2 horse race in mobile – iphone and android android is going to blow past ios

I just caught this blog post from Seth Weintraub from Fortune on Android:

Andy Rubin just Tweeted that Google (GOOG) is activating 300,000 phones a day. That passes Apple’s (AAPL) iOS, that passes Blackberry (RIMM). That even matches any figures that Symbian has ever put up. Google is closing in on an astounding 10 million phones per month. Recall that Apple just had its biggest quarter ever with 14.1 million iPhones sold

It is no secret why every mobile company I have seed funded through BOLDstart Ventures is either already on the Android platform or soon will be.  This whole battle of licensing the OS vs. maintaining control of the full ecosystem from OS to hardware reminds me of the early days of Microsoft and Apple.  We all know who won back then – Apple had the best damn product but Microsoft had more distribution.  I am not saying it will play out the same way but looking at the early numbers it is pretty clear that the Android OS will eventually be in more hands.

This brings me to another point.  Right now we are looking mostly at consumers but what about the enterprises?  RIMM is still the dominant player in large enterprises like banks, etc but as well know RIMM does not have a fighting chance.  Smartphones are entering the workforce and enterprise whether IT likes it or not so how best to deal with it?  Will Apple or Google focus their efforts here?  I just made an investment in a stealth company that solves this problem for Android.  By downloading an app, a user can now run another instance of Android on their device which is secure and can be managed through the cloud by IT with various policies.  Think of it as a virtual machine running on the handset.  This can be great for corporate as now their employees can buy their own Android smartphones, use it personally, but also live within the confines of IT policy by simply clicking on the App and entering work mode, for example.  More to come on this in the future.  Why not start with the iPhone?  Well Apple’s strict policies for applications prevented the company from doing so.  Either way, this will be a great battle to watch in the future.

Standard investor update for startups great starting point on how to communicate with your investors

I remember when we hired a new CEO for one of our portfolio companies and my tip to him was to overcommunicate.  We had a few large VCs on the board and a number of high-profile angels that could also help in various ways.  His job was to keep everyone up-to-date but also to know how to get help when he needed it and from whom.  Given today’s excitement over seed investing it is not uncommon for many of today’s entrepreneurs to have 5-15 investors in any given round.  How you effectively communicate with your investors is an important priority that if done right will give you major value add while also not taking too much of your time.

In order to help our new CEO, I reached out to all of the other investors, and we all agreed that if we all spoke to him a few days a week about the same information that he would not have time to run his business.  In addition, this would be redundant for the CEO since most investors were asking for the same basic information.  In the spirit of streamlining information flow, we worked with the CEO to put together a weekly email to provide us with the key metrics the company tracked along with departmental updates on key high priority projects.  We weren’t asking the company to create something they shouldn’t already have (key metrics, departmental priorities, cash balance) but rather we just wanted the data shared on a timely basis.  Over time, we all found that when we did speak with the management team that we did not have to spend a half hour gathering information but rather we could get right to the point and actually discuss the whys or hows on certain sales numbers, metrics, or prospects.  In the end, we were all much happier and more productive since we had the same baseline of information and could focus our energy on productive and deeper conversation on the business stategy rather than gathering basic data.

Over the last 6 months I have made a number of seed investments and have shared the following company update with them. Each CEO has had their own minor tweak but this should give you a sense of what investors may be looking for and how it can help you streamline your communication and focus on how to extract value from your many investors.  If you choose to update weekly then obviously it will most likely be a shorter piece with maybe only the cash burned and current cash on hand as the financials.  If you choose to send out a report monthly then it may be more like the form I have uploaded on docstoc.

One other important note I forgot to highlight is that since many companies I invest in are web-based and therefore many of them have real-time metrics I can track.  Michael Robertson who started Mp3.com and Gizmo5 (sold to Google Voice) had one of the best real-time dashboards for tracking his business.  I could see number of downloads, minutes used, new paying customers, etc. whenever i wanted to by logging into the system.  Other companies have created an investor wiki or use status.net (full disclosure-a BOLDstart seed investment) or other communication platforms for investors to share ideas and information.  I only imagine this will even get only better in the future.

Anyway, enjoy and I hope to hear some feedback on what is missing or what may be too much information.

 

Don’t build an empire overnight – lessons from FreshDirect and Webvan better to start small first and then expand

The other day I received a direct mail piece from FreshDirect, the online delivery service based out of New York.  What struck me is that the service has been around for years in NYC, and it is now getting out to some of the suburbs in New Jersey.  In fact, after having done a little research, FreshDirect was started in 2002 and now 8 years later is delivering in New Jersey.  This is in stark contrast to WebVan which was the first online grocer.  What brought WebVan down is the fact that it tried to build an empire overnight.  And yes we should all know from our history books that empire building leads to empire destruction eventually.

It is pretty evident that FreshDirect took its time to understand how to enter a market, serve it well, and make it profitable.  In other words, FreshDirect spent its time to build a repeatable sales and market entry model before moving on to other locations.  In addition, its expansion is still local based-close to its distribution point in Long Island City, NY.  You don’t see the company going out to San Francisco – rather, it is slowly expanding outside of its first core market, NYC.

As an entrepreneur, you should take the same approach before expanding too quickly.  Whether you are hiring a sales force for the first time or expanding territory for your product or service, make sure you have a repeatable sales model before conquering the world.  More often than not, I meet entrepreneurs who raise too much money too fast and expand way too quickly before having a product that is fully baked and ready for primetime and before the company knows who it is selling to, how it is selling to them, and what the core value proposition is.  Get everything right in your first market like FreshDirect and you will build a great company and avoid monumental disasters like Webvan.

Scaling your management style founders have to adapt their leadership as their companies scale

After meeting with a number of entrepreneurs I recently seed funded, it was clear to me that one of the major challenges founders face is how to continue to scale their management style.  My preferred seed investment is in an engineering driven/product focused team who can code and get product out the door under the release early and release often model.  I often find that these types of entrepreneurs get quite a lot done with few resources and really have a strong pulse on the customer and market.  However the unfortunate aspect for these technical/product founders is that as their product becomes more successful, they often spend less time on doing the things they love – creating great product and iterating.  Many founders will find that they have to spend more time meeting with investors to raise money and dealing with internal employee issues.  In addition, many founders will find that once they raise capital and hire more people, that their one room, one whiteboard open management style is hard to scale.  So the question is how to get everyone on the same page?  How do you continue to be open and yet layer a simple process to create a shared vision and accountability?  Given that, I am bringing back an old post from 2007 on scaling your management style.  I want to be very clear though – do not be a slave to process and keep this simple.  At the same time, I hope some of these suggestions help:

What makes a startup team great early on in terms of getting product out the door and rapidly refining and honing the product from live market feedback can also lead to issues down the road if companies and employees are managed on a similar basis.  What is easy to roll out in a 5 person company gets harder to manage in a 25 person and even harder in a 50 person company.  Take the test – ask your key executives what the 3 key company goals are for the month?  Are they the same or not?  How will they help contribute in each of their functions to delivering on the 3 key company goals?  If they are not on the same page and you have trouble getting them together, you may want to continue reading for some thoughts on how to improve communication and accountability.

Here are some simple steps you can take to create a more fluid organization.  First, institute a weekly management meeting.  Yes, like you, I have an allergic reaction to the word meeting, but believe it or not, simple processes can help tremendously.  It is a great way for the CEO to get input but also guide the team to focus on the same company goals for the month or quarter.  Secondly, have key team members provide a weekly dashboard report and list of key goals to accomplish for the following week.  At every weekly management meeting, have each team member discuss progress against his/her team’s goals and what they will be working on for the following week.  How does each of the departmental goals contribute to helping the company meet its goals?  Once again, this all may seem simplistic and a giant waste of time versus managing the next product release, but you will be amazed at the number of companies I meet that have not gotten to this point and consequently seem to have different ideas of what the business is and how to get there.  In addition, having weekly management meetings and clear weekly goals with simple yes/no criteria goes a long way towards creating an action-oriented culture of getting results.  If a VP doesn’t deliver consistently, all of the other executives know and they also know it is time to make a change.  No one wants to be the manager that is known to overpromise and not deliver.  There is also a real difference between a manager having weekly individual meetings with their CEO vs. openly discussing theirr priorities and completed tasks with their peers.  With respect to cross functional communication, rather than complaining about engineering, for example, sales and marketing can now understand engineering priorities and what it may take to adjust and rearrange some of them to meet the revenue targets for the quarter.  Trust me, there are many more factors to a company’s success and failure, but please don’t make an allergic reaction to scheduled meetings and a simple lack of organization your cause for execution problems.

In fact, we can skip the word weekly report, and instead just say lay out the 3 things you were supposed to do this week and where you stand on them.  One other important point to note is that make sure that everyone on your team understands if they hit a roadblock on any of their goals to come to you immediately to tell you what the roadblock is, a couple ways to potentially resolve the issues, and then to discuss with you.  Clearly this is a methodology that can scale as you grow your team and business.  Good luck and remember to keep it simple.

The consumer Internet business is not easy

It's not easy to build a service that everyone loves and even harder to build one that gets 3000 new users a day on an installed base of 2 million users.  Once there you may think of yourself in the drivers seat as having built a successful company.  Unfortunately, this is where the need for revenue comes to play.  As a startup you can only raise external funding for so long before you generate your own cash flow to pay for operating expenses.

Given these facts, I was quite saddened to read the blog post today from Todd Agulnick, Co-Founder and CTO of Xmarks, Inc.  In the post which I believe is a must-read for all entrepreneurs, Todd lays out how he started the company, built it, and tried multiple times to create a revenue model from the incredible number of users and data he amassed over a few years.  As Todd states:

We spent the next year turning over every conceivable rock looking for ways to use the data in our corpus that would prove compelling to our users and revenue-generating for us. Some of these ideas, like SearchTabs, saw the light of day; others never made it out of the lab. Our “SearchBoost“, service was an upsell to advertisers: pay us a fee and we’ll add a mark to your ad when it’s displayed to our users, showing the bookmark rank of your site. Our tests showed that we could boost ad click-through rates by 10%. We built it and it put it front of potential advertisers. Many were interested, but ultimately the feedback was negative: our user base was too small to be worth their time and attention.

As evidenced from above, it sounds like Todd and his team tried every conceivable way to build a business out of their awesome product.  If you are an entrepreneur you have to remember that building a consumer Internet business is not easy!  Even though Xmarks  jumped over 3 of 4 huge hurdles -building a great product/service, amassing users, and growing quickly, it was still not enough to build a scalable revenue model.  Does this mean that I expect entrepreneurs to have a sustainable revenue model from Day 1?  Definitely not but on Day 1, I do want to hear about the various ways you may generate revenue in the future.  I also want to point out that advertising will most likely not work for your business unless you can generate a significant amount of traffic, way more than you even think you are going to need today.  And finally like Xmarks, it may not work the way you dreamed it would but please take all of those lessons learned to your next startup as you will be all the wiser with the experience you had.

EMC buys portfolio company Greenplum – more behind the story

Congratulations to Greenplum and Scott Yara, Bill Cook, and Luke Lonergan in particular! It has been quite a roller coaster ride over the last 10 years and there were a number of times we stared at the abyss only to come back stronger.  This is a story of great people and incredible perseverance.  The great news is that we leveraged two strong trends early on – the era of big data and the need for cheaper and better solutions and the fact that hardware is a commodity and the value is in the software.  We also leveraged the open source database platform PostgreSQL as the initial foundation for our technology. After all these years, I am glad to see that EMC and others have caught on to both of these facts.

Read More

4 Types of CEO Behavior when Dealing with Boards

As I have stressed over the years, it is imperative for board members and their management teams to have open dialogue.  If you are a CEO, I encourage you to share more rather than less information.  One of the best tools that a number of our CEOs use is a weekly email summarizing by department what their goals are and what they have accomplished during the week.  In fact, they even share that email internally so everyone in the company knows what is going on.  For board members this eliminates redundant questions and allows us to focus on the issues at hand instead of fact gathering.  And yes, everything is in there – good or bad.  I have written some prior posts on this topic such as "Communicating with Your Board" and the "VC-Entrepreneur Relationship."  Along these lines, I would also say that I have observed that CEOs tend to fall into certain patterns of behavior when dealing with their board.  To that end, I have attempted to summarize some of these patterns and the pros and or cons related to them.

1. Yes-Man: This is pretty self-explanatory.  Whenever the board tells the CEO to go into a certain direction, he/she does.  If it means the board telling the team to launch a Facebook or iPhone app just like everyone else, then they do it.  Initially for the VC this may seem great but in the long run this can be quite detrimental to the company and value of the business.  If the VC/board member is dictating everything from strategy to product features, then what is the CEO and management team doing?  At this point, you are running the company and not the entrepreneur.  What this means is that it is time to get a new CEO.

2. No-Man: The No-Man is the CEO who gets ultra defensive whenever a board member asks for information or provides thoughts on how to help create more value for the business.  He/She always says no at any board suggestion and many times does not even have a good reason for saying so.  They say no simply because they don't give a crap about their board and they want to run the show and take zero advice. Saying no is not necessarily a bad thing as many board suggestions may end up having you chase your tail but as a CEO I would encourage you to use some tact when dealing with your board.  That is where CEO behavior #4 comes into play.  In the end, if a CEO is a No-Man then ultimately the board will replace him/her in the long run because it will be impossible to work with one another due to the hyper-defensive stance taken by the CEO.

3. Yes but No: This is one of the worst behaviors.  The Board asks the CEO to research a certain path and the CEO agrees.  The Board checks in 2 weeks later and nothing has happened.  The CEO consistently tells the Board it will do something but his/her actions are the complete opposite.  In fact, this inaction is really a Big F-U to the Board and tells us the CEO has no spine to disagree with the Board and probably does the same with his management team.  This kind of behavior is simply unacceptable and ultimately results in dismissal as well.

4. Open-minded: This is the best type of behavior.  This type of CEO usually says No immediately when something doesn't make sense and gives reasons why.  When he/she agrees with a suggestion, it is duly noted as well.  Finally, when this CEO does not understand something, he/she agrees to research further and get back to the board.  No our feelings are not hurt if you say no.  In fact we will respect you.  At the same time, we may have a few nuggets of wisdom to share as well so keeping an open mind is beneficial to all.  And if you don't know whether you agree, researching further can only help get a better answer.  This behavior is definitely conducive to a strong board relationship and will keep you in the CEO seat longer.  Yes, this does not mean that you can execute but this is definitely one measure of the many that board consider in their CEO success profile.

Ok so I outlined 4 CEO behaviors when dealing with boards, only one of which is positive.  At the end of the day, the Board-Entrepreneur relationship is a give-and-take one.  Both sides have to be willing to express their thoughts (diplomatically) and have an open dialogue.  The Board does not know your business better than you and if you disagree, tell us immediately.  If you agree, tell us immediately as well.  We all don't have time to waste and dancing around a topic does not help anyone get a better result.  As an entrepreneur, guide the board as well-tell us where you need/want help.  This relationship will have friction at times but don't let it get personal.  Friction is good-that is how everyone gets to a better decision point.  I hope this helps.  Remember the management team is running the business, not the board, and the board is there to help guide you strategically and make sure you don't make the same mistakes we have seen from numerous other companies.

The Ongoing Data Revolution

In early 2006, I wrote a post titled "The next generation web, scaling and data mining will matter."  In it, I highlighted some thoughts on the future:

I truly believe the next battleground will be based on scaling the back end and more importantly mining all of that clickstream data to offer a better service to users.  Those that can do it cheaply and effectively will win.  The tools are getting more sophisticated, the data sizes are growing exponentially, and companies don't want to break the bank nor wait for Godot to deliver results.

Ok, clickstream data and data mining sound kind of geeky, but with every one of our calls, clicks, and purchases being tracked and logged it is an important topic.  My friend Scott Yara, co-founder and President of Greenplum (full disclosure-my fund is an investor), wrote an interesting post the other day which is more mainstream calling this ongoing revolution the "Your Data" revolution.  

The point here is that data can be a wonderful thing if used the right way and if controlled by us.  For example, Scott points out;

Your Data can lead you home with turn-by-turn directions on Mapquest. It can find you love by sorting through the profiles of 20 million other lonely hearts on eHarmony. It brings you up-to-the-second stock prices, sports scores, and flight delay alerts. It helps doctors fight diseases and engineers design safer cars. It gives environmentalists the power to track the movements of endangered animals and biologists the tools to map the structure of our genes.

Your Data, in short, is transforming everything.

However, with all of this data comes great responsibility and opportunity.  As Scott points out:

We also need to make sure we can use all the information we're collecting. That means better schools that will turn out kids who are able to cope with the age of Your Data. And we need better, cheaper technologies to enable companies of all sizes, as well as organizations and individuals, to get all the information they want and do something useful with it.

Knowledge is power, and we know more than any previous generation could even conceive. We're moving into a world of infinite information. The challenge we face is turning all that information into insights, conclusions, and revelations — in other words, turning that knowledge into wisdom, without letting it be turned against us. We need to make sure Your Data doesn't oppress us, but serves us. And we need to do that fast, because the revolution is well underway.

From a VC and entrepreneurial perspective, what excites me is that we are just scratching the surface of what to do with all of this data and how to turn it into actionable, meaningful insight.  In order to make data and insight more accessible to everyone we first need the back-end technology that makes data storage and analysis better, faster, cheaper (enter companies like Greenplum-ok, shameless plug 🙂 ).  We then need great entrepreneurs to continue to build new services that help end users seamlessly and implicitly help everyone make better decisions, discover new things, and empower and motivate us to do more.  In addition, we also need to consider cultural factors.  For example while privacy still needs to be at the forefront of the Your Data revolution, we also need the ability and power to choose what we want to share and when with the world.  Little did we know that four years ago, more people than ever would be willing to share their whereabouts through services like Loopt or Foursquare or Twitter and their every thought through Facebook or even their credit card purchasing data through new services like Blippy.  It is clear that the once sacred walls between private and public information are increasingly disintegrating based on these cultural factors. While we clearly have to be careful not to extrapolate too much from early successes like Blippy and Foursquare, we also cannot underestimate the power of these cultural factors as once young start-ups like Facebook and Twitter have exploded in growth.  The question is who will create the next great back-end technologies and new web services that drive a whole new conversation and new way of thinking about what we do with the data that is around everywhere.

Is it a feature or product?

During the last month I have spent more time looking at Angel investments as I believe it is a great time to start a business.  However, one key question I keep asking myself after meeting with entrepreneur after entrepreneur is whether or not what they have is just a feature of a larger product offering, a standalone product in and of itself, or a business for the long term with multiple products.  Each path provides a unique risk reward perspective for both investors and entrepreneurs.

To be honest with you, many of the companies I have met with seem like features of a broader product offering.  That is not bad in and of itself as focus is key when starting a company and going to market. As a start-up, you always want to be the innovative player with the new easy to use technology.  However, just being the mobile version of what is already existing in the market is a cause for concern as it doesn't take much for a larger competitor to replicate that effort and use its marketing muscle and existing customer base to freeze a start-up out.  Sure, you may get some customers early on as you are the only one, but in the long run you need to think about what broader feature set you will offer to be a true standalone product. 

A product is typically a couple key features tied together to solve a problem for a customer.  This means that you can provide more value to your customer and consequently extract more dollars from your end-user.  The opportunity for many companies that are just features is a quick flip, but the risk is if that doesn't happen the large player may just develop the feature in-house leaving no exit for you.  The more seasoned entrepreneurs know that starting out with a killer feature is just a launching pad to bigger and greater things.  They know it is just a go-to-market strategy that is part of a larger vision and a step towards a broader offering down the line.  These entrepreneurs know that they may never get there, but also understand that without this they have a limited market and return opportunity.  yes, I know start-ups are inherently uncertain and many times it is difficult to even calibrate how big the market is, but don't forget to lay out the broader vision beyond the initial killer feature when building your company.

On the flip side, what I don't advocate is coming out of the gate as a complete and whole product solution.  This brings you right into the crosshairs of large, incumbent players and makes your life much more difficult as you have to sell against a much larger salesforce with significant marketing muscle.  While your goal may be to grow to that kind of solution, start highly focused, features are ok, but have a broader vision to show a path towards building a great company.

The Gartner Magic Quadrant – a necessary evil in IT

Lately, I feel as if I have been spending an inordinate amount of time with my companies talking about marketing.  Related to this, one of my portfolio companies recently received a number of nice emails from the board related to its new positioning in Gartner's Magic Quadrant.  We were all quite excited since we made demonstrable progress over the last 3 years from niche player to visionary and on the cusp of becoming a leader.  Yes, I know what you are thinking – this is all BS and how much did you pay them over the years.  And where there is smoke there is fire as those statements ring true but at the end of the day Gartner's Quadrant is important for anyone selling to IT professional because buyers of technology care about what Gartner has to say.  Technologists at corporations are not paid to take risks, but rather to not make mistakes, to make the safe choice.  And guess what, paying Gartner Group for an annual subscription to its content and for access to its analysts helps IT buyers make the safe choice.  Secondly, larger companies when looking to expand their product line or get better positioning in the market definitely do pay some attention to the start-ups on the quadrant. 

For those of you who are not familiar with the Quadrant, you can read more about it here.  In short, it is Gartner Group's proprietary methodology to rate IT vendors in a particular market based on Ability to Execute and Completeness of Vision.  Gartner-magic-quadrant1-530x485 In the end, every market is broken out into 4 quadrants, Leaders (top right), Challengers (top left), Niche Players (bottom left), and Visionaries (bottom right).  For the most part, Leaders and Ability to Execute comes down to number of customers and customer references that Gartner has done and the size of your company and ability to go to market.  Based on this criteria, you will never see startups in the Leaders quadrant on Day 1.  However, what you should expect from a startup is a visionary position meaning the company has some phenomenal technology that fits a market need and is leading the future of the industry but at the same time does not have the customer base or resources to go after the big boys today.  If you are in the niche category then good luck.

So how does a start-up navigate the Gartner waters?  First, I would read this overview from Gartner to understand how they think and rate vendors.   Secondly, I would contact the relevant analyst to set up a meeting to discuss further.  Given my experience, I must say that developing a relationship with the analyst is key to helping you improve your standing in the quadrant.  This means buying a subscription to Gartner and then hiring the analyst for some consulting.  As with any business, you will have some impressive analysts and others who are not as strong.  Regardless, I have found that by sharing your ideas and vision for the market with the analysts early on can help them synthesize their views of the market.  If you can have your Gartner analyst take your thoughts as his own then you know you have really done a great job in discussing the market.  What many companies don't know is that you also have to be proactive about the Magic Quadrant.  As you sign up new customers and partners, share them with Gartner so they can call every new customer and partner in advance.  Many times companies wait until the last second and inundate Gartner analysts with numerous calls and information and many times these analysts cannot process all of that info which means it will have to wait until the next release of the Quadrant.  So all in all, be proactive, don't be afraid to pay as you may learn something and it is a necessary evil, and build a relationship with your analyst.  I hope this is helpful and I would love to hear your thoughts and comments on this subject.