Category Archives: Startups

The Value of a Board at the Seed Stage

Posted on by

For most startup founders, the idea of creating a board of directors early in the company’s life is as welcome as spending a week at Burning Man without water or sunscreen. Thinking about boards makes entrepreneurs imagine instituting process-laden corporate governance, spending hours drafting lengthy board presentations and potentially losing control of their startups — how un-Zuck! In reality, every startup is legally required to have a board (assuming it’s a C-Corp or S-Corp). But there is ongoing debate about whether that board should include anyone other than the founder(s). An outside Director, specifically one representing investors, is tremendously valuable for seed stage companies. Here’s why:

Establishing a Cadence

Much like sprints in agile software development, setting up a regularly occurring board meeting at the seed stage establishes a cadence for the work of building the company. A scheduled board meeting can also help address another common problem experienced by startups — figuring out how and when to properly leverage your investors and advisers. Board meetings become checkpoints for founders to ask for assistance from an investor and to seek feedback on developments at the company. It doesn’t matter whether the board meetings happen monthly, every six weeks or quarterly. What’s important is that a cadence gets set and that the meetings are used in ways that are productive for the team.

Stepping Back and Getting Perspective

When your hair’s on fire each and every day as an entrepreneur, it’s easy to spend all of your time firefighting. A board meeting offers a fantastic opportunity to escape the day-to-day and spend some time thinking about the company’s overall goals and primary strategic issues. It’s too easy to just say that you’ll find time to talk about these things or to block “thinking time” on your calendar that never quite seems to happen. We’ve found that actually having time scheduled with someone to whom you feel responsible provides an opportunity to step back from the business and leads to regular and thoughtful conversations about issues that are critical to the business long term. Otherwise, those issues might go ignored for too long or are often impacted by decisions and actions taken in the near term.

Practicing for Later

A successful Series A financing usually comes along with a relatively large investment amount, a new board member (often two, if the board gets expanded to five, to let the founders keep “control”) and higher expectations for the company. Given all of that, why would a founder want the pressure of learning how to plan for and run a board meeting for the first time when there is even more to be done at the company? Creating a board early gives the founders the opportunity to learn all of this earlier in the company’s life, and when the board likely has a tolerance for some jitters and iteration. It’s no different than practicing your fundraising pitch before going out to raise money. Managing board meetings is a skill like any other. Learning early what model works for the company so that board meetings are useful and not burdensome sets the founders up for success when more is on the line.

Having an Accountable Investor

We often advise entrepreneurs as they construct their seed rounds that they should make sure there is at least one investor who has serious skin in the game and feels accountable to the founders and the company. The best way of ensuring this is by adding an investor to the board. Legally, that investor becomes a fiduciary of the company and has a responsibility to help the team make sound legal and financial decisions. The right investor-board member will not just be responsive to founders, he or she will be proactively helpful as the team works to build the business. Founders who choose well might find that board meetings become something to look forward to, rather than dread, because the board member truly acts as a member of the team, providing support and constructive feedback.

So now that you’ve created a board with an investor Director, how do you get the most of our your board meeting at the seed stage? The key is to use the board meeting as a working session rather than a meeting to simply report progress. Board meetings should be valuable to the company, so the agenda should be set by the founders. The founders should lead a discussion about the three or four most important operational or strategic issues facing the company and seek advice and feedback, but not decisions. In addition, each board member should leave the meeting with two or three pieces of homework, follow-up items for which he or she is responsible within an agreed-upon timeframe. More tips for running great board meetings can be found from true experts like Fred Wilson, Brad Feld and Ted Wang. Keep in mind that the size and composition of the board will change over time, and many seed stage investors will likely step off the board after a Series B financing or later.

When we make a seed investment at Homebrew, we certainly make a significant financial commitment. But more importantly, we’re also committing our time, mental energy, relationships, expertise, advice and personalities (for better or worse!). We want to be involved and to help the founding teams build the companies that they envision by meaningfully contributing to the probability, scale or velocity of their success.

When we invest, we require that we receive a board seat and that at least a three-member board be formed. Typically, the other seats are occupied by two of the founders, or by the founder and an independent third party Director. If your lead investor doesn’t want to take a board seat, you should be asking yourself why. We’d bet that the teams and companies that do add an investor to the board at the seed stage will benefit greatly.

Four truths about mobile products, user mindset and achieving scale

Posted on by

Like many others, I’m spending more and more time on my phone, and I’m not making more calls.  I’m getting information, buying stuff, collaborating with others and much more.  There are a handful of mobile apps that I use religiously to do these things.  Why do I use these specific apps as regularly as I do?  I suspect that the answer for me and for many others who have the same behavior (a few select apps used frequently) boils down to a few simple things.

Scale is the outgrowth of doing just one thing really well.  WhatsApp, Instagram and Shazam are great examples of products and companies that expertly address a single, well-defined need in a simple way that satisfies a large number of people.  They haven’t added tons of new features to address additional use cases or at least they didn’t begin to do that until they had already significant user scale.  A single-purpose app makes it easier for a user to remember why she should use that app at the moment that she has a specific need.

Users inherently have a tendency towards mental inertia.  Once a user begins thinking of an app as addressing a particular need, it’s really hard to get him to think about it or use it differently.  An app developer who adds lots of features to an app risks confusing users and detracting from the core use case that the app is meant to address.  Unlike the desktop web, where tabs, menus, filters, etc. can be used to add features, it’s likely that in the mobile world the only successful way to add features will be to build entirely separate apps (see Twitter’s Vine and Facebook’s Messenger), often under separate brands.  Can you think of a single app that you use that does many different things well?

Better isn’t good enough.  Once a user begins to think of an app as addressing a need well, it’s really hard to get him to switch to another app to address the same need, even if it does it “better” (see Facebook’s Poke vs. SnapChat).  It’s not enough to be better in mobile, you need to be first to get to scale or you need to be different to fight inertia (not to mention switching costs, network effects, etc.).  WhatsApp continues to thrive in the face of increasing competition because it was first to address a specific need well.  SnapChat and Instagram succeeded not only because they did only one thing extremely well, but also because they did something different from Facebook and Twitter.  They addressed entirely new use cases and didn’t settle for competing via marginal feature innovation (which seems often to be the case in the messaging category, as one example).

Great products unlock user acquisition.  How did Uber grow virally?  The challenges of mobile app discovery and distribution have been well documented. App store distribution, pay-per-install ads, incentivized referral programs, etc. all face obstacles in mobile.  If you don’t have a product that requires users to invite others to benefit from the app (i.e., Facebook), there is only one true answer to the distribution problem.  The best distribution strategy is to build a killer product that generates tremendous word-of-mouth.  Uber, HotelTonight and Mailbox are examples of mobile apps that delivered amazing user experiences that in turn led to viral growth via word-of-mouth.  More than ever before, being the first to deliver an elegant solution to a user problem can be the key to dominating distribution and hence an entire market.

Surprisingly, when I thought about the points above, it seemed that what is true in mobile has largely been true on the web as well.  While technology changes, human behavior is pretty ingrained.  The mind craves simplicity and consistency and resists complexity and change.  Mobile app developers who want to achieve scale will be well served by satisfying the mind.

Homebrew: The challenges and opportunities in starting up

Posted on by

We think of Homebrew as our startup (it just happens to be one that writes checks instead of code). And we’ve definitely had to deal with the typical startup challenges while getting Homebrew off the ground, including fundraising. While cloud services, open source software and engineering outsourcing/offshoring have driven down the costs of starting a technology company, I’ve been dismayed at how little impact technology has had on aspects of company-building that have nothing to do with the the traditional technology stack, such as obtaining credit, finding office space and buying insurance. There is still tremendous opportunity to improve the costs and efficiency of creating businesses, especially small businesses that are part of the Bottom Up Economy. We’ve learned this first hand over the past few months.

I thought it would be interesting to outline all of the things that we had to do and the dollars we had to spend to get Homebrew to a point where we could focus on our “product”, investing in entrepreneurs who are enabling the Bottom Up Economy. I found that with each of the items, there is room for startups to provide a better, faster, cheaper solutions. If you’re working to address any of these opportunities, we’d love to hear from you. Here is a long but not completely exhaustive list:

– Fund formation. Legal work, including for our fundraising (akin to company formation and fundraising for startups), took us 100 days, required countless state and federal forms and cost us about $125k in legal fees (yikes!). And because we’re a VC, we had to purchase a special type of insurance called Venture Capital Asset Protection, which protects us in case we get sued while performing our duties as board directors of the companies we invest in. We obtained our policy through a broker and pay about $15k annually to cover us. Finally, we conducted a trademark search and registered our name, which required using a separate trademark lawyer and incurred about $3k in fees. While fund formation is clearly a high class problem, small businesses usually need to complete similar steps when starting up. They need to incorporate, register the business, seek trademark protection and get liability insurance. While we had the benefits of time and resources, most startups don’t. Yet, beyond a now dated LegalZoom, little seems to have been done to decrease the cost and complexity for new businesses.

– Office space. It took us two real estate agents and about 7 months to find and move into our offices (3200 sqft at a bit over $10k per month). The good news is that in most commercial real estate markets, San Francisco included, tenants don’t pay broker fees (lots of startups don’t seem to know this….hire an agent!). However, landlords can make you jump through hoops, including providing financial statements, certificates of incorporation, etc., to sign a lease. As a startup much of this is hard, if not impossible, to provide. But it doesn’t end there, once you find office space you need to find a real estate lawyer to review your lease agreement (cost us about $2000) and get lease insurance ($2700 through an insurance broker). In both cases, we relied on our real estate agent to recommend a service provider as there wasn’t any good way of “shopping” for one. Is there anyone out there working on a Zillow or Trulia for commercial real estate?

– Office outfitting. Furniture, internet service, janitorial service, utilities, electricians, movers, painters, food and drink. These things add up, even if you’re just opting for IKEA and Costco. And they take time because there are no good sources for identifying providers, for comparing pricing and quality or for scheduling.  Even with the help of friends, all of this took countless hours, appointments and emails.  The most frustrating was furniture, which took 4-8 weeks (and counting!) for delivery with no regular visibility into a delivery status. And we know we’re not alone in struggling through these items because we hear about them regularly from founders and small business owners we meet.

– Hiring. For small businesses, hiring is still done through personal networks, walk-ins or Craigslist. Given that we were looking for more than just an employee, a true founding member of the Homebrew family, we relied exclusively on our personal networks. The process didn’t cost money but it took 5 months of interviews, reference checks and social outings to vet candidates. We were fortunate that all of that time and energy resulted in finding a great Director of Operations. Unfortunately, for small businesses, they rarely have the luxury of that much time to find a qualified employee.

– Health insurance. Our Director of Operations is an employee so the State of California requires us to carry workers’ compensation insurance. Again, we worked through a broker and obtained a policy that costs us $240 annually for one employee. We also needed health insurance for our team. This was possibly the most painful experience that we had even though we worked through a broker. The list of reasons why is too long to delineate but it includes: 1) not being able to obtain insurance without 6 weeks of payroll 2) needing to provide proof of insurance for one employee who opted out of coverage (?!?) 3) completing over 16 different forms for only two covered employees 4) having to provide partnership agreements, ownership structure and our Certificate of Formation for who knows what reasons 5) requiring a paper check for payment of the first month’s premium to initiate coverage and 6) taking over 3 months from start to finish (our insurance finally kicked in on 8/1). And all of this is for a process that is completely opaque and results in what we hope is good insurance given the $2500 per month to cover two employees and their families. The vast majority of small businesses rely on insurance brokers for finding and maintaining health care coverage and no doubt face the same questions and frustrations we did.

– Banking. As a startup in Silicon Valley there are plenty of banks that will service you, so finding a bank is not a problem. However, the process of actually opening an account takes countless paper forms and hours of back and forth with the bank. And if you want a business credit card, good luck. Homebrew is a $35 million fund with large institutional investors and we still couldn’t qualify for a credit card with reasonable limits and fees from a number of banks. After six weeks, we were finally approved for a card from Amex on the back of my personal credit card history. Imagine the pain if you’re a small business on Main Street!

– Payroll. Maybe the easiest thing we did because of our outsourced CFO and ZenPayroll (wish we could have invested but Homebrew didn’t exist then!). Most small businesses still rely on ADP or Paychex but it’s great to see a better solution available.

– Web Presence. Finding and negotiating for a web domain, designing a logo, building a website that works well on mobile, choosing a web host and setting up various online identities (blog, Twitter, Facebook, LinkedIn, AngelList) takes time and can cost significant amounts of money. We have the benefit of having worked in technology for years (and it still wasn’t painless), but for a small business that wants to have a meaningful online and social media presence, the resources available to help understand its needs, find options and learn how to use them, are still incredibly disparate and unclear. The number of options available are limitless but the information needed to make intelligent decisions is rarely available.

– Infrastructure. We’re a completely cloud-based company so we use Google Apps for email, Google Docs for document creation, DropBox as our file system and Base for CRM. Selecting a CRM system was the most difficult of these choices because there are so many options in the market and no good way to compare them. We also chose to buy a printer/scanner/copier because as much as we want to be a paperless office, it’s hard to avoid paper completely in our business. Fortunately, we didn’t need a POS system, merchant account, accounting system (our outsourced CFO uses Xero), etc. like many small businesses do because I think I would have pulled the little that remains of my hair out trying to figure all of that out.

As a fund, we had the luxury of raising our money upfront and having ample time to work through these issues as there was no clock ticking. But for small businesses, the costs and the time taken away from selling and serving customers can mean the difference between success and shutting the doors. There is so much friction involved in the process of establishing a new business and relatively little has been done to make it easier. We hope that Homebrew can play a part in changing that. Over the past few months, we’ve put in place a lot of the foundation to support entrepreneurs participating in the Bottom Up Economy. We’re going to share as much as we can along the way – both the good and the bad – to be transparent about our work and to encourage more innovation in support of the Bottom Up Economy.

Shared Context in Product Development and the How of “Why”

Posted on by

Product development doesn’t come without its fair share of strong points of view, impassioned debates and occasional yelling.  These disagreements don’t result from team members wanting to do the wrong thing.  Instead, arguments about priorities, features and timeframes are typically caused by the lack of shared context about “why”.  Whether you’re a product manager, engineer or designer, if you’re the “decider”, your job is to make sure that everyone on the team has a clear understanding about why the goals, priorities and decisions are what they are from the very beginning of your work together.  Without shared context there can’t be shared purpose, shared risk or shared outcomes.  Here are some tips for making sure you and your team are operating from the same base knowledge and set of assumptions.

Don’t assume.  Even if you think that everyone knows the priorities, has been looking at the same data or been privy to the same conversations, don’t assume that the team has shared context.  Leaving it to each person to interpret conversations, make sense of data and draw their own conclusions inherently leads to misalignment and lack of buy-in regarding decisions.  Not surprisingly, as teams begin to work, the absence of shared context has severe costs – lost time and productivity, finger pointing and discouraged team members.

Write it down.  If you force yourself to write down the “Why” behind decisions that are being made, it will both clarify and improve your thinking.  You’ll be able to understand how others might react to the explanation of why and what issues they may have.  Sharing that written explanation of why with your team will allow all of you to have a common language with which to talk about problems, solutions and goals.  It will also provide a reference document that can be used by the team after the why has been discussed and you’re all no longer in the same room.

Repeat early and often.  The why is not something to be shared once and then be forgotten.  Talking about why at the very earliest points of product development lays the foundation for close collaboration and tight alignment.  Repeating the why during each step of the development process ensures that the team continues to have a common understanding and shared goals and allows the group to reaffirm or change the why as new data, requests and issues emerge.

Seek understanding, not agreement.  Assuming it’s clear that you’re the “decider” and that you’ve already gathered input from the team, the purpose of sharing the why is to help everyone understand the reasons for the decisions that are being made, not to have everyone agree that those are the right decisions.  That said, team members need to feel that their points of view were incorporated into the thinking that led to the why (writing it down helps provide evidence of being heard!).  The right outcome is to have a collaboration amongst team members based on shared context, not to be consensus-driven.

While establishing the why is critical in product development, it’s an equally important behavior in nearly all professional and personal contexts.  Next time you’re working on a project with your team, friends or spouse think about whether there is shared context and how setting that context might help you work together more effectively.

We are Product Managers

Posted on by

When I joined Twitter, one of my key responsibilities was building the product management organization to keep pace with the growth of our engineering and design teams and to lay the foundation for scalable product development going forward.  In less than a year, we more than tripled the size of the team (total company headcount grew even faster).  As you might expect with that kind of employee growth, there were many questions about how various functions should work together, especially the product development-oriented functions of engineering, design and product management.  At Twitter, we evangelized an operating model where project teams were constructed with product, engineering and design leads, each representing three equal legs of the product development stool (with other functions also providing input and feedback throughout the development process).  However, as the teams began working under this model, it became clear that each function was struggling with defining its role relative to the roles of other functions.  Who should be involved in what conversations?  Where were the lines drawn?  Who was the “decider”?  And like many companies, we were faced with the oft-asked existential questions of “Is product management needed?” and “What role does product management play in product development?”

Given all of these questions, my product team needed a reminder about why they were all there as individuals and as a product management function.  Fortunately, the web offers many excellent write-ups and conversations about what it means to be a great product manager.  But I also wanted to share my personal views on product management, developed through years of product success and failure, particularly because I believe that product management is more an attitude than a set of skills.

Below is the description of the product manager’s mentality that I shared with the team at Twitter.  I was told that it proved helpful to many of them (hopefully it still is!) as they worked with their engineering and design peers and I’m hopeful that it will be equally useful to product people (current and aspiring) who are trying to do the difficult but incredibly gratifying job of product management.  In one way or another, it’s a job I’ll always have and love.

—

As Product Managers, we are the CEOs of our products.  We love products.  We focus first on delivering value to our users.  We know who we are building for and what we are building.  We know why we are building it and where we are building to long term.  We communicate the who, what, why and where clearly, concisely and frequently.  We communicate with anyone and everyone who is interested, but most importantly to our teams.  We let our teams determine how to build.

We pursue excellence by thinking bigger and bolder than is comfortable.  We don’t settle for good enough.  We choose right over easy.  We choose simplicity over complexity.  We don’t make excuses.  We take responsibility.  We are tirelessly curious.  We respect our competitors, not fear them.  We understand why we win and what we must do to keep winning.

We lead by example.  We succeed by making others successful.  We listen first and make certain that others feel that they’ve been heard.  We pursue diverse opinions.  We rally our teams behind a vision that yields passion and commitment.  We value and foster strong team relationships.

We are determined and positive.  We use words and take actions that embody a can-do attitude.  We trust others to do their jobs well but we verify that they are done right.  We are honest, direct and empathetic.  We adjust to our audiences and situations.  We are decisive when needed, but always collaborative.

We know the definition of success.  We hold ourselves and our teams accountable to it.  We set the bar high.  We provide focus through prioritization.  We increase quality through iteration.  We don’t like surprises, so we prepare for them.  We pay attention to the details because we care.  We fill in the gaps and do whatever it takes to get the job done.  We don’t wait to be told what to do.  We leverage data but aren’t slaves to it.  We are honest.  We seek the truth.

We take time to reflect.  We don’t fear failure.  We strive to improve.

We are Product Managers.

—

Thanks to Hunter Walk and Josh Elman for reading drafts of this post.

Venture capital’s new normal

Posted on by

In many ways, 2010 was an incredibly surprising year for the VC industry. The pace of investment activity picked up considerably following the economic turmoil in 2008 and 2009. The number of companies started, investment valuations and the speed at which financings were completed all increased dramatically relative to the prior two years. At the same time, the long awaited restructuring of the VC industry started to become reality with fewer traditional funds being raised, more small (angel and micro-VC) funds launching and many VCs leaving the industry for other careers. Finally, the M&A market picked up and the IPO market cracked open a bit, creating more liquidity than the past couple of years.

2011’s even faster start has surprised not only many outside of the VC industry, but also many VC professionals. There has been extensive commentary on what is perceived to be an overheated or irrationally exuberant market, but I believe that we are simply experiencing the “new normal”, at least for the next few years. The reality is that there remains too much investment capital in pursuit of funding the handful of companies started each year that will generate outsized returns for limited partners. VC industry returns have been abysmal for the past decade, so missing out on those winners could mean the inability to raise new funds for many firms. At the same time, the cost of starting companies is lower than ever and angels and funds of all sizes are competing to finance the same, increasingly capital efficient businesses. More sources of abundant capital mean more companies being started and increasingly low odds of predicting which companies will emerge as winners. All of this creates a dynamic in which the first inkling of success for a young company yields multi-million dollar financing offers at seemingly inexplicable valuations ($100 million has become the new $10 million) and proven success generates multi-hundred million dollars financings at unprecedented valuations.

Unfortunately, this is likely to be the difficult reality of the VC industry for at least the next few years. For now, this new normal seems to be limited to the private investing market, not the public market, suggesting that this is not a bubble like the one experienced a decade ago. Further, in the VC market, dollars invested today don’t prove themselves to be ill spent for several years down the road. The repercussions of poor investing take even longer to unfold. The new normal in the private market will not quickly disappear with the bursting of a bubble, but rather slowly give way like an aging balloon bleeding air.

While many VCs will lose playing this new game, the good news is that there has never been a better time to be an entrepreneur, or in all likelihood, a consumer. Capital is freely and cheaply available to those willing to accept the startup challenge, both here in the US and around the globe. The startups that do emerge from the current financing frenzy as market leaders will have created innovative products and services for which consumers will be the ultimate beneficiaries. Those entrepreneurs will have created enormous wealth for themselves. The VCs that supported those entrepreneurs may or may not have generated returns for their investors. Which would you bet on?

4 sources of long term differentiation and competitive advantage

Posted on by

Despite the slowdown in venture investing during most of last year, it seems like venture activity picked up significantly in Q4. The data is consistent with my own experience during the quarter, where I saw a huge increase in companies seeking financing, the return of multiple competitors for every investment opportunity and incredibly compressed fundraising processes. I fear that we’re returning to an investing and startup environment much like the one prior to October 2008. One impact of this behavior is that we’ll likely see, as before, the funding of many companies in the same market or with similar offerings (many people point to location-based social networking companies such as Foursquare, Gowalla, Booyah, etc. as a good example). That’s led me to try to outline what I think are the only ways for web technology companies to truly have long term differentiation. Clearly, with time and money, talented people render most software and user experiences alone indefensible. So how do Internet and digital media companies create sustainable competitive advantage? 

Network effects: Businesses with network effects have products or services that increase in value as more customers use them. When a network effects business achieves scale, it can have incredibly lasting differentiation because recreating that network poses significant challenges to competitors. Microsoft Office, eBay and Yelp are good examples of these types of products and services. Some network effects businesses can have both positive and negative network effects. For example, as many social media businesses grow in use, the volume of content to filter and absorb can become overwhelming.

Switching costs: Products or services that make it difficult or expensive to use an alternative product or service have switching costs. Creating this kind of lock-in is a true barrier for competition. DoubleClick’s DFA product is a great example of a product that had tremendous value because it was embedded in the agency online media buying process and was used by many people within agencies.

Scale: For a product or service, differentiation can be derived from scale in customer usage, capital expenditure or data. As an example, Google enjoys incredible differentiation and competitive advantage from all three sources. Hundreds of millions of people conduct billions of searches on Google each day, leading websites that want to integrate search to turn to the de facto standard in the industry. Google has spent untold sums of money on hundreds of thousands of machines in datacenters around the world to deliver the fastest, freshest and most relevant search results to its users. The hundreds of millions of clicks generated each day on search results provide Google with a vast quantity of data and insights that help improve search quality. Any new search competitor not only has to deliver a superior consumer search experience, but it also has to spend enormous amounts of money recreating the underlying infrastructure and data that makes Google such a powerful competitive force.

Culture/People: Given that web technology itself is largely indefensible, the greatest source of differentiation and competitive advantage is often execution, and that is predicated on people and the culture in which they operate. Whether it’s the culture of innovation at Google, the culture of customer happiness at Zappos or the culture of freedom and responsibility at Netflix, I’m certain that the management teams from those companies would point to the employees and the DNA of the organizations as the primary reasons for their success. I find that when the culture of a company is well-defined, it is usually a direct reflection of the founder(s) and their conscious decision to establish a well-defined company culture from the start. I only know of a few instances where the culture of an organization was either instilled in the organization at a later point in the company’s development or successfully recast by new leadership.

When choosing what investments to make, I try to keep these sources of differentiation top of mind. It’s easy to get caught up in the appeal of a sexy new consumer application or a seemingly novel approach to a business problem. But lasting, significant equity value is often only created when one or more of these differentiating factors are at play. Are there other sources of differentiation that you would add to the list?

11 tips for the VC pitch

Posted on by

A couple of weeks ago, I gave the presentation below to the companies participating in First Growth Venture Network. The focus of the day was how to pitch investors and while every investor has his or her preferences, I find that there is 80%-90% overlap in what most investors are hoping to see and hear. Given that there are so many great resources on this topic available on the web for entrepreneurs, I wanted to focus on a few key things that seem to get overlooked in advance of and during many pitches. This presentation is a bit incomplete without the accompanying commentary but hopefully you can get the key points and be somewhat entertained in the process (lots of cartoons!).


 
Here are a few, brief clarifying points:

Pursue feedback: Get feedback on the pitch from people that you trust and make sure you practice it in front of an actual audience. Use this opportunity to test all of your assumptions.

Don’t talk to strangers: Research the partner that you are meeting with, but more importantly, understand why that partner might be interested in what you are doing. Investors see hundreds of businesses each year and they say no to 99.5% of them. Investors are prolific “daters” but they need to feel chemistry to get “married”. I refer to this feeling as emotional resonance and I see very few investments made where that is missing.

Small bites, big appetite: All investors ask themselves whether the business they are seeing is a feature, a product or a company. As an entrepreneur, you need to be able to sell a vision while focusing on near term milestones. Start small and focused but have a plan to get big.

Any and all questions and feedback are more than welcome!

Tips for product management success

Posted on by

I work with several early stage companies that are spending all of their time and energy focused on building great products that address real customerpain. To me, this is the most exciting time in a startup’s development. Starting from a blank page and creating something that will hopefully be in the hands of many satisfied users is both an imposing and thrilling challenge. My product management experience has given me several key insights (I think!) into what contributes to the success of a product manager. I’ll share a couple of those thoughts below and hopefully publish additional ideas over time.

I don’t think that you can be truly successful as a product manager if you haven’t experienced the customer or user’s pain firsthand.  Being close to the customer can provide unique insight into product requirements, and even more importantly, can shed light on what is not required in the product at all. Often times, customers and users will say that they want X or Y feature, but that is only what they think they want. What they need is a specific problem to be solved. Having lived with that problem can provide a product manager with the insight required to identify a true solution. All customer and user feedback is not created equal and knowing which feedback to incorporate into product plans is a necessary skill for any product manager.

A successful product manager also knows that he or she is not an engineer. Trust the engineers to do what they do and involve them early and often in product thinking. If the product manager and the management team have hired strong developers, technical leads, etc., they will not only figure out how to build the product correctly but they will help make the end product markedly better. Many product managers don’t have the confidence in themselves or in engineering to avoid micro-managing and over-documenting. But I’ve found that allowing the engineering team members to own what they are expert in leads to greater confidence in the product manager, more collaborative teams and more efficient product development. It also just makes being a product manager a lot easier!

(Thanks to Hiten Shah from KISSmetrics for inspiring this post.)

Four essential characteristics of entrepreneurs

Posted on by

Despite the fact that my New York Giants failed to make a repeat trip to the Super Bowl, being the diehard football fan that I am, I wasn’t going to miss the Big Game. Whether or not it was the greatest Super Bowl of all time (it wasn’t), one thing that stood out to me was the way in which both teams rallied when they were down and how it took the effort of every player on each team to deliver success. It was clear that no individual player wanted to let down his team by not doing his individual job well.

It strikes me that we’re seeing the same thing play out in the world of startups right now. The companies that are continuing to make progress notwithstanding the challenges in the funding environment and the broader market are the ones with teams that are committed both to the mission of the company and to each other. I would argue that a quality team is the most important factor in the success of a startup, but never is the quality of a team more important than in a down market. After all, there are no unique ideas, only unique execution and execution is the difference between success and failure given the current economic situation.

So what are the characteristics of a successful entrepreneur or team?  I don’t know that I have the right answer to that question, but here are the things that I look for when making investments. First is passion. Is the team genuinely excited about the business and the problem that it is addressing? Is it committed to solving the problem and building a sustainable business? Passion is a requirement given that there are so many ups and downs in the life of a startup. Second is flexibility. Rarely is the initial approach to solving a problem or attacking a market the right approach. Entrepreneurs and teams that can’t react to messages from and changes in the market are likely to continue marching down a path that leads to a dead end. Third is expertise. It’s important to note that expertise isn’t defined as years of prior experience building a company or product. I deem expertise to be the possession of unique insight that sheds light on an acute pain and the salve for that pain. In other words, what is it that makes the team uniquely qualified to solve the problem that they have identified? Finally comes integrity. The relationship between an investor and a team of entrepreneurs is often compared to a marriage, and the comparison is only a slight exaggeration. Trust, honesty and candor are the foundations of the entrepreneur-investor relationship. Without those building blocks, the inevitable ups and downs of the corporate marriage are impossible to withstand.

While this isn’t a comprehensive list of what I believe makes an entrepreneur or team successful, these are some of the absolutely critical characteristics. And I would expect that any startup team should be looking for the same qualities in its investors. I’m blessed to work with a group of entrepreneurs whom I am proud to call both great partners and friends. I have absolute confidence that these teams will be able to execute well during the current economic downturn and emerge much stronger and better positioned than the competition. Watching the Super Bowl, it was clear that each player had the same faith in his teammates, even when it looked like the game was over. I hope that the same can be said about the Giants a year from now!

P.S. Many thanks to those of you who sent your thoughts and prayers my way upon hearing about the passing of my father-in-law. Supporting him and my family through his battle with cancer was a major reason that I’ve been remiss in blogging for so long.