Posts from April 2010

Ten Ways To Be Your Own Boss

Like the Paul Simon song, there are probably at least fifty ways to be your own boss, but I only have twenty minutes this coming thursday at the 99% Conference and so I am going to talk about ten of them.

The super high growth startup that lands a ton of venture capital and heads for a big exit is the iconic entrepreneurial success story but it represents a tiny fraction of all entrepreneurial endeavors and I think it gets in the way of more people starting their own businesses. They think "well I can't do that" so they don't do anything. And that's wrong. 

So I am going to talk about ten ways you can be your own boss and hope to deliver the message that there is a way that most everyone can do it. 

Here are my visuals in draft form. As always, comments and suggestions are very welcome.

Ten Ways To Be Your Own Boss

View more presentations from fredwilson.

I'd like to acknowledge flickr member .eti whose most excellent photo graces the front of this presentation.

#VC & Technology

Venture Capital Creating Systemic Risk???

Jackreed_E_20100409164604 Rhode Island Senator Jack Reed was quoted in the WSJ yesterday saying that VC firms managing $30mm of capital or more need to report to the SEC because "the government needs the reporting requirement so it can assess whether
these private pools pose a systemic risk to the financial system."

The only systemic risk the VC business is creating for the financial system is attempting to put the current one out of business by financing entrepreneurs with new ideas for banking, brokerage, insurance, and other financial services. I'm not joking about this. I believe entrepreneurs will use technology to reinvent the way financial services are provided to consumers this decade.

But to suggest that small venture funds of $30mm could possibly be creating systemic risk to the global financial system is ludicrous. I can't even imagine a huge $1bn venture fund could create systemic risk, but I can understand how a regulator might want to keep track of something like that. But a $30mm fund???? I'm speechless.

#Politics#VC & Technology

Blackberry Gets Some Social Media Mojo

Bberry twitter  I've been carrying around two phones for most of this year, my trusty Blackberry and the Google phone. I use the blackberry for voice, text, and email and the Google phone for web, maps, and apps. I'm getting pretty good at typing on a touch screen but I still cannot type a three or four paragraph email easily on the Google phone and until I can, I'm not walking away from the Blackberry.

I do occasionally use the Blackberry for mobile apps and my two favorite Blackberry apps are SocialScope and Foursquare. I've been using both of these apps since they were in alpha and they have improved a lot over the past six months. They are now rock solid.

This week The Gotham Gal got a new Blackberry, the 9700, which is what I use. It's a mighty fine phone. This morning I installed the Blackberry App World on her phone (it's crazy that it does not come pre-installed by T-Mobile). Then I installed Foursquare and the new Blackberry Twitter app. You'll find the new Twitter app in the Test Center category in App World.

After I did the install, I played around a bit with her Twitter and Foursquare apps. It occurred to me that with the arrival of rock solid apps like the new Twitter app, Foursquare, and SocialScope (which aggregates all of these services into one app), the Blackberry has become a damn good mobile social media device. The only thing that it is missing is a good Facebook app. The current one is not great.

Blackberry has a bunch of catching up to do to stay relevant and one important thing is getting really great social media apps on its platform. My sense from this morning's experience is that they are getting there. And not a moment to soon.

Reblog this post [with Zemanta]


Internet Freedom

I've never liked the term net neutrality to be honest. And in the wake of the FCC's legal loss to Comcast over bit torrent throttling, the net neutrality camp (which I am very much in) is on its heels. This post is not about that decision or its ramifications, which I think are significant. It's about the need to frame the issue in a different way.

My partner Albert got me thinking about Internet Freedom with his post the other morning. Internet Freedom is about sustaining the era of permissionless innovation that has characterized the first fifteen years of the commercial Internet in this country and brought us thousands of new big profitable companies, millions of jobs, and a vast array of new services and devices that have changed our lives and made them better.

Our firm, Union Square Ventures, focuses most of our time on finding companies, investing in them, and working with the entrepreneurs to build them. But a few years ago, we made the decision to invest a small amount of our time on public policy issues, like net neutrality, patent reform, spectrum reform, immigration reform, and a handful of other ones. All of this and more is about Internet Freedom. Our business requires it. If we lose Internet Freedom, we won't have any companies we would want to invest in and we'll close up shop and move on with our lives. That would be our loss.

The bigger loss would be to our society which has benefitted mightily from Internet Freedom and will continue to benefit as long as we don't lock everything down and close everything up. So as Albert says, "the price of Internet freedom too is eternal vigilance." 

We'll be stepping up our efforts inside our firm and outside our firm in this area. It's so very important.

Enhanced by Zemanta

#Politics#VC & Technology#Web/Tech

The Twitter Platform's Inflection Point

I was emailing with a friend of mine yesterday who is a 30 year veteran of silicon valley. He'd written a post that was quite positive about the iPad. I sent him my post which wasn't so positive. We had a good discussion. Which ended with my friend making this point:

fate depends on entrepreneurs inventing new kinds of killer apps. (remember how
desktop publishing saved Mac?)

I got out of college in the early 80s when the desktop revolution was upon us. A bunch of my friends from MIT were piling into startups in Cambridge building products on top of this new desktop computing platform. One of them was a company called General Computer that made external hard drives for the original Macintosh, which you might recall came with only a floppy drive. General Computer did fantastic for a while but its business eventually faded away as Apple filled in the holes in the Macintosh product.

Contrast that with Lotus, another Cambridge company that built something entirely new on top of the desktop platform. Or Aldus, who started the desktop publishing business that "saved Mac" as my friend points out.

Which brings me to the title of this post. I've been thinking a lot about the Twitter Platform and Ecosystem recently. I think it is at an inflection point, much like the desktop software and hardware business was in the mid 80s as the desktop platform started to mature.

Much of the early work on the Twitter Platform has been filling holes in the Twitter product. It is the kind of work General Computer was doing in Cambridge in the early 80s. Some of the most popular third party services on Twitter are like that. Mobile clients come to mind. Photo sharing services come to mind. URL shorteners come to mind. Search comes to mind. Twitter really should have had all of that when it launched or it should have built those services right into the Twitter experience.

When you talk to a new user, they want to know how to post a photo to Twitter, they want to know "what is this thing?", they want to know how to get Twitter on their iPhone. Names like Summize, Twitpic, Tweetie make no sense to them. Of course, without Summize, Twitpic, and Tweetie we would not have the Twitter we have today. They and many other third party products and services filled out the holes in the Twitter product and made it work better.

But those services don't feel like Lotus or Aldus to me. What are the products and services that create something entirely new on top of Twitter? I'll come back to that question, but one more history lesson, this one recent history.

When Facebook platform launched, we saw a massive number of new products and services launched on The Facebook. But many were slight variations on existing Facebook features (like Superwall) or holes in the Facebook service. As Facebook closed up those holes and enhanced their own feature set, those apps fell to the wayside. But there was one entirely new business that got created on top of the Facebook platform and that is social gaming, which industry analysts project will be a $1.6bn market this year and I think that number is low.

Facebook (and Twitter) have also spawned the social media agency business, helping businesses and brands market themselves in social nets, which may be even bigger than social gaming when you add up all the companies in it. That business opportunity is directly analogous to the search agency business that got built on the back of Google as it scaled into the business it is today.

So it is clear that you can build large businesses on top of a social platform like Facebook and Twitter. And because Twitter is so open and so lightweight, I am surprised that there aren't more "new kinds of killer apps" to quote my friend who I started this post with.

Here's are some places where I think we might see these killer apps emerge:

* Social Gaming – There have been a number of attempts to build social game experiences on Twitter. But I'm not aware of any successes of scale like we've had on the Facebook platform. I think we will see it emerge soon.

* Verticals – We have some successes to point to here like Stocktwits for finance and Flixup for movies but this is a wide open opportunity in most verticals and we haven't seen as much effort here as I'd have expected.

* Enterprise – CoTweet comes to mind as well as the efforts that Salesforce has made to integrate Twitter. This is a huge opportunity.

* Discovery – This is one area where there is a significant amount of effort. Hunch, Listorious, TweetMeme, Cadmus, WeFollow, and MrTweet all come to mind.

* Analytics – While Twitter will obviously be delivering better analytics to its users, particularly its marketing and business users, I believe that there is always a market for third party analytics. Google Analytics is available for free and yet none of the large analytics providers have seen their businesses suffer. There is simply a voracious appetite for information on the Internet. So companies like, Radian6, HubSpot, Scout Labs, and others have a bright future.

But these are the obvious places to look for killer apps on Twitter Platform. If I can see them, so can many others. I think there are a number of non-obvious places, like desktop publishing was on the Mac, where something entirely new will be built on top of Twitter. And that's what I'd like to challenge entrepreneurs and developers out there to focus on. I think the time for filling the holes in the Twitter service has come and gone. It was a great period for Twitter and its third party developers.

I believe we are entering a new phase now. Twitter is a global platform, the 33rd largest in the world according to Comscore, with almost 70mm uvs worldwide in February. It is a large company now with the resources to service the ecosystem in ways it never could before. It's hosting its first developers conference, Chirp, in San Francisco next week. And so it's time for Twitter and its developer ecosystem to work together to create entirely new things that will shape the Internet in the coming years. I'm excited to see it happen.

#VC & Technology

Thoughts on the iPad

I’m typing this on my iPad. I pre-ordered it and it came yesterday. I spent a fair bit of time playing with it last night.

I don’t know where the complaints about typing come from. Compared to the iPhone, I find typing on the iPad to be much easier.

I also find it much easier to read on this device than the iPhone. The bigger screen size makes a huge difference, at least on my middle aged eyes. I downloaded the Kindle app and love the fact that the Gotham Gal and I can now read the same book at the same time on multiple devices. That’s been possible with Kindle and iPhone for a while now but reading books on the iPhone never interested me.

I showed the Gotham Gal several books she has just read on the Kindle displayed on the iPad. She grabbed the iPad and immediately said “this thing is way too heavy.” I guess I will be reading on the iPad and she’ll be reading on the Kindle. I agree that the iPad is heavy. I’ve been holding it for about five mintues so far while typing this and can feel the strain in my left forearm. The Kindle never feels that way even after hours of reading with it.

Reading (and watching some video) is how I will use the iPad. It is just not that good for much else. I sat in the family room and watched the Duke Butler game with the Gotham Gal and my son last night. Even though I downloaded a beautiful version of Tweetdeck onto the iPad, I was not the least bit tempted to use the iPad to be my Twitter dashboard during the game. My MacBook is still vastly superior as a computing device and it’s not much bigger or bulkier.

You give up a lot with the iPad and you don’t get much in return. You lose multi-tasking which is a huge deal for me. I can’t listen to music while I write this. That alone is a showstopper for me. Plus it’s slow as a computer. The apps run slow and so is the browser. That could be my wifi but my MacBook runs on the same wifi network and there’s a noticeable difference in the speed of browsing between them.

The selection of apps is still poor. There’s no Facebook app that I could find. None of my favorite web music services have iPad apps yet and I won’t even get into the no flash thing other than to say it totally bums me out.

I think the iPad is stuck in a difficult place between the smartphone and the laptop and it’s not nearly as convenient as a phone or as powerful as a laptop. That’s based on all of four hours playing with it. The device will get more powerful and lighter and less expensive. Over time it may turn into a mainstream computing platform but I don’t think it is there yet and I don’t think Apple has the kind of hit on its hands that it had with the iPhone.

All that said, I am excited to put two Velcro strips on the back of this thing and mount it to my elliptical trainer. It’s perfect for that application and my blog reading and occasional posting from the elliptical will benefit mightily from the iPad.


Analyzing Financial Statements

This topic could be and is a full semester course at some business schools. It is a deep and rich topic that I can’t cover in one single blog post. But it is also a relatively narrow skill set at its most developed levels. If you are going to be a public equity analyst, you need to understand this stuff cold and this post will not get you there.

But if you are an entrepreneur being handed financial statements from your bookkeeper or accountant or controller, then you need to be able to understand them and I’d like this post to help you do that. I’d also like this post help those of you who want to be more confident buying, holding, and selling public stocks. So that’s the perspective I will bring to this topic.

In the past three weeks, we talked about the three main financial statements, the Income Statement, the Balance Sheet, and the Cash Flow Statement. This post is going to attempt to help you figure out how to analyze them, at least at a cursory level.

In general, I like to start with cash. It’s the first line item on the Balance Sheet (it could be the first several lines if you want to combine it with short term investments). Note how much cash you have or how much cash the company you are analyzing has. Remember that number. If someone asks you how much cash you have in your business, or a business you are analyzing, and you can’t answer that to the last accounting period (at least), then you failed. There is no middle ground. Cash is that important.

Then look at how much cash the business had in a prior period. Last month is a good place to start but don’t end there. Look at how much cash went up or down in the past month. Then look much farther back, at least a quarter, and ideally six months and/or a year. Calculate how much cash went up or down over the period and then divide by the number of months in the period. That’s the average cash flow (or cash burn) per month. Remember that number.

But that number can be misleading, particularly if you did any debt or equity financings during that period (or if you paid off any debt facilities during that period). Back out the debt and equity financings and do the same calculations of average cash flow per month. Hopefully the monthly number, the quarterly average, the six-month average, and the annual average are in the same ballpark. If they are not, something is changing in the business, either for the good or the bad and you need to dig deeper to find out what. We’ll get to that.

If cash flow is positive for all periods, then you are done with cash. If it is negative, do one more thing. Divide your cash balance by the average monthly burn rate and figure out how many months of cash you have left. If you are burning cash, you need to know this number by heart as well. It is the length of your runway. For all you entrepreneurs out there, the three cash related numbers you need to be on top of are current cash balance, cash burn rate, and months of runway.

I generally like to go to the income statement next. And I like to lay out a few periods next to each other, ideally chronologically from oldest on the left to the newest on the right. For startups and early stage companies, a 12 month trended monthly presentation of the income statement is ideal. For more mature companies, including public companies, the current quarter and the four previous quarters are best.

Some people like to graph the key line items in the income statement (revenue, gross margin, operating costs, operating income) over time.  That’s good if you are a visual person. I find looking at the hard numbers works better for me. Note how things are moving in the business. In a perfect world, revenues and gross margins are growing faster than operating costs, and operating income (or losses) are increasing (or decreasing) faster than both of them. That is a demonstration of the operating leverage in the business.

But some early stage companies either have no revenue or are investing in the business faster than they are growing revenue. That is a sound strategy if the investments they are making are solid ones and if they have a timeline laid out during which they’ll do this. You can’t do that forever. You’ll run out of cash and go out of business.

From this analysis, you may see why the business is burning cash or burning cash more quickly or less quickly. You may see why the business is growing its cash flow rapidly. I am most comfortable when the monthly operating income (or losses) of a business are roughly equal to its cash flow (or cash burn). This does not have to be the case for the business to be healthy but it means the business has a relatively simple economic architecture, which is always comforting. From Enron to Lehman Brothers, we’ve learned that complex business architectures are hard to analyze and easy to manipulate.

One thing that bears mentioning here are “one time items” on the Income Statement. They make your life harder. If you go back to the Income Statement post and look at Google’s statement, you’ll see that in the first year of their presentation Google made a one-time contribution to the Google Foundation. That depressed earnings in that period. You need to back that one time charge out for a consistent presentation, but you also need to be somewhat suspicious of one-time charges. Companies can try to bury ongoing expenses in one-time charges and inflate their earnings. You don’t see that much in startups but you do in public companies and it’s a “red flag” if a company does it too often.

If the monthly operating income (after backing out one-time charges) doesn’t come close to the monthly cash burn rates, then something is going on with the balance sheet of the business. Many of these differences are normal for certain businesses. My friend Ron Schreiber told me about a software distribution business he and his partner Jordan Levy ran in the mid 80s. They would buy software from Microsoft, Lotus, and others in bulk and sell it in small quantities to mom and pop businesses. Microsoft and Lotus wanted to be paid upfront when the shipped the software but the mom and pop businesses were running on fumes and could not pay until they sold the software. So Ron’s business, called Software Distribution Services (of course), was always out of cash. In Ron’s words, they were a bank and a distribution company and weren’t getting paid for the banking part of their business. All during this time the revenue line and the operating income line was growing fast and furious as desktop software went from a niche business to a mainstream business. Eventually Ron and Jordan had to sell their business to Ingram, a large book distributor who had the financial resources to provide the “banking services”. They made a nice hit on that company, but not anything like what Microsoft and Lotus did even though they grew their topline just as fast as their suppliers.

Ron and Jordan’s business was “working capital intensive.” Working capital is the non cash current assets and liabilities of the business. When they grow rapidly in relation to revenues, it means you are financing other parts of the food chain in your industry and that’s a great way to run out of cash.

So if monthly income and monthly cash flow aren’t in the same ballpark, look at the changes in working capital month over month. We went over this a bit last week in preparing the cash flow statement. If working capital is the culprit soaking up the cash, you need to look at two things.

The first is if the revenues are real. A great way to inflate revenues is to “ship product” to people who aren’t going to pay you. A company that is doing that is operating fraudently so you don’t see it very often. But if someone is doing this, cash will be going down while profits are steady and accounts receivable are growing rapidly. I always look for that in a company that is supposed to be profitable but is sucking cash.

The second is the availability of working capital financing. If a business can finance its working capital needs inexpensively, then it can operate successfully with this business model. In times when debt is flowing freely, these can be good businesses to operate. When cash is tight, they are not.

The final thing to look for on the balance sheet is capex.  If a business is operating profitably, and growing profits, but its capex line is growing faster than profits, it’s got the potential for problems. Hosting companies are an example of a set of companies that might be in this situation. Again, the availability of financing is the key. Local cable operators operated profitably for years with big negative cash flows because of capex. The fiancial markets like the monopolies these busineses were granted and consistently provided them with financing to buy more capex. But if that party ends, it can be painful.

This post is three pages long in my editor so it’s time to stop. There is more to discuss on this topic so I’d like to know if I did this topic justice for most of you or if you’d like another post that digs a little deeper. My preference is to move on because I’m getting a bit tired of writing about accounting every Monday, but most of all I want to cover the stuff you want to learn or freshen up on. So let me know.

Enhanced by Zemanta
#MBA Mondays

Immigration Reform And The Jobs Bill

Last month congress passed and the President signed an $18bn jobs bill "providing tax breaks for businesses that hire previously unemployed
workers and extending funding for infrastructure and transportation

While I can't argue too much with the idea of using tax breaks to spur hiring and investing in infrastructure, I think smart immigration reform might be a better way to create jobs in this country. Tom Friedman agrees and in today's NY Times, he writes:

“Between 1980 and 2005, virtually all net new jobs created in the U.S.
were created by firms that were 5 years old or less,” said Litan. “That
is about 40 million jobs. That means the established firms created no
new net jobs during that period.”


“Roughly 25 percent of successful high-tech start-ups over the last
decade were founded or co-founded by immigrants,” said Litan. Think
Sergey Brin, the Russian-born co-founder of Google, or Vinod Khosla,
the India-born co-founder of Sun Microsystems.

It is not surprising that new companies are creating the jobs in this country. Most businesses don't last forever, they start, grow, hire, eventually get fat and happy, stagnate, and then fail or are sold off. Add to that assertion that technology is changing things and that companies based on older technologies are likely to suffer and decline, and you come to the obvious conclusion that new company formation is the key to job growth.

That second quote from Friedman's piece is about tech jobs, but I would bet that immigrant led business creation is not limited to tech companies. The "fat and happy" thing is unfortunately true about many US citizens. But immigrants are rarely "fat and happy" so they work hard, start businesses, hire employees, and build companies. That's the american way. To quote again from Friedman's piece:

What made America this incredible engine of prosperity? It was
immigration, plus free markets. Because we were so open to immigration
— and immigrants are by definition high-aspiring risk-takers, ready to
leave their native lands in search of greater opportunities — “we as a
country accumulated a disproportionate share of the world’s high-I.Q.

We need smart immigration reform in this country. We are not inviting many of the world's "high-IQ risk takers" to come to America any more. And worse, we are asking many of them to leave. That must change.

Regular readers of this blog know that I'm a big fan of the startup visa idea and have been working to get it made into law. That is a small, but important, part of the bigger challenge. We need comprehensive immigration reform in this country. We have always been open to immigration in this country. It is fundmental to what this country is. We cannot change our approach and expect to continue to have a prosperous country.

Enhanced by Zemanta
#Politics#VC & Technology

No Conflict No Interest

The title of this post comes from a saying I've always attributed to John Doerr, one of the top VCs of the past 25 years and the lead partner at Kleiner Perkins.

In this day and age, having a financial interest in something means you've got a conflict and your opinion is somehow "tainted."

But that wasn't always the case. I'm reading a book called 722 Miles, about the history of the NYC Subway System. It was recommended to me in the comments to the blog post I did about the subway system a few weeks ago.

The original plan for the NYC subway system was drawn up by The Steinway Commission in 1891. It featured the main downtown line from south ferry, up Broadway, to Union Square, then forking off in two branches, one headed up the west side and the other headed up the east side. That plan had to be changed later in order to keep the construction costs below the mandated $50mm (a huge sum in those days) but it was in many ways the blueprint for what got built.

The Steinway Commission was the name attached to the Rapid Transit Commission called for in the Rapid Transit Act of 1891. The commission was charged with laying out the basic plan and assigning a franchise for construction and operation of the subway.

It was called The Steinway Commission because it was chaired by William Steinway, founder and CEO of The Steinway Piano Company, a major manufacturer and real estate developer in Astoria Queens. In addition to Steinway, the commission included John Starin, owner of tugboats and other waterway transit businesses, Samuel Spencer, a railroad executive, Frederick Olcott, a banking executive, and Eugene Bush, a railroad lawyer. All of these men had business interests that would be enhanced or possibly damaged by the development of a subway system.

And yet they largely did the right thing, got the plan approved, and eventually funded and built. None of them ended up with the franchise (that went to August Belmont, who also built Belmont Park, one of the three legs of the Triple Crown in horse racing).

At the turn of the last century in NYC, there was an alignment of business and political interests that got things done that seems lacking in today's political environment. We have a taste of that in NYC with our current Mayor Mike Bloomberg who has brought a business mind to job of governing NYC. But on the national level, we see much less of this kind of thing.

It's really too bad because interest implies knowledge and understanding and leads to good decisions if the people involved have integrity and the ability to put the interests of the community first and their financial interests second. The business leaders of NYC were able to do that in the late 19th century and early 20th century and we have them to thank for our wonderful subway system.

Enhanced by Zemanta

Do Network Effects Span Geographies?

Three years ago most western european countries had a local social network that was the most popular social net in the country. Today Facebook is dominant in most of western europe and those local social nets have largely been bypassed.

It would seem that Facebook leveraged the size of its network (approaching 500mm people worldwide) to beat its competition in social networking. But what's interesting to me about that is that it also means that it leveraged a network that was larger out of country to beat an incumbent who initially was larger in country.

For the sake of this argument, I am assuming network size and network effects was the cause of Facebook's success internationally against local competitors. It could be that it was not network, but instead features that won the market for Facebook. Certainly it was some of both.

I come to this "argument" with a deep respect for the power of networks, particularly online, and so I believe that in fact Facebook was able to leverage the size of its out of market network to compete in market against a local incumbent who had a stronger in market network.

And why exactly would that work? Well first of all, many people have social networks that span geographies. And those people tend to be influencers who are important in the value of an overall social graph. I think it is also true that in many parts of the world, big american brands are powerful in local markets. And so its probably also true that there is an allure of being part of a big american social network. I've been told that there are only four countries that are mostly impenetrable for a US internet company; russia, china, japan, and korea. We will see if that is true in Facebook's case.

I was thinking about this yesterday as I was making my way around Paris, checking in on Foursquare. In every place I went to in Paris, there was an existing mayor and plenty of tips. But it was rare to check into a place and find someone else checked in as well. By contrast in NYC, I rarely check in these days without finding at least one other person checked in.

In talking to some local parisian web entrepreneurs, I heard about a local Parisian company called Tellmewhere that has 500,000 users, mostly french. Read Write Web has a good post up about Tellmewhere right now. So maybe the reason I found the usage of Foursquare in Paris to be light compared to NYC is the presence of a strong local competitor.

And thus my question that started this post. Do network effects span geographies? Does the fact that Foursquare is approaching 1mm users worldwide make a difference in Paris or will Tellmewhere, with 500k users who are mostly here, continue to dominate locally?

If we can use Facebook as a guide, it seems eventually the largest network wins. But can we use Facebook as a guide and is that universally true on the web? Let the discussion begin.

Enhanced by Zemanta
#Blogging On The Road#VC & Technology#Web/Tech