Innovation, Customer-focus, & Long-term Thinking
Here is a fascinating interview with Jeff Bezos of Amazon. Jeff has been on a mission since day-one of Amazon and has done an amazing job of both short-term execution excellence while keeping the company focused on the long-term goal. This post is primarily directed at my colleagues at nGenera (yes, rather than dedicate an entire post to this, I’ll just announce it here - BSG Alliance has transformed into nGenera - check out our awesome new Web Community at nGenera.com).
Amazon is really hitting a stride executing on multiple fronts - it is quite amazing to see a company excel across so many diverse capabilities at once. nGenera colleagues take note - Amazon is not a software company, not a services company, it is many things at once geared toward delivering compelling customer experiences. Think about it - they are an e-tailer, an e-tail platform - both sales and physical distribution, a web-services platform, and a total consumer hardware solution provider (Kindle is more than just a device - think iPod - it is software, commerce, services and hardware wrapped in one). Sound familiar?
Here is a favorite quote
Q: Few CEOs have taken as much flak as you have for spending on innovation, in both good times and bad. What’s your philosophy?
A: My view is there’s no bad time to innovate. You should be doing it when times are good and when times are tough—and you want to be doing it around things that your customers care about. For us, it’s such a deep-seated belief, I’m not sure we have a choice.
Below is a re-post of this post by Tim O’Reilly which highlights some of my own takeaways and another favorite quote. The emphasis is mine.
Business Week has a great interview with Jeff Bezos as part of their innovation issue. The interview is entitled How Frugality Drives Innovation, but Jeff talks about far more than frugality. Here’s my favorite bit:
Q: Every company claims to be customer-focused. Why do you think so few are able to pull it off?
A: Companies get skills-focused, instead of customer-needs focused. When [companies] think about extending their business into some new area, the first question is “why should we do that—we don’t have any skills in that area.” That approach puts a finite lifetime on a company, because the world changes, and what used to be cutting-edge skills have turned into something your customers may not need anymore. A much more stable strategy is to start with “what do my customers need?” Then do an inventory of the gaps in your skills. Kindle is a great example. If we set our strategy by what our skills happen to be rather than by what our customers need, we never would have done it. We had to go out and hire people who know how to build hardware devices and create a whole new competency for the company.
Well worth a read. Another great line: “The key is to pick things that you think are really iimportant, and then focus on them.” It seems obvious, but so few of us do it as consistently as we should!
Search the State of the Union speech tonight
Pluggd is highlighting it’s new HearHere audio and video search technology on tonight’s State of the Union speech. Just go to pluggd.com after the speech tonight and begin searching on your favorite topics and terms, and Pluggd will take you to the relevant parts of the speech immediately.
Pluggd has done an excellent job with the technology, user interface, and usability of HearHere.
Here and here are some links to articles written on Pluggd and the State of the Union.
Again, for disclosure, I have an investment in Pluggd.
Charles River & Quickstart
TechCrunch announced today the new Charles River Ventures Quickstart program. It is a program designed to ensure that CRV gets access to deal flow in this latest startup boom of Web 2.0, where the costs to effectively get a company up and off the ground (and potentially to an exit) are substantially less than even $1 Million.
I like that CRV codified a process for making these seed investments. Namely, they set an appropriate amount ($250k), set a standard term sheet that is not over the top (discount to qualified financing of up to 25%, 6% interest), created a simple decision process (one pitch, and 2 out of 5 partners approve), and they didn’t try to jam a valuation or terms in to the Series A.
The last point is a critical one. Many times VCs will offer seed money, but do it with a structure that is tied to some Series A term sheet. Entrepreneurs should be wary of committing to a Series A deal before being ready to seek a Series A deal. CRV wisely avoided this issue.
Without knowing the exact details of the program, what was made public sounds like a reasonable deal for entrepreneurs looking for a small amount of capital to get their big idea off of the ground and may save time from rounding up 5 angels @ $50k each or at least 2 to 3 angels to fund $250k.
The program is also a statement from CRV that they’re serious about being seed investors. Many times a VC will say that they’ll do a seed investment, yet they end up digging into the business and creating an evaluation process that starts to resemble a Series A financing - taking up valuable time from the entrepreneur looking for information that is not yet available about the business. The CRV process seems efficient, assuming they stick with it as written.
Lastly, in today’s NY Times, David Sze at Greylock, provides a counter point that entrepreneurs should be cautious about commiting to a venture firm this early in the process just because they’re offering $250k.
He is correct to caution in this manner … assuming that CRV is requiring that they be involved in the next funding round as the lead or co-lead. However, if this is treated as a way to get access to deals early-on and to establish whether a longer-term relationship between the entrepreneur and VC makes sense, it could be a win/win approach allowing each side to take the other out for a test drive before committing more formally in a Series A where preferred stock and board representation is at stake.
If it turns out the relationship is not going to work, CRV at least gets a small piece of the company in preferred stock assuming the company raises funding from another firm, and the entrepreneur at least screened out one firm and knows more about what to look for in a prospective venture capital relationship and what to avoid.
– brian
[UPDATE] Fred Wilson posted on this topic as well today and had some interesting insights, and information that I missed on CRV’s approach to the Series A. I agree with Fred that it’s a fair ask for the right to 50% of the round. CRV won’t invest their 50% if they do not like the deal - price, terms, team, market, etc. However, it does not preclude the entrepreneur from getting another venture firm involved or from getting a fair valuation for their company.
paidContent has a post on the topic here.
VentureBeat interviewed CRV here.
And Josh Kopelman from First Round Capital has some interesting thoughts here, particularly on potential downside for the entrepreneur if CRV does NOT exercise its option to invest in the Series A.
Passion and commitment
Here is an example of entrepreneurial commitment that speaks for itself. Forbes recently wrote this article about Alex’s startup Pluggd. Even with this frugality, Pluggd gets some of the best PR out there in the Web 2.0 world, in addition to some true technology innovation and real user adoption.
In the spirit of full disclosure again, I am an investor in Pluggd. I cannot wait for HearHere to hit the market from Pluggd … I for one am betting it is finally THE solution for searching audio/video content on the Web and the commitment of the Pluggd team gives me strong reason to believe.
– brian
The Parallel Entrepreneur - Now I get it
Fred Wilson coined the term "parallel entrepreneur" in this post. Never had a term or codification for it, but it pretty much explains what I’ve been up to now. I also like how the "incubator" thing was debunked - this is very much not an incubator.
I’ve been working to frame an codify my activities in the form of an entity, and I think that will emerge soon. Of course I’ll announce it here, and of course Kalivo will be heavily involved.
Nice post Fred!
– brian
Pluggd makes podcasts chunkier & searchable!
Congratulations to Alex and his team at Pluggd (disclosure again: I am an investor in Pluggd).
They announced a new feature today to make individual podcasts chunkier and searchable, with some saavy and innovative enhancement of speech recognition technology combined with an excellent GUI. The Pluggd team is also doing some excellent work on user interfaces, among everything else they are accomplishing. No wonder why their userbase continues to grow.
TechCrunch made the announcement , and provides some interesting insight into the new capabilities to be offered.
This new innovation solves a major pain that I’ve had as a podcast consumer that led me to invest in Alex and his team. It is a much needed addition to the market, and with Alex’s experience & vision I had confidence that he was going to get it right.
Pluggd is presenting at DEMO this week, and will show off this new capability. Good luck Pluggd!
– brian
Pluggd in Seattle Times today
Pluggd landed an article in the business section of today’s Seattle Times. You can read the article here. Ignore the title, but the article is a good short summary of Pluggd and its opportunity.
As full disclosure, I am an investor in Pluggd. They are making great progress on several fronts, including traffic and user growth, podcast directory growth, and buzz. Look for Pluggd at DEMO this month in San Diego.
– brian
Technorati Tags: demo, pluggd, podcast, seattle
Cash (flow) is king!
VC Confidential has a recent post on the power dynamics between VCs and the entrepreneurs they back. It is a worthwhile read for all entrepreneurs, but certainly for those that are or are considering being venture-backed.
The overarching lesson is that until your business is cash-flow positive, you are at the mercy of outsiders that provide valuable resources, such as investment capital, to grow your business. Those providing such resources to companies rightfully expect results in return so that their investment is secure and can realize a gain. If your business gets to cash-flow positive, then you as the entrepreneur have control over your destiny. If you are not cash-flow positive and need to consume more resources for survival, you do not yet control your own destiny and the providers of such resources will rightfully gain the power to make changes to ensure the success of their investment. If the latter situation arises, the entrepreneur should neither be surprise or ticked off about the changes that ensue.
I’ve heard a couple of short statements that reflect the lesson above which entrepreneurs should always keep in mind:
- “Happiness is a positive cash flow”
- “Most startups fail due to a lack of revenue, not poor expense control”
Neither of these quotes can be attributed to me, but I keep these thoughts with me at all times now in my entrepreneurial endeavors and share them freely.
Another interesting insight came from the post, which I’ve highlighted below:
“Good VC’s will give an entrepreneur significant room to operate, will give advice based on past experience and will bring resources or connections to bear as required. He/she will layout core principles or constraints which are important to them as well as define, with the company, critical milestones. Control is not determined by legal clauses or purse strings but, hopefully, by mutual, earned respect between them and the CEO. If law or finance is the basis of the relationship, then much has already been lost. ”
It is true, all of the legal terms and conditions are very important to get right. However, be sure that when it comes to actually enforcing/implementing those, it usually is never a good situation, and in fact is never a desired situation, for anyone.
The best situation is always when the fiduciaries and operators (VCs and Entrepreneurs) are operating on a basis of trust, confidence and respect. When that is lost, things by definition are going badly.
– brian
Technorati Tags: bkmblog, entrepreneurship, investing, startup, vc
The return of tech IPOs?
Paul Kedrosky has an interesting post predicting that 2006 is the end of the misery for venture-backed technology companies seeking an IPO exit and that 2007 will see a resurgence. It seems that he is suggesting that the supply of attractive tech equities is shrinking (or has shrunk enough), yet the demand for tech equities will remain constant or increase and the potential issuers are lacking in attractive exit options in the private market.
We know the tech IPO market will return eventually. I just do not know if the catalysts that Paul suggests are either true catalysts or are enough at this time. It is true that many new tech companies are generating meaningful revenues, and I am a firm believer that Web 2.0 does represent a fundamental value creation opportunity. I am struggling with identifying where the next set of leaders are in this new wave of value creation. Where are the standalone entities such as Amazon, eBay, Yahoo, and Google (among all of the other high-value product line staples, such as PayPal, etc.) in this new mix of prospective IPO candidates?
Reflecting back on the period of 1994-1997, I think many of us back then knew that Amazon, Yahoo, and eBay were going to be successes. Google came along later and became a verb, ensuring it’s place in line. Can you say the same about YouTube or Facebook? Maybe, but it is not as obvious in my view, unless I’m just getting to be too old.
What’s more, did we ever see the Web 1.0 leaders so actively trying to sell themselves to the highest bidder? While I suppose that with the IPO market being so dry, no alternative really exists. But if things are so great, who really cares what your valuation is or should be, and why sell now? So much private equity money is available now that if an awesome growth story exists of Google or even eBay like proportions, and that company needed capital, the private equity markets are awash in investment dollars to fuel the fire. Raise the cash, grow the business, and take it public when the time and market is right.
With all of the talk about how much FaceBook is worth and how much a bidder should pay, it seems that all may not be as great as it seems and some may be desperate to cash out before the party ends rather than just growing the thing like Google did. I don’t believe there has been as much talk about YouTube’s valuation by its insiders yet, and it may actually be the real deal. Time will tell.
I do hope Paul is right and 2007 is a resurgence of tech IPOs, even if it is just a moderate uptick (nobody is expecting a return to 1999 here). I would like to see a little more fundamental support in the prospective candidates that will fuel this return of the IPO market before getting my hopes up too high.
– brian
Interesting VC analysis
Peter Rip at Early Stage VC has an interesting series of blog posts that he is producing on Venture Capital 2.0. This post caught my attention for some data that was in it regarding ways for limited partners to successfully pick VC funds which will earn the outsized returns.
I copied the paragraph below:
Last year Alignment Capital published a really interesting analysis of fund managers that speaks to these two criteria. After analyzing 645 separate venture funds, they found:
- Longevity weakly correlates with IRR, showing continuous improvement between funds I and III, leveling off thereafter.
- Second quartile funds were nearly as likely to have a top-quartile follow-on fund as the current top-quartile funds.
Point #2 above was very interesting and unexpected. Essentially it means that the next set of funds that will earn outsized returns can come from a pool of half of the funds in existence. As a limited partner, where fund selection is this asset class is critical to achieving proper risk adjusted return, how does one pick which funds to allocate capital for this asset class?
– brian
The value of a company evangelist
Pluggd just launched their corporate blog. You can read and/or subscribe to it here. One of the interesting things about the blog is that it is primarily authored by someone that is not a Pluggd employee. Drew is a podcast producer and podcast consumer and Pluggd user, and he apparently loves the Pluggd service. So he offered to blog about it for them!
Great stuff. There is likely to be no better evangelist that a loyal and satisfied user.
– brian
Pluggd continues its rise … and they’ll be at DEMO
Alex continues to make strides with Pluggd. Recently they were selected to present at DEMO, which should be a great boost for the service.
Read about it here.
– brian
Kalivo is now running on Kalivo
I’m pleased to announce that we are now running the Kalivo business on our own software. Check out the Kalivo website and you will see a working deployment of the Kalivo Customer Hub. In fact, it is possible that you are reading this on or from our Kalivo-powered website already (more on that below).
The notion of "eating our own dogfood" has been something I’ve always wanted to do in my career, but have not yet had the opportunity to implement. For the first time I’m running a business that can benefit tremendously from using its own product. It’s not only the hair club president that gets to do this!
The benefits of doing so are manyfold, including primarily:
- Ability to empathize with our customers - firsthand experience with our products gives us a unique viewpoint into their value, features, usability, and challenges
- Provides the ultimate endorsement - the success of our business depends on the success of our products in more ways than just the ability to sell our stuff
Effectively, we become our own case study, and have the ability to directly measure the value delivered by our products and relay that value to our customers and prospects. Moreover, as we discover new ways to leverage our product to drive business value, we can quickly implement those features and/or share that knowledge so that all may benefit.
I highly encourage everyone to go to our website and try out the implementation of our Customer Hub. Content all over the website is "discussable", meaning you may leave a comment about our products, our FAQs, etc. Furthermore, you may start your own conversations on the website too. To contribute content, all we ask is that you register with us.
Much of the discussable content is in the "Community" section of the website, including this blog post, which is being replcated at the Kalivo website under the tag "CEO Blog". We will be pulling blog and community content from across the web that we believe is relevant to our community into our Customer Hub, and it will all be discussable. To find interesting discussions, use the "Tag Cloud" section of the right-hand sidebar to identify discussions tagged with names that are of interest to you. To track you activitiy and conversations, make use of the "My Page" section of the website and/or subscribe using the many RSS feeds we provide.
We view our website - our Customer Hub - as a powerful pipeline to our customers and key constituents, and look forward to talking with and learning from all of you there (here). We will certainly be sharing our findings from using our own product on the Kalivo website as well.
We are looking forward to the discussion.
– brian
Pluggd on the Web 2.0 Show
Alex Castro, founder and president of Pluggd was interviewed recently on the Web 2.0 Show podcast. Here is a link to the podcast on Pluggd. For those that are curious as to why Pluggd exists and why it will succeed, listen to Alex on the podcast. In addition to his vision and passion for this market, he is one of the grittiest and persistent people I know.
Alex gives a great interview and I believe effectively addresses some important questions about Pluggd and the podcasting market overall. Pluggd is making great progress and as an investment in consumer media, it’s executing very well. Traffic continues to grow and friends of mine are finding value in the service.
Alex, congratulations on the interview and the progress with Pluggd!
– brian
Venture industry lag time
Paul Kedrosky points to a recent Wall Street Journal article on the woes of the venture industry. This is no surprise to anyone who has been following the industry for the past 10 years or so. Most compelling was the comment by Paul Ferri of Matrix that they considered shutting down a little while ago. That is a compelling statement coming from one of the best venture firms out there.
Here are a couple of salient points on the topic from the article.
First, Josh Lerner of Harvard Business School points out the reason for the lag time - 10 year fund cycles and lack of visibility into true valuations along the way.
"It’s really a small set of [investors] who are
getting all the goodies," says Josh Lerner, a professor at Harvard
Business School who has studied venture capital. But since most funds
invest and reap returns over a 10-year period, it can take a while for
investors to recognize duds, he says.
Second, evidence of the recoil in process (Note: this is over 6 years after the bubble burst). The Princeton guy mentions one of the biggest truths of the industry - VC investing from the limited partner perspective is not about allocation, it’s about selecting the right firms in which to invest. If you cannot get into those, it’s probably not worth investing in the class of assets on a risk/reward basis.
Some investors who have made fortunes in venture
capital are pulling back. The endowments of Stanford and Yale
universities are devoting smaller percentages of their money to private
equity, a category into which they lump venture capital, the schools’
annual reports show. Stanford last year was targeting 10% of its $12.4
billion "merged endowment pool" for private equity, down from 17% in
2001. Officials from Stanford and Yale, which has a $15.2 billion
endowment, declined to comment.
Princeton University is also scaling back its
endowment’s venture commitments as a percentage of assets, mainly
because its $12 billion endowment can’t get enough money "into the
funds that we would like," says Dan Feder, a managing director with the
Princeton University Investment Co. While the school remains
"enthusiastic" about investing with a handful of top firms, "I don’t
think [venture capital generally] is all that compelling," he says.
Interesting times indeed.
– brian
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