Posts from November 2005

I posted about the new TV show, Kitchen Confidential, back in early September.

As I said in that post, I know some people involved in the show.

We started watching it when the first shows aired in mid-September. But Fox stopped showing them when the baseball playoffs started and they have not put the show back on the air.

I think that’s a big mistake. The show is funny and its a lot better than most of the stuff I’ve watched on TV this year so far. Bradley Cooper, who plays Jack Bourdain, is particularly good.

So I was surprised to see that Fox has made one of the shows that has yet to air available on MySpace.  A 200 pixel wide window isn’t the best place to watch this show, but I guess that’s all its going to get from Fox right now.

Check it out.  I think its pretty good TV.

Our new weekly podcast is up.

We had Josh and Jessica with us on this one.  Emily begged off so she could pack for her class trip to Williamsburg. We talked about some good and bad movies and plays.

Here’s the song list:

Josh’s Song – Twist and Shout – The Beatles
Joanne’s Song – The Holy Ground – The High Dials
Jessica’s Song – Shadowland – Youth Group
Fred’s Song – My Own Face Inside The Trees – The Clientele
Final Song – Left of the Dial – Microdot Live at Tedstock

Listen live here.

To listen in iTunes or on your iPod, get iTunes (version 4.9 or higher), then
select Advanced, Subscribe to Podcast, and then enter this into the
box:

http://feeds.feedburner.com/Positively10thStreet

Joseph Nocera is writing some of the most interesting business commentary these days.  I posted about his column on Wal-Mart last weekend.

This weekend he takes on one of my favorite topics right now – the Times Select program. He does that in the Times itself which is kind of cool. They are allowing their own columnists to write about the TImes’ business.

I didn’t link to Joseph’s column in last week’s post and I am not going to link to his column in this post either.  And its not because I am somehow protesting the wall that the Times has put up between their audience and their columnist (although I personally hate it).

I have written before that links are the currency of the Internet. That continues to be lost on the major media. As I browse around the New York Times online this afternoon, I find so few links in the stories.  They should look like Wikipedia, not a newspaper.  This is the Internet after all.

Links are so fundamental on the Internet.  Not using links is like not using commas or periods. If you think about Google, the current king (or at least Starbucks) of the Internet, they have built their whole platform on links. The New York Times doesn’t link out very much.  So how do they expect others to want to link back?

I use the Internet like I follow a conversation, I read something, it contains a link, I follow it, I read more, I learn more, and so on and so forth.

The big problem with Times Select and one that Joseph Nocera misses in his otherwise excellent column, is that its a damn wall in the link love that exists online.  I’ll be following a conversation and digging and learning and bamm, I hit the frickin wall.  Stopped dead in my tracks.  Now some percent of the Internet will pay the $50 and the wall will come down for them.  But not for most of the people online.  And a conversation that is not inclusive is not a conversation I want to be part of.

So I don’t pay the $50 and I don’t join Times Select.  And I never will.

Many of the people I know in the venture capital business think their customers are their investors, called LPs in the industry vernacular. I’ve always thought that was dead wrong.

The entrepreneur is the customer and the LP is the shareholder. That’s the only way to think about the venture capital business that makes sense to me.

What makes this so hard to grok for many in the venture business is that much of the selling we have to do is when we raise money.  Once the money is raised, the entrepreneurs are the ones who come into our offices in "sell" mode.  And that dynamic warps many VC’s perspective of the business.

I start with the value chain.  The entrepreneur creates the value, they are the "raw material" in the venture capital business.  If there were no entrepreneurs, there would be no venture capital business.  So the VCs who treat the entrepreneur like the customer and invest heavily in customer service will be rewarded with the loyalty of the most important component in the value chain.

Money on the other hand is a commodity, whether its in the hands of the LPs or the VCs. Money flows to the best returns and always will.

So if the VC does a good job of serving his customers well and generates superior returns as a result, the money will always be there as long as the price of his fund is reasonable.  That’s why I am convinced that the LPs are the shareholders.  That is exactly the same dynamic that exists in company/shareholder relationships.

This "entrepreneur is the customer" mantra gets hard in a couple places in the venture capital process.

The first is the VC deal flow process.  Take our firm.  We are getting something like 30 new deals a week coming into our office that are generally in our area of interest and are at the stage we like to invest.  We will make investments in roughly four of them per year.  So we have approximately 1500 potential "customers" walk in our door a year and only take four of them.  It’s natural that the other 1496 will leave our office unhappy at some level and may never return. That’s a big customer relations problem.  We try really hard to be helpful, candid, and quick in our triage process, but at our best we might only make a third to a half of the rejected entrepreneurs comfortable with our process and eager to come back.

The second area where customer relations gets sorely tested, and where the "entrepreneur is the customer" mantra is the most difficult is when the entrepreneur is not doing a very good job of minding their own store. I believe that once the entrepreneur accepts an investment from the VC,
the VC’s customer set expands to include the company, its employees, and its
customers.  The entrepreneur is still an important customer, probably
the most important customer, but the entire stakeholder group in the
entrepreneur’s company comes into the equation once the investment
closes. When the entrepreneur starts failing this expanded stakeholder group, it becomes the VC’s job to help them by getting them to change or getting them out of the way.  Most entrepreneurs don’t view that as help and therein lies the problem. 

But in a funny twist, this is exactly where the "entrepreneur is the customer" is the most helpful mantra.  If you really view the entrepreneur as your customer, when you walk into their office with the hard news that you aren’t going to keep funding their company if it continues on its current path, or that you want them to step aside and bring in someone better suited to run the company, or that they need to get a coach and start behaving differently if they want to keep their job, you will deliver that news as a friend, a person who honestly cares about them and their dreams, and with compassion and understanding.  And that is the only way to get through those really hard discussions with a chance of coming out the other side with a relationship.

Entrepreneurs are really difficult customers to serve well.  It takes a significant investment of time, energy, money, and intellect to satisfy them.  But if you do it well, you will develop a reputation for great customer service that will keep the best ones lined up at your door.

And that is the best way to deliver exceptional returns that I know of.

Josh was practicing drums last night and he’s working on a Carmine Appice workbook.

So after he finished, we did a little digging on the web into Carmine.  Listened to some Vanilla Fudge and then came to Beck, Bogert, and Appice.

That took me back to my late teens and college years when I used to listen to Jeff Beck all the time.

Jeff Beck is one of the great guitar virtuosos.

And the record to check out, if you want to give Jeff Beck a try, is called Blow By Blow.

This could be called "jazz fusion" but to me its Jeff Beck showcasing his amazing guitar playing skills for the world to hear.

Highlights include Freeway Jam, Cause We’ve Ended As Lovers, Scatterbrain, and the opener You Know What I Mean.

I went to a lunch today where I heard one of the best hedge fund investors over the past 25 years speak.  It was a great talk and focused on many issues that I found relevant to our work.

My favorite part of the talk was where he said that great investors share a number of personality traits and then went on to list them.  Here is his list:

Tenacious (but not stubborn)
Creative (but not overly so)
Logical Thinker
Thorough (but not too thorough)
Values and invests In relationships
Adjusts to and bounces back from mistakes
Decisive (but not impetuous)

It’s a great list. I might put it up on my wall right next to the "what are you gonna do" picture.

Brad has a good post on our Union Square Ventures blog about reputations.

Almost exactly one year ago, I posted about reputation services and made the point that someone should syndicate reputation data and extend it.

Well it turns out, according to Brad’s post which builds on Mary Hodder‘s comments at our Sessions event, that reputation isn’t very portable.

Go read Brad’s post for the whole insight.

Apple calls this the sad iPod screen.

I call it the sad iPod customer screen.

The iPod is a wonderful device and it has changed my life in many ways.

But these things crash way too easily.

Fortunately Apple is happy to take them back and send another iPod that works.

While my sad iPod has been in the replacement process, which usually lasts about four to six days in total, I have been using my Treo and Pocket Tunes as a replacement.

The good news is that the Treo can be a decent music player.  The bad news is you are limited to what the flash memory can store and the experience is far from "plug and play".

But I believe that there is a sliver of an opening in the iPod monopoly based around four issues;

1) The mean time to failure of the iPod is about six months (based on my experience)

2) The planned obsolescence of each new iPod format after about six months (ie photo iPod then video iPod).

3) The insistence on a proprietary music format and now video format that locks the customer into the iTunes music store.

4) The consumer’s desire to play music on their phones.

I don’t see anyone rushing in to supplant the iPod yet, but it sure feels like the monopoly is getting a bit tired.

The Times announced today that 270,000 people have signed up for Times Select, the service that lets you get content that used to be free like op-ed columns.

About half of this 270,000 are print subscribers who get Times Select for free so that means the Times has generated close to $7mm in subscription revenues in two months.

$7 million is a pretty large number and so many will say this has been a success.  But as I pointed out in a previous post, the traffic to these opinion pages has dropped off significantly since the implementation of Times Select.

Let’s assume that they will continue to sign up new Times Select subscriptions but at not nearly the rate they did at launch and that they will end up with 250,000 paying subs at the end of the first year.

That’s a $12.5mm per year revenue stream.

Since the Times never sold ads on its opinion pages, that is a windfall and its real money.

So I suppose the walls are going to stay up unless the columnists revolt.

And so far, it seems they are willing to go along.  Maybe the op-ed columnists are going to get a piece of this revenue stream. That might make a lot of sense to compensate them for losing their audidence in the name of a business model.

I still think this is a bad business move long term, but it certainly seems like a smart move in the short term.