Wednesday, November 11, 2009

Can VC and entrepreneurs just get along?


I've been thinking about the discontent between entrepreneurs and VCs. The story goes like this:

Entrepreneur (E), VC (V)

E: The venture capital model is dead. I'm working on a hot company that's going to change the world. VCs don't understand my business.
V: What's the correlation between dead VC model and your inability to raise VC money? Bring on the VC-fundable idea and team, and we'll write a check.
E: We have a target market with no competition and great idea.
V: No competition? If it's an attractive market, there's gotta be someone else competing against you in that market. No product? Too early for us.
E: The reason that we are the only one is that it's a $100M market opportunity.
V: $100M market? Too small. Can't justify the investment return in the end.
E: We have a business model and product that can dominate this market.
V: Interesting. Maybe I'm interested.
E: Good. We're looking for VCs with operating experience. We're not going after just money. We want value-adds.
V: I have been investing for 20 years right after MBA. I invested in company A, B, and C all of which exited successfully. My partners have operational experience in your sectors.

and it goes on and on....obviously, overly simplified but the gist should be there.

Who's right and/or wrong? Nobody. But entrepreneurs and VCs make a big fuss about the stuff above.

Can we just get along and stop blaming each other?
  • There are ideas that are VC-fundable and bootstrapping.
  • There are successful VCs with operating experience or just management experience.
  • There are big market opportunities and small ones.
  • Entrepreneurs' job is to create and capture value in any market opportunities.
  • VCs are in the business of maximizing returns to their investors (a.k.a. LPs). This may be a controversial statement, but I'm going to say it. Entrepreneurs are NOT VCs' customers. LPs are.
  • Remember VCs are value-adds, not a must-haves in business.
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Tuesday, November 10, 2009

Startup vs. Big Company - Politics


(used with a sing. or pl. verb) The often internally conflicting interrelationships among people in a society.

so says Dictionary.com (http://dictionary.reference.com/browse/politics)

Many of us in startups talk about flat organization, no hierarchy, no politics quite often. We tend to believe that bureaucratic organizational structure in big companies is the enemy of all, and that startups are nimble and move faster to adapt to changes to customer demand and market conditions.

I recently engaged in a discussion with some friends and talked about the office politics. There were entrereneurs, consultants, bankers, and even VCs. Not surprisingly, we agreed that there's politics when there are more than 3 people in the same room.

In the startup environment, politics is not necessarily a bad thing. When 3 people always agree, they are not probing the problem enough. On the other hand, the whole resolving internally conflicting interrelationships is difficult. As with many other things, there are pros and cons. What's your story?
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Friday, May 15, 2009

Future VC Crisis

I usually don't pretend to predict the future outcome of industry. I'm often very wrong about the future like many people out there, but what the heck! There will be a VC crisis... at least in the small segment of those affected by the current trends and from pure perspective of financials .

It is no secret that the cost of startup decreased dramatically. Paul Graham agrees here, and Prof (via NY Times) has an article here to reinforce the case in point. Wait, didn't I argue for rise of startup cost in the past? Not so fast here. Here's the difference:
  • The cost of starting up a company (e.g. ideation, prototype, incorporation, deployments) definitely decreased dramtically. To that point, NYT has a good argument for why that is so here.
  • What I meant to say in my previous blog post was the cost of total capital requirements to create the value at the time of exit went through the roof.
Let me come back to the first bullet about the cost of starting up a company. It is no accident that I talk to quite a few venture investors and entrepreneurs for a number of reasons. We quite often chat about the recession and the impact of economic crisis on deal flow, investments, etc. The investors love the current times, because
  • revisiting valuation in this recession gives them a good leverage to make attractive investments
  • they are busier than ever looking at all kinds of companies
  • cloud computing and virtualization (in the software sector) turned out to present attractive value propositions to customers looking to reduce cost and survive the economy. ehhhh?
The VC Crisis
Without further due, here's my prediction about VC crisis. There will be winners in cloud computing. At the same time, it will be cheaper than ever for web entrepreneurs to start up a business, thanks to the innovation created by the cloud computing companies (invested by VCs). That, in turn, will make it difficult for many early-stage VCs to convince web companies to take money at an early stage. Then, early-stage VCs move downstream to later stage investment where the economics of exit multiples, etc. just doesn't work out well for almost all web investments. Instead of $10M in, $100M out economics, it will be more like $40M in $400M out. By the way, the number of companies that can justify the new economics...... there are even fewer companies to realize that kind of exit, thus more losers.

Summary (I could've Twittered this)
After investing in the sugardaddy cloud/virtualization companies, these companies drive down the cost for other startups, then the startups don't take early-stage money, then there goes the VC crisis. Sounds like now is a suicidal time for VCs.
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Tuesday, April 21, 2009

Ouch...

John Sculley: Don't Be Afraid to Make Tough Decisions

Monday, April 20, 2009

Disengaging from Social Media

I've been trying out various social media tools to engage with other online audience personally and professionally. I got into the social media ecosystem that I'm getting to the point where the incremental value of utilizing another social media tools (at least in the contact management sector) is close to zero.

The best tools so far has been Twitter, LinkedIn, and Facebook, and it should be no surprise.

I tried to make sense out of more extreme professional contact management tool by using Plaxo. Today, I declare the permanent "uninstallation" of Plaxo... forever.

I get too many spams and don't really get much value out of Plaxo. My contacts (including me) don't really update the contact information up-to-date. There's not really a reason to visit the Plaxo website. The desktop tool just flashed and uses up my CPU for no reason other than the software doing nothing.

Bye, bye, Plaxo. Although I never got to know you, you've already made yourself a fame by getting acquired by Comcast.
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Tuesday, March 17, 2009

Rubbish Land

Green RiverImage by Giant Ginkgo via Flickr

Americans and people in relatively well-developed countries take clean water and infrastructure for granted. When I was in Chicago, one of my favorite annual event was the "greenization" of Chicago River. It's actually quite amazing what Chicago has done with its water system, including:

  • Reversal of flow to prevent Lake Michigan drainage
  • Beaches nearby downtown
  • Fish hotels underneath the Michigan Ave. bridge
  • Water Purification

During the early 20th century, the water was too contaminated for consumption, but the city has done a tremendous job at purifying it and making the riverside enjoyable for tourists and citizens. It's gotten to the point where a bit of color contamination on the St. Patrick's Day is acceptable.


In this country where people take clean water for granted, there are still a ton of startup activities geared towards water purification. Making this blessed country even more blessed is........ blissful.

On the other side of planet, more specifically Manila, rivers are covered in trash. Not sure if any technological advances will be able to clean up the river, but this is just too stunning. The picture below, first shown at The World Water Forum, makes me wonder, "What the heck are we doing working on incremental environmental changes when the same resources can be deployed to make a much bigger impact?"

(Source: http://www.thesun.co.uk/sol/homepage/news/article2323032.ece)


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Tuesday, March 10, 2009

Overheard in Silicon Valley


If my previous post was an indication of summarizing my daily lessons learned in the Valley, yes, I slacked off. I was busy learning about many things, and I would like to share some lessons learned with my readers. Mostly just brain dump of various things, but I'll try to bucket them into different categories.



Economy

  • It's tough out there (quite frankly, everywhere these days), but productivity is WAY up stemming from low burn rate and increased work hours.
  • Growth is still the king. Monetization can happen when the economy recovers
  • (somewhat of a contradiction to the above) "Product, product, product. Growth later, please"
  • Not that many companies feeling the pains in a tangible way. They just want to stay low until somebody else brave (or dumb) enough makes a big move.

Startup/Company Gossips
  • Silicon Valley needs the next Google (awesome product with real revenue stream [not just a proven revenue model]) real soon
  • Semiconductor industry is about to enter the most difficult times in its history
  • SV always talks about SV, Boston talks about Boston vs. SV
  • "Recycling" high valuation deals is somewhat of a trend
  • Angels are busier than ever
  • Facebook's talent hemorrhage is a big contrast to its predecessors like Google, Yahoo, etc.
  • Entrepreneurs here live on dreams, elsewhere driven by reality
  • Lots of excitement around Palm Pre. Most of the design features actually got "stolen" from another company
  • While operational experience is highly respected, venture business is really about accessibility to deals
  • New York's rise to stardom in entrepreneurship is noticeable from the other side of coast. With top-notch innovations and investors to enable the whole ecosystem
  • Boston's main competitive advantage is largely top academic institutions
  • Google fired some flamingos on the dinosaur sculpture, so that the employees can spend the time more productively

Other Stuff
  • Too many good restaurants contributing to accelerated weight gain. No wonder the weather is so good all year round. I needed to burn some calories all the time
  • Intuition is highly respected. Analytics, less so.

Too much to list all them out, but I'm sure I'll use some of the lessons learned in the future posts.
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Wednesday, March 4, 2009

Silicon Valley Trip - Day 1

Image representing Google as depicted in Crunc...

Here in Mountain View, sitting at a quiet cafe, I'm sipping on a delicious cup of latte.

I met a few startups and investors yesterday. Nothing was really new.
  • Due to the economic downturn and surge of available time, Silicon Valley sees more companies and innovations
  • Entrepreneurs are laser-focused on doing what they're supposed to be doing: improving product and engaging more customers. This applies to both well and under-capitalized companies. Many are cautiously hoping for revenue generating opportunities.
  • Weather is scattered shower, sunny, and cool. I was wearing a t-shirt, and people kept asking me, "Aren't you cold?" Nope, my skin thickened quite a bit with lipids and adipose tissues.
  • Building products is cheaper than ever.
I want to say something more explicit about the last bullet. I've been hearing the mass exodus from Google, and how the company turned into a monster like Microsoft praying on innovators in the Silicon Valley. All that aside, entrepreneurs were integrating Google Docs, Calendar, Tasks, Maps, and many other products by using the free API.

Google's main and only revenue source may be from its wildly successful ads operation. At the end of day, the company's turning all that revenue into enabling many other technology innovations among startups.

Without further due, "Google, you the man!"
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Friday, February 27, 2009

Yet Another East vs. West Coast Startup Economy

"You know, it was interesting to see that Boston entrepreneurs are...umm..... older.... mostly in 30s and 40s. Many guys in Silicon Valley are younger".

No offense to the people in their prime 30s and above (including myself), hearing this from a venture investor from the west coast was somewhat demoralizing, though not surprised at all.

Some say Boston is still going strong, and others say it lost the edge already. I don't necessarily believe that Boston lost the edge, but c'mon, Silicon Valley owns a vast majority of big, successful latest high tech startups.

Rewinding a bit to
  • my conversation with a local recruiter in Boston....... "I sort of miss the good ol' enterprise software companies. I see so many mobile/internet companies, and they started to dominate the whole startup scene in Boston".
  • Another quote from a VC.... "We like backing serial entrepreneurs who's been there, done that". Yes, we heard this many times before.
  • Yet another talk with an entrepreneur.... "Yes, we are still hiring. But, it's extremely difficult to hire the right person to fill this role. If you know someone from Yahoo, Google, DoubleClick, or MySpace, please let me know". Really? Not someone from our very best EMC, Lycos, or AthenaHealth?

Hmmmmm.... what's going on here?

Here's my hypothesis. Since the dot com 1.0 revolution, Silicon Valley pretty much sucked in a lot of young talents into its ecosystem. Young, fledgling entrepreneurs dreaming of making a big time career at a cool company like Yahoo and Google flocked to the west coast. Why not? People complain about cold 60 degrees weather, many awesome restaurants, get to see legendary entrepreneurs on the street, etc.

While B2B software is still critical and remains to be a profitable business (when done right), the dropping cost of starting a company applied mostly to those developing application layers, thanks to cloud computing, Web 2.0, and iPhone. Many of these entrepreneurs are from New England. They used to work in a high-flying companies in MA and started companies to change the world.... in a largely irrelevant sector to their root. Then, venture investors figure that they are not really "the serial entrepreneurs" they are looking for. No money, companies die.

By the way, the young, fledgling entrepreneurs from some of the greatest educational institutions in MA can't find a good job, because the companies are telling them that they need to learn from the successful companies like Yahoo, Google, Microsoft, and Facebook before proving themselves to be valuable in the mobile/internet/media startups. They listen, buy an one-way ticket, and never come back. Then, they follow their dream where they build relationship, know people, and start rooting personal lives in the west coast.

Entrepreneurs in MA get older and not nearly enough young entrepreneurs fill the talent pipeline. The younger generation fades away.

The vicious cycle goes on and on.......


Stay in MA is a great program to mitigate the problem of mass talent exodus out of MA, but there needs to be more aggressive programs and effort within the whole startup ecosystem to take the risk of hiring and training less-skilled entrepreneurs and let the young entrepreneurs start their dreams here.
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Wednesday, February 25, 2009

Marc Andreessen is full of it


Okay. Probably not, but he definitely spat out the revenue generating potential of Facebook, because he had to right at that moment. Here's the transcript from his interview with Charlie Rose. BTW, very inspiring interview overall. Highly recommended spending the time to watch the whole interview.

MARC ANDREESSEN: The fallback position is to just take normal advertising.  And if
Facebook just turned on the spigot for normal advertising today, it would
be doing over $1 billion in revenue. So it’s much more a matter of long-
term strategy. The company has got (INAUDIBLE) cash...

CHARLIE ROSE: So if they wanted to make a lot of money instantly, it
could.

MARC ANDREESSEN: Yes. Oh, very easily. It could sell out the home
page, and it would start making just a gigantic amount of money. Yes, so
there’s just tremendous potential in it, and it’s just a question of
exactly how they choose to exploit it.
Monetizing on social media is something that many startups are trying to tackle and will require some real innovaitons to make this happen. Yes, Google figured it out with their search engine platform. Facebook, with 175 million active users with half of them using Facebook daily, is a huge business. It's just amazing that Facebook turned into this monstrous internet giant in less than 5 years.

Revisiting my critism of the Facebook's advertising platform, the company really has not figure out the underlying platform to serve the needs of marketers.

Selling out the hompage? Are you kidding me? Since when marketers are willing to give Facebook billions of dollars when they know that non-targeted online advetising is a waste of money?

Will people click through and convert to sales?

Oh yeah, by the way, when was the last time you went through the Facebook homepage?

Marc is a legend, and I respect him very much. I just wish he just never said anything about the non-potential of Facebook on national TV. What's wrong with simply saying, "We are in the process of figuring out the magic" (which he did) or even a humble, "We don't know"?
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Tuesday, February 24, 2009

Distorted motivation of startups


I'm absolutely torn between choices and motivation of startups. I touched on the futile attempts to raise venture capital, and I'm a firm believer in fixing broken systems and making life richer, regardless of how money is raised.

Over the last several weeks, I met many friends doing all kinds of different things with their lives... mostly people sitting on the other sides of table: entrepreneur and investors.

The stunning contrast among their motivation was nothing less than stimulating, and I want to share the discussion with my readers.

Friend A - early-stage VC:
I've been bouncing some business ideas and wanted to get his feedback on products, features, and potential business opportunity out of a mere idea. He's a venture investor at a very respectable firm with vast knowledge of industry, technoloyg, and market. I thought he would be the right person to give some agnostic feedback based on what he knows about startups. About 15 minutes into the "pitch", his attention was already somewhere else, and he asked, "Do you think this is a $100M business opprotunity?" and it was an obvious no. My original intention is to fix some broken system based on my own experience from b-school. With very limited capital out of my pocket, I was going to solve it. If it happens that I can build loyal users WAY beyond my original target, I *might* consider runnning it as a business. Then, he said, "Why are you wasting time going after no market opportunity?"
Summary: Small dreams are futile attempts.

Friend B - Non-VC-backed-entrepreneur:
He started his business doing someting very fundamental. He takes a purchase order from website, manufactures and delivers the product. For every single order he processes, there's a gross margin and money to be made. The challenge is to scale the business to be profitable. The target market size? Not too big to be honest, but he can make a pretty good living out of this if it takes off. He went on to make predictions about the whole Web 2.0 implosion, and how forgetting fundamental business concept (a.k.a. revenue - cost = profit) will prove detrimental to many seemingly successful tech startups. His motivation: make profits and run businesses like business. Hype doesn't generate profits. Points taken!
Summary: Small dreams are NOT futile attempts. There's something grandiose about small businesses.

Friend C - VC-backed entrepreneur:
He runs a pretty well-known startup in the gaming industry. The first time I met him, he had a very, very long lecture on how raising venture capital is wasting his time while he could've worked on something very productive. He's going after a very big market opportunity with significant capital that already went into his business. He's still going for the >$100M market opportunity... the only problem is ... he's not making much money at all. For almost every transaction/deal he makes, he's still sinking money.... for more than 7 years now. What a contrast with Friend B!
Summary: Big dreams are way to go.... only takes much more money to be profitable.

I'm not saying any of them is right or wrong. It's just that the motivation of startups varies very much. We in the ventue capital ecosystem tend to think that small dreams are futile, because it's a homerun business after all.

Think Facebook, Twitter of the world VS. Craigslist and Wikipedia. Maybe a bad example, think Facebook vs. MIT Truck, what's wrong with MIT Truck? I don't see much.
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Wednesday, February 18, 2009

Why am I penalized for being "green"?

Six dish Stirling Systems developed by Schlaic...Image via Wikipedia

I'm by no means an expert in green stuff or clean tech, but the energy industry just has this strange behavior of penalizing green consumers.

"Green" spans from organic foods, consumer products (i.e. 7th Generation), wind energy, solar energy. I can understand the premium on the organic foods and consumer products. Many of these products are sold at Whole Foods where the shopping experience is better than other local grocery shops. Also, organic foods are supposed to be healthier for me anyways, so I pay premium to get the luxury of experience and health.

I've been trying to embrace green energy as a consumer for a while, but I just can't justify the price hike. Seriously, I'm all about being green. I sort all recyclables, trash appropriately. NSTAR (MA utility company) often sends me an email saying how good it must feel good to be green and how I'm improving the global warming and what not. Oh, Glory America, a country driven by the fear of world coming to an end. What NStar is doing is to induce fear and guilt to convince consumers to adopt green energy. But, but, where's the economic benefits? Not even that, why are you penalizing me with the additional ~10% increase in utility bill?

Where's the "premium"? Would my light bulbs be fluorescent? Am I being just too capitalistic and not environment-friendly?


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Tuesday, February 3, 2009

Online Advertising is Largely Broken

Chris Anderson's recent article "The Economics of Giving It Away" stirred the blogosphere and those of us in the startup world. Some prominent bloggers talked about it here (AVC), here (peHub), and here (OnStartups). I might as well say something about it.

The industry research forecast predicted a stunning growth in online advertising spending, only to chop the forecast when the economy doesn't seem so rosy.

Since Google proved the viability of contextual advertisement business model based on the search keywords, many companies all of a sudden started believing that the advertisement was and would be a viable business model. Internet audience take free content as granted, providers think free content is the way to go because advertisers are willing to pay for the service..... as long as the right advertisement gets displayed at the right moment for the right audience.

"The standard business model for Web companies that don't actually have a business model is advertising. A popular service will have lots of users, and a few ads on the side will pay the bills. Two problems have emerged with that model: the price of online ads and click-through rates. Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform. Even if you could figure out what the right ad to serve next to a high-school girl's party pictures might be, she and her friends probably won't click on it. No wonder Facebook applications get less than $1 per 1,000 views (compared to around $20 on big media Web sites)."

Let me take this sliver of the WSJ article and relate it to my own experience to justify the $1 CPM in Facebook is probably the most it can charge.

Whatever the Facebook Grader tells me about my Facebook grade (basically, what they are telling me is that my friends are unimportant, uninfluential, and doesn't add value to my social media presence compared to other obsessed users), I like using Facebook. I love it, and my friends there are all important.

My Twitter, Facebook, Google Reader, Ping.fm, Bit.ly, and several other social tools are interlinked, yet I prefer to go directly to Facebook to reply to messages received inside Facebook. Long story short, I contribute to the Facebook traffic.

BAM! This is the advertisement I see today on my Facebook.



Am I ever going to click the ad? No.
Am I offended by this? Yes, sort of.
Has Jessica Simpson or IQ ever entered my consciousness? No.

What a waste of web property! If I were an advertiser, I'd be saying, "Facebook, you are wasting my money".

I'm sorry, but online advertising is largely broken and it needs to be fixed.


BTW, I'd never take this IQ Challenge out of fear that I fall below 111 even if I can tell tuna apart from chicken and know that buffalo wings actually don't come from baffaloes.
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Friday, January 30, 2009

Danger of Self-Confidence Bias

Thanks to TechCrunch for publishing an article to amplify my post about biased decisions.

I stumbled upon the post "The Economy According to Mint", and I really do hope that Aaaron Patzer doesnt' really see the economy through the lens of Mint.com data.

First of all, another thanks to Mint for publishing data, not just vague qualitative assessment of the economy but real numbers. Now, here are the reasons that the "Guest Author" should've spent the time doing something more productive.

Inclusive data sources leading to self-confidence bias

1. Let's see.... (http://www.quantcast.com/mint.com)


The traffic through Mint.com just doesn't represent statistically significant set of overall population. They are well-educated, leaning towards male, ages 18+, mid-to-higher income, and no kids. The monthly visitors are around 280K in December with a majority of them being "non-regular, passers-by". (By the way, I am superposing another layer of obscurity by using Quantcast to make assumptions about the real Mint.com users.)

Just to make this clear, the state of economy represented by Mint.com usage is just that. The economy doesn't look as bad for the Mint users. Great for the company... maybe... but doesn't give any data outside its tiny world.


2. I personally am a Mint user, and I like it. I don't particularly love Mint, because it's go some technical glitches in connecting with a number of my other accounts. For example, I have a loan and savings account that several emails to customers service and numerous searches could not resolve. In the end, Mint has a very wrong view of my personal saving/spending/asset/liabilities trend.



I'm not trying to bash against Mint. They have a great product in process towards something significantly meaningful. I believe that they are on the right track towards something. Mint will probably face a moment sooner or later to make critical business decisions based on internally generated data like this. I smell self-confidence bias creeping into the office of Mint. The team at Mint.com, please surprise me!
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Thursday, January 29, 2009

How to Make Unbiased Decisions in Startups

A recent article in MIT Sloan Management Review "Decision 2.0: The Power of Collective Intelligence" presents a great decision framework.

In a world of startups, especially those backed by VCs, there should be a striking balance between agents' (entrepreneurs) decision making based on emotions and intuition and principals' (investors) ability to take the emotion out of the equation to exert "unbiased" advice to the company. On a second thought, emotion and biases almost ALWAYS exist in any decision making processes.

As related to a startup, the whole premise of venture financing is "Here's the money. grow your business. It's okay to make mistakes, but make as few as possible and move on quickly if there are flaws". So, why am I saying this?

STARTUPS MUST MAKE DECISIONS WITH PRUDENCE AND HAVE UNBIASED DECISION MAKING PROCESS IN THEIR DNA. Here are some of the pitfalls, as mentioned in the article, as related to venture business.

  1. Self-serving bias (seeks to confirm assuptions): Startups often deal with a very few or no information because of the nature of the business. Entrepreneurs usually make assumptions about markets, customers, financials, HR, etc. and searches for data to confirm this. If the assumption is wrong, they are just pushing themselves further away from the "right" answer. Ever had a situation where a cool product feature is exactly what you wanted and everyone else you Googled to confirm the assumption?
  2. Social interference (influenced by others): Yes, VCs follow the trend and invest in the wave of things. Entrepreneurs need to balance this out in a way that's contrarian to the society. When everyone thought search was a mature business with multiple dominant players in the late 1990s, Google made its way through, by being a contrarian.... sort of.
  3. Availability bias (satisfied with an easy solution): This is a hard problem. We entrepreneurs think anything is pretty much possible. This one is really tricky because there might be some things that are worth time and effort of doing despite the complexity. On the other hand, there are quick and easy stuff that can get done easily. I don't know what to say about this much beyond than that.
  4. Self-confidence bias (believes prematurely to have found the solution): I actually think this helps startups. Assuming that this kind of decision get reiterated many times in a short time period (like agile development process), it could be a tremendous help. Entrepreneurs, by nature and definition, are full of self-confidence. Just make sure that you know this may not be THE solution.
  5. Anchoring (explores in the vicinity of an anchor): Building personal relationship and leveraging people's knowledge in your network is often used by startups. Remember, the relationship you've built may be self-selecting. You like them. They like you. Both influence each other.... in a cyclical way. Knowledge and influence cycle through the same system infinitely without seeing the outside world. Explore more. Be ready to talk with random people to hear second thought.
  6. Belief perseverance (keeps believing despite contrary evidence): Being a contrarian and out-of-wack essentially are the same thing, depending on the outcome. Please, please, don't keep believing if a majority of people who (might) care about your product say "no". I've seen a plenty of people who keep on saying that they are right and will change the world and future will make the judgment call. If you (or people you know) fall into this category, please, please say that in the future. We got better things to do now.
This is just a partial list of decision making "frameworks" from the article. Good read, overall, so I encourage all of you to do the same exercise I just did.

Lastly, be unbiased and fair. Don't let the biased blind get in your way.
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Tuesday, January 27, 2009

Asking the right questions - Using Negative to Draw on Customer Insights


Let's just face it. When it comes to innovations and improving products/services, customers just do not give much valuable feedback. Wait, maybe it's an extreme position. So, let me just rephrase it: "Customers do not usually give tips on product improvements. They typically complain about a bunch of things, and companies make incremental changes to satisfy the customer needs".

When sending out a survey to gauge customer satisfaction, interest, and what not, it usually goes like this....

  • "What feature did you like the most about our product?"
  • "How much are you willing to pay for our product?"
  • "How satisfied are you?"
  • "What can we do to improve our service?"
Nothing wrong with the above questions, except..... these questions just don't provoke the innermost thoughts.

Instead, try using negative tone to give a twist, like...
  • "Why would you not use our product?"
  • "How didn't we serve your needs?"
It all gets down to people psychology where the respondents to the exact same questions with different tone can uncover a lot of interesting information. No, I'm not a psychologist, but I did a fair amount of this kind of interviews recently and wish somebody had told me this in the past.

Try this, and tell me some interesting stories.

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Thursday, January 15, 2009

Why get along with business people?


A typical topic that comes up in the startup economy is the need for business people. (Disclaimer: yes, I am a engineer-turned-MBA) For many small businesses, including technology startups, this is the general mentality. Yet, the consequence of building a non-business-minded startup can be enormous (in a terrible way).

Case: Two computer science PhD candidates are supervised by a professor at a world-renowned university. One day, they run into a "a-ha" moment and sees a glimpse of potential commercialization opportunity. They go full force into product development to turn technology into a usable product. It's a web business, and the mantra is, "people will follow good products". They are busy coding away. An eager MBA students steps into their garage office and give a spill on sales/marketing/finance. The co-founders say they are busy, because they are building something, and the business dude will be needed later. They politely say no to the MBA student but asks if they know any investors. Yes, cash speaks in any situations.

This is just another story of very early-stage startups. Nothing unusual about this.

Few years later: The company didn't get any money from investors. It just wasn't a VC deal, and the company's market size was just too small. It sounded and smelt like a science project than a real high-growth startup. The good news: they survived! The company increased headcount, CFBE happened, and now it's profitable. Rather than what the original business plan called for, the company generated much of the revenue from consulting. Life seems good enough, but the founders feel like there's gotta be something else to be done to grow the business. Then, they pull out the business cards that they got from the MBA student years ago to talk some strategy/marketing/finance. The MBA comes in and wastes time trying to fix things that already work pretty well.

Why am I saying all this? It's too late for them to bring in a business person. The company had already grown into a specific culture with missions that are quite difficult to change when things are profitable. The market perception of company is just that - a bunch of smart consultants. Regardless of how smart the people are, the "jazziness" of business should have begun right at the inception of company.

Takeaways:
  • "Business stuff" needs to be done at every stage of company. It can start as a simple blog (marketing/communication).
  • If you find yourself entrenched in unfavorable market perception as a small science project company, it's just too hard to change that. Stick with it, or leave.
Lastly, do you like the Lamborghini in this post? Wanna own one? Surprise: it's a replica made up with decent car parts. Remember: this is something that your business people might be able create for your company.

Monday, January 5, 2009

VC Fundraising: CEO's role

I recently ran into a whole list of questions around how VCs view on CEO's role in fundraising. First of all, raising VC money without having a dedicated CEO is a real challenge in and of itself. For now, staying away from that question, here are my thoughts that all entrepreneurs in this situation should consider to evaluate the merits and tradeoffs.

If VC still wants to invest......
  • valuation will be driven down due to the additional risks of hiring the top leadership
  • option pool needs to be carefully assessed to have something attractive enough for the incoming CEO
  • VCs want to keep the founders around. This is something that investors insist regardless of CEO's peresence.
  • VC will make recommendations (sometimes forces the company) to fill the CEO position. While this may be a big win for startup, hiring someone who fits into the culture, team dynamics, etc. can be a drag.
  • Attractiveness of the overall investment opportunity (this has to do with valuation also) deteriorates. Remember... VCs invest in A team with B idea. A team usually means quality, but it also means having the whole team in place.
  • The incoming CEO may have a different view of the business than the founders... for better or worse.
  • VC's investment thesis is very different now. It probably looks something like.. "great idea with major risks in execution. might pull the plug sooner".
VC will not want to invest, because......
  • hiring a good CEO to execute within the existing culture and idea is too difficult. It often means trying to make a hire and burn cash at the same time. In the end, the company has a smaller case reserve for the CEO to execute.
  • in this economy, finding a real talent to drop into startup is challenging.
  • it's hard to justify the economic benefits of putting their own money in to find someone that the company needs.
Either way, raising an institutional VC round with a CEO is generally a well-accepted practice. Find and convince a solid business person with vision, sales skills, and leadership to buy into your company. Have him/her be part of your team, then go out to raise money. You will save lots of time taking this step than finding a high-risk taking investor to go through the turbulent ride of CEO hiring.
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