Posts from September 2009

I've found myself saying "events overtake companies" a lot this week. I'm not sure exactly why it was the phrase of the past week, but I did spend a lot of time talking to entrepreneurs running businesses that are growing rapidly, causing the founders to rethink their strategic plans.

I think less than 20% of the companies we back end up doing what they started out planning on doing. They build something, get it into the market, and then things happen. Often it turns out the market wants something a bit different than they are offering. Or that the users adopt one part of the product and don't use another part very much at all. Or developers start building things on top of the API that opens their eyes to a much bigger opportunity. Or it could simply be that the market loves what they built and they have to spend all their time on scaling and infrastructure and all the things they planned on building go to the back burner.

There are two big takeaways from this for me:

1) Don't get too attached to your strategic plan. If the market is telling you something different, go with it. The best entrepreneurs I know are great at "listening to the market" and quickly taking that input and reshaping the business to take maximum advantage of it.

2) Don't spend too much time on planning. My partner Albert wrote a post this past week about "making versus planning." In that post, he said:

I would spend as little time as possible on the planning and focus
instead on turning their prototype into a working system and getting
that out into the real world.  They will learn more about the viability
of what they are working on (and more about business) then any amount
of planning could tell them.

But don't take this post as a dismissal of the value of strategy and strategic planning. Strategy is critical. Everything flows from the basic strategic plan of the business. You need to have one, but keep it really simple at the start and be prepared to evolve it quickly once the market starts talking to you. If events start overtaking the company, go with them, it's usually the best approach.

There's a post on the 37 Signals blog by Jason Fried saying that the Mint sale to Intuit was a bad move for a host of reasons and suggesting that the VCs behind Mint had forced it. It reminds me of similar discussions about the sale of Zappos to Amazon a while back.

I left a comment on that post to the effect that while I have no inside information, I highly doubt that the VCs forced the sale.

But this is a good opportunity to talk about who does decide when to exit. Here are some rules that I've learned over the years:

1) When the founders and management want to sell, the VCs ought to go along (within reason) because blocking a sale and having angry and unhappy founders and management running the business is a bad outcome.

2) VCs often impact the price and terms of an exit but they rarely drive the exit itself when the founder is still actively running the business.

3) When a company is doing really well, the investors rarely want to sell. VCs make all of their money on a few investments per fund. When a company is in that group, they don't like to see an early exit.

4) When a founder owns a large stake in the business and is still running it, it is very likely that the founder drove the decision to sell and the sale process and was advised by the investors and board.

5) If the founders are no longer involved in the business and the management was hired by the VCs, and the VCs control the business, then it is likely that the investors drove the sale process and the decision to sell.

6) If the company is not doing well, then the decision to sell was likely forced by the VCs.

Of course, like all rules, there are exceptions from time to time. But when you see an exit, you can parse the data by this set of rules and you can pretty easily predict what happened, who made the decision, and who drove the process.

Image by fredwilson via Flickr

I'm in a particular stretch of sleep deprivation this week. From Tuesday through the end of today, I will do five board meetings in three cities, do two cross country flights including one redeye. I just finished a 24 hour visit to San Francisco where I did seven meetings including two of the five board meetings. To make matters worse, I had to fly coach on the redeye back to NYC.

I'm not complaining mind you. I am sure entrepreneurs have it much worse than I do.

But in a situation like that, how do I plan to "be present" in the two board meetings today?

Well for one thing, I take board meetings very seriously. They are among my most favorite parts of the job and I get energized just walking into them. I make sure to drink a lot of water and avoid heavy food and caffeine. If I find myself getting tired, I get up and participate in the meeting standing up.

But most of all, I try to be even more engaged in the meeting, ask more questions, think harder about opportunities and challenges facing the company, and attempt to make the meeting more interactive. And that's what my game plan is today.

I've also found that many entrepreneurs come into board meetings sleep deprived. Preparing for a board meeting is time consuming and many entrepreneurs put it off until the last minute and then go into crunch mode to get it done. You know when that happens if you don't get a board deck before the meeting.

I would advise entrepreneurs to avoid that approach if at all possible. Get the board prep done a few days in advance of the meeting, get the deck out to the board, and then get a good night's sleep before the meeting. You might need it if you've got some cranky bleary eyed investors to deal with.

Our portfolio company Targetspot announced something pretty interesting today. They are calling it Targetspot Analytics and the announcement is here.

When you run an ad campaign on the web, you can track its performance. That's been a vital part of the online advertising value proposition from the early days of web advertising. We can argue about what metrics are worth tracking, and we do, but the ability to measure online advertising is a key reason it is growing and other forms of advertising are in decline.

But it has been hard to measure the "performance" of video and audio advertising, particularly "in stream" advertising like pre-rolls and mid-rolls. That is because users don't click on the ads and leave the stream.

But we know that radio and video advertising works. People see and hear things and they remember them. I listen to WEHM on long island all summer and I know where to get outdoor furniture, get a tennis court resurfaced, and where to get my bike tuned up because I listen to the ads in between the music.

So back to Targetspot Analytics. This is how it works:

TargetSpot Analytics tracks the unique and total visits to any
advertiser-designated destination website along with other data,
following the delivery of an online radio ad. This information gives
agencies and advertisers the ability to measure a true return on
investment and optimize the performance of their online radio campaigns.

TargetSpot Analytics is easily implemented: An advertiser simply adds a
small snippet of code to their destination website that corresponds to
their TargetSpot ad campaign. TargetSpot Analytics can then provide
information on each visit to the advertiser’s website, even if the
consumer arrives there later through a search engine or by typing the
website directly into the browser.

The bike store on long island doesn't know that I showed up to get my bike tuned up because of their ad on WEHM but if they ran that ad on WEHM's internet stream and I went to their website to look up their location before heading over, they would. That kind of tracking and measurement is the power of internet advertising in action and I am excited to see it come to audio and video in stream advertising.

Sarah Lacy has a post up on Techcrunch about Paul Graham and Y Combinator. In the post, she says:

I’ve been a bit hard on Paul Graham and Y Combinator in the past. It’s not that I think he hasn’t been a great mentor to young entrepreneurs– he has. But that’s a lot of equity to give up and to date no Y Combinator company has really hit it huge.

I read that and went right to the comments and wrote:

it’s not a lot of equity to give up considering what he does for the YC
companies. in fact, i think its the best deal in startup land

Our firm has investments in two YC backed companies, Disqus and HeyZap, and hope to make many more. We've been attending demo days since the very early days of Y Combinator and we've paid pretty close attention to what Paul and Jessica do and how they do it.

You could say that giving up 6% for $25k is a bad deal, that it values the business at less than $500k. But that would only be true if all you got from Y Combinator was $25k.

The cash is the smallest part of the Y Combinator value proposition. I've met dozens of Y Combinator backed entrepreneurs and every single one of them has come away from the experience with a really good mindset on the startup process. They have a set of core beliefs which come from Paul and Jessica. They are lean, mean, and focused on the right things. They are almost always strong technical teams and they are often working on interesting problems.

And on top of all that, they have the Y Combinator "seal of approval" and they have Paul and Jessica tirelessly working on their behalf to raise the next round of funding.

I am not going to try to value all of that, but I can tell you this. It is worth a multiple of $25k and it is the best deal in startup land.

But maybe the best thing Paul and Jessica have done for startup land is inspire a whole bunch of fast followers. I don't think I can name them all right now as I am racing to get on a plane, but there are at least a half dozen quality programs that follow the Y Combinator model to some degree. So we now have hundreds of entrepreneurs every year going through one of these programs. That is a huge development and is making a difference. We may not have seen any of these companies IPO yet, but that will happen. It is just a matter of time.

Alacra, a company I've been an investor in and board member of for a decade, is hiring an editor to help them curate and organize business content in their Pulse product line. Alacra is a great company that is constantly coming up with new and innovative business services.

The job spec is here.

If you think this job is for you, please email your resume to [email protected].

On September 29th in the evening I am giving a talk about the NY web startup sector. It's part of our portfolio company Clickable's monthly "cultural event series". They asked me to give the talk I did last fall on the history of NYC's web industry. But that didn't seem like the right idea to me. As I thought about it, I decided to focus not on the past, but on the present and the future of the NY web startup sector.

A few weeks ago, Chris Dixon wrote a post suggesting that the NY startup scene was "poised for a revival" and I linked to that post with more thoughts on the topic. I agree with Chris' sentiment that web startup activity in the NY area is on the rise and there are a lot of really interesting things going on here.

I want to talk about that and I also want to examine why exactly that is. It is my view that each startup center of scale, and there are at least a half dozen of them, brings something special to the table. Silicon Valley is the largest and most important of these startup hubs and it's strengths are pretty well understood. But that is not so true of the secondary markets which are important and becoming more so.

I am not particularly qualified to talk about Seattle, Boston, Boulder, So Cal, etc, but I have been studying the NY startup ecosystem for a long time and I've gained an appreciation for the things that makes it special. I am going to talk about those things and I am going to talk about where they are going to take us.

Like I did with the Web 2.0 keynote talk, I've put together a wiki where anyone can leave ideas for me to include in this talk. I've seeded the wiki with some data but it is very much in the nascent stage right now. I plan to work on this talk over the next few weeks and hope that anyone interested in this topic will stop by the wiki and contribute your thoughts.

It appears that the talk is sold out but I will make sure it is recorded so that everyone can check it out. If it turns out well, I'll make sure to deliver it more than once.

Seth Godin has a short but sweet post (the best kind) up on the need to flip the way you think about free, abundance, and scarcity.

Seth was one of the first people to experiment with free and digital media and he has been a longstanding inspiration to me in this way of thinking. During the late 90s, he gave away a number of his books for free in soft copy before the book was published. In doing so, he built up a word of mouth phenomenon that drove the sales of the hard cover when it came out.

Seth has also had a long standing view that interruption based advertising is costly both in terms of media cost and brand cost. He believes that there are better ways to get people's attention and that giving things away for free is among the best of those ways.

This paragraph from his post that I linked to above outlines the basic idea:

We spent a generation believing certain parts of our business needed to be scarce and that advertising and other interruption should be abundant. Part of the pitch of free is that when advertising goes away, you need to make something else abundant in order to gain attention. Then, and only then, will you be able to sell something that's naturally scarce.

I like his example of Lululemon's free mass yoga events in Bryant Park. I bet that does sell a lot of yoga clothes.

Photo from 911photos.com

Longtime readers know that I stood on lower Thompson street that morning with Susan and Enrique and watched the first plane bank and slam right into the north tower. This is what I saw happen. It's a day to remember.