The A-Player Domino Effect

Like any active, early stage venture investor, I have spent a fair amount of time helping my portfolio companies build a management team. And like any venture investor, I wish I could boil hiring down to a more scientific method to make sure that each person we bring on to a company is better than the next. However, that does not always happen. The one constant in hiring, however, is the “A-Player Domino Effect” which basically says that when you hire an A-Player, they bring lots of other A-Players to the table. Think about it this way. Why do so many people want to play for the Yankees? Sure, it is the cash, but it is also the opportunity to work with other A-Players to win a pennant that lures A-talent to New York. Same with the Lakers-Gary Payton and Karl Malone took pay cuts to join the Lakers and Shaq and Kobe to win a championship. I am not saying that in order to have a successful company you have to have a lineup of proven all stars since team chemistry plays a huge role. In fact, every company may have a different definition of what an A-Player looks like. Look at the Detroit Pistons, full of chemistry and a solid bunch of hungry players, who took out the all-star laden Lakers in the NBA Finals.

However, in many of my successful companies, the first couple of VP hires made all of the difference in the world in terms of attracting strong talent and positioning the respective companies for success. For example, one of my companies just brought in an experienced VP Sales from a competitor in the market. Once he signed, he brought on 2 of his top sales performers from his prior company along with the former head of sales engineering. This was great as it helped us fill out the team below the VP-level and brought the company known quantities who had worked with the VP Sales successfully at other companies. Another portfolio company brought on a great VP Engineering who brought 3 of his top guys with him. In each case, both VPs had a few people willing to follow them to the next opportunity. It is obviously a great sign when this happens. It shows me that someone can build a team, engender loyalty, and perform at a high and successful level. Every company or investor may have a different definition of an A-Player but one thing I can say for sure is that hiring an A-Player does not necessarily mean you have to hire the “big name” or “proven all star” in the industry. Many times, I have found A-talent from up and comers who are stepping up into a bigger role, have something to prove to themselves and the world, and just have incredible will and drive to make things happen. Of course, they have to possess the prerequisite industry experience, proven track record, etc. but the intangibles often make a big difference. In the end, great people like to work with other great people.

A personal server for everyone (continued)

Jeff Jarvis has an updated post on a “place for my stuff” furthering the “stuff as a service” paradigm. On my thought about having a personal server in the home, Jeff goes on to say:

I still don’t agree because: (1) Consumers won’t understand why they should make a capital investment and it will be a hard sell — witness the trouble TiVo has had getting going. (2) Consumers hate installing anything. (3) A service is more efficient — it can offer you a terrabyte of storage but no one will use it all. (4) A service can constantly update itself with new software. (5) If the storage sits in the cloud, you can play your stuff on any device in the home — or anywhere else — without having to network anything; if you store your stuff on a home-based server in the den, it’s not going to be easy to get to yourself from the bedroom TV. (6) It’s possible — possible — that an in-the-cloud service can deal better with copyright issues. That is, you can store a legal copy of (or link to) a show or song among your stuff in the cloud and play it anytime anywhere and copy it onto limited devices (a la iPod) but not endlessly duplicate and distribute it.

Jeff makes a number of good points advocating the service over the personal server. I have no doubt that today the service is a better opportunity, and that there are a number of constraints such as what Jeff outlines above. However, in response to his points I believe that technology will continue to change rapidly, prices will continue to drive down, and ease of use will constantly improve (plug and play all-in-one devices will become a reality in a couple of years-just look at the growth of wifi in the home as an example of how fast a new technology can spread). As for the practicality of an in-home all-in-one device, having an IP address for your personal server would allow you to get it from anywhere including your bedroom TV (no different from getting it from the Internet, especially if your home network has a faster connection). So it is not an either or proposition-the personal server idea will take time but it will happen in the next couple of years and be yet another viable option for the consumer. As for what opportunity is bigger, sure the service side will be, but that does not mean a service and personal server are mutually exclusive business models. Why couldn’t Comcast give away Mirra personal servers, charge consumers a monthly fee, and have a cloud-based backup in addition to the backup on the home personal server. In my mind, that is probably how this will all evolve.

UPDATE: The personal server space is heating up in real time. Along those lines, Linksys today announced a deal with Maxtor to launch a wireless hard drive for easy network sharing with features similar to the Mirra personal server. While Mirra is a nice product, it will be hard to compete with the Linksys brand and distribution channel.

A personal server for everyone

Jeff Jarvis writes about having a place for all of his digital stuff. He goes on to say:

: I want a place on the Internet where I can store all my stuff so I can get to it from anywhere on any device to consume, modify, store, or share. This stuff could be anything — my movies, music, to-do lists, shopping lists (for the family to update), contacts, documents, search history, bookmarks, photos, preferences, voicemail, anything, everything. And it should come with the functionality necessary to execute all those verbs I listed (e.g., a nice little list-making ap).

I want the ultimate — in the words of George Carlin — place for my stuff.

Count on this: It will be a big consumer business. I said below, in the middle of another post, that this could come from phone or cable companies, from Google or Microsoft or Yahoo, or from a new company (VCs: pay attention!). A server for everyone and everyone on a server.

I totally agree with Jeff about having a place to store all of my stuff, but I am not sure if I want it all stored on the Internet. Rather I want it stored at home on my personal server but accessible through the Internet 24×7. As you know there is a battle that has begun over the ownership of the home networking market. Lots of companies are jockeying for position to be the digital entertainment hub for the home. Will the hub or personal server be the PC, your Tivo or cable box, or some other consumer electronic device? As more and more of my precious data is in digital format, I have become incredibly paranoid about backup and recovery. Currently I am using a Maxtor 250gb One Touch device to back up all of my files. This is nice, but wouldn’t it be great if I could put an IP address on it and layer some other applications to share this data with others? Why do I need it hosted at Yahoo or some other web-based service when I can easily plug in a device and have my stuff accessible at 54mb over my home network and remotely over the web? I used to believe that the hosted model was the way to go for the backup market, but increasingly I am of the belief that everyone will have their own personal server at home and through a broadband connection be able to access and share their files with anyone in their trusted network. This takes care of privacy and security issues for me while also allowing me to have my stuff accessible from anywhere. Take a look at Mirra which offers a plug and play personal server that backs up all of your files and then allows you to share them or remotely access them through a browser. The Mirra can’t do it all but is certainly a giant step in the right direction. The consumer electronics space is a tough VC investment (see an earlier post) but the Mirra is a pretty cool device.

Moving towards an on-demand world

I have always been a big believer of the hosted software or ASP (application service provider) model since we made our first investment in LivePerson in January 1999. One of our main competitors of that era was Kana, which at that time, did way better than LivePerson in terms of customers, revenue, and market capitalization. I wrote a post months ago showing how far Kana had fallen, and how LivePerson stuck with its hosted software model and finally hit profitability. Back in those days, the sales people at LivePerson and Kana were not only fighting a product battle but also a religious war of enterprise licenses versus the hosted model. And back then, many large enterprise customers were not willing to have their data hosted with an early stage, private company. The world is changing. Recently Kana announced its new “on-demand” model jumping on the hosted software bandwagon. Comments from the Kana release sound familiar-Siebel and others are increasingly talking about an “on-demand” model and customer flexibility. RightNow Technologies is another company in the CRM space that is delivering an “on-demand” solution, filing for an IPO last month. So why is the hosted or ASP model coming back strong from its near death experience during the Internet boom?

First and foremost, without customers there is no business. Today’s customers are increasingly getting over data hosting concerns and are warming to the pricing and flexibility of subscription pricing and “on-demand” software. They are tired of the traditional enterprise license model, the lengthy implementation costs, paying for site licenses instead of on usage, and failed projects. Secondly, the cost side of the equation has changed dramatically. Hosted software vendors have learned from their erroneous ways and no longer need to build a data center for unlimited demand. Additionally, the pure costs of building a data center and using bandwidth have decreased significantly. Finally, the “on-demand” model is proven as a number of companies are already profitable-look at, RightNow, and a couple from my portfolio, LivePerson and Expertcity (GoToMyPC).

Given these trends and the success of some of the companies above, it is clear that the new “on-demand” wave is just starting, and we will continue to see enterprise software companies like Kana move in this direction.

Web-based businesses circa 2004

I met with Dave Panos and Andrew Busey of Pluck yesterday to learn more about their product and their company. Rather than go into the software (which I really like btw, combination RSS reader, bookmark manager, and simple collaboration tool), I wanted to share some of our thoughts about consumer-based web businesses circa 2004. We had a nice discussion about why it was different to launch a web-based business in today’s world versus the bubble period. It was even more interesting considering that Dave and Andrew were on their third or fourth startups, depending on how you count. Our conclusion was that it is so much easier and cheaper to build a web-based business today than in the early days of the Internet. OK, I am being master of the obvious, but I am interested to see what else you can add to the list below.

1. Critical Mass
During the bubble period, the promise and potential of the Internet was all around us. However, the critical mass was not there. Today, we have critical mass, a number of users that are experienced with the web. We have real broadband penetration (although not as high as Korea, for example). This obviously allows any new company to actually build a real business with real users that can throw off cash flow.

2. Technology/Experience
In the early years, people did not have off-the-shelf components and open standards like XML/SOAP to build web-based applications. If you wanted to build a chat program, you had to build the whole thing from scratch. In today’s world, you can pull an off-the-shelf component from an ISV or from the open source community, Jabber for example, and have chat instantly integrated in your product. Additionally, the developers 8 years ago were pioneering new applications and a new language. If you combine that same developer who is now seasoned with better technology, you get a great headstart in building new products. What used to take months now takes weeks to build. What used to cost millions now now costs a fraction of that. We have more capability built into the browser. Pluck and Onfolio, for example, are built and integrated into IE instead of being a separate application. We have toolbars galore built into IE. It works.

3. Business models
Andrew stressed the other main point which is that we know what business models work today versus yesterday. Paid search didn’t exist years ago. Today it is a multi-billion market. Portals were nowhere close to profitable and today they are. Companies like Yahoo, Google, Amazon, and EBay have become big enough to build a business around-they have an ecosystem-they are the gorillas of the web and entrepreneurs can launch products around them. Additionally, we know how to reach users better and measure success. We are not throwing money away on stupid advertising campaigns. The smart and seasoned entrepreneurs now have more outlets for guerilla marketing (blogger community is a new and great one).

Remember the old adage that pioneers get arrows in their backs? Well, many early entrepreneurs did fail. Luckily, today’s entrepreneurs have the hindsight and ability to soak in all of the expensive lessons learned from the past. Now that is a tremendous advantage, one that will only get better with time.