In Santa Fe We Wish We Had The Boulder Problems!

There has been a lot of recent noise in Boulder about growth, challenges, and the impact of the tech community on the city. I stirred the pot a little more with my post The Endless Struggle That Boulder Has With Itself. It generated some private emails, including non-constructive troll-like ones such as “Get the fuck out of town, you and people like you are ruining everything” at one end of the extreme to “It’s so frustrating that the all growth is bad crowd is framing the public debate right now and portraying so-called overpaid tech employees as a major cause of all that is wrong in Boulder.”

Andy Alsop, an entrepreneur in Santa Fe who has spent a lot of time in Colorado, sent me a note with some thoughts about his view and experience from working as an entrepreneur in Santa Fe. I asked if he’d write a longer post from his perspective and he took me up on it. Following is a guest post from Andy that I think adds nicely to the discussion.

Don’t get me wrong. I love Santa Fe and I love New Mexico. This is where my kids were born, where three out of the six kids in my family own property and where I have lived for the past 20 years. This is my perspective on why the Boulder City Council should be grateful for the gift it has been given.

I have chosen Colorado as the place where I want to focus the next chapter of my startup life because of its similarities to New Mexico but with the benefit of a rich and diverse tech economy. Since approximately July of 2014 I have been spending half of my time getting to know people in Colorado and half of my time in New Mexico where I work and where my family is currently based. This has allowed me to spend time in Boulder with some exciting startups and some interesting and successful business leaders.

To give you some background, I moved to Santa Fe, NM from the East Coast in 1995 to start a company with my older brother. Prior to making the decision to move out West I asked myself, “Is Santa Fe the right kind of place for me as a technology entrepreneur?” I thought about it for a while before making the move and decided that I was in love with the beautiful outdoors, the endless blue skies, the culture, the great food and the interesting people so with bravado I said to myself “Hell, I’m smart and hardworking and this whole ‘Internet’ thing is everywhere. It doesn’t matter where I live.” As a result, I founded two startups, one of them a spinout from Los Alamos National Laboratory and have been a part of three other startups all of them based on technology.

I find the debate around Boulder’s “dilemma” to be very interesting because Boulder and Santa Fe share a lot of the same characteristics. Both are similar in size, both have educated populations, both are a short drive from a larger city, both are absolutely stunning in terms of the landscape and the outdoors, both are set in the foothills of the Rocky Mountains restricting their ability to grow in all but one direction and both have a high cost of living and a high cost of housing.

In contrast to Boulder, Santa Fe has a stunted economy because it doesn’t share some of the key characteristics of Boulder – including several of the four elements of the “Boulder Thesis” that Brad outlined in his book “Startup Communities.” Santa Fe’s anemic economy is due in large part because Santa Fe has an older population made up primarily of retirees in addition to federal, state and local government workers and service-based workers. We have one “larger” company based in Santa Fe: Thornburg Investment Management which thankfully provides 250 high wage jobs. There are a handful of other smaller companies in Santa Fe but the majority of our businesses are tourism and services based – restaurants, art galleries, hotels, B&B’s, etc. This makes it difficult to make a living in Santa Fe (see Santa Fe’s Living Wage). You will frequently hear people joke about the fact that to make a million dollars in Santa Fe you need to come with two and to live in Santa Fe you must have two to three jobs just to survive. “Young people” come to Santa Fe based on their attraction to the beautiful outdoors and leave when they realize it is difficult to make a living. Santa Fe ends up being a turnstile for young professionals.

Having attempted to recruit experienced knowledge workers to Santa Fe I would always get the same questions from the candidates – “Where are my kids going to go to school?” (While improving, Santa Fe and NM have some of the worst public schools in the country) and “Where am I going to work if your startup doesn’t make it?” Boulder on the other hand has a great school system and a diverse tech economy so that when knowledge workers are recruited to Boulder the recruiter can say “We have great schools and if this position doesn’t work out there are plenty of other places to work.” That means recruits are willing to uproot their families and bring them to Boulder.

So, when I hear members of the Boulder City Council saying “…locals say they don’t like the tech folks…” and the startup economy is attracting “highly paid white men to the city, and they were pricing out families and others” I can’t help but think – Are you crazy? Having a robust tech economy is what many communities like Santa Fe WISH they had. Our civic leaders have to deal with the higher cost of housing from wealthy out of state housing buyers yet the local workers are trying to survive on minimum wage jobs and the government on an insufficient tax base. As a result I have seen NM increasingly tax everything not because it is greedy but because we have to take care of a far poorer population. For instance, the “gross receipts tax” (NM’s version of a sales tax but it is levied on both goods AND services) in Santa Fe has steadily risen from just under 6% 20 years ago to over 8% now and it continues to climb.

Imagine the problems Boulder would have if it were in the same shoes as Santa Fe and didn’t have a thriving tech economy to rely on?  Be Bolder Boulder and embrace the gifts that have been bestowed upon you. Work with the tech community rather than making divisive statements and see the members of your thriving tech economy as your friend and not your enemy.

Interviewing Lucy Sanders at Entrepreneurs Unplugged on 1/28/15

Lucy Sanders, the founder/CEO of the National Center for Women & Information Technology is a remarkable person. I’ve worked with Lucy since 2005 and she’s done more advancing the cause of engaging women in IT, computer science, and entrepreneurship than anyone I know.

As a bonus, she – and NCWIT – are based in Boulder. I like to refer to them as a gem of CU Boulder that is hidden in plain site.

Next Wednesday, as part of the Entrepreneurs Unplugged interview series I’ve been helping host for the past few years, Jill Dupre and I will interview Lucy at the ATLAS Center in Room 100.

I promise you that it will be a special one. Lucy started her career as a young woman at Bell Labs in the 1970s. She was one of the only ones. When she retired from Avaya Labs in 2001, she was CTO, R&D Vice President and Bell Labs Fellow and had about 600 people reporting to her. Her journey up to this point was amazing, but she was just getting started. What she’s done in the last decade as the CEO of NCWIT is amazing.

My work with Lucy has been one of the most satisfying non-profit experiences I’ve been involved in. In addition, I’ve learned an incredible amount from her about the dynamics of women in technology, business, and entrepreneurship. She’s had a dramatic impact on my thinking and behavior and I’d love to share some of her magic with you.

Register here and come join us on Wednesday, January 28, 2015 for 6:00-7:30 PM.

Learning from 2014 Security Hacks

Raj Bhargava (CEO of JumpCloud) and I got into a discussion at dinner the other night about the major security hacks this past year including Sony, eBay, Target, and The Home Depot. Raj spend over a decade in the security software business and it was fascinating to realize that a common thread on virtually all of these major compromises was hacked credentials.

I felt this pain personally yesterday. A bunch of random charges to Match.com, FTD.com, and a few other sites showed up on Amy’s Amex card. We couldn’t figure out where it got stolen from, but clearly it was from another online site somewhere since it’s a card she uses for a lot of online purchases, so I cancelled it. Due to Amex’s endless security process, it took almost 30 minutes to cancel the card, get a new one, and add someone else to the account so I wouldn’t have to go through the nonsense the next time.

In my conversation with Raj, we moved from basic credential security to the notion that the number of sites we access is exploding. Think about how many different logins you have to deal with each day. I’m pretty organized about how I do it and it’s still totally fucked.

Every major new service is managed separately. Accounts to AWS or Google Compute Engine or Office 365 are managed separately. Github is managed separately. Google Apps are managed separately. Every SaaS app is managed separately. All your iOS logins are yet another thing to deal with. The only thing that isn’t managed separately are individual devices – as long as you have an IT department to manage them. Oh wait, are they managing your Mac? How about your iPhone and other BYOD devices? Logins and passwords everywhere.

Raj’s assertion to me at our dinner was that there are too many different places, and too many scenarios, where something can be compromised. For instance, some companies use password managers and some don’t. Some companies that take password management to an individual level – where a single employee manages her own passwords – end up with many login / password combinations which are used over and over again. Or worse, the login / password list ends up in an unencrypted file on someone’s device (ahem Sony.)

If you are nodding, you are being realistic. If you aren’t nodding, do a reality check to see if you are in denial about your own behavior or your organization’s behavior. Think about how new services enter your organization. A developer, IT admin, marketing person, executive, or salesperson just signs up for a new online service to try. When doing so, which credentials do they use? If it is connecting to your company’s environment, it’s likely they are using your organization’s email address and a verbatim password they use internally as well. That’s a recipe for getting hacked.

So, Raj and I started discussing solutions. Some of it may just be unsolvable as human nature may not let us completely protect users online. But it seems like there are areas where we can make some immediate headway.

  • Secure directory services (the approach JumpCloud is taking)
  • Multi-factor authentication has become all the rage (I use it)
  • Different strong passwords for each service, possibly via a password manager like LastPass (which is what I use)

What other approaches exist that would scale up from small (10 person orgs) to large (100,000 person orgs) and provide the same level of identity and credential security?

The Illusion of Product/Market Fit for SaaS Companies

“We have product/market fit.”

“We are searching for product/market fit.”

“We are raising this financing to find product/market fit.”

“Our customer traction demonstrates product/market fit.”

Product/market fit. It’s a wonderful phrase, thanks to Marc Andreessen, Sean Ellis, Steve Blank, and Eric Ries. But it also one of the most overused, and inappropriately used, phrases that I hear with SaaS companies on a daily basis.

I was in a meeting a month ago with a company I’m on the board of where product/market fit was asserted. I sat quietly for a moment and then stated as clearly as I could that the company didn’t have product/market fit, they had the illusion of product/market fit. A long conversation ensued which resulted in me pondering this illusion and trying to put some parameters around it.

But first, some history.

There’s a fun post from Ben Horowitz in 2010 titled The Revenge of the Fat Guy that weaves in comments from Fred Wilson about product/market fit where Fred argues in his post Being Fat Is Not HealthyWhile ostensibly it’s a post about lean vs. fat startups, it really is about discovering product/market fit and it gives a good history lesson on the thinking circa 2010 on this issue. Ben eventually states, and then explains, four product/market fit myths.

  • Myth #1: Product market fit is always a discrete, big bang event
  • Myth #2: It’s patently obvious when you have product market fit
  • Myth #3: Once you achieve product market fit, you can’t lose it.
  • Myth #4: Once you have product-market fit, you don’t have to sweat the competition.

As I rolled this around in my head, I started to realize that part of the illusion of product/market fit is that there’s a belief that once you have it, you never lose it (myth #3). There’s also the belief that there’s a magic moment where you have it and declare it (myth #1). Worse, there’s the belief that it’s obvious when you have it (myth #2). And tragically, a lot of companies believe when they have it, they don’t have to worry about anyone else because they’ve won (myth #4).

I’ve experienced the downside of each of these myths many times. I’ve seen companies have to rediscover product/market fit after getting to a $500k MRR (monthly recurring revenue). I’ve been involved in companies that thought they owned the market at a $2m MRR only to have a new competitor come out of no where and beat the crap out of them. I watched companies at a $4m MRR enter new markets and struggle mightily to discover product/market fit for these new markets. Or worse, I’ve seen a new product release that was late completely toast product/market fit and force a company to hang on to customers any way possible while rushing to fix what was broken.

The illusion of product/market fit pops up at multiple points in time. So I started thinking about heuristics for these points in time and came up with MRR as a parameter to explore. Suddenly, the illusion problem came into focus for me based on MRR, with clear transitions happening up to a $1m MRR. While I’m going to keep exploring this, I have a hypothesis now about the dynamics around product/market fit in SaaS companies that I’m playing around with. Feel free to tear it apart.

When you have $0 of MRR, you have no product/market fit. Ok – that was easy. You are working on a product and searching for your first customer.

From $1 to $10k MRR, you have the illusion of product/market fit. You finally found someone to pay you for your shitty MVP, but you’ve got a long way to go before you truly have product/market fit. Do not pour on the gas at this point. Stay calm and keep doing what you are doing.

$10k to $100k MRR is a super exciting time. You’ve got a semblance of product/market fit. You are starting to learn what your customers will pay you for. You feel like things are actually cranking. You probably have one or two salespeople and one of your founders – maybe your CEO – is still the head of sales. If you try to raise a Series A, the process is straightforward. It’s easy to believe you’ve got it figured it out here. This is the point at which myth’s #1 and #2 usually kick you in the ass. If you aren’t growing a compounded 10% each month, you don’t have product market/fit yet. If you are growing faster than that, you have found something.

Going from $100k to $500k MRR is a product/market fit sweet spot. You are starting to build a sales organization, have visibility in the market in your segment, and might even have customers coming to you on a regular basis. This is where myth #3 bops you on the head. You think you’ve got it and it’ll keep scaling, but you hire the wrong VP Sales, you focus on the wrong metrics, or you end up struggling to renew your customers when the first annual renewal cycle hits. You get confused about negative churn and conflate upsells with growth with churn. Lots of companies stall here – some due to self-inflicted pain; others due to the illusion of product/market fit.

If you can blast through the $500k MRR mark and march to $1m MRR, you’ve found product/market fit. You are now at the magical point some people call “Initial Scale.” Cool – you’ve got a business.

Now, your value is going to be determined by your growth rate. At any point in time, if you are growing > 100% year-over-year you will be highly valued – think at least 10x revenue, but I won’t tell you whether it’s trailing or forward, as that’ll shift around based on the public markets. And, the faster you are growing, the more discontinuous (e.g. higher multiple, but not linear) your valuation will be.

If your growth rate is between 50% and 100% and holding steady, that’s good and you’ll see a nice, big, healthy valuation. But if it’s declining, watch out for that magic 50% year-over-year mark. It’s like a trip wire that will send off all kinds of weird alarm bells. Once you decline below 20%, you better make sure your existing investors are going to be ready to step up to finance you, or else start the rapid march to profitability, which likely generates even slower growth.

Myth #3 and myth #4 show up all the time at MRR’s > $1m. You disrupted someone a few years ago which is what caused you to discover product/market fit. Don’t be confused about the world – someone else is gunning for you now that you are the big player in whatever segment you are in.

Every time you work on something new, whether it’s a new feature, a new product, or a new product line, recognize that you are searching for incremental product/market fit. The search is a continuous and never ending quest. Don’t confuse illusion with reality.

Martin Luther King’s Speech – I Have A Dream

As an almost daily writer, I occasionally feel that something I’ve written or said has long term impact and meaning. Today is not one of those days.

Instead, I give you Dr. Martin Luther King’s speech on August 28, 1963 which we now refer to as his “I Have A Dream” speech. For the original speech, take a look in that US Archives copy or at the text of the speech on the BBC website.

Stop whatever you are doing and take 18 minutes out of your day to watch one of the greatest speeches of all time. And then take at least two more minutes to contemplate what you might do differently in your life going forward from today.