——-

Funny how our resumes show our successes and we take full credit, yet we leave off the failures and if they come up, we blame others. I wish I could blame Trendi’s failure on other people and circumstances, but I can’t. No startup has it perfect- we all deal with difficult employees, investors and economic strains. I have to accept that as a company we made mistakes, but I also have to look back and accept my personal contribution to those mistakes.

Accepting the personal mistakes hurt my ego. I screwed up and it made me question my ability to lead others, my knowledge as a marketer and my future ability to start another business. But somewhere in facing my failure and accepting these mistakes, I was able to learn how I can be a better leader, new things I can try as a marketer, and that I do have the strength to try again.

I always hope for success and aim high, but I now face failure with a humility and thankfulness I didn’t have before. Ignoring failure only hurts you later- you can stuff it away and try to pretend it didn’t happen, but it’ll bite you in the butt at some point. I know that if I face failure as a teacher (a harsh one, but still a teacher) I’ll become stronger and smarter.

I like tea, Thai food and good happy hours. If you want to join me in Seattle for any of these, email me at jennymhall@gmail.com.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, fundraising, meaningful failure, Self-knowledge, Success | 4 Comments »

Guest post coming Monday

March 13, 2009

I wanted to let you know that OpenAmbition will be showcasing its first guest post, from Jenny Hall, former CEO of Trendi.com, which was a social networking destination focused on young women’s fashion that was shut down in October of 2008.  Jenny will be sharing what she learned as a first-time CEO through the success and eventual failure of Trendi.

I met Jenny the first time a little over a year ago, when she was trying to raise a Series A financing for Trendi, and for  reasons I explained to her, my partners and I were not able to fund her company.  Jenny touches on a few of the reasons in her post on Monday, but in many respects, what she describes are what many entrepreneurs wrestle with in an emerging but crowded market, where so much is learned in real-time. 

Like with many of the entrepreneurs I am fortunate enough to encounter, she and I have kept in touch, and when she stopped by my office a few weeks ago to tell me about her next startup idea, the subject of Trendi of course came up.  Jenny talked me through some of what she had learned, and how valuable the failure of Trendi had been for her personally (but not painless for her, for her employees, or for her investors). 

When we moved on to discussing her next startup idea, it was inspiring to see how much was informed by what she had learned through Trendi’s failure, how she had embraced what many would have tried to forget or move on from.  And so it seemed like she had a story to tell that the followers of this blog could relate to, find interesting, and hopefully find some meaning in too.

I hope you all enjoy it, look for her on Monday.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, fundraising, meaningful failure, Self-knowledge, Success, Values, Venture capital | Leave a Comment »

Peripateia and the value of getting it wrong

March 9, 2009

One of my kids favorite TV shows is “Dirty Jobs”, and I have to say that what I’ve seen of it, I have liked, because the host Mike Rowe comes across as genuine and inquisitive.  He’s there to understand, not to judge.  That alone is a wonderful set of values for children to see and explore, regardless of medium.

So, when a friend forwarded a link to Mike Rowe’s TED talk  (embedded below) on the merits of hard work, my intellectual curiosity was high.  His job is to question assumptions and to get all of us to understand the real, human aspects of jobs that other people are unaware of or assume just get done. 

He talks about how he’s “gotten it wrong” a lot, but that getting it wrong informs the essence of what he does and how he does it.  He shares the meaningful failure he encounters as an apprentice on a sheep ranch where it’s his job to castrate the lambs. 

He does his research ahead of time and determines the “humane” way to perform said castrations (with a rubber band).  Then he gets to the ranch, and finds the castration performed there is quite different (with a knife, and more); on the surface a more grisly method than he or we could have imagined.  Let’s just say that this would make killing an actual chicken seem simple and an easy choice.

But in the process of telling the story he introduces the concept of peripateia - the sudden or unexpected reversal of circumstances or situation (remembering it from his days studying Greek classics).  What a wonderful way of describing meaningful failure. 

Mike’s castration dilemma is so clearly framed, his assumptions apparent (“the ‘humane’ way is the right way”) and then, through first-hand experience, not only questions that assumption, he casts it aside when he realizes the definition of “humane” needs to be questioned. 

He describes in twenty minutes what some entrepreneurs I know have taken years to internalize, and he draws on some key themes I’ve explored:

  • Getting it wrong is something you need to embrace, it’s what enables you to both perform better and to comprehend your purpose and goals more insightfully.  It’s meaningful failure from another point of view.
  • You need to know when to stop what you’re doing, and question your core assumptions.  This is hard, as I’ve mentioned in previous posts.  When he stops what he’s doing, he demonstrates incredible integrity and purposefulness.
  • Facing up to the unfamiliar, the unpleasant, is precisely what presents you with the opportunity for discovery and learning, and improving the quality of your results.  This is a benefit of chicken-killing I hadn’t thought about.

But the impact of Mike Rowe’s honesty doesn’t stop there. 

He has a transparent methodology (no takes, no scripts, it’s all real) that underpins the credibility of his “product”.  What I loved about this anecdote is that he even had to question that foundational element of his show; he had to stop the filming because his core assumptions about the subject matter were so precarious.   That takes experience and a confidence in your process and values.  He didn’t rationalize, he didn’t talk about the cost of stopping production, he just did it because he knew he needed to.

Back to peripateia.  That doesn’t exactly roll off the tongue, but what an elegant term to describe how you bring meaning to failure, from getting it wrong. and finding meaning from the doing.  I want Mike Rowe on the board of the next company I fund too.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, Intellectual curiosity, meaningful failure, Self-knowledge, Values | 3 Comments »

More Series B musings

March 8, 2009

In talking to a few folks since my post Thursday on the nuances of Series B financings another analogy for Series A, B, and C financings came to mind.

You can look at investing in startups like selecting who among a classroom of kids will get into Harvard; if you don’t take this (completely dangerous) analogy too seriously, there are some interesting relevant analogies.  So just for a moment, enter a playful state of mind and let’s look at the landscape.

Series A investments are like evaluating a kindergarten class and trying to select the child you think would make it into Harvard.  You could look at a whole lot of characteristics about their classroom participation and capabilities and then try and figure out who would be likely to get be accepted twelve years down the road.  But it’s very much about taking a bunch of early, early data and trying to make a long range prediction. 

[If any of you have had kids in kindergarten, the sad thing is in real life there seem to be parents doing this math for their own children.]

But to play this out, with whoever you picked you’d have enough time and resources so that if circumstances develop along the way that take the kid you’ve “funded” off-track, you’d be able to help address these. 

Series C investments are like evaluating a high school junior or senior class and trying to select the child destined for Harvard.  Now you’ve got substantive and relevant historical data about performance, capabilities, and aspirations.  You have a much richer data set, and a much shorter time horizon – one to two years. 

With Series A, anything seems to be possible when you make the investment, and you have plenty of time to deal with surprises along the way.  With Series C, you can see and evaluate a lot of the substantive date, and have a reasonably clear sense of the prospects and risks.

Series B are like evaluating a middle school seventh grader’s class, and trying to pick who’s going to be Harvard-bound.  There is a trajectory that’s been established, but you don’t have the SAT scores, the high school GPA, or the extra-curricular activities that are going to factor so heavily in the outcome.  And, it’s hard to know who will blossom in high school and who won’t.  That the sullen introspective kid in the corner may deceive you as he or she may develop the confidence and leadership to become the head of the class in two to three years.  That popular kid  vying for attention may end up having more social skills than discipline, and could flame out academically in 10th grade.

This is an entertaining thought exercise precisely because it is so ridiculous. 

By the way, I have nothing against middle schoolers (I have two myself, and think the world of them, and their friends), but it’s an awkward stage.  Taking this back to our investment stage analogy, Series B is hard because you are between the “anything is possible” world and the “we have some relevant historical data and a shorter horizon”.

I’m not saying Series B investments are bad, it’s just that they’re their own unique animal that are particularly vulnerable in the current economic climate.  Fortunately, middle schoolers, regardless of the economic climate, will be just fine.

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The nuance of Series B financings

March 5, 2009

Given the economic climate, and the implications for startups, Series B financings are going to be tough to get done;  here are some substantive and “beauty” reasons. 

Substantive reasons. 

Series B financings happen at a vulnerable stage of a startup.  The company has generally proven its core value proposition, has demonstrated it knows where to find customers, acquire them, and has begun to monetize them.  The operative term here is “begun” – they haven’t generated enough revenue to cover their burn, and likely will need another 12-24 months to do so.

What the company or the investors don’t know yet is how scalable and predictable the revenue is.  How broadly into the target market the problem really exists (and whether or not they just got lucky with those first customers in the A round), and if/where the source of explosive leverage in the business is.

But the confidence of that revenue forecast, that can matter a lot.  Startups can run out of cash more quickly than they expect because the revenue forecast shows net cash needs going down over time…which is true only if the revenue comes in as planned.  So it’s easy to get a nasty surprise here if you miss your revenue forecast; all of a sudden you’re not managing to a break-even date, but a cash-out date that’s coming at you like a locomotive.

Series B financings may have less engineering or product risk, but they can have loads of revenue and market execution risk that can be hard to get your arms around.

Beauty reasons

There are also some beauty reasons why Series B financings are nuanced.  It’s precisely because they’re not Series A financings and they’re not Series C financings.  Let me explain.

Series A financings are attractive for VCs because they’re a product of your relationships and your deal flow – a result of personal, proprietary value.  The best deals involve shiny and bold unblemished ideas, are looked at by a small number of firms, and can be highly competitive. 

Series C financings are attractive for VCs because a lot of times they involve companies who have figured out how to scale revenue and have some clarity on the leverage in their model.  The engineering/product risk is generally behind them as is the revenue unpredictability; they need capital to expand and get to break-even.  These deals can also be highly competitive, and are shiny and old, old in a good way – they’re much closer to being sold (exiting).

What about Series B?  Well, a lot of times they’re just not as pretty.  They’ve been out in the market enough to success and have some warts and have already been seen by a lot of VC firms.  There’s still all that revenue and sales/marketing execution risk.  Series B deals are tweeners – neither a shiny Series A deal with a promising unblemished future, nor a “we’re just a few years away from an exit” Series C deal.  Picking a good one is tough.

What if you’re raising a B round?

You’ve got to embrace the reality of where you’re at.  You should expect to have a fair amount of “longitudinal” metrics supporting your revenue forecast.  Metrics you’ve been tracking for quite some time that communicate fact-based clarity in generating reliable revenue.

A closely related area is to have data that examines where in your business model the leverage comes from, and how that affects the economics of your business.  This too is best done longitudinally with data collected over time (like showing a strong network effect).

Finally, you need an operating plan that spends behind revenue; increasing expenses only after revenue has increased, reliably.  This means having some clarity around the context of expense increases, tying them to product or customer initiatives; “tear-off” plans that overlay onto your base revenue/expense plan.

B rounds are nuanced, and thoughtful planning and analysis can help you navigate the nuance.

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Posted in Business planning, fundraising, Venture capital | 3 Comments »

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