Highlights from a recent VC panel

On Thursday, I had the opportunity today to speak on a panel at the SAEC Global Venture Congress.  Other panelists included the moderator, Scott Maxwell from Insight Venture Partners, Bob Gold of Ridgewood Capital, Robert Dennen of Enhanced Capital Partners, Todd Pietri of Milestone Venture Partners, and Roger Hurwitz of Apax Partners.  Our panel was focused on helping entrepreneurs build a winning technology company.  While there were a number of interesting thoughts presented by my fellow panelists, a few important highlights were the following:

1. Release early and often – It is better to release an imperfect product, get feedback, and continue evolving than trying to release the perfect product because you may never get there and run out of cash before doing so.

2. Filling the product management/marketing role early is key.  Having a person who can shape the product and prioritize features by gathering the data in terms of what customers need near-term and what the market may need longer term is imperative.  More often than not I find early stage companies that are engineer-driven that spend too much time on features that the market may not need.  Avoid this problem early on and focus your limited resources on the right priorities.

3. Sales ramp – Do more with less and be careful of ramping up sales until you have a repeatable selling model.  In other words do not hire too many sales people and send them on a wild goose chase until you have built the right product, honed the value proposition, identified a few target markets with pain, and can easily replicate the sales process and model from some of your customer wins.

While our panel was focused on helping entrepreneurs build a winning technology company, we also did have the opportunity to digress briefly and dive into business models that we liked.  When Scott made all of us pick what type of company we preferred in terms of its target market from a list of enterprise, SMB, or consumer, it was interesting to hear the responses.  I selected enterprise with the caveat that the company have a scalable business model (capital efficient, channel friendly, OEMable, possibly hosted, etc.) while a number of others voted consumer, SMB, and hosted software.  If you asked the same question a few years ago, I am sure that enterprise would have been the overwhelming choice.  While there was no consensus on SMB vs. consumer, it was quite clear that all of us had a limited appetite for investments in traditional enterprise companies predicated on large direct license sales.   

Search innovation

There is obviously lots of innovation happening in the search space.  Luckily, I have 2 portfolio companies that I respectively invested in during 1999 and 2000 which survived the nuclear winter and are having an opportunity to contribute to this innovation by helping make search better and easier for users.  One is Gurunet which delivers a better search by giving users answers instead of links via desktop tools or through its website at Answers.com.  See Fred Wilson’s post for more information on Gurunet and Answers, as this week was a big one for the company.  First, Walt Mossberg wrote a nice review on Thursday and yesterday Search Engine Watch announced that Google is using Answers.com as its definition link at the top of every results page. 

Another portfolio company, Moreover Technologies, has a real time information management platform that delivers breaking news from the web and blogs.  As an early pioneer in RSS, Morever did a great job repositioning its business during the downturn and selling its information feeds into the enterprise and powering other search engines with news feeds.  Recently, Microsoft announced that it was going to allow users to add RSS feeds to its MyMSN service powered by Moreover.  You can read more about it here.  You can also get Moreover’s feeds through a number of RSS readers like Pluck, Feeddemon, and Newsgator.  As it relates to 3 RSS readers just mentioned, Moreover plans to monetize this distribution by delivering ads through RSS.  As a blogger, I have definitely looked at a variety of business models in the space and am a believer that RSS ads is one way to go.  There has been lots of conversation about how much more valuable a subscriber is vs. a visitor in terms of relationship building, and I hope that the ads will not turn away end users from valuable content.  Either way, it is great to see Moreover helping bring news and RSS to the masses via these deals. 

To both companies, I want to say congratulations for sticking though the tough times.  Your hard work is beginning to pay off now. 

Full disclosure – I am an investor and on the boards of both companies.

You only have one chance to make a first impression

Yesterday, I had the opportunity to spend time with the CTO of a major financial services company with a $1 billion IT budget.  In these meetings I like to learn about the major priorities and where the open opportunities for early stage companies exist.  The good news was that the company was very open to working with entrepeneurial ventures.  Priority number 1 for the organization was to standardize on a common architecture and infrastructure.  When the company deploys a new app, the developers should only have to worry about coding the business rules and not about what infrastructure to deploy and how to manage the application.  At the end of the day, like most large institutions, this company was focused on increasing capacity utilization and moving to an on-demand model where new applications can tap into a pool of resources, where these resources are monitored closely for performance, and where these applications can have real service-level agreements and chargebacks tied to them.  The company said it was still early in the process and that alot of the big vendors still do not address the needs.

The other major initiative was security.  We spent a fair amount of time talking about best-of-breed versus the single vendor approach.  While the company had a bias towards single vendor for most infrastructure buys, it certainly was an advocate of best-of-breed for security.  We talked about how a monoculture was not as immune to disease and attacks as a heterogenous environment.  What this means is not only layering security but also deploying 2 different security products at each layer to avoid company or product-specific attacks.  This is a big deal at lots of companies which is why, despite the intense roll-up activity in the security space, that new vendors will constantly have the opportunity to sell.

As always, I had the opportunity to find out where a few of my companies were in the sales process.  The big takeaway for me was that "you only have one chance to make a first impression."  What does that mean?  Well, in today’s environment, enterprises have the upper hand.  This means that most enterprise sales end up in a proof of concept (POC) or bake-off against other competitors.  So the first impression you make in the POC is the installation.  If it is hard to install, forget about it.  The logical conclusion your sales prospect will draw is that it is a hard to use product.  So while you spend time building some great features and making your product more scalable, do not forget to spend time, lots of it, in the areas that customers touch and see.  This means making the install process as easy as possible (this is where appliances can help in many cases) and making your GUI intuitive and easy to use.  If you can’t get this right, you will lose most deals or at least be fighting an uphill battle in a competitive bakeoff no matter how scalable or feature-rich your product is. I tried to get my company a second chance, but the impression was already made.

Developers matter in enterprise sales-just reach them economically

Jonathan Schwartz from Sun has a good post about the nature of developers, and why building a relationship with them is key to creating opportunities.

One of the smartest software execs I’ve worked with had a saying, Developers don’t buy things, they join things."  That’s been a pretty focusing statement for us over the years, and as we enter the new year, you should expect 2005 to be one in which we place an ever heightening focus on our dialog with the community, and the developer community in particular.  And not simply maintaining the dialog we have today, but finding new constituencies, and expanding our reach.  Establishing a relationship with a developer is all about starting a conversation – one that always flowers.  And often into opportunity.

I totally agree with Jonathan on this.  The key, however, for any small company is to do this economically and efficiently.  Let me give you an example.  Let’s face it-many companies selling into enterprises end up going through some "pilot" or "beta" period where a sales prospect’s developers and technologists get to use the software and deploy it on a trial basis.  When I look at a sales pipeline, I always want to know who in the organization the company is selling into and why.  You see, I have more often than not seen a number of early stage companies selling into enterprises but not selling high enough to the people with budget.  In other words, the vendor ends up getting excited about the number of pilots in the market, many of which are with technologists who by nature like to try things and rarely end up buying.  The vendor spends an inordinate amount of time reaching out to the developer or technologist to set up a pilot and then leaves with no defined criteria on when the pilot ends and how it automatically converts into a sale.  The developer uses the product, sucks up lots of our resources, and moves on to the next new technology.  While it is imporant to court developers and technologists in the sales process since they typically have to give the technical buy-off and can just as easily squash an opportunity, it is not a great and economical use of time to have your most expensive direct sales resources and sales engineers doing this. 

Enter the web and the open source movement.  Sure, "try before you buy" works if your users can download the software for free either on a trial basis, say 90 days, or if you open source a version of your product and build a real community.  One of my portfolio companies is laying the foundation and groundwork to open source some of its software to help build a community and buzz around its product.  We know that developers and technologists are key to the sales process. We want developers and techies to download and use the product and bang on it.  However, we just want to reach them in an easier, more efficient way.  Why have our most expensive sales resources do this when we can leverage the web?  We want to build community around the product, gather great feedback, and land and expand our relationship with the developer.  We hope this open source strategy will work as we build a relationship with the developers who ultimately will drive decision making from the bottom-up while our expensive sales reps can reach the execs with budget from the top-down.  Hopefully, the two ends will meet in a selling process with less friction.  We shall see.  I will keep you posted as this experiment evolves.


Just the other day, I took a redeye back from Israel and bumped into a couple of Israeli VCs and entrepreneurs making their annual journey to CES.  I have to admit that I am a bit jealous but since I have a number of trips scheduled in the upcoming weeks, I decided to pass on the conference.  That being said, I have been lamenting with fellow VC blogger Jeff Nolan on how hard it is to get our entertainment gear to work.  I have been waiting to get my home theater system with HDTV for a few years and made the leap this past holiday season.  I have to admit that I am pretty proficient with computers and technology but even I got stumped with the process of installing and making it all work correctly and SIMPLY.  It is no wonder why so many high-tech vendors are focused on opportunities in the digital home because the dollars are huge (I spent way more money on my entertainment systems in one purchase than I did through accumulation of lots of computer gear over the years) and the complexity is high to make it work right. 

While in Israel, I also had the opportunity to discuss home networking and automation with a few bright individuals.  In order to get a fully automated home (like a Crestron) where you can control your audio visual, home network, computers, lighting, heating, air conditioning, etc., from any other room or even remotely, one can expect to shell out ridiculous amounts of money to make it happen.  These vendors typically sell proprietary and closed-end systems that require custom coding to make them work right.  Besides the cost and complexity, the other thing that bothers me about the digital home is that there are too many competing standards and not everyone’s product works together.  For example, Sony pretty much only works with Sony and so on and so forth.  DirecTV provides Tivos that do not network with other boxes while existing Tivo boxes can be networked.  This drives me nuts. As the value is clearly in the software that drives many of these boxes, electronics, and HVAC equipment, the battleground and control will be driven by who can help the consumer cheaply and simply integrate and manage all of their systems.  If there is an industry begging to be open sourced, standardized and commoditized, this is it. While it is in all the vendors’ interest to bring the economics down to reach a wider market, I just don’t expect to see enough cooperation from them to drop their proprietary standards to make this happen soon enough.