Month: May 2013
Over the past few decades, the most compelling engineers and entrepreneurs I’ve met have tended to be working on problems that can be solved with software. Software has some great advantages but it comes with a few big drawbacks, namely it’s tied to a few standard types of input, although we are trying to impact that with some of our investments in our HCI theme.
Along with the rest of the tech ecosystem, I’m starting to see more and more entrepreneurs with a piece of hardware in their development plan. These are not your parents’ hardware products. Instead, they are software companies that happen to have a physical component in their stack – something I call software wrapped in plastic.
Adding the plastic around the software is no short order. MakerBot, FitBit, Orbotix, Sifteo, Modular Robotics, Pogoplug, Slingbox, and a slew of others have taught me that even though much of the business-side is similar to a software company, the product-side most definitely is not. From an outsider’s perspective, it’s stunning how much damage one bad component on a PCB board can do to a company’s bottom line, or how different industrial design is from software design, or even how the brains of a software person and a hardware person collide in bizarre ways.
I’ve learned how critical it is to get the right kind of help for young companies with a piece of hardware, which is why I invested in Bolt. Bolt is one of the more unique accelerator programs I’ve seen. Ben and his team have designed, developed, manufactured, and financed a long list of successful products and they’ve built Bolt around best-practices for these kinds of companies. Over 6-months, accepted companies get a long list of benefits, the most valuable of which are a full-staff of senior engineers and designers at your disposal and 24×7 access to their $1M of prototyping equipment.
If you’re a startup with a piece of hardware (or plan to have one) check out Bolt and apply to be part of their first accelerator class. Applications close in two days – Wednesday, May 22nd at midnight.
This post originally appeared last week in the Wall Street Journal as part of their Accelerators Program in answer to the question “When and how should you wind down a failing business.”
Some entrepreneurs and investors subscribe to the creed “failure is not an option.” I’m not one of them.
I strongly believe that there are times you should call it quits on a business. Not everything works. And — even after trying incredibly hard, and for a long period of time — failure is sometimes the best option. An entrepreneur shouldn’t view their entrepreneur arc as being linked to a single company, and having a lifetime perspective around entrepreneurship helps put the notion of failure into perspective. Rather than prognosticate, let me give you an example.
My friend Mark’s first company was successfully acquired. After being an executive for several years at the acquirer, Mark decided to start a new company. I was the seed investor, excited to work with my friend again on his new company.
Over three years, this new company raised a total of $10 million from me and several other investors over several rounds. The first few years were exciting as Mark launched a product, scaled the company up to about 40 people, and tried to build a business. But after two years we realized that we weren’t really making any progress — there was a lot of activity but it wasn’t translating into revenue growth.
In year three we tried a completely different approach to the same market with a new product. Mark scaled the business back to a dozen people in an effort to restart the business. Over the course of the year we tried different things, but continued to have very little success.
By the end of the year there was $1 million left. Mark cut the company back again — this time to a half dozen people. He started thinking about how to restart for a third time on the remaining $1 million.
Mark had never failed at anything in his life up to this point. He was proud of this, and the idea that he couldn’t at least make his investors’ money back was devastating to him. But he was stuck and started exploring creating an entirely different business, in a completely different market, with the $1 million he had left.
Mark was newly married and was working 20 hours a day. We were talking at the end of the day during the middle of the week and he was so tense, I thought his brain might explode. I told him that as his largest investor and board member, I wanted him to turn off his cell phone, take his wife out to dinner, have a bottle of wine, and talk about whether it made any sense to spend the next year of his life trying to restart the business with the remaining $1 million.
After resisting turning his phone off, I insisted. I told him that I gave him permission to decide that it wasn’t worth the next year of his life at this point and that as his largest investor it was perfectly ok to shut the business down and declare it a failure. I then said I was hanging up the phone and would talk to him in the morning. Click.
He called me back early the next morning. He was calm. He started by saying thanks for giving him permission to consider shutting down the company. This had never occurred to him as an option. During dinner, he realized he needed a break as he was exhausted. He wasn’t coming up with anything to do to reinvent the business and was just desperate to figure out a way to pay his investors back.
By morning, he realized it was time to shut things down, return whatever money was left, and take six months off to recover from the previous three years while he thought about what to do next.
We gracefully wound the company down and returned five cents on the dollar to the investors. Mark took six months off. He then spent six months exploring a new business, which ended up being extraordinarily successful. And he’s now very happily married.
Failure is sometimes the best option if you view the process of entrepreneurship as a lifelong journey.
At this year’s NVCA meeting, my partner Jason Mendelson (who was the chair of the event) interviewed Dick Costolo, the CEO of Twitter. Dick is an awesome CEO, awesome human, and awesome interviewee. Among other things, he’s hilarious, and PandoDaily wrote a fun summary of the interview in their post What CEOs could learn from comedians.
Dick had many great one liners that fit in 140 characters as you’d expect from someone who is both the CEO of Twitter and was once a standup comedian. But one really stuck in my mind.
It’s not your job to defend your team. It’s your job to improve your team.
Upon reflection, all of the great CEOs and executives that I’ve ever worked with believe this and behave this way.
Every time I make an investment I believe it is going to be an incredible success. I don’t know any VC who invests thinking “eh – this will be mediocre. When you start the relationship you believe it’s going to be massively successful. The same is true of hiring an executive. Dick made the point that the cliche “only hire A players” is completely obvious and banal. CEOs don’t run around saying “hey – let’s hire C players – that’s what we want – C players.” Everyone you hire is someone you think will be an A player, by definition.
But, in the same way that every VC investment doesn’t become a 100x return, every person you hire won’t turn out to be an A player. After a few months, you start to really understand the strengths and weaknesses of the person. And you see how the person interacts with the rest of your team. This is normal – there’s no way you could know any of this during the interview process.
The not so amazing CEO or executive immediately falls into a mode of trying to defend the person, or the team, to the outside world (board, investors, customers) and other members of the team. I’ve heard a remarkable number of different rationalizations over the years about why a person or a team is going to work. And, when I press on this, the underlying response is often simply “give us / me / them more time.”
Instead of defending the team, the amazing CEO will respond with “yup – we need to get better – here’s what we are doing.” And then they’ll add “what else do you think we should do?” and “how can you help us improve?” This type of language – accepting reality and focusing on improving it, rather that defending it, is so much more powerful.
Of course, often the answer is that to improve a team, you have to eliminate a person or move them to a very different role. This is hard, but it’s part of the process, especially in a fast growing company. Someone who was incredible at a job when the company is 50 people might be horrible at the job when the company is 500 people. Nothing is static – including competence.
This is true of CEOs as well. We can all be better at what we do – a lot better. It’s easy to fall into the trap of defending our own behavior when someone offers us feedback or constructive criticism. The walls go up fast when someone attacks us, or we fail. But if you switch immediately from “defend” to “improve”, you can often get extraordinary feedback and help in real time. And sometimes you have to replace yourself, as Jonathan Strauss at Awe.sm did recently and explained in his tremendous post Replacing Oneself as CEO
I loved working with Dick at FeedBurner – I learned an incredible amount from him. I treasure every minute I get with him these days and one of the biggest bummers about not being an investor in Twitter is that I don’t get to work with him on a regular basis. It was joyful to listen to him and realize that there is another wave of people at a rapidly growing and very important company that are learning from him, as he works to improve his team on a continual basis.
As I’m coming out of my depression, I’ve been reflecting on the hundreds of emails I’ve gotten from entrepreneurs, investors, friends, and people I don’t know talking about their own struggles with depression. It’s remarkable how much stigma is associated with depression in our society, which makes the struggle with depression even harder.
To all of you who have written to me with your stories, thoughts, struggles, and suggestions – thank you. Many have helped me; all have been appreciated.
The other morning, I got an email from Doug Liles titled Depression – 3 sources? I thought it was excellent, insightful, and hit on a few things that I’ve identified as the sources of my most recent struggle. I asked if I could republish it and Doug said yes. If you are depressed or know someone who is depressed, it’s worth a read. Doug’s email follows.
I’ve followed you for a bit. You were extremely brave in discussing your battle with depression. I am not writing about myself, but I thought I’d offer up 3 things that might contribute. I’ve experienced the same thing. I started my practice after I got laid off from my job in October of last year. I’ve had highs and lows through that process.
I think depression is a much more common affliction with entrepreneurs and leaders than society is willing to admit. I would suggest that the affliction hits the creative class the hardest. Is it caused the constant traipsing of through between the left and right brains? I am no psychiatrist, but I know the pressure of mixing thought processes can create mental conflict.
I reflect on the movie “Koyannisqatsi” – Which roughly translates to “Life out of Balance”. What can throw you out of balance? Sometimes seeking that source deep down in our id is very difficult. Allow me to throw out a few things.
1. Inventory – As we get older, our priorities and abilities change. We see the world through a new lens. We look around and question what is “enough”. We also take stock on what we really care about. Sometimes honesty and truth battle everything we have constructed. The discipline of our prior living behaviors become incompatible with the essence of our being. As we take inventory with our achievements, we look at our new found or undiscovered missions in life. It’s half-time. What’s the next play? Probably not what it has been.
2. Blood sucking vampires – I don’t envy you being a VC. I imagine the drain of working with dreamers, charlatans, sycophants and auteurs isn’t easy. I am sure there are constant calls. In a down economy where so many need cash to jumpstart dreams and policy deferring to big business, it’s not an easy to manage a portfolio. The challenge of celebrity and notoriety is that “everyone wants something”. That constant pressure of wanting to perform, wanting to help and needing to extract value for investors isn’t simple nor does the pace slacken. While you as a VC may have rules, we know that constantly teaching others the “rules” may get repetitive. Constantly dealing with bad behavior isn’t easy…
3. End of an innovation cycle – I’ve spoken with my mentor on this topic. We may just be coming to the end of one cycle and preparing for the next. I can’t see whether it’s evolutionary or revolutionary. There’s a silly little movie, “24 Hour Party People”. The great scene in it describes the malaise when one music/art movement falls and the bumps that occur until another one rises. Maybe software and SaaS solutions have become too easy. I used to joke that ASPs (remember that term) were the mom and pop businesses of the late 90’s early 2000’s. Maybe the proliferation of tools has expanded faster than demand (One of the great cases in Ash Maurya’s book, Running Lean is defining the problem to solve and whether the problem is worth solving). I wonder if the next innovation cycle is coming from another sector. Energy, transportation, material science, food production, housing, bioscience, construction, lawncare, domestic manufacturing, etc. As a guy that’s been around software for so long, I couldn’t tell you what the next real wave is. All I do know is that innovation cycles are becoming more rapid and much shorter. The wavelength frequencies are in a different pattern and they are much harder to measure. All of our assumptions from that past don’t work in this future. Sometimes we need to exchange lenses to find that future opportunity.
I’m excited to join David Cohen and his team in announcing TechStars in Austin. From the TechStars blog:
“The Managing Director of TechStars Austin is Jason Seats. Jason is a “techie” and entrepreneur. Rackspace acquired his company Slicehost in 2008 and then made him VP of Engineering. Jason is an active angel investor and has been with TechStars since 2011 with two very successful programs under his belt as Managing Director. He brings amazing technical chops, founder experience and a strong network of his own. Jason is moving down the road from San Antonio to Austin and we’re confident that he will be a big part of growing both TechStars and the startup community in his new home.
TechStars will operate out of Capital Factory in downtown Austin. This beautiful space is “the most inspiring office space in Austin” for startups, and we’re happy that it’s our new home too. The amazing folks behind Capital Factory (Josh Baer and Bill Boebel) have played a critical role in bringing TechStars to Austin and we’re thankful for all of their support.”
Applications are open today and the final deadline is June 30th. Apply now. I look forward to meeting this new class of founders!
When I was in Rio a few months ago for the Global Entrepreneurial Congress, I did a talk called “Day1” that Endeavor puts on. It’s a 20 minute presentation about “your day 1” – a profound moment that impacted your entrepreneurial journey.
I decided to talk about a number of Day 1’s that I’ve had. I’ve always felt that with the dawn of each day is a new chance to “try again to be the best that I can be.” So my Day 1’s vary a lot – some good, some bad, but all full of lessons for me. They include:
- Me deciding not to be a doctor
- My first real job
- Hating MIT as a freshman and almost leaving
- Deciding to sell my first company
- Having Amy tell me I was a lousy roommate
- Learning they can’t kill you and they can’t eat you
- The power of a random day
I mention plenty of characters – some you’ve heard of on this blog and some new ones. My dad (Stan), Chris and Helena Aves, Dave Jilk, Len Fassler and Jerry Poch, Raj Bhargava, Steve Maggs, my partners Seth, Jason, and Ryan, David Cohen, and of course Amy.
When I give a talk like this I never really know where it will go when I start. I don’t prepare – it’s 100% extemporaneous. I was the second person to present a Day1 so I had 20 minutes to listen to someone else’s as I rolled around some stories in my head. Amy and I just listened to it together and it made us both smile and chuckle a lot with memories.
What’s your Day1?
The Deming Center for Entrepreneurship at CU is looking to hire a new Director. As part of the Leeds School of Business, the Deming Center prepares students across CU’s campus to think like entrepreneurs, act as social innovators and deliver as successful business leaders. It actively engages the community members of Boulder in order to accomplish this. The Deming Center also partners closely with Silicon Flatirons and other CU organizations to put on events such as the New Venture Challenge, Productive Collisions, and annually hosts the regional Venture Capital Investment Competition for MBA students.
This is an exciting opportunity to be part of CU and the larger Boulder entrepreneurship community. The person who serves in this Director role will have a unique opportunity to work with individuals both inside and outside the University to help foster and shape entrepreneurship on and off the campus. This person will also be responsible for the overall brand of the center as well as its operational and financial oversight. If you want to be part of a unique contributor to Boulder’s startup ecosystem, apply here!
It’s such an immense relief when the oppressive weight of depression begins to lift. While I’ve had a big struggle the past six months, the last few weeks have been better and recently I’ve felt a broad positive shift in how I’m feeling.
My metaphor for my depressive episodes has always been that “dark clouds build on the horizon” as depression approaches. I no longer am afraid of the dark clouds, nor do I go through crazy rituals like I did in my 20s to try to keep them away. I don’t embrace or encourage them – I just accept that they are there. Often they disappear after a few days. Sometimes, like this time, then move on in and block out the sun. And then – like a long Pacific Northwest rainy season, they just hang there. Every now and then the sun peeks through and things feel a little better, but then the dark clouds swallow up the light again.
After a month of this, it gets really tough. After two months, there are periods that I can only describe as excruciating. After three months, the pain – at least for me – dulls – and everything is just joyless. I get up each morning, I do my work, I engage as deeply as I can in whatever I need to, but I mostly just want to be alone. Being with Amy is better than being alone, because she’s safe, but I know it’s eventually hard on her to watch me exist under this dark, cloudy sky.
In March, when I accepted that the depression wasn’t lifting, I decided to change my approach. I used the metaphor of “regroup” to define how I was approaching things. I eliminated a bunch of things. I cancelled all my travel from June 1 to the end of 2013. I let go of my need to answer every email the same day. I stopped scheduling a lot of stuff and just let it happen. I stopped a bunch of online routines like checking in on FourSquare and reading my daily news. I stopped waking up at 5am (something I’ve done every day during the week for the past 20 years) and started waking up whenever I wake up. I stopped drinking alcohol and coffee.
I then added a few things back in. I started running more. I started reading again. I started doing digital sabbath – no email or phone from Friday sundown until Sunday morning.
I can feel a material change. The sun is shining more. The agony of depression is gone. I’m enjoying some things again.
But I’m still in regroup mode and don’t feel a need to come out of it anytime soon. I’m still eliminating things I realize I don’t want to be doing. But I’m starting to play around with new things that interest me.
My greatest creative moments have come on the heals of periods in my life like this. It’s the one positive aspect of these depressive episodes for me. I can’t plan it, or force it, but I look forward to it revealing itself.
Update – if you want to get a deeper understanding of what depression feels like, several commenters pointed me to this amazing post by Hyperbole and a Half titled Depression Part Two.
I woke up this morning to a great article by Nick Grossman at Union Square Ventures on The Patent Quality Improvement Act. Nick does a great job of describing the software patent problem, suggesting several solutions, and explaining how the Patent Quality Improvement Act helps the increasingly dismal situation around software patents.
Nick has a great paragraph from Mark Lemley of Stanford Law School that describes a powerful solution to part of the problem – that of eliminating “functional claiming.” Regarding functional claiming, Mark says:
“This is a problem that is unique to software. We wouldn’t permit in any other area of technology the sorts of claims that appear in thousands of different software patents. Pharmaceutical inventors don’t claim “an arrangement of atoms that cures cancer,” asserting their patent against any chemical, whatever its form, that achieves that purpose. Indeed, the whole idea seems ludicrous. Pharmaceutical patent owners invent a drug, and it is the drug that they are entitled to patent. But in software, as we will see, claims of just that form are everywhere.”
Mark has written a strong paper on this called Software Patents and the Return of Functional Claiming that describes the problem – and the solution – in detail.
Fred Wilson, Brad Burnham, Jason Mendelson, and I have been talking about the problem of software patents for a long time and Fred brought it up again today on his blog in a post titled Piecemeal Patent Reform. It’s nice to see Senator Chuck Schumer proposing a simple yet powerful solution to part of the software patent problem.
While we continue to struggle with patent trolls in the US – which used to be called “non-practicing entities” (NPEs) but now apparently prefer to be called “patent assertion entities” (PAE) – the New Zealand government has announced that software will no longer be patented. Maybe someday we will be so bold.