Posts from 2011

Last night we went up to Madison Square Garden with some friends to see James Murphy and LCD Soundsystem go out on top. For those not into LCD Soundsystem, James Murphy is a producer and record label owner who started LCD Soundsystem as a project in the early part of the last decade. They put out three records, each one besting the one before. The most recent came out last year and was one of the top records of the year.

Then, at the top of their game, LCD decided to call it quits. They played four shows this past week at Terminal 5, and then played their last show ever at The Garden last night. It's over now.

As we watched the band put on a fantastic show last night, I was thinking about going out on top. So few manage to do it. Shaq is warming the bench in Boston. Brett Favre should have called it quits after he threw the pick in OT against the Saints. The Stones haven't written a great song in thirty years. The money and the burning desire to "win another one" drives the great ones to stick around too long.

And I wondered if the rules of the entertainment and sports world can be applied to venture capital and startups. Is there a time to call it quits in business? I look at Warren Buffett and Rupert Murdoch and I see individuals still enjoying the work and delivering for their shareholders and investors into their 80s.

But I also look around the venture capital business and I see investors who were at the top of their games in the 90s struggling to remain relevant. And I think about how I want to manage this issue myself.

How do you know when you've done your last great startup? How do you know when you've done your last great investment? How do you know when you don't have the drive, hunger, and insights to keep delivering top performance?

Right now, coming off two weeks of totally relaxing vacation with my family, I find myself up early, thinking, writing, and planning. I don't sense it is yet time to hang up my cleats or walk of the stage like James Murphy did last night. But the thought is in my mind and I want it to stay there. The investment business is not easy. You are only as good as your last trade, fund, or year. And the venture capital business is particulary tricky. All the returns in the business accrue to the top ten or, at best, twenty percent of investors. When you lose your edge, your performance suffers, often badly. But it can take a decade for the rest of the world to notice because there is so much latency in the venture capital business.

I don't want to be the investor who sticks around milking the investors for fee income and raising funds based on returns that are over a decade old. That's a Rolling Stones move and it is not for me. I'd prefer to do what James Murphy and his band did last night.

Roughly six months ago, I put up a blog post suggesting Android was going to be the dominant mobile phone operating system and that developers interested in the largest user bases ought to start developing for it in preference to iOS.

As you might expect, I got a lot of heat from Apple fanboys for that post and one of the strongest points they made was that we had not yet seen the effect of the Verizon iPhone on market share numbers.

Well now we have. iPhone had a fantastic February on the back of a strong launch of the Verizon iPhone. comScore's February mobile numbers are out and here's where things stand in terms of OS market share in the US.

It looks like the Verizon iPhone launch is helping iOS hold its own with 25% of the market. I expect (and hope) that iOS will remain a strong competitor to Android. But as I've been saying for several years now, I believe the mobile OS market will play out very similarly to Windows and Macintosh, with Android in the role of Windows. And so if you want to be in front of the largest number of users, you need to be on Android.

A few other points are worth making. The numbers above are for the US. I believe Android will be stronger in the developing world than it is in the developed world. And most of the growth in smartphones is going to come from the developing world in the next five to ten years.

Finally, the reason for all of this is that Google is not attempting to monetize its mobile OS. It has created a business model for Android that is very attractive for handset manufacturers and allows these OEMs to drive down their costs rapidly while continuing to deliver a top quality smartphone experience. Bill Gurley of Benchmark wrote a great post about Google's mobile strategy earlier this week called "The Freight Train That Is Android". If you want to understand why this is happening, go read it.

UPDATE: This comment thread (almost 600 comments) is probably the most active comment thread in the history of this blog. The comments keep coming in five days later. Because I read and consider replying to every comment on this blog, this thread is creating a fair bit of work for me. And I believe we've had a very good debate about the issues this post raised. So I am closing comments on this post.

Every once in a while I come across a blog post that so totally nails something and I am reminded why professionals blogging about their craft is such an important development in the world of media. Yesterday Ben Horowitz posted about the psychology of being CEO. He starts with this observation:

very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown

Ben goes on to observe that:

building a multi-faceted human organization to compete and win in a dynamic, highly competitive market turns out to be really hard. If CEOs were graded on a curve, the mean on the test would be 22 out of a 100. This kind of mean can be psychologically challenging for a straight A student. It is particularly challenging, because nobody tells you that the mean is 22

I have never been a CEO. I don't think I would be a very good CEO. I have observed hundreds of CEOs from up close in my career from a perspective that is fairly unique and revealing. I have great empathy for the people who find themselves in this job. It is hard, lonely, and as Ben points out – it can really mess with the mind.

Ben goes on to identify a number of tools he used to help him manage the psychological challenges of the job.

If you are a CEO, work closely with CEOs, are married or in a serious relationship with a CEO, sit on Boards where a CEO is accountable to you, or if you want to be a CEO, the post is a must read.

I'd like to thank Ben for writing it and breaking "the first rule of CEO psychological meltdown."

Matt Blumberg, founder and CEO of our portfolio company Return Path makes a compelling argument for getting a Board of Directors together for your company regardless of whether you take outside capital (and thus are required to do so). Matt says:

Boards create an atmosphere of accountability for an organization, which drives performance (and many other positive qualities) from the top down in a business.  Budgeting and planning, reporting on performance, organizing and articulating thoughts and strategy – all these things are crisper when there’s someone to whom a CEO is answering.

I agree with Matt with two big "ifs." The first is if the Board is made up of strong individuals who understand that a Board's role is oversight, not day to day management. There is nothing worse than a Board which meddles. Matt's Board, which I have had the pleasure of serving on for a decade now, is among the best I've ever served on. And so Matt's perspective is based on that assumption.

The second "if" relates to who controls the company. If you control the company and cannot be fired, then your Board doesn't have the thing that ultimately creates the accountability that Matt talks about. Boards that are just rubber stamps are worthless. And there are many out there. I won't serve on one and I would not recommend having one.

There's a culture of celebrity around founders in the tech business and certainly the Twitter founders are no exception. @jack, @ev, and @biz are celebrities and deservedly so. But you can't build a company all by yourself, or even as a trio. And Twitter has a relatively unsung near founder in @goldman who contributed so much to the company over the years.

At the end of the day, it takes a lot more than four people to build a company. And Ev's post today about Twitter says it so well. So I'll end with his eloquent comments about the team that built Twitter into what it is today:

Founders, in general, get an out-sized share of the credit for any successful company. There are hundreds of people at Twitter now, some of whom have been there for years and played critical roles. There are those whom you know by name and others you may never have heard of individually, but they have all contributed to the company’s success. I'd venture to say it's one of the finest teams ever assembled in the Internet industry, and it’s the accomplishment of which I’m most proud. Not just because they are people who are good at their jobs, but because they're good people.

When I was running the company, I felt very privileged that this amazing group had granted me leadership. (It practically brought me to tears on multiple occasions, during our all-hand's meetings, when someone demonstrated their unique and heartfelt awesomeness.) It was they who collectively helped Twitter mature from a quirky, wobbly toddler of a service with great potential but way too much attention for it's own good to an operation that is becoming—if not already has become in some areas—world class. And it is they who will take it to the next level, which will surprise us all.

I'm on vacation so I'll keep this short.

I don't get the idea of music locker services like the one Amazon just announced. If I'm going to stream music from the cloud, why should I continue to buy files and collect them? I've been a Rhapsody subscriber for something like 11 or 12 years and although it has taken a while to get used to, I vastly prefer subscription streaming services over file based music. I've just stared using rdio on my Android and on the web and I love it too. I've used Spotify and it is also excellent (once it is fully licensed in the US).

Locker services seem like they are designed to continue the physical model of collecting music and buying music when there is a new and better way – just subscribe to music dial tone and listen to whatever you want wherever you want.

I'm bearish on locker services and bullish on subscription streaming services.

I've spent the past two days in airports and on airplanes. I was hoping to write my MBA Mondays post for today on the flight yesterday. But there was no wifi or power. I punted and watched VCU beat Kansas (yay) and Kentucky hold on and beat UNC.

I had the same plan today. Had power but not wifi on our flight to Mexico this morning. As we were bouncing around in a storm over the gulf, a distinct odor of electrical burning enveloped the cabin. The flight attendants made a manic attempt to find the cause of the odor, while the pilot made a quick decision to turn left and land in Tampa. The good news is we landed safe and sound. But we are stranded in Tampa until this evening.

I could write the MBA Mondays now, but I'm frankly not in the mood. I'll hang with the kids, play some cards, and hopefully board a plane this evening to Mexico.

So I'll finish the series on M&A Issues next monday.

We largely invest in consumer web services with a large number of engaged users where the users create the content. Services like this can become messy and hard to navigate. There is always a signal to noise issue.

I'm a big fan of curation in these services. Twitter has lists. Etsy has favorites. Tumblr has tag pages. These are all variations of curation in services that have a lot of noise in them.

Recently Kickstarter launched their own version of curation called Curated Pages. In the Kickstarter model, "Curated Pages are a way for organizations, institutions, and (soon) individuals to share projects they love on Kickstarter."

Here are some of my favorite Curated Pages:

The Magnum Foundation Emergency Fund – The Magnum Foundation Emergency Fund provides grants to photographers who are documenting social and political issues around the world. Now with Kickstarter, we can all help fund these important projects.

NYU's ITP Program – NYC's "media lab" and one of the most impactful and important pieces of NYC's tech community. They've curated a page of projects they like.

Creative Commons – The Creative Commons organization evangelizes for technology and legal frameworks that facilitate sharing and creativity.

The Sundance Institute – A curated page promoting Kickstarter projects from Sundance supported artists.

You can find all of the current curated pages at the bottom of the Kickstarter home page.

If you are interested in curating a page on Kickstarter, this feature will be made available to everyone soon.

If you are building a marketplace or a social platform, make sure to build curation into your model. It will make the service easier for everyone to navigate, particularly new users.

Bijan has a really good blog post up today about Spark's approach to investing in competing companies (they don't). He says:

I’m quite sure that we will miss a few important investments and i’m sure we could be more aggressive with and flirt with the gray line that we are trying figure out every day.

Our firm takes an almost identical approach to Spark on this topic. Back in early 2007, I wrote a blog post at USV.com on this topic. After reading Bijan's post, I went back and re-read my blog post. I wouldn't change a word four years later. Which feels really good to me.

I believe that VC is a service business and our customer is the entrepreneur. Our shareholders are the limited partners who allow us to invest their capital. And I believe that in order to service the entrepreneurs we work with to our fullest, we cannot and should not have competing investments.

I know that there are VC firms out there that don't share this view. And I am sure they have found a way to make it work for them and the companies they invest in. But we haven't and I am sure we never will.