Posts from June 2010

One of the hardest things for an entrepreneur is to part ways with a co-founder or founding team member. Those early days putting together the plan, building the product, and building the team are formative and powerful. The loyalties that develop during that time are strong and hard to break.

Running a business is not an easy job. You have to do what is right for the business and that often conflicts with what is right for you.

I have seen this so many times now. One of the founders or early team members performs heroic work, most often in building the product. But as the company grows and engineering turns into a team effort, that person or persons can't work well in the team environment. And then the entrepreneur is faced with a painful decision. How can you fire someone who was so impactful and gave so much of themselves in getting the company off the ground? What message does that send to the rest of the team? How can I fire my friend?

But you have to do it. What works when you are five or ten people often does not work when you are fifty or more. Rock stars are rarely good team players. And the best developers are rarely the best managers. The person who made your first sale is rarely the right person to manage a team of a dozen salespeople.

When you realize you have to do this, you should act. Don't let your unease with the decision let you procrastinate on it. And be generous. I am in favor of vesting more stock than is contractually obligated to be vested. And severance so the person can take some time and decompress is another way to be generous. Most of all, be generous with the way you talk about the person's contributions. Call them a founder if they are a founder. Recognize their contributions both internally and externally and continue to do so. And help them find another situation where they can work their magic again.

I believe that how you handle a person's departure has more impact on morale than the departure itself, particularly if the remaining team understands why the departure is necessary. So being generous financially and in your communications and taking the time to clearly explain the departure to the team are both critical in building and maintaining morale and making your company a great place to work.

If I look back at our most successful investments over the almost 25 years that I have been in the venture capital business, almost every single one of them has seen a founder or critical founding team member shown the door as the company scaled. It's almost inevitable. So if you are starting a company, understand that you will face this moment at some point. It will not be pleasant. But if is something you have to deal with. So talk to your mentors, coaches, and board members. Get their advice. And take the action, do it well, and do it right.

I really hate doing panels but I did two of them yesterday for my friends Diana Rhoten and Dave Winer. As panels go, they were fine, in fact both were pretty entertaining.

After both of them, I experienced the "panel pile up" where people line up to pitch me their ideas and companies. Anyone who has done a panel, certainly anyone in the venture business, knows what I am talking about.

I really want to be accessible to entrepreneurs and their ideas and pitches and I tend to be very patient in these situations. But they are hard for me for a few reasons. When there are a dozen or more people lined up to pitch me, I have to cut off each and every person because they are holding up everyone else in line. And sometimes the next panel has to start and we have to take the line outside. Then more people join the line and it can get worse. It's often loud and it is hard to hear. And I am often a bit tired after being on stage for an hour trying to be entertaining and informative. Bottom line is it is not an ideal pitching opportunity for anyone certainly not me.

I have a suggestion for entrepreneurs in this situation that should make this better for everyone. Limit your pitch in this situation to sixty seconds. Communicate three things and ask for one more. The three things are your name and your company, what you are working on, and why you want to meet with me (money, advice, whatever) and then ask if I would do that. If it is something that fits in our investment sectors or if it something I can help with, I will almost always take the meeting. 

I think I am going to start enforcing the sixty second rule in these situations. It should make these panel pile ups better for me and I think it will make it better for everyone.

Yesterday evening as I was leaving the office, I stopped in our conference room where Andrew was walking Christina though a liquidation model. Andrew was drawing a graph of proceeds by class of stock on the whiteboard. I wish I had pulled out my phone and snapped a photo.

Andrew has been with us for almost four years and this is his last week. I wrote about his departure on the USV blog back in March. I remember teaching him about liquidation models and how to construct them early on in his tenure with us.

Now Andrew is the teacher and Christina is the pupil. A few years from now Christina will be the teacher and someone else (maybe you) will be the pupil.

Venture capital is best learned in an apprenticeship model. That's how I learned it and I am eternally grateful to Milton and Bliss who taught me well.

We have a two year and out model for junior investment professionals at USV. Charlie, Andrew, Eric, and now Christina have gone through it. Charlie and Andrew are active in the venture business with firms we admire and work with regularly. And Eric is now with Foursquare, helping them work with partners who want to be on the foursquare platform. We are incredibly proud of the people who have come through our firm and moved on to bigger and better things.

Christina will be the first person many of you meet when you contact USV for the next couple years. She introduced herself on the USV blog yesterday. Give it a read and you'll see why we hired her.

It's not easy going through an exhaustive hiring process every couple years. We considered about 350 people for Christina's position, interviewed over 50 and met with close to 20. Many think our hiring process is unduly taxing on us and wonder why we would choose to do it every two years when we have hired so many amazing people. To me the answer is easy, it turns our firm into a school of sorts. A place where talented young people can come and learn the venture business for a couple years and then go off and be an entrepreneur or VC or something else. We are slowly but surely sowing the seeds of the next generation of leaders of the startup ecosystem.

That's what I saw in our conference room yesterday evening and it was a proud moment for me.

Our portfolio company 10gen's open source datastore called MongoDB has been seeing some serious uptake recently, particularly among startups. Yesterday I saw this poll on Hacker News:

Hacker News is a very specific community and so by no means is this poll representative of the entire software engineering community, but I am so proud to see Mongo up there as the top non-sql datastore.

MongoDB has recently added a couple of new features, including sharding and auto-sharding. The growing popularity of Mongo among startups, its comprehensive feature set, and the flexibility of a no-sql data model is turning out to be a powerful combination.

The recent MongoNYC was packed and for those of you in europe, please note that MongoUK and MongoFR are both happening later this month.

If you are frustrated with your sql datastore and want to try a non-sql approach or if you are starting from scratch and want to try a modern datastore, please check out Mongo. You won't be alone.

This is the final post in a long MBA Mondays series on projections, budgets, and forecasts. Today we will talk about what happens when reality starts to differ from what you've budgeted – you re-forecast.

Let's go back to the framework I laid out at the start of this series. Projections are long-term high level efforts to establish the scope of the opportunity. Budgets are an effort to establish an operating framework for the coming year. And forecasts are done intra-year to establish what is likely to happen. As someone said in the comments, it's "long term, short term, and real-time."

Forecasts are typically done mid-year but they can and should be done whenever the actual performance differs significantly from what was budgeted. Forecasts are not an attempt to throw out the budget. The company should continue to measure itself and report against the budget. The forecast should exist beside the budget and show what management thinks is likely to happen.

Forecasts are important for a variety of reasons but first and foremost you want to know where your cash balances will actually be. And you'll want to know where you will be on your revenue growth trajectory. If you are planning on doing a financing, forecasts are important because they will give you an indication of what the metrics investors will be using when they offer you terms for a financing.

The process of doing a forecast is not very hard. You simply take the model you used for budgeting and put new numbers in for revenues and costs. The way most forecasts go down is the revenues are taken down to reflect slower sales growth. Then management looks at the costs in the budget. In some cases, costs are not adjusted because management feels that they need to continue to invest in the business. But in many cases, costs are adjusted down somewhat to reflect a desire to conserve cash. Either way, you'll have a new set of numbers for the months ahead.

You combine these new sets of numbers for the coming months with the actual results for the months that have already happened and you have your forecast.

Once you do a forecast, it is a good idea to keep updating it as the year develops. If you do a forecast at mid-year and by the fall that forecast is off, do another forecast. The forecast is not another budget you have to try to meet. It is an attempt to estimate actual results. So keep adjusting the forecast in an attempt to nail it.

As you get into the fall, you will start budgeting for the next year. Use the learning that came from the forecasting exercise to make next year's budget better. Think of budgets and forecasts as agile financial management. The budget is the annual release and the forecasts are the iterations based on feedback.

So that's it. We are now done with projections, budgeting, and forecasting. Next week we'll tackle a new topic.

A lot of wealthy people I talk to are building up sizable gold assets in their portfolios. They look at the long term fundamentals of the US economy and don't like what they see. So they are accumulating gold as both a hedge and to some extent a capital gains play. Here's a price chart of gold over the past five years:

You can see that those who have owned gold for the past five years have made three times their money. And I've heard gold bulls say that $3000/ounce is their price target. So that's 2.5x where it is now.

We've had a number of conversations about gold in the comments to this blog, but I've never posted about my thoughts on the subject. So I thought I should.

I'm not a fan of gold. It does not produce any income. It is not a productive asset. It does have value in many commercial uses but that is not what drives its fundamental value.

Gold is valuable because it always has been. It has been used many times over the years as a backstop for currencies under a monetary system called the Gold Standard. The theory is that when investors lose confidence in a government's currency, they can exchange the bills for gold.

So investors have been trained that in times of crisis, you want to own gold. And if you look at that five year gold chart, it sure looks like more and more investors want to own gold right now.

I'm not sold on gold. I don't really know what I'd do with a bunch of gold. On the other hand, I do understand the need to have a portion of your net worth in tangible assets that you can touch, control, and physically own.

I prefer real assets like commercial real estate and land. These assets can be scarce, you can own them outright, you can touch and feel them, and most importantly you can generate income with them.

Let's say you had $1 million of cash in the bank that you wanted to use as a hedge against a major financial disaster. You could purchase gold bullion and take delivery of it and put it in a safe at a bank. Or you could purchase a building with a number of apartments for rent with it. The gold will sit safely in the bank earning you nothing. A building purchased for $1mm could produce something like $100,000 per year in rental income if you buy it right.

If the financial disaster was really terrible, your building might go down in value, but as long as you own it outright and don't have a mortgage on it, there is no reason that you'd have to sell it. You could continue to generate the $100k per year of income assuming rental rates hold up. And generally speaking, real estate will maintain its value over the long haul.

The same logic applies to productive land (ie farmland). If you buy it right and don't borrow against it, land will produce income regularly and should retain its long term value.

So that's my case against gold and in favor of real assets. I think it is very smart to have a percentage of your net worth in non-financial assets (stocks, bonds) and non-cash assets. We all saw what can happen with the financial system has a meltdown. And it could have been a lot worse had the government not stepped in.

So if you have a nest egg that you want to protect, think about putting some non-financial assets into the mix. But I'm just not sure that gold is the best way to do that.

I've been suffering from Gmail performance issues for the past several weeks. I click on a mail message and I get the "loading" message for ten, twenty, or thirty seconds. When I hit send and archive, it can take thirty seconds or more (sometimes a lot more) to complete that process.

So I've taken to having three of four tabs open in Gmail and switching back and forth to keep going while one process is hung up. I thought my issues were my own. I have a 13gb mail file and run a number of Gmail add-ons. I figure that my mailbox size is too big. Or one or more of the add-ons are causing the issues. So I suffered in silence.

But I've been reading other blogs talking about the same things. Here's a post from last week from Gabriel Weinberg that got my attention. Maybe my issues aren't my own. I am curious what all of you have been experiencing.

It's interesting that within a week of Gabriel's post, Google contacted him and moved him to a different server and now his performance issues are resolved. I'm raising my hand for the same treatment.

I want to be clear that I am not bashing Google for these performance issues. I think the value proposition that all the webmail providers offer is amazing. It can't be easy to operate services like this with tens of millions (or way more) at scale without the occasional scaling issues. But I am eager to find out if my issues are my own or if they are Google's. And if they are Google's, I am eager to see if this blog post works out as well as Gabriel's.

I am interested in getting everyone's opinion on how AVC should render on a mobile phone.

Here is how AVC looks on my blackberry:

And here is how it looks on my Google phone:

AVC on the iPhone is pretty similar to the Google phone.

So here is the question. Do you all prefer this headlines only mode on the mobile phone, or would you like the post of the day to show up immediately and then followed by links to the older posts (my preferred way)?

Place you vote in the comments and we'll go with whatever is the most popular choice.

Here are the top thirty Internet properties in the world as measured by comScore:

The interesting thing about this chart is that 75% of these properties are based in the US.

Contrast that with only 17% of the Internet audience (213mm) is in the US and you will see that Internet is one of the primary export industries in the US.