Monday, October 31, 2011

Self-Sustaining, Regenerative Tech Ecosystems

This post is conjecture from my observations and personal experience, and I'm not going to provide any links supporting the views so feel free to correct me (need to get to work). This isn't about anything other than the software tech world--so no comments about other sectors please. 

For the 17 years I've been in tech I've heard the term "ecosystem" applied by people in regions outside of the Silicon Valley tech ecosystem to their own regions--aspirationally applied, that is.

Most of them don't have functioning, self-sustaining, regenerative tech ecosystems. 

What's the difference? 

Pennsylvania's a decent example of aspirational efforts to create 
self-sustaining, regenerative tech ecosystems (in the name of complexity, let's give that an acronym: SRTE and pronounce it 'SIR-tee'). 
I'm making this term up, though I imagine someone else has come up with a better descriptor. 

The Ben Franklin Technology Partners Program has created some successes and I like the people I know working in it, but it hasn't created a single SRTE (to my knowledge). So what has it created? 
  • a form-heavy, long process for applying for inadequate funding
  • a bureaucracy for monitoring investments that includes documentation and reporting outside of the normal course of business
  • a network of support professionals and advisors, some of whom are very good and appropriate for startups, others who are not
  • a few great location-based services, including the incubator at Lehigh
  • a number of success stories, and more on the way, in addition to a greater number of failures, which you'll see in the normal startup world too
But it hasn't generated ecosystems. And I think that's partly because its model is not set up to do that, though it's what everyone would love to see. 

The only SRTE in the state I can think of would possibly be in Pittsburgh, but I'll plead ignorance here. 

So, Charlie, define SRTE.

Ok, Alice, I will. I'll try, anyway.  

A self-sustaining, regenerative ecosystem has these indicators:
  • new startups formed by former employees of earlier startups
  • new startups staffed by former employees of other startups
  • new startups funded by investors and/or employees of earlier startups with part of the proceeds from earlier successes
  • through at least two cycles
Nowhere in there is a long application process followed by inadequate partial funding with substantial non-standard reporting requirements. 

Breaking it down more, let's look at those qualities, the most important appears to be 'regenerative':
  • new startups formed by former employees of earlier startups
    • people learn by doing. the majority of startups fail, and without some level of exposure to building and scaling a startup, first-time founders have higher chance of failure
  • new startups staffed by former employees of other startups
    • this is the key indicator that you have a true "ecosystem": when you have enough viable, growing startups that employees start hopping from one to another, it's clear there's something positive going on. Or negative. But there's energy in the system when there's healthy movement between startups. 
  • new startups funded by investors and/or employees of earlier startups with part of the proceeds from earlier successes
    • the system generated dollars that can be plowed back into the next cycle of startups without seed/early stage capital from outside the region--that's self-sustaining. 
  • through at least two cycles
    • it's gotta be long enough to get beyond the 'not dead yet' stage to 'thriving'. 
So if you're building a tech startup, why would you choose Pennsylvania? 
  • Family: home is home.
  • relationships: building a new network of supporters elsewhere isn't easy
  • Easy access to your market (true for some, not all)
  • you want to help create a SRTE and believe that it's important and possible. 
Why would you choose to leave? 
  • Capital. PA ranks horrendously low in investing in tech startups, especially T-state companies. 
  • Talent. You can find developers here, and you can find smart people here, but finding smart people who'll take the risk of joining your early stage startup is the tough part. We have a more conservative workforce that seems to value stability, and I'll suggest, perhaps wrongly, but in my experience the sense of urgency and ambition is less than what I see in the true ecosystems like NY and the Bay. 
  • Energy. There's some some something going on in a true ecosystem, and you can feel it, you're revived and propelled by it, you give to it and it gives more back, breaking all laws of physics along the way. 
  • Partnerships. It's tough to develop the relationships that lead to partnership discussions, and phone-based partnership development is simply not the same. It takes a lot more work, and you miss out on the random introductions you get in the true ecosystem. 
If we really want thriving ecosystems in PA, we need to invest in those SRTE qualities. Philly seems to be on its way, but it's missing significant capital flow, and doesn't have enough exits creating enough wealthy founders and employees to fund the next round of companies. 

One or two hits isn't likely enough (Diapers.com was a great one for Philly and I'm looking forward to seeing whether that trickles down); some capital and employees need to be put right back into the ecosystem. 

I would argue against continuing the BFTP program in its current form, and instead choose two or three regions for a 10-year SRTE plan, and focus all energies on that. 

I'd choose regions with one or more recent successes, and organize capital and resources to create at least one successful, self-sustaining regenerative tech ecosystem. I do think having a loose incubator would help, but that it shouldn't be some overbuilt institutional building, it should be an old tobacco warehouse or the like, and simply provide: 
  • hi-speed internet access
  • a Makerbot. Just for fun, if not actual prototypes. 
  • bunch of Arduino kits
  • printers, including a large-format printer
  • desks
  • 2 small conference rooms
  • bathrooms
  • a bit of a lounge area
  • common kitchen
  • scheduled evening classes by participants, local experts, and mentors
  • And some capital--not a huge amount per startup.
This would cost very little. Let's do some math (this is off the cuff--flag it if it's off substantially):
  • 20 startups
  • $25,000/startup (seed only for now)
  • space, etc, which if you live in PA, is cheap and available outside Philly and Pittsburgh. 
  • The list of stuff above
So roughly, $500k to invest, maybe $100k on top of that. Maybe. Likely less. 

To keep the promising startups going, you need additional investment, though I'd hope the startups would have a business model and revenue to shoot for. Quick pseudo-math:
  • half (generously) will survive
  • 8 will have their shit together enough to take additional capital
  • 12 months of capital, say with average salaries of $60k
  • 3 people per startup
  • so rounding way up for taxes, marketing, etc
  • $250k times 8 = $2.0 million. 
So now we've risked $2.1 million per region. Out of that, we've created some jobs and opportunities, with 8 companies funded enough to prove out their models. Start the cycle again every year with a new crop. 

Of those, 4 will attract additional capital, 2 will shut down, and 2 will plod along. And of the 4, one will have a decent exit, and the others might be break-even or 2 to 3x. But the one that makes it will return at least 100% of the entire investment

So let's do that annually for 10 years and round up to $3 million. I'd choose three areas: Lancaster, Harrisburg, and Bethlehem. That's $9 million/year or $90 million total, all of which you'd make back. 

The one thing a light incubator like this creates is its own little artificial ecosystem, where startups help each other, and you get the vibe and feel of a some-something going on. That helps, it's energizing. 

But I just get the sense we're too process oriented here, and have spread resources pretty thin to serve too many regions without much to show for it in terms of significant success and they key outcome we had hoped for: self-sustaining, regenerative ecosystems.

Saturday, October 29, 2011

The Daily Post

I've been trying to blog daily for the past few weeks, but today I simply didn't have the time (or impetus).

I sat on a panel today in Philly about scaling business and it went fairly well. I think I forget sometimes how much I've been through, the initiatives, ideas, conflicts, wins, losses, etc--all of it comes back in discussions like these. I'm certain I got as much out of it as the people in the room.

One reason the panel worked is that we didn't make it about us; yes we spoke from experience, but the trigger wasn't the moderator, it was the audience. After brief intros, we asked people to ask questions given where they are currently in their businesses, and responded to that.

The effect was more of a group workshop rather than a top-down highlight of the panelists, and everyone was able to learn something. I'm not a huge fan of panels, except that it takes a lot less preparation than speaking, and you get to think on your feet, which is a lot more natural.

So that's today's non-post.

Friday, October 28, 2011

Unrealistic Planning

Brief post today.

How I ever thought I'd be able to code during this conference is beyond me. At my ripe old age of 44 you'd think I'd have a clue.

Well, I did have a clue. I know better but I like to think that I can do everything I need to regardless of time :)

I know so many people here and it's great to catch up, which is the point of being here anyway. But I have a self-imposed deadline of Tuesday for the next release. So I'm literally filling up my calendar where I can over the next few days, and scheduling the work.

Be intentional. When I'm not, things slide, and when I am, I mostly get it right.

Thursday, October 27, 2011

Socially Responsible Business

I'm headed off to the annual open gathering of Social Venture Network (SVN). It's a membership organization made up of the leading social entrepreneurs, both nonprofit and for-profit.

Businesses don't have to join a network or club to be socially responsible. This group is more like a tribe to me--a bunch of motivated, aspirational misfits trying to do good through business. Some do very well. Some fail miserably. Some are simply stubbornly persistent and do ok but don't have the impact they envision.

Ben Cohen of Ben & Jerry's, Judy Wicks from the White Dog Cafe, the "radical" Van Jones (so radical he's advocating for corporate subsidies to bring energy jobs to inner cities...wait, that's capitalism!), Josh Knauer of RhizaLabs (very cool mapping software), and a long list of others.

One of my favorite companies represented is Greyston Bakery. Their motto is "we don't hire people to bake brownies, we bake brownies to hire people". They take 100% of their profits and put it into the Greyston Foundation, which provides supportive services to their employees.

And when there's a job opening, they hire the first person through the door, no matter what. That's true commitment, and they've changed a lot of lives doing that.

There's a balance between doing good while making money; sometimes I've gotten that balance wrong, or applied the good intentions in the wrong places. Mission Research was designed to be a socially responsible business, and we got some of it right. Not all of it.

A lot of businesses meet the standard simply because it makes sense. Healthcare for your employees to they aren't at risk of financial ruin for a health issue sets your employees at ease. That extra level of care also encourages employee loyalty.

Spend less if you can on energy consumption. Don't pollute your neighbor's air and water (hmm, sounds like the Golden Rule is socially responsible). Make something that actually helps people, like a better wheelchair, or software that enables the helpers, or a better lightbulb, or a way to make it easier for people to communicate.

If you profit while hurting others, that's not socially responsible. It's unethical and wrong.

Google's unofficial motto is 'don't be evil'. I don't think that's good enough and focuses on the wrong side of the equation.

Be good.

And do well while doing good. Most startups I know help people in some way, and I'm really honored to get to witness as they try to make big things happen to change the world in positive ways.

Wednesday, October 26, 2011

A Mission I Can Believe In

A really good guy with great sales management experience was a small but important investor in one of my startups. C-level guy, totally competent, smart, etc. Reads this blog--very smart :) (hi!).

For weeks he's asked me to meet with him about a startup. And I've been busy, but have wanted to help because 1) he's helped me and 2) I like helping startups and 3) here's a guy who knows how to hit something out of the park.

But I really didn't want to for another reason: I hate the idea. I don't want the idea to succeed. It's not in poor taste, it's not unethical, I simply hate it. So no, I'm not going to refer any investors, because I really, really hate it.

I like technology that helps people, but especially software(web/mobile/whatever) that helps people who help other people. That's my life's work, I've realized.

Any time you catalyze exponential goodness through the supply of something affordable and accessible, do it. Do it often.

Mission Research did/does that. 8,000 nonprofits have bigger impact on their worlds--our world--as a result. Could be better, could be more nonprofits, but that's great stuff. I love that we--all of us who went through there--have had that impact.

The hammer worked out pretty well. So did penicillin--and that was government funded.

The iPhone, well, not on the surface, but if you look at the app ecosystem it spawned--there are tens of thousands of apps that help people, and help the helpers, and while that would have happened through MSFT or Android had there been no iPhone...you get the picture. It's made a huge difference.

Here's the point: what's your life's work?

If you're working on a mission you believe in,
  • you'll go the extra mile, and 
  • people will go the extra mile for you
  • they'll feel great about your work
  • they'll feel great about supporting your work. 
  • You'll feel great about doing your work. 
  • You'll demand the best employees to serve the mission to the best of their abilities, and you'll change the world. 

Christine Herron (now of Intel Capital) helped start Mission Research. We all gathered at the beach house back in 02 to figure out whether we'd start FoxBox (a framework for SaaS Dan Frumin designed), or Mission Research, whose mission is to help nonprofits focus more of their resources on core mission and less on software).

At some point she steps up to the whiteboard and draws an equation:
 +   =

The key to happiness, right there.

If you're looking to hire me for anything--advising, running your company, kicking you in the ass for a few days, whatever it is--make sure you have a mission you believe in and you think I can believe in too.

So how'd the meeting go?

I was able to explain the mechanics of convertible notes, equity, treatment of investors, setting expectations, terms, etc, which was hopefully helpful. But I did tell him I really hate the idea, which was a tough but--in my raw world of brutal honesty--necessary. I hope I didn't offend him, but I sort of expected I'd step on toes just being me anyway.

Regardless he'll do well and I wish the best for him. Me, this has reminded me of my life's work, which is to help the helpers as much as I can. So thanks for helping me remember that.

Tuesday, October 25, 2011

Startup Titles

Fred posted about titles yesterday: CFO vs VP of Finance. Titles are really not my favorite subject when talking about startups, because it distracts from the most important thing:  traction with customers.

I refrained from commenting because I think it's one of the less relevant pieces to early-stage startups he's done recently; it's a topic for later-stage startups, of which there are a lot fewer than early stage. Read the comments, though--some good stuff there.

So. CFO of what? If you're seed stage, a CFO is adding little strategic value; there simply isn't the cash-management, customer traction, investor relations to warrant anything more than advisory-level input.

If you're an early stage startup with less than, say, 10 people--VP of Marketing of what? If you have no direct reports, that's a pretty good indicator that a title isn't warranted.

Titles in startups do matter to the people who hold or held them; they're likely more meaningful after than during most startups, which rarely scale beyond the awkward 12 to 18-person stage.

What's important is the delineation and alignment of roles, acceptance of responsibility, execution, and reward based on execution.

That reward, in my view anyway, should be the increased value of the company, in which every employee should be an owner.

If you're a 3-person startup without funding, you really don't warrant titles like CFO, VP of anything, etc. When you give yourselves titles like these, you're signaling to potential investors that you intend to retain those roles as the company grows.

But the likelihood that each of you is right for that same role on an ongoing basis is relatively low. It's definitely possible, and you can, should, and will learn on the job, but you should be open to bringing in outside talent to help scale the company once you're funded and growing.

This is one of those incredibly tough subjects. You have the founder-leader, and if you have co-founders you still have the founder-leader, typically: the one person who carries the full responsibility for the company, organizes the resources, makes the big decisions (even with input), and is held accountable for those.

Don't worry about titles. Use the co-founder title loosely--make the first 3 to 5 people co-founders if they are taking risk--but C-level titles like CFO tightly.

Signal that you know the difference in stages by not handing out the C-level titles--the VP of marketing, the VP of Engineering.

The two titles I can see having some import early on is CEO and CTO. These are the visionaries and leaders, and responsible for building and scaling the company. Those roles are easily communicated internally and externally through titles.

And if you're a startup founder/CEO, I absolutely believe you should try to make a go of it and not give up that spot unless there's clearly a need for it:

  • you suck at recruiting and hiring true believers/great team members,
  • fail to organize the resources effectively
  • can't raise investment
  • can't grow revenue
  • make massive strategic mistakes, etc. 

If you feel you need titles, have fun with it. Signal appreciation, signal importance, but don't signal inflexibility.

Sunday, October 23, 2011

Jawaya Update

I've been up and down about Jawaya over the past 6 months. Google comes out with Google  +, and it kind of sucks the wind out of your sails because you know at some point they'll incorporate search as one of the signals, and it's likely they'll surface people you know alongside searches they've done that are similar to yours.

That's in our original spec and first release, though that's not quite enough. But it's enough to render you impotent for a bit. 

Since I started this over a year ago, I've said that it feels like there's this giant, perfect wave forming just offshore and we're still standing on the beach waxing our boards. Later I changed that; that the wave is about to crash right where we're standing on the beach, still waxing our boards. 

Execution is everything. I built the functional prototype in a few weeks on old familiar technology--ASP--but knew it couldn't scale. So we decided to switch over to Rails, which i didn't know, but would commit to learning. My helpers were only part time and occasional, leaving me with the client-side stuff to work on in between. 

But there are bugs, and then there are bugs. You hit a showstopper that you can't fix, and you have to move to something else because working around it isn't really possible. 



After digging into Rails tutorials for a bit, I really didn't like it. I mean I really, really didn't like it. The shorthand maybe turned me off; maybe it was all of the exceptions to the MVC rules, maybe it was the changes in routing, maybe it was just that I'm an old fart at 44. I can read it, but I'm not very interested in mastering it, and I know that road isn't a short one for me. 

So over the summer I got interested in Node.js. It had one great advantage: it's a Javascript web server, built in C so it's super fast, and I know JS up and down. There's even a modified jQuery if that style suits. 

I love the idea of using a single language up and down the stack--Node, MongoDB, Mongoose (ORM for Express), Express (MVC), Jade (HAML-like templating; it's the one really new thing I had to learn and it's got enough electric cattle prods to keep you on track), Pusher for super simple real-time, jQuery/JS in the browser/mobile, HTML5.

Rails developers are a scarce resource, driving up their costs and reducing their availability for dreamers like me. 

Express was easy to learn--it's my entry point into the apps. 

So why is this important? 

Well, it frees me from the dependency on other developers. I should have chosen it from the beginning. Every developer knows Javascript. So the availability of resources changes dramatically: me, full time, and any developer when they can jump in, until we have revenues and/or investment. 

So things move daily. But not for Jawaya. 

The side project is a companion to it. I've gotten deeply interested in 'signals' and intent on the web: search is expressed intent, sharing a link is an endorsement of that link or your point about it, commenting at a blog is an expression of interest around the post, replying to a comment is expressed reaction. 

As humans we appreciate validation of our ideas, and we seek others who agree with those interests and ideas. It's one of the things that binds us, now that food is largely plentiful and shelter relatively cheap and comfortable (outside of Manhattan). 

So as Jawaya has crept along, I've been studying these signals and playing with them. A few weeks ago, I started pulling some of it together in Node/Express/Mongo etc, and am turning it into a coherent set of mobile and web applications and widgets that will server those human impulses with this goal: to increase the number and quality of connections between people in communities. 

So Jawaya Beta 3 is on its way. It's still a Rails app, and that's fine; it's maturing and stabilizing. Hopefully the first-time experience is rich and functional for people. Privacy on is the default setting, so you'll share only what you explicitly choose to. 

Until you do, it's largely a repository for saving the links you value,  whether you found those through browsing, searching, or checking out a social network. The context of how you found it is saved as well, which really helps when you're searching Jawaya for it later. 

I'm predicting 3 days to release, which means a week from now :) Some things never change.

The side project will continue to be a closed project (not stealth, just not public) until it's mature. There's no rush, and it might not become anything at all, but what I'm learning in the process is fascinating, and I'm really enjoying the JS stack. 

Saturday, October 22, 2011

Startups: Year 2

Fred Wilson posted today about Michael Bloomberg's talk at the Web 2.0 Summit.
The third year is when things start to work, you get customers, you start hiring quickly. The business ramps. But the second year is tough. Really tough. Everyone starts doubting you and if you stop and think, you can start doubting yourself.
I commented, which will be today's post:


Year 2 was Year 3 for ChiliSoft (it went faster than usual). For Mission Research it was right on schedule--Year 3. When we first released GiftWorks it was like we held a big party and sent people to the wrong address: nobody showed up. 

The product wasn't ready--it wasn't really feature complete. The company was largely unknown, and we were selling to a lagging, skeptical market that didn't like to spend money: we had no credibility. 

So one by one we worked with prospects and learned from them. Gave the product away mostly, just to get feedback, build credibility, and build a better product. 

Nine months later, we had 250 "customers", though few had paid, and released the second version. 6 months later we had something like 1500 customers. Today it's something over 8,000 active (nonprofits). 

What you do during year 2 is what makes or breaks you. It's the year you need to listen, refine, listen, refine, rinse and repeat, and hopefully build enough runway so you don't tank it. 

I can't really remember how hard it was--there's likely something very human about that suppression, because here I am entering year 2...

Friday, October 21, 2011

jQuery Selectors

Hogan's Heroes used to have a routine where someone would be defusing a bomb, and someone else would be reading the instructions. "Cut the red wire. But first, cut the blue wire."

Most of my jQuery bugs are around nailing the selector. I do a lot of dynamic concatenating of class names and id's at the server; get it wrong in your JS and ugh...pain.

Lesson: make sure your selectors are right before cutting the red wire.

Your Daily Calls

I've harped on this before, and I'm largely writing this to remind myself: you have to make your daily calls.

Whether it's to potential customers, existing customers, investors, reporters, potential partners, employees, distributors--make the calls.

Two hours a day--the first hour in the morning, and then some other hour that makes sense to you, depending on your target that day or week, or year, depending on your stage.

Smile and dial. End one call, make the next one. Don't take a break--it's just an hour at a time.

If you do connect with anyone, make sure you walk away with a next step, unless it's just informational. If it's very important--the big sale, raising a round, hiring a great team member--try to get a meeting instead of another call or email. And know how to nail the in-person meeting.

Always be gracious.

Why do I emphasize the call?

Email is impersonal; it's very difficult to properly and professionally emote the way you can--even subtly--on the phone. In-person meetings take a lot of time, and while critical for some things, are sometimes too much unless you actually have the time.

Let's do the numbers: 10 calls in the morning, 2 successful connects. 10 calls in the afternoon, 2 successful connects. 4 connects per day, 20 per week, 80-90 per month.

That's you as a founder, not as a smile-and-dial salesperson, who should be posting something like 3 to 4 times those numbers.

Out of those 80 calls, you might close 10% if they are prospects. Less if they are investors. More if they are simply important relationships (defining 'close' differently for each).

If you don't make the calls, you won't close the deals. It's that simple. I've made zero calls to investors this week. Guess how many checks they've written to me? Pitches scheduled?

So if you won't make the calls, who will?

Thursday, October 20, 2011

Startup Books

One of our local founders asked me what books he should read as he and his co-founder jump off the startup cliff and into the river of poorly conceived metaphors.
For me, a lot of these books have a few great lines and ideas that stick with you, but the best part of reading them is the number of ideas and amount of energy you get as you think about your own vision. 


This list is off the top of my head--I've missed a bunch in the past ten years. 
  • Eric Ries, Lean Startup. I haven't read it yet, having lived the gist of it, but I'll get it today. I hope it lives up to the hype.
  • TechStars: Do More Faster
  • Guy Kawasaki The Art of the Start, How to Drive Your Competition Crazy. I like to read Guy because he's a fun voice who nails evangelism.
  • Crossing the Chasm (I'd read the condensed version of this).
  • Innovator's Solution. Read this instead of the Innovator's Dilemma; that book is summarized in the first chapters; more targeted toward corporate innovation but contains some good stuff.
  • Seth Godin's Purple Cow. Short, good for sparking ideas. Nothing ground-breaking but a fun read. 
  • Influence --I'm just reading this now. If you can find a condensed version or thorough review, you'll get to the core. 
  • Steve Blank's book. I haven't read it, but I've read a bunch of his blog posts on Customer Development. Really great stuff. 
  • The Tipping Point. This is a great read, but I don't know whether you can architect a tipping point for your business, but you can definitely design parts of it into your product. You can certainly understand the dynamics of virality and the personality types through this book. 
  • Back of the NapkinSolving Problems and Selling Ideas with Pictures. To sell your startup you need to develop and tell stories--about yourself, your market, your customer, your products. This is a really great book for anyone--with drawing talent or not--for learning how to simply represent those stories. 
I've read a ton more, but I can't remember the titles. These are the ones that stick out as helpful. 
None of these will give you the answers you need (except, I suspect, Steve Blank's book). The point is to spark thoughts about your own startup. 


Fundamentally, your success depends on execution, and a lot of that is about repetition: number of calls you make, people you meet, impressions you get, emails you send, etc. 
And a lot of it is about your personality--you commitment to your cause and the people you depend on, your ethics, your principles, your true voice.  


There's at least one other you should read, but it's not about startups. The Power of Personal Accountability: Achieve What Matters to You, by Mark Samuel. It's not out on Kindle, but it looks like a recycled version is coming out in hard copy next Spring. 
I'll add mine to the list soon :) What have I missed? Tell me in the comments.

Wednesday, October 19, 2011

The Importance of Week 1

I had a conversation with an entrepreneur on Monday on my way up here to the wilds of northern Pennsylvania (where the air is crisp and the frackin high).

He sounded down. He had quit his corporate consulting gig and wanted to build a startup, but had been through it before several times, never working out.

I asked him how his finances were.

"I live like a church mouse!' he exclaimed. Good. You'll appreciate that later when you've outlasted everyone else.

We both talked about our challenges, and by the end of the talk he sounded better. So I launched into my startup rant.

I want to know what you're going to commit to. What do you need to do today to get to next week?


Get started.

You don't have a spec. Sit down, no computer, just pen and paper, and write the damn spec. Draw it. Make notes on it. I don't care if it looks good, just get it done.

What else?

Write up some scenarios (Steve and Dave are rolling their eyes; I hated this but it works). Who wants your product? Tell me what you imagine. Write it down. Why should they care? What do they get out of it?

Then prove it--call 30 people that meet your target profiles. Or show up at their offices or stores, or front porches or doors. Take notes. Listen. Don't explain what you want to do, explain the problem you're trying to solve and see if they actually have that problem or something similar. Listen.

See how that matches up to your vision and specs. Make adjustments. Decide if it's still worth pursuing.

That's Week 1.

Within a week you'll have a spec, 30 new friends and a sense of purpose and direction. So when we talk next week, that's what I expect to see. If I don't see anything close to that, I start charging and at the higher rate, because you're wasting my time and yours.

Ideas a fun, but business is built on execution.

Then you get to the fun stuff: Week 2. We'll talk about that when we get there.

there's a lot of great customer development insights by Steve Blank you should check out here.

Tuesday, October 18, 2011

Fundraising: See Investors Early and Often

She said she's spoken to two investors outside of friends and family--informally. That's over the past nine months.

This is her first startup; very smart, lots of experience, strong vision. But that really struck me--only two investors in nine months, and it's time to start raising money.

Fundraising is a sales process. Here are some quick pointers:
  • Get to know as many investors as possible, even if it's too early. 
  • The next time you see them, let them know your progress. 
  • Send a monthly update. 
  • When you're ready, meet with them in person. If you have trouble getting a meeting, shoot for a call, but that's a last resort for me because you lose your primary power of persuasion--holding someone's attention, drawing them in, infecting them with your passion
  • Set a minimum level. I like $25k; if you need $250k the max number of people you have to keep informed is 10, which is manageable. 
  • Ask for the investment. If it's an angel investor ask for double or triple the amount you think they'll invest. They might surprise you and say yes. 
  • Most likely they'll say no, but some will say "I don't think I can do that much", ask them how much they think they can do, and then wait for them to answer. Don't try to fill in the pause--the ball is in their court, and they've indicated indirectly a willingness to invest, just not as much as you asked. 
  • Raise money on a rolling basis, meaning, don't create a deal where you have to wait for all the checks to come in. Structure it so you can deposit checks and get to work, rather than having to aggregate dollars. 
  • If someone doesn't invest, continue to keep them in the loop. Just because they aren't interested now doesn't mean they won't change their minds. 
  • Prepare yourself for no. You will get turned down often. It's ok, you're still a great person with a great idea and the ability to execute. It's part of startup life. Don't look at it as rejection, look at it as filtering the investor pool until you find the right one(s).
  • Have your shit together. Meaning don't go through all of this effort without having your basic deal docs together (convertible note or equity docs), any financials, executive summary, etc. Any one investor might get really excited--enough to bring others on, and you can jeopardize it with a shaky set of stuff, or complete absence thereof. 
That's it for today. Press on, folks

Monday, October 17, 2011

The $20,000 Book

A few years ago I left my last startup and almost immediately started writing a book of startup advice for founders, from my narrow set of experiences advising over 20 startups and building four.

Yesterday I picked it up again, and started weeding through what I've written since 2004. I'm working on it a few hours per day, and hope to have a draft by the end of the week.


Please let me know in the comments if there's anything specific you'd like to see in the book. I'm publishing it as a Kindle thang, possibly other formats, but I'm a Kindle fanboy.


The book will be a collection of advice for building, running, funding, and managing startups. But there will be a special emphasis on decision-making challenges: frequently the right path is unclear, so you try, fail, refine, try again, etc, etc, and hopefully survive the failures.

The best way to let me know if this interests you is to buy the book :), which will be $20,000 per copy (haven't market-tested that yet so it could change).

Saturday, October 15, 2011

Weekends

Yesterday the storm in south central PA knocked out the Amtrak power lines between Paoli and Lancaster.

I'll spare the details, but my trip, again, took four hours instead of two and a half, but I was impressed with Amtrak's quick handling of the logistics: they replaced the electric diesel engine, loaded everyone from the stranded local-stop train onto ours (standing in the aisles), routed us onto eastbound tracks going west, prevented other trains from colliding head on, and got us all home safely.

During none of that--none--did my Verizon Mifi deliver the goods. I don't mind subsidizing mass transit. I do mind paying for a service that doesn't deliver when I need it. I can code offline, but I can't hit StackOverflow when I need it. So Verizon, whatever it is you need to do to at least match Amtrak's service between Paoli and Lancaster, can you get to it?

With the storm came Fall weather--the crisp air, the smell of smoke from someone's fire down the street, and weekend football.

And coding.

That's a year-round activity.

On weekends I like to work on side projects  to learn new skills. This weekend I'm back at it with Node, though I admit I've been spending some weekdays on it as well. I should likely be looking into test suites and other adult things like that as I grow as a developer, but the toys just look to fun right now :)

Other weekend projects--like packing up my studio, sorting out stuff to keep, trash, or sell--well, they can wait.

Thursday, October 13, 2011

Heading to NY

Heading to the train in about a half hour. And I haven't packed yet, so this will be a quick post.

First, check out this video, starting at 27:00. I love this dose of reality.


I've always liked businesses where you have to sell something, not simply sell advertising, which I suppose is selling something, or enabling others to sell to your aggregated eyeballs, but selling a product or service just seems more grounded. 

I'm starting to sell myself: interviewing with a number of companies and headhunters, which I've frankly never done. I've always started things. 

Jawaya will have to be a side project for the time being. I haven't felt comfortable raising money for it, so the pace is a lot slower than it should be, though I'm taking steps to address that. 

Ryan kicked my butt over the weekend and reminded me that I have a book to finish. So I've set a deadline: Finish the book in 10 days and start selling it. 

I've got a ton of experience, about 120 pages of the book, and over 1000 blog posts on startups to choose from, plus a ton of comments over at AVC.com since 2004 when Fred started blogging. 

What I expect I'll end up doing in the short term, though, is advising startups, perhaps on a subscription model. I can accelerate a startup simply by adding the judgment I've gained over the years, from both the good and bad decisions I've made. 

If I can do that part of the week and code into the night, I might have a nice model going forward, until I have a finished product I can sell and build a company around. But I really don't want a lifestyle business...I'm itching to make big things happen. 

Wednesday, October 12, 2011

Brain Sparks

I try to code for a half hour, take a brief break, then code some more. More often than not, I just keep going, and at some point the brain just slows down and I can't figure something out.

[insert red bull ad here]

I work in a small room at the top of my house; it doubles as my studio. I just took a 15-minute guitar break, and I'm ready to slay some code dragons again. I'm not shy; I turn it up and really dig into it, usually exploring some recent musical thought.

When it's not clicking for me, I deliberately do a lot of modal stuff, things that challenge the ear and fingers.

And it works every time--I'm back, refreshed, brain's sparking again.

No Red Bull or other additives needed.

Monday, October 10, 2011

a bit of fun

Breaks are good.

I've been waiting on a few fixes for Jawaya from the intrepid Ryan, who has real paying work to do as well, so in the meantime I've taken a step back from Jawaya until after this post.

Note: I'm at best an intermediate programmer; and this post is targeted toward beginners and intermediates. If you're a code jockey, you may find yourself guffawing out loud as I say things like "tests? we don't need no stinkin tests!".

In the meantime, I've been playing with some cool technology, and having some fun with it. Node.js is a lot of fun to work with; it's an http server written in Javascript, which has become fast enough.

My goal is this: to build a useful app entirely in Javascript, from the database to web server to framework to browser stuff. Why? Well, I know JS, so I don't have to learn the language, just the tools.

The nicest thing is that you don't have to ask your brain to think differently each time you switch from browser to server to database. That said, I'm using a templating system that isn't JS, but it eases working with HTML, with which I'm already, of course, comfortable, but the syntax is really clean.

So here's the toolbox:

  • web server: Node.js
  • real-time goodness: sockets.io (for chat, streaming, etc)
  • model, view, control framework: Express.js
  • HTML templating: Jade. Clean, simple, outputs HTML. Can incorporate JS.
  • CSS Templating: Stylus. Really clean, much cleaner than CSS and outputs to it. 
  • database: MongoDB. NoSQL document database, stores in BSON/JSON, which of course is Javascript-based object format.
  • database ORM: Mongoose. Basically makes it simple to work with Mongo, which is already simple, but cuts down on the amount of overhead. If you like dot notation, like user.name='charlie'; user.save(); then you're going to love Mongo and Mongoose. Note: mongoose documentation ain't great, so make sure you study the Mongo docs. 

So on top of Node, I installed NPM, which is something like node package manager for installing and managing node add-ons called modules.

For instance, installing express is simple: npm install express.

So I installed the Express.js framework, which is a lightweight MVC framework. The tutorials were easy enough to get up and running quickly. It's much like Rails, but less terse, and given I know Javascript but not Ruby, it's easy for me to pick up.

Then I installed Jade & Stylus, and then mongo and mongoose. I was able to test each of those pretty quickly, and had minor problems I was able to get around.

The real fun came in when I installed sockets.io, which instantly gives you real-time functionality. Imagine killer-fast multi-player gaming, where you have to send, receive, and render real-time data from multiple sources. Fun stuff.

Note I'm not offering any code samples--I don't have the time today and this blog isn't really designed for that.

So what's the point of blogging it? Well, I think I've seen the future, and the future is Javascript. Which sounds crazy--a lot of people hate Javascript. Yes, but everybody knows it, and when all the components of your apps are in JS or jQuery, from server to mobile, suddenly you've enabled everyone to build robust killer realtime apps.

And somebody ported node to the iPhone, which enables so, so much. I can't even begin to get into the possibilities here, but I guarantee you there will be a huge amount of investment in the mobile node.js space. Huge.

Breaks are nice. But break's over--back at it.

Sunday, October 9, 2011

Aligning Interests

I advise about 20 startups on and off on an ongoing basis. This is not one of my favorite stories.

One of the startups I advise went through a leadership change last year; revenue was flat, the year ended with a 17% loss, the product team had left, and the plans to replace them involved offshoring, which greatly weakened product- and people-oriented exit scenario.

A few of the key people had left because their options were underwater and it was no longer a fun or fulfilling place to be. The CEO had argued that nobody cared about employee options anyway, and they didn't even understand what they were. They had become, effectively, a joke.

Unaligned Incentives
After the change at the top I understood the ease of holding that position: the CEO had worked out a compensation deal with the board that paid management substantial cash bonuses based on the level of the exit, which was solid inoculation from the options--preferences mess, while leaving the employees and founders eating the dust of worthless options, depending on exit level.

On top of a relatively high salary padded with bonuses, it was clear the interests between shareholders, management, and employees were no longer aligned; there was no incentive left in the incentive stock option plan (ISOP).

The Pay Window
@JLM, a commenter over at AVC.com, says this regularly, and I think it's a good ethic: if anyone goes to the pay window, everyone goes to the pay window.

The intention for an incentive stock option plan is to align the interests of shareholders, management, and  employees, so all are pulling in the same direction toward the same goal.

When you go to sell your company, you're compensated based on the value of your converted stock options, which you earn through a meritocracy, typically based on role and impact.

In this case, the cash payouts were problematic because it aligned the interests of the CEO with a single class of shareholder--preferred. Employees and founders could be cut out of the exit entirely.

Not to mention the tax implications; cash is taxed as personal income (40% in this case), while stock options are taxed at the lower long-term capital gains rate (15%). Further, if you intend to donate any stock--and you should--you are not taxed at all on that stock, plus you get the full benefit of deductions. It's like found money.

Problems with Cash Incentives
But cash incentives and bonuses can be bad for a company's overall performance and can create perverse  incentives and outcomes. If you pay a bonus based on net profit, then the incentive is to maximize annual net, which can lead to keeping salaries uncompetitively low, firing higher salaried people, cutting corners on product, lower revenues.

If you pay a bonus based on gross revenue, you can get behaviors like shipping bricks: yes, a hard drive company literally shipped bricks instead of hard drives just to get its booked quarterly gross revenue up. I guess it never occurred to them that someone would open a box.

If instead, people have great healthcare, a good salary, and options that are not underwater because of poor pricing and/or liquidation preferences, and you create a buckets of several targets with long term success as the goal, you create the right incentives and behavior that aligns well with that.

My Bad
I was not immune to this; in the thick of things at my last company I negotiated a two-tranche Series B round where Tranche 2 was based on shipping product by a certain date. I had 5 months and no team for that product, so what did I do?

I outsourced locally at corporate rates, and blew through a ton of capital while delivering a substandard product. I had largely bootstrapped the company prior to that, but made the mistake of trying to hit the target so the capital coming in was cheaper.

Well, we hit the goal, but the effect was in fact much, much more costly than any equity I saved by hitting it. And that was the end of my tenure there (yeah, it's going in the book). There were some other circumstances that led to that, but it was all stuff I should have dealt with differently.

Cash is King
Finally, any time you take cash out of the company, you're removing tools for reinvestment and growth. Bonuses aren't a terrible tool, but they can create perverse incentives that don't align well with the progress of the company.

Be very careful about taking cash out of the company to provide incentives; if you need to use cash to motivate people, you're simply not doing it right.

Lesson?

So, back to basics: run a lean machine. That doesn't mean skimp on healthcare or comp, but be smart and build a team of committed, talented, motivated people aligned with your vision, goals, and interests.

When you take on investors, make sure they are aligned with your ultimate goals, and if they aren't, don't take them on. When you recruit board members, make sure they agree with your ethics, goals, and principles, and understand the importance of aligning employees with management with investors.

Use an incentive stock option plan honestly, and protect your employees options interest all along the way.

And if anyone goes to the pay window, everyone goes to the pay window.

Thursday, October 6, 2011

It Should Just Work

My father died of cancer in the Fall of 1996. Sometime around July that year he drove home in a new car; he went out to get a Cadillac but came home with a Buick. "It was $10,000 cheaper". He had always wanted the Caddy, but couldn't turn down the deal.

He was stick thin after 9 months of treatment, surgery, and more treatment; "drink the poison, it's kill or be killed,  the trick is to stop in time". I was there to tell him the doctors wanted to try another round, but he refused to continue treatments. He knew it was over.

When Steve Jobs presented his vision for the "spaceship" Apple campus to Cupertino City Council, his breathing was labored, his body skeletal. He knew it was over, and anyone who's witnessed the slow but definitive decline of someone dying from cancer could see that.

But there he was, pushing his final (public) vision, visionary to the end.

Positive Discrimnation
I didn't know Jobs; the closest I ever came was through an unflattering comparison to him because he saw people in black and white--"heroes and assholes"--as one of his Next employees (a board member of my second company) described while explaining the importance of gray areas to me (and then proceeded to give an amateur diagnosis of the real issues behind my discontent with a non-performing CEO. Classic VC stuff).

I've never been a fan of the gray areas and don't think they should be celebrated, though personalizing those characterizations isn't particularly productive.

What is productive, however, is that razor-sharp quickness of judgment, that ability to know what works and what doesn't. Like the investor in yesterday's post, Jobs was 'sometimes wrong but never in doubt'.

That kind of discrimination produced a line of products that enabled the world to do great things better, faster, more creatively, and with greater reach than ever before.

Rarely First, Usually Better
He wasn't first with most things. The PC was envisioned in 1968 by Douglas Engelbart, and introduced commercially by Micral in 1972. Jobs & Wozniak introduced the Apple I in 1976. It was much better.


The iPod was not the first MP3 player; it was best. Audio Highway was the first.

The iPhone was not the first smartphone by any measure; HandSpring had a cell-plugin, but IBM introduced the first fully integrated phone + PDA, or smartphone in 1992. Jobs, however, nailed it.


It Should Just Work
Jobs believed it should just work, it should be great;  he embraced being the best as the target, not just incrementally better.

In some ways, Jobs and the recent Apple are a perfect example of American exceptionalism. He seemed to believe that poor design was an injustice to fight against and ridicule. The people who chose bad but affordable design deserved what they got: a cheap bundle of struggle.

Inspired by that ethic, I came up with the GiftWorks tagline: "software anyone can use, and everyone can afford." The driving ethic was that it should just work, it should be obvious and simple so that anyone could use it without reaching for a manual or training. We never quite got there, but we were better than the others for a long time.

That was a borrowed ethic, without his brilliance to know the difference between was just worked and what sucked--in a lot of cases.

Educate the Blockers
Jobs likely left writing, designs, ideas behind. I'm hoping there will be an interactive museum, a place where the middle managers of the world can go to learn about innovators and visionaries and how to work with and enable them.

That might seem like an odd suggestion; yes I'd hope for a place all of us can visit and be delighted in what we learn and experience, but perhaps the celebration of Jobs' life can serve to educate the blockers to become enablers and catalyzers, so more visionaries can thrive and change lives for the good in the process.

The tendency to obstruct or crush that which is different or challenging impedes human progress, but it seems like the default human reaction to change, new ideas and those who carry them.

Apple was at its best when its prime driver was untethered by the machinations of corporate structure and biases: at its beginning, and when he returned after his dismal departure and Apple's dismal years in between.

He was a true founder, with his brilliance and faults and challenges, and he carried the torch without apologizing for it, leaving us with the leading but important question: what is the lesson of Steve Jobs life?

Wednesday, October 5, 2011

Node.js or Express.js Issue W Folder Names

If you're new to Node, as I am, there's a ton to learn. If you're also new to Mac, there's a bunch more to learn, and usually by cattle prod.

Today's learning, so far, is that when you name your Express app, don't use an underscore like Your_App, because Node (or express) chokes on it and can't find it.

Removing the underscore eliminates the issue.

Sometimes Wrong, Never in Doubt

I'm trying to bring light to the darkness around the edges, but haven't gotten there yet. Some days, it really brings me down how slowly we're progressing.

I had a call with a VC I really respect yesterday. He's seen the app a few times, and each time his response has been the same:
what's the use case for this, why would I ever use it? 
And after explaining why I and others do use it, he still didn't buy it.

Or rather, he didn't get why enough people would use it for him to care about it enough to write the check (as a user or as an investor; nail the first one and the second is more likely to follow).

I didn't think he would, especially given there are currently only a few people using it, which proves his point. We just haven't moved it forward enough to get traction yet.

He didn't care about the execution difficulties, which have bee numerous given the part-time Rails work and my fulltime front-end work (perhaps I should have funded the devs fulltime instead of myself). He cared about the model and use cases. He knows that given a team and funding I can knock it out of the park. It's just that it's not something he'd use.

As we were wrapping up, he said, as he has on the other calls (and if you've pitched him before you know who it is simply by this line he says often),
"my wife likes to say that I'm sometimes wrong but never in doubt."
Well, I still think he's wrong. But I appreciate the insights, and he's always on my list when I have something new.

For now, though, I'm pressing on with Jawaya, which will enter Beta 3 and a name change as soon as I can get enough Rails dev cycles on it. It will not be significantly different, but it will be easier to use, more obvious, and I'll start actively promoting it to niche communities.

I might be the opposite of him: always right and always in doubt. That's the ambition, bravado and paranoia of a founder talking, all mixed up together on a crisp Fall morning full of coffee, spit, and high hopes.

Tuesday, October 4, 2011

Monetizing Excess Capacity

I've been kicking around different business models over the past year for Jawaya. One of the attractive catch phrases I've come up with is "monetize excess capacity".

(I say that as though I invented it, because Google puts one of my posts at the top of the search. If you're me, that's what you get, anyway; Google search supports vanity over accuracy?)

So what does that mean?

  • Airbnb: monetize the excess capacity of your home
  • Loosecubes.com: monetize the excess capacity of your office
  • eBay: monetize the excess in your life
  • Jawaya: monetize the excess capacity of your time (one of the options). 
  • Schooletize: monetize the excess capacity of your school facilities (fictitious)
What else do we have lying around that we can put to good use? Commercial kitchens. Long-haul trucking capacity (logistics software handles this pretty well). Planes. Trains. Automobiles. 

It's a long list. 

But the only way these models can be successful is if there's enough demand. You'll get your demand initially by stealing it from entrenched players and disrupting the marketplace with lower prices for an adequate alternative. 
  • Airbnb disrupts the hotel industry. Lancaster Marriott charges $150-195/night. Airbnb has rooms for $70/night. 
  • Loosecubes disrupts the business real estate market, with its long, inflexible leases and high entry costs. But if you charge $500/month for a desk plus infrastructure, I'm going to consider other options like cheaper Loosecubes space or my own rented office, which I'd then share through Loosecubes. 
For Airbnb, the backlash to their disruption from the hospitality industry will come in the form of complaints to local, state, and federal governments, demanding the same regulations and licenses applied to them be applied to each space owner. 

So, what excess capacity can you monetize? For me, it's a brain full of ideas. Just need to code faster. Any developers have some excess capacity they want to monetize? 

Monday, October 3, 2011

How's it Going with Last Year's Pledges?


At the end of 2010 I wrote a post called "The End of Bullshit". I just came across it again, and it hit me like cold water in the face on a cold October morning. 

Here's an excerpt. 

"One of the startups I advise spent a bunch of money outsourcing overseas. The entire product was built by a team in India. The company spent hundreds of thousands on it, and it works, mostly, kind of. 
But something doesn't quite work, it's not quite right, it's not satisfying to the founder.
Well no shit. You're a founder. You're never satisfied. You need developers who work for you who share your vision and will do what's needed to go from crap to great."

It's a rant, but it's a good kick in the ass. 

Sunday, October 2, 2011

Amazon is My Favorite Company

I'm writing this as a consumer only.

I love Amazon. I love the Kindle, which is the device that returned me to reading. My ADD makes it very difficult to get through a book, much less a newspaper, so the small screen of the first one was perfect for me.

But I left that one on a plane. And then I broke the replacement a year later.

And then a few weeks ago I apparently broke the Kindle 2 that replaced the replacement. But this time, Amazon's sending me a replacement free of charge; they've had quality issues with screens.

The Kindle Fire tablet is coming out in a month or so, and I'm likely to buy that over an iPad if I have the spare cash to do it.

My rule for new gear is this: no new cash for new gear--gotta get it from selling something else. I have a ton of studio gear I don't use, and more than enough computers, plus two monitors I'm not really using, though I'm just lazy and should hook them up (will do post-launch).

But I value the Kindle, which returned me--a writer with an English degree--to reading, which I deeply value. I understand people who like the texture of physical books--I get that and like that too. But I value readability more, and for my darting eyes, Kindle's it.

Amazon's end-to-end experience is excellent, and I'm constantly impressed at its progress.

All In?