Video Of The Week: A Lunchtime Talk In Larkin Square, Buffalo
A few weeks ago, I spent most of the week in the upper midwest. I started out on Tuesday in Buffalo, NY, the location of my first venture capital investment, Upgrade Corporation of America. I did office hours at the Z80 accelerator and then did a lunchtime Q&A in the beautifully renovated Larkin Square with Eric Reich.
This is a video of that talk. If you want to skip all the intros, go ten minutes in. The talk is about 40mins long.
Q&A With Fred Wilson and Eric Reich – Aug 2014 from Z80 Labs Technology Incubator on Vimeo.
“Doing due diligence can lead to the wrong decision.”I like that one. I’m learning it as a baby investor. It is so true early on, maybe less so in more mature startups when there is something more tangible to poke at.But I still see some old school angel groups doing too much of the wrong type of diligence which is time-consuming for the entrepreneur, and not very telling about future success. The best diligence is not a revelation you just discover overnight via a spreadsheet and a couple of meetings, because that can be doctored.You have written about doing too much diligence already http://avc.com/2013/05/you-…
Agree. I think diligence is exactly what you do, just means very different things based on the stage of the business.
totally agree. you can out think yourself. I think that’s where confidence in yourself comes in. That’s the “gut” part.It’s important to check yourself-the initial thing you see isn’t guaranteed to be the endgame. That’s why teams matter. In Feedburner, it seems like a good idea, but an even better jockey.
This is where having an operational background helps.Funding an idea, like I just did, it’s all gut and talk and person and market sense.Funding a business with less than a $1M in revenue, profitable or not, generates boatloads of data and metrics and on an on. All important, all completely useless unless you understand that analytics are just a scale, gut and understanding in the face of data, the key piece.
“Doing due diligence can lead to the wrong decision.”(Your comment is what made me watch this btw. I’m up to this part).The examples that were given could also be as a result of the wrong execution of due diligence. “I talked to all of my friends in the HR business” so for example a) how many b) what do they do at the firm c) how much do they know about the firms needs d) how well did you present the idea e) by the time you got down the chain of prospects had you already concluded that the idea wasn’t valid and lost your enthusiasm? Point being due diligence done poorly is worse than no due diligence at all. I had a going joke about my dad that he would ask many people their opinion but not necessarily the right people.Back in the 80’s I thought there was an opportunity to do advertising books of apartments which is the exact same idea that exists today. I asked one of my customers (a large apartment manager) what they thought. They told me it would never work in Philly because buildings didn’t want to attract “the wrong crowd”. Of course the idea worked later on and the customer was wrong. I made the mistake again with advertising at gas pumps. Seemed obvious it was a good idea. I asked a customer who did all the ads for Sunoco. (So they would gain by this idea for sure). They said Sunoco would never do it that their pumps were sacred. Years later other oil companies (and possibly Sunoco) did do advertising on gas pumps. So poor execution of due diligence. “Vetlazy”.Any new idea suffers from the problem of people not necessarily being able to grasp the value because it doesn’t really exist and, as Jobs would say, “they don’t know what they want”. That said I don’t think that due diligence done correctly has no value. Also sometimes people that are “in the biz” have a harder time understanding why the masses might want something (and example is dropbox and “you could just use rsynch so why would you need that”). Once again “who are you asking” and “what are you asking them” Bottom line: Research takes more than a casual phone call. It takes work. I guess if you don’t have time to do the work maybe it can lead to a false negative so skip it and go with the other info. Like in sales “when you’re hot you’re hot (works in reverse on any given day). I can imagine I wouldn’t ever think I would be making comments on avc.com like I do if the idea was presented to me before I actually did it. I asked my wife her opinion about https://cureatr.com/about/ after Joseph Mayer replied to one of my comments here. She said “we don’t need that we use tigertext”. I pressed her but it seemed like she had made up her mind. She didn’t want to consider it (but the seed was planted.) Low and behold after a work meeting last week she comes back and says “you know I think I will talk to him – at work we had a meeting and I think what that product can do might be valuable in addition to tigertext”. (Would also note that she always takes what I say seriously so it wasn’t that she was just blowing me off or anything she really just didn’t think there was a need..)
Yep. Pattern matching / recognition is prob more important. You just need to see a few signals to recognize what’s going on.
I love that you lump Buffalo as part of a trip to the upper mid-west when Buffalo is just barely west of Washington DC, and is further east than Miami. I guess the point about the west coast being at the Hudson is true. :)Great video, thanks for sharing.
Re twitter screw ups. Got them much mention. Remember to this day Arrington whining about twitter being down. Over and over again. And then 7 more times. It’s really those screw ups that brought it to my attention. It was their “dead body parts for sale” on ebay.  Every startup needs some weird PR hook that gets them attention in the press or with bloggers. Either organic, or invented.
Q: how long did it take for some of those Mikey decisions/pivots/lean-downs to happen (track.com, hashable)? Basically a rough question about what too patient looks like
Twiiter was also successful because the delays caused by not having everything they needed gave the market time to evolve and coincided with things happening that made the product valuable.So maybe as an example if the product had been ready on day one but over the course of a few years nobody showed up to use it (or there was no Oprah or major world events that needed it during that period) then it might have died. But if you stay alive long enough by fighting battles then it’s possible that the market finds you (for lack of a better way to put it). It’s not uncommon in business to make excuses such as “well if we only had this machine” and it’s possible that by the time you get a “machine” the market has changed enough to support your original business idea.
Important skill when pitching is to read the investor get them talking get them asking questions. Once you’ve done that forget about the pitch desk. Will get the investment much more quickly. Once the investor starts engaging emotionally you have them on the hook. Get them emotionally connected to you and your business. Pitch deck just a technique to get them talking about your business.Exactly (and as Eric Reich pointed out in his reply) basic selling. I’m not sure this can be taught (and wasn’t taught in business school at least when I was there) and may not be taught at incubators. Something you learn by going out and actually trying to sell anything  (and not necessarily the product that is your startup). And keeping in mind to not oversell. Once you make the sale, get your ass out of dodge.Reason? Once you get the sale anything more you say can and might be used against you by the buyer to change their mind. More Pitch deck is overselling. It’s raising issues that might be things the buyer hasn’t even thought of that could be negatives. One of the reasons I am always “practicing” selling even when it’s not my product and I don’t stand to gain (note my comment about Cureatr below). Or when I tried to pitch the local sushi place on dwolla when it first came out. Outcome doesn’t matter, so let’s experiment. Like batting practice.
…yet more plastic drinking bottles.I would have a prepared written sign saying “Say No To Plastic Bottles” and put it on interview tables in front of plastic drinking bottles.
Fred, your sentiment on bitcoin seems to have soured ever since your talk at NYU? Will you continue to make bitcoin investments?
That’s not true at all. And yes. We have one signed up that we hope to close soon
Separately I really appreciated the HD videography and sound on this as well as the setting.
Some clear explanations of some good thinking, good enough to make a LOT of money and to be missed by nearly everyone who tries to be successful at such things.”Doing due diligence can lead to the wrong answer.”.Yup. A surprise?Or the old joke goes something like, “Answers, free. Answers after listening to the question, $10. Answers that require thought, $100. Correct answers, $1000. Useful answers, $10,000. Unique, insightful, comprehending, valuable answers, priceless.”Then, maybe, with sufficiently good questions we can do some useful, even valuable, due diligence.’Network effects”? How to they go? They are an old idea and can be quite simple. A dozen examples:(1)At a high end shopping mall, all the good stores are there because all the good customers are there, and all the good customers are there because all the good stores are there. Once that situation has been achieved, then likely the owner of the mall can raise rents?Of course, could do something similar for a low end shopping mall — cheap stores, poor customers.(2)A/C Wall Socket. In the US, each 120 V A/C wall socket looks the same because each appliance needing electric power fits it, and each appliance fits because all the wall sockets look the same and accept.Yes, similarly the “workhorse” of TCP/IP and, thus, the Internet and the Web, is ‘sockets’.Right, for each biological species, there is an obvious, similar example in reproduction.(3)Wintel? So many PC vendors sold it (them?) because so many desktop customers wanted it because so many third party software applications ran on it, and so many third party developers wrote for it because so many desktops had it.But now there is a huge problem: With connections to the Internet, untrusted third party software on an insecure computer can grab private data and send it over the Internet to criminals. So, the third party software market has been shrinking.Trust has been a big issue for Web browsers, Flash, etc. but likely less so for more traditional applications not involved in Internet communications.On mobile devices, virtual machines, ‘sandboxes’, ‘containers’, etc. better be darned good on trust and security or there is a risk that someday a big security scandal will cause a huge fraction of users of such devices to refuse to use them with any important data. We’re talking an Achilles heel here, or the 1918 flu.(4)Wired Ethernet? At one point is was good enough and cheaper than the alternatives, e.g., IBM’s Token Ring. Then soon all the motherboards had an Ethernet ‘network interface card’ (NIC) because all the routers accepted it. All the routers accepted it because all the motherboards had it. Since then the Ethernet technology has grown and grown from 10 Mbps to 100, 1000, and, now, 10 GbE; so, in some cases, once such a ‘network effect’ has led to an industry ‘standard’, it is still possible for the technical parts of that standard to improve significantly, for decades.(5)Amazon? They have a lot of customers because their Web site is very well done and they have a lot of products and that in part because a lot of small sellers want to sell through Amazon and, that, because Amazon has a lot of customers.(6)Disqus? Many blogs use Disqus because it is well designed, better designed than 99 44/100% of blogs could do for themselves, and so many people who post to blogs have ‘single logon’ to Disqus because they have a Disqus Web browser cookie, and so many people have such a cookie because so many blogs use Disqus. Mostly to comment otherwise, a person has to ‘register’ and learn to use another system for commenting — bummer and a barrier to entry.Is Disqus under threat from a ‘better’ system? Disqus will be among the first to know what might be better and, then, rush to implement the improvement.(7)LinkedIn? The people are there because the employers are, and the employers are because the people are.(8)BitCoin? Maybe something similar can be said.(9)Social media? Twitter and Facebook: In each case, each user is there because so many other users are, e.g., people they know from high school, college, even people first knew 20 years ago.(10)Uber? So many taxi drivers use it because so many taxi customers use it, and so many taxi customers use it because so many taxi drivers use it. It is easier to get such a service to catch on in a big city because of the increased density means initially that even if a only a few taxi drivers and customers use it, then it can get used and, thus, grow. That is, the high density helps solve the ubiquitous chicken and egg problem, which come to Uber first, the taxi drivers or the taxi customers?(11)Matchmaking? Apparently Plenty of Fish did well. There should be some strong network effects: So many men go to the site because so many woman are there; so many women go because so many men are there.My view is that so far the sites need to be better designed. E.g., Amazon was not nearly the first on-line shopping Web site, but it is much better designed than 99 44/100% of the rest.(12)SnapChat? Both ends of the communication have to be using the same app. So, if a boy doesn’t have the app, then he can miss a picture from a girl — bummer. So, SnapChat is an example of ‘owning both ends of the wire’.But network effects are not the only way to success. E.g., there have been Xerox photocopiers, HP laster printers, HP color ink jet printers. Computing and the Internet are not yet fully exploited, but it’s getting tough to find a new exploitation of social media with a strong network effect from just routine software.That Fred saw such network effects so clearly was good work.In the “narrow” range of opportunities Fred considers, likely and apparently his due diligence of the team, market, and technology is enough.
Fred, I very much appreciate your statements about mentorships and advisement. How does one go about that as a start-up. While we are bootstrapping for now, a proper advisor would make a huge difference in the business trajectory.
why is it called Buffalo?
“The food truck thing is great. You have got to create an environment where the talented young people who grow up around Buffalo want to stay in Buffalo. What do people want in life? People want to get a job, they want to meet a mate, get married, have kids, and have financial success. If you can’t create an environment in a city like Buffalo where they can have all of that, they’re not going to stay here. I think it’s more important to have a community where young people want to stay and be part of then to have the jobs.”I want to frame this quote and send it to every mayor in my state. Connecticut is a great state if you’re already established, but it does not have that kind of environment that is inviting for single young professionals. Maybe a little bit more in New Haven or Stamford, but most of my friends from high school, undergrad, and law school are now all in the Boston area. It’s a difficult momentum to resist when much of your existing social life exports itself and there are not ready alternatives.